CRC – ACE FIRST PB 2022

1. Which element of a system of quality control strives to provide the firm with reasonable assurance
that its policies and procedures are operating effectively?

a) Human resources
b) Leadership responsibilities for quality within the firm
c) Monitoring
d) Relevant ethical requirements

2. In which of the following should an auditor's report refer to the lack of consistency when there is a
change in accounting principle that is significant?

A. The Auditor’s Responsibilities for the Audit of the Financial Statements Section.
B. The Opinion Section.
C. An emphasis-of-matter paragraph following the Basis for Opinion Section.
D. An emphasis-of-matter paragraph preceding the Basis for Opinion Section.

3. The auditors' report on the entity's financial statements included language disclosing a difference of
opinion between the auditors and the entity for which the auditors believed an adjustment to the
financial statements should be made. The Opinion Section of the auditors' report should express a(n)

A. unmodified opinion.
B. qualified opinion citing a departure from generally accepted accounting principles.
C. qualified opinion citing a scope limitation and lack of specific evidence.
D. disclaimer of opinion.

4. Which of the following presumptions does not relate to the reliability of audit evidence?

A. The more effective the client's internal control, the more assurance it provides about the
accounting data and financial statements.
B. The auditors' opinion, to be economically useful, is formed within a reasonable time and based on
evidence obtained at a reasonable cost.
C. Evidence obtained from independent sources outside the entity is more reliable than evidence
secured solely within the entity.
D. The independent auditors' direct personal knowledge, obtained through observation and
inspection, is of higher quality than information obtained indirectly.

5. Which of the following statements is not included in the Basis for Opinion Section of the standard
(unmodified) report on the entity's financial statements?

A. "We are required to communicate with those charged with governance…"

B. "We are required to be independent of [the client]…"
 C. "We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion."
D. "We conducted our audit in accordance with…(GAAS)"

6. If management fails to provide adequate justification for a change from one generally accepted
accounting principle to another, the auditors should

A. Modify the Opinion Section and Basis for Opinion Section of the report for lack of conformity with
generally accepted accounting principles.
B. Disclaim an opinion on the entity's financial statements because of uncertainty.
C. Disclose the matter in an emphasis-of-matter paragraph but not modify the Opinion Section of the
report.
D. Not modify the report because both principles are generally accepted accounting principles.

7. Which of the following is true with respect to the auditors' report on summary financial statements?

A. Auditors can only issue a report on summary financial statements if they have expressed an
unmodified opinion on the full financial statements.
B. The report will indicate whether the summary financial statements are fairly stated in relation to
the full financial statements.
C. The report will express limited assurance on whether the summary financial statements are
prepared in accordance with ISA.
D. The report will express an opinion on whether the summary financial statements present the
financial condition, results of operations, and cash flows in accordance with generally accepted
accounting principles.

8. When updating the report on prior years' financial statements presented in comparative form, the
auditors' responsibility for the prior years' financial statements is

A. limited to the previously issued report date.

B. extended to the date of the updated audit report.
C. limited to 30 days after the date of the prior years' financial statements.
D. extended to the updated report date only if information comes to the auditors' attention requiring
modification of the previously expressed opinion.

9. An audit of the financial statements of CV Corporation is being conducted by external auditors. The
external auditors are expected to:

A. certify the correctness of CV's financial statements.

B. make a complete examination of CV's records and verify all of CV's transactions.
C. give an opinion on the fair presentation of CV's financial statements in conformity with
the applicable financial reporting framework (e.g., GAAP, IFRS).
 D. give an opinion on the attractiveness of CV for investment purposes and critique the
wisdom and legality of its business decisions.

10. Which of the following is an example of the appropriate implementation of a system of quality
control?

A. The firm requires all documents obtained during the audit to be destroyed immediately following
the engagement to ensure the client's information remains confidential.
B. The firm's quality control policies have evolved through the performance of audit procedures but
are not formally developed or communicated to staff members.
C. All firm employees must verbally confirm their compliance with the appropriate independence
requirements before being assigned to an engagement.
D. The firm uses manuals and standardized forms for audit documentation to help ensure
engagement performance objectives and quality standards are met.

ANSWERS:

CCBBAABBCD
Which of the following types of audit evidence provides the least assurance of reliability?

A. Receivable confirmations received from the client's customers.

B. Prenumbered receiving reports completed by the client's employees.
C. Prior months' bank statements obtained from the client.
D. Municipal property tax bills prepared in the client's name.

On which of the following matters would it not be appropriate for the auditors to report using an other-
matter paragraph?

A. An indication that a predecessor auditor examined prior year’s financial statements presented in
comparative form.
B. Procedures performed related to supplementary mineral reserve information required by the
SEC.
C. The consistency of summary financial statements with the audited financial statements from
which they were derived.
D. An updated opinion on comparative financial statements that differs from the opinion originally
issued by the auditors.

Which of the following is not true with respect to the concept of reasonable assurance?

A. Reasonable assurance allows for mistakes and misinterpretations by the audit team throughout
the examination.
B. The nature of many audit procedures is such that they cannot always be relied upon to detect
misstatements.
C. Audit teams should evaluate all transactions and components of an account balance or class of
transactions.
D. Auditors should control the overall risk in an audit to an acceptably low level.

The auditors conclude that an entity's illegal act, which has a material effect on the financial statements,
has not been properly accounted for or disclosed. Depending on the overall materiality and
pervasiveness of the effect of this illegal act on the financial statements, the auditors should express
either a(n)

A. adverse opinion or a disclaimer of opinion.

B. qualified opinion or an adverse opinion.
C. disclaimer of opinion or an unmodified opinion with a separate emphasis-of-matter paragraph.
D. unmodified opinion with a separate emphasis-of-matter paragraph or a qualified opinion.
Which reporting options do auditors have if the client's financial statements are not presented according
to the applicable financial framework (e.g., GAAP, IFRS)?

A. Unmodified opinion or disclaimer of opinion.

B. Qualified opinion or disclaimer of opinion.
C. Unmodified opinion or adverse opinion.
D. Qualified opinion or adverse opinion.

In which of the following circumstances would auditors most likely add an emphasis-of-matter
paragraph or additional section to the standard (unmodified) report without modifying the opinion on
the entity's financial statements?

A. The auditors are asked to report on the balance sheet, but not on the other basic financial
statements.
B. There is substantial doubt about the entity's ability to continue as a going concern.
C. Management's estimates of the effects of future events on the entity's financial condition,
results of operations, and cash flows are unreasonable.
D. Certain transactions cannot be tested because of management's records retention policy.

What type of evidence would provide the highest level of assurance in an attestation engagement?

A. Evidence secured solely from within the entity.

B. Evidence obtained from independent sources.
C. Evidence obtained indirectly.
D. Evidence obtained from multiple internal inquiries.

Which of the following courses of action is most appropriate if an auditor concludes that there is a high
risk of material misstatement?

A. Use smaller, rather than larger, sample sizes.

B. Perform substantive tests as of an interim date.
C. Select more effective substantive tests.
D. Increase tests of controls.

When a circumstance-imposed scope limitation has a material but not pervasive effect on the sufficiency
of the auditors' evidence, the auditors' report will

A. modify the Opinion Section and Basis for Opinion Section.

B. modify the Opinion Section and Auditor’s Responsibilities for the Audit of the Financial
Statements Section.
C. modify the Opinion Section, Basis for Opinion Section, and Auditor’s Responsibilities for the
Audit of the Financial Statements Section.
 D. modify the Opinion Section and Basis for Opinion Section and omit the Auditor’s Responsibilities
for the Audit of the Financial Statements Section.

In which of the following circumstances would auditors be most likely to express an adverse opinion?

A. The chief executive officer refuses to provide the auditors access to minutes of board of
directors' meetings.
B. Tests of controls show that the entity's internal control is so ineffective that it cannot be relied
upon.
C. The financial statements are not in accordance with generally accepted accounting principles
regarding the capitalization of leases.
D. Information comes to the auditors' attention that raises substantial doubt about the entity's
ability to continue as a going concern.

ANSWERS: B C C B D B B C A C

Which of the following questions would be inappropriate for an auditor to ask a client when exhibiting
an appropriate level of professional skepticism while completing an audit procedure related to the
internal control system?

A. What can go wrong in this process?

B. Which of your employees is a fraudster?
C. What else is important to know about this process?
D. What happens when a key employee goes on vacation?

Which of the following types of auditors' reports does not require additional information to support the
opinion?

A. Unmodified opinion.
B. Adverse opinion.
C. Qualified opinion.
D. Disclaimer of opinion.

Hart, CPA, is auditing the year 2 financial statements of Kell Co. Previously, Hart audited Kell's year 1
financial statements and expressed a qualified opinion due to a scope limitation. Hart decides to include
an other-matter paragraph in the year 2 report because comparative financial statements are being
presented for year 2 and year 1. This paragraph should indicate the

A. substantive reasons for the prior year's qualification.

B. reason that Hart continued to provide audit services, despite the previous scope limitation.
 C. consistency of application of accounting principles between year 2 and year 1.
D. restriction on the distribution of the report.

The basic requirements for becoming a CPA public practitioner are:

A. education, the CPA Examination, experience, and substantial equivalency.

B. the CPA Examination, experience, continuing professional education, and a BIR accreditation
certificate.
C. continuing professional education, the CPA Examination, experience, and an PICPA certificate of
good standing.
D. education, the CPA Examination, experience, continuing professional development, and a BOA
accreditation certificate.

GEE, CPAs, were engaged to perform an audit of the financial statements of Happy, Inc. Happy's
management would not allow GEE to confirm any of the accounts receivable. All other auditing
procedures were performed as considered necessary by GEE and no issues were encountered. However,
GEE was unable to satisfy themselves about the balance in accounts receivable. The following
modifications, if any, may be required to the standard report, EXCEPT:

A. The Opinion Section (labeled Disclaimer of Opinion) would be modified to note that the audit
team was “engaged” to audit the financial statements, express a disclaimer of opinion, and
indicate that the audit team was unable to gather sufficient appropriate evidence.
B. The Basis for Opinion Section (labeled Basis for Adverse Opinion) would be modified to identify
the scope limitation and delete the standard paragraph indicating that an audit had been
conducted.
C. The Auditor’s Responsibilities for the Audit of the Financial Statements Section would be
modified to note that the audit team was not able to obtain sufficient appropriate evidence and
delete language describing an audit and indicating that the audit provides a reasonable basis for
the opinion.
D. No exception as all these statements is appropriate reporting in this given circumstance.

An auditor who is unable to form an opinion on a new client's opening inventory balances may issue an
unmodified opinion on the current year's

A. income statement only.

B. statement of cash flows only.
C. balance sheet only.
D. statement of changes in shareholders' equity only.

Which of the following section(s) references the requirement of auditors to be independent?

A. Opinion on the Financial Statements section.

 B. Basis for Opinion section.
C. Key Audit Matters section.
D. Opinion on the Financial Statements section and Basis for Opinion section.

The concept of _____ recognizes that a GAAS audit may fail to detect all material misstatements.

A. absolute assurance.
B. due care.
C. reasonable assurance.
D. risk of material misstatement.

The state of mind that characterizes the auditors' appropriate questioning and critical assessment of
audit evidence is referred to as:

A. due care.
B. independence in appearance.
C. professional judgment.
D. professional skepticism.

A practitioner is engaged to express an opinion on management's assertion that the square footage of a
warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the
following sources for professional guidance?

A. International Standards on Auditing.

B. International Standards on Assurance Engagements.
C. International Standards on Review Engagements.
D. International Standards on Related Services.

ANSWER: B A A D B C B C D B
Charlie Company's comparative financial statements include the financial statements of the prior year
that were audited by predecessor auditors whose report on those financial statements is not presented.
If the predecessor's report was qualified, the successor auditors should

A. Indicate in their report the substantive reasons for the qualification issued by the predecessor
auditors.
B. Request the entity to reissue the predecessor's report on the prior years' statements.
C. Issue an updated comparative report on the entity's financial statements, indicating the
involvement of component auditors.
D. Express an opinion only on the current year's financial statements and make no reference to the
prior years' financial statements or opinion.

In which of the following circumstances may auditors issue the standard (unmodified) report on the
entity's financial statements?

A. The entity changed accounting principles having an immaterial effect on the entity's financial
position, results of operations, and cash flows.
B. The auditors wish to emphasize a matter regarding the financial statements.
C. The auditors appropriately reference an expert’s work used in the engagement.
D. The auditors have not been able to audit a substantial portion of the balance sheet because of a
circumstance-imposed scope limitation.

All of the following are examples of procedures a firm can use to monitor its system of quality control
except:

A. Discussions with firm personnel.

B. Conducting reviews of engagement documentation.
C. Devoting sufficient resources to developing a system of quality control.
D. Assessing compliance with independence policies and procedures.

If financial statements contain a material but non-pervasive departure from generally accepted
accounting principles, the auditors should render a(n)

A. Qualified opinion with reference to departure.

B. Adverse opinion with scope limitation reference.
C. Adverse opinion with reference to departure.
D. Disclaimer of opinion.
Neil is auditing the financial statements of Cole Corp., an energy company. The SEC requires that these
financial statements must be accompanied by supplementary mineral reserve information. If this
required information is materially misstated, what type of report should Neil issue?

A. Unmodified opinion with an other-matter paragraph disclaiming an opinion on the mineral

reserve information.
B. Adverse opinion on the financial statements and mineral reserve information due to the
misstatement.
C. Unmodified opinion on the financial statements with an other-matter paragraph expressing an
adverse opinion on the mineral reserve information.
D. Qualified opinion on the financial statements and mineral reserve information due to the
misstatement.

When auditors qualify their opinion on the entity's financial statements because of inadequate
disclosure, the auditors should describe the nature of the omission and modify

A. The Qualified Opinion Section only.

B. The Basis for Qualified Opinion Section only.
C. The Auditor’s Responsibilities for the Audit of the Financial Statements Section only.
D. The Qualified Opinion Section and the Basis for Qualified Opinion Section.

An auditor has substantial doubt about the entity's ability to continue as a going concern for a
reasonable period of time because of negative cash flows and working capital deficiencies. Under these
circumstances, the auditor would be most concerned about the:

A. Control environment factors that affect the organizational structure.

B. Correlation of detection risk and inherent risk.
C. Effectiveness of the entity's internal control activities.
D. Possible effects on the entity's financial statements.

The confirmation of an account payable balance selected from the general ledger provides primary
evidence regarding which management assertion?

A. Completeness.
B. Valuation.
C. Allocation.
D. Existence.

Which of the following would most likely be a violation of the independence requirement found in the
general responsibilities principle under GAAS?

A. An auditor on the engagement has a distant relative who is employed by a vendor that does a
significant amount of business with clients.
 B. The client's Chief Executive Officer graduated from the same university as the partner in charge
of the accounting firm.
C. An auditor on the engagement owns a financial interest in the stock of the client.
D. The client provides financial support to several charitable causes that also receive support from
the accounting firm.

Tick and Tie, CPAs, were performing their annual audit of Johnson Manufacturing Company. Johnson is
currently being sued for P2,000,000 related to an alleged defective product that they sold to a customer.
Johnson's legal counsel has told Tick and Tie that it is probable that Johnson will lose the suit and will
most likely required to pay the entire P2,000,000. Johnson's management has included information in
the notes about the lawsuit. However, they have not recorded any loss or liability in the income
statement or balance sheet. The following modifications, if any, may be required to the standard report,
EXCEPT:

A. The Opinion Section (labeled Qualified Opinion or Adverse Opinion) would be modified to
express the appropriate type of opinion.
B. The Basis for Opinion Section (labeled Basis for Qualified Opinion or Basis for Adverse
Opinion)would include a description of the departure from applicable financial reporting
framework.
C. The Key Audit Matters Section would be modified to indicate that auditor challenged the non-
disclosure of any loss or liability.
D. No exception as all these statements are appropriate reporting in this given circumstance.

ANSWERS: A A C A A D D D C C

To be proficient as an auditor, a person must first be able to accomplish which of these tasks in a
decision-making process?

A. Identify audit evidence relevant to the verification of assertions management makes in its
unaudited financial statements and notes.
B. Formulate evidence-gathering procedures (audit plan) designed to obtain sufficient, competent
evidence about assertions management makes in financial statements and notes.
C. Recognize the financial assertions made in management's financial statements and footnotes.
D. Evaluate the evidence produced by the performance of procedures and decide whether
management's assertions conform to generally accepted accounting principles and reality.

Which of the following situations would most likely be in conflict with the responsibilities principle?

A. Auditors perform the engagement with the performance level expected of prudent auditors, but
not expert auditors.
B. Auditors obtain expertise in their client's industry as they are conducting the audit examination.
C. Auditors are directly involved with a client manager in a strategic decision-making capacity.
D. Auditors fail to document their assessment of control risk following their study of internal
control.
Which of the following situations would require auditors to add another-matter paragraph to their
report on comparative financial statements?

A. An unmodified opinion is issued in the current year while a qualified opinion was issued in prior
years.
B. A qualified opinion is issued in the current year because of a scope limitation; because this
limitation was not encountered in prior years, the opinion issued in those years was unmodified.
C. The updated opinion issued on prior years' financial statements differs from the opinion
originally issued on those financial statements.
D. The auditors' unmodified opinion issued on prior years' financial statements is still considered to
be appropriate.

When a firm decides to withdraw from an engagement, it should document all of the following EXCEPT:

A. significant issues influencing the decision to withdraw from the engagement.

B. the basis for any conclusions related to this decision to withdraw from the engagement.
C. significant consultations related to the decision to withdraw from the engagement.
D. significant effects the decision to withdraw from the engagement could have on the firm.

Which of the following actions should a CPA firm take to comply with the ISQC 1?

A. Establish procedures that comply with the PAA of 2004.

B. Use attributes sampling techniques in testing internal controls.
C. Consider inherent risk and control risk before determining detection risk.
D. Establish policies to ensure that the audit work meets applicable professional standards.

Holmes & Smith, LLP, were engaged to audit the financial statements of Sodolak Reality for the year
ended December 31. During the engagement, Sodolak filed a lawsuit against Holmes & Smith, LLP. What
effect, if any, will this lawsuit have on the auditors' report?

A. The report should be modified to include an emphasis-of-matter paragraph describing the

pending litigation.
B. A disclaimer of opinion should be issued because the auditors' independence is impaired.
C. The litigation will not have any impact on the report or auditors' independence unless Holmes &
Smith are found guilty.
D. A qualified or adverse opinion should be issued depending on the severity of the lawsuit.

Audit evidence is usually considered sufficient when

A. it is reliable.
B. there is enough quantity to afford a reasonable basis for an opinion on financial statements.
 C. it has the qualities of being relevant, objective, and free from unknown bias.
D. it has been obtained through random selection methods.

When a predecessor auditor has examined the prior years' financial statements presented in
comparative format, the current auditors' report should

A. make no reference to the predecessor auditors' report.

B. reference the predecessor auditors' report in the Opinion Section, Basis for Opinion Section, and
Auditor’s Responsibilities for the Audit of the Financial Statements Section.
C. reference the predecessor auditors' report in an other-matter paragraph.
D. disclaim an opinion on the prior years' financial statements.

When an entity will not permit inquiry of outside legal counsel, the auditors' report on the entity's
financial statements will ordinarily contain a(n)

A. disclaimer of opinion.
B. qualified opinion referencing a departure from generally accepted accounting principles.
C. unmodified opinion with an emphasis-of-matter paragraph.
D. adverse opinion.

In which of the following circumstances would a qualified opinion not be appropriate?

A. A scope limitation prevents the auditors from completing an important auditing procedure.
B. The entity has failed to properly disclose going-concern uncertainties.
C. An accounting principle at variance with generally accepted accounting principles is used.
D. The auditors lack independence with respect to the audited entity.

ANSWERS: C C C D D B B C A D