NAME:______________________________________________________SCORE:______RATING:______

1. In “auditing” accounting data, the concern is with a. determining whether recorded information properly reflects the economic events that occurred during the accounting period b. determining if fraud has occurred c. determining if taxable income has been calculated correctly d. analyzing the financial information to be sure that it complies with government requirements 2. Which of the following statements is not true? a. the criteria by which an auditor evaluates the information under audit may vary depending on the information being audited b. the criteria used by an external auditor to evaluate published financial statements are generally accepted accounting principles c. the primary purpose of a compliance audit is to determine whether the overall financial statements are stated in accordance with generally accepted accounting principles d. information risk increases as business organization become larger 3. A comprehensive and constructive examination of the organizational structure of a company, institution or branch of government or any component thereof, its plans and objectives, its means of operation and its use of human and physical facilities to reveal defects or irregularities and to indicate possible improvements is called a. financial audit b. management audit c. government audit d. balance sheet audit e. internal audit 4. A primary purpose of operational auditing standards is to provide a. a means of assurance that internal controls are operating effectively b. aid to the independent auditor in conducting the audit of financial statements c. the results of internal examinations of financial and accounting matters to the company’s top-level management d. a measure of management performance in meeting organizational goals 5. Internal auditing is considered organization’s: a. accounting system b. internal control procedures c. control environment d. external controls 6. Operational auditing does not focus on a. efficiency b. economy c. effectiveness d. compliance 7. Which of the following statements is not correct? a. objectivity requires that internal auditors have an independent mental attitude b. internal auditors should be independent of the activities they audit c. it is acceptable for internal auditors to recommend changes in operations and to install and implement the operating systems, as long as they do not have the responsibility for operating them throughout the year d. the internal auditor should not be responsible for correcting deficiencies when ineffective or inefficient operations are found to be part of an 8. Which of the following is not one of the three phases in an operational audit? a. planning b. review of the internal control structure c. evidence accumulation and evaluation d. reporting and follow-up 9. To maximize their effectiveness, department should not report to the a. controller b. president c. chairperson of the board of directors d. board of directors the internal audit

10. When CPA firms do an audit of historical financial statements, part of the audit usually consists of identifying operational problems and making recommendations that may benefit the audit client. The recommendations can be made orally but they are typically made by use of a a. letter of representation b. engagement letter c. management letter d. client letter 11. The two most important qualities for an operational auditor are a. independence and competence b. competence and technical training c. personality and appearance d. academic background and sufficient experience 12. Independence of internal auditors is not enhanced by a. having the internal audit department report to the board of directors b. having government auditors report to a level above the operating departments c. drafting procedures and designing accounting systems d. having the internal audit department report to the president 13. Which of the following is not one of the broad categories of operational audits? a. functional audits b. organizational audits c. single act audits d. special assignment audits 14. Which of the following is not one of the major differences between financial and operational auditing? a. the financial audit is oriented to the past whereas an operational audit concerns performance for the future b. the financial audit report is distributed to many readers whereas the operational audit report goes to a few managers c. financial audits are limited to matters that directly affect the financial statements whereas operational audits cover any aspect of efficiency and effectiveness. d. financial audits deal with the information on the financial statements whereas operational audits are concerned with the information in the ledgers 15. An audit designed to evaluate the efficiency and effectiveness of an organization or some part thereof would not come under the title of a. performance audit b. management audit c. operational audit d. compliance audit 16. The risk that the audit will fail to uncover a material misstatement is eliminated a. if client has good internal control b. if client follows financial reporting standards

under no circumstances 17. information obtained as a result of a management advisory services engagement is confidential to that specific engagement and should not influence performance of the attest function b. substantial acquisition cost 23. the entity’s internal control d. the auditor should not make management decisions for the audit client d. The subject matter of an assurance engagement can take the following forms except a. Which of the following is not an assurance engagement? a. due professional care d. Auditing is based on the assumption that financial data are a. in the auditor’s judgment and based on the PSAs are deemed appropriate in the circumstances to achieve the objective of an audit a. the auditor who is asked to review management decisions is also competent to make these decisions and can do so without loss of indepence 31. independence 29. financial statements audit c. scope of an audit c. The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the a. Which of the following is not an assurance engagement? a. evaluation of a capital investment proposal 25. The risk that the practitioner expresses an inappropriate conclusion when the subject matter information is materially misstated. timing and extent of evidence gathering procedures and evaluating the results thereof 24. should recognize that circumstances may exist that can cause the subject matter information to be materially misstated c. compilation b. caused a financial loss to an innocent third party 18. is alert to evidence that contradicts or brings into question the reliability of documents or representations by the responsible party d. Which of the following statements is most consistent with the profession’s attitude toward this issue? a. A criminal conviction against an auditor can result only when it is demonstrated that the auditor a. business performance measurement c.c. This may be communicated through the following means except a. suitable criteria b. verifiable c. performance of an entity that could indicate efficiency and effectiveness c. reasonable assurance risk 21. sufficient appropriate evidence 19. Which of the following may not be an appropriate form of the subject matter of an assurance engagement? a. familiarity with the particular industry of which the auditor’s client is part c. Which of the following is not an element of an assurance engagement? a. management consulting service 28. was grossly negligent c. when the auditor has complied with Philippine Standards on Auditing (PSA) d. non-detection risk d. partner assigned to the audit engagement b. information system reliability service b. is expected to eliminate the risk of overlooking suspicious circumstances. was negligent b. documentation 27. should assess critically with a questioning mind the validity of evidence obtained b. control risk b. Which of the following characteristics need not be exhibited in determining the identified suitability of criteria of a subject matter in an assurance engagement? a. completeness b. inherent risk c. In rare cases auditors have been held liable for criminal acts. This refers to the audit procedures that. management of the company c. information reliability services d. analytical procedures b. intended to deceive or harm others d. presented fairly d. in conformity with appropriate criteria b. relevance c. An audit independence issue might be raised by the auditor’s participation in management advisory services engagements. an appropriate subject matter c. a two-party relationship involving a practitioner and intended users d. The following are the elements of an assurance engagement except a. historical financial information b. risk assessment service d. substantial engagement fee 22. systems and processes c. non-physical characteristics of a facility 30. Which of the following criteria is unique to the auditor’s attest function? a. audit sampling d. the decision as to loss of independence must be made by the client based upon the facts of the particular case c. consistently applied 33. suitable criteria c. a. behavior d. formal and informal dialogue . general competence b. Which of the following is not a component of engagement risk? a. assurance engagement risk b. The accounting firm should establish policies and procedures assigned to promote an internal culture based on the recognition that quality is essential in performing engagements. an appropriate subject matter b. sufficient appropriate evidence d. training seminars b. detection risk 32. business risk d. understandability d. of over generalizing when drawing conclusions from observations and of using faulty assumptions in determining the nature. Securities and Exchange Commission 26. reviews of prospective financial statements 20. An attitude of professional skepticism means that the practitioner a. materiality risk c. auditor in charge of the field work d. historical or prospective financial statements b.

Santos will use the reports for internal purposes and to show to its bankers in accordance with certain loan agreements. compliance audit c. An auditor should not render a report on a. CPA b. audit of financial statements b. if client has good internal control b. the CPA acquires an overall knowledge of the client’s business that is equivalent to that possessed by management 40. How should Santos sign the report? a. client internal control c. quarterly financial information 38.c. review financial statements of the proposed client c. make inquiries of the proposed client’s legal counsel b. is an employee in the internal audit department of Tower’s Company. Santos. the achievability of forecasts b. A CPA should not undertake a management advisory service engagement that includes continued participation through implementation. review the personnel practices of the prososed 35. upon implementation. nature and form of the subject matter b. operational audit d. nature and form of the criteria applied to the subject matter c. CPA (Internal Auditor) d. Internal Auditor c. unless a. make inquiries of previous auditors d. Internal Auditor (CPA) 39. a CPA not in public practice. The risk that the audit will fail to uncover a material misstatement is eliminated a. upon implementation of a new study and evaluation of the system of internal control is performed b. Santos. nature and extent of the process used to collect and evaluate evidence d. publication in PICPA newsletter d. production audit 37. Santos. management performance d. mission statements 34. a CPA firm is not likely to a. Engagement risk is influenced by the risks associated with the following except a. Santos. The management has asked Santos to perform examinations of potential acquisitions and to express an opinion thereon. under no circumstances . if client follows financial reporting standards c. the client’s personnel will have the knowledge and ability to adequately maintain and operate such systems as may be involved c. the CPA accepts overall responsibility for implementation of the chosen course d. In pursuing its quality control objectives with respect to acceptance of a client. Santos. unreasonably low professional fee 36. A review of any part of an organization’s procedures and methods for the purpose of evaluating efficiency and effectiveness is classified as a(n) a. when the auditor has complied with Philippine Standards on Auditing d.

c) The exercise of error free judgment. d) Detection of irregularities. 8. Due professional care requires a) A critical review of the work done at every level of supervision. Independent auditing can best be described as a) A branch of accounting. 13. The independent audit is important to readers of F/S because it a) Determines the future stewardship of the management of the company whose financial statements are audited. c) The auditor's sole obligation is to third parties. d) Reports on the accuracy of all information in the F/S. A CPA. c) Involves the objective examination of. are to be properly supervised. d) The fairness with which the financial statements present cash flows and results of operations. b) Conservative advocacy. c) Acts to be performed. and assistants. c) Become independent in fact. 2. b) Confirms the accuracy of management's financial representations. 15. The independent auditor of 1900 differs from the auditor of today in that the 1900 auditor was more concerned with the a) Validity of the income statement. 6. b) The examination of all corroborating evidence available. b) The accuracy of data reflected in management's financial records. b) Consider the internal control structure. c) Management of the company. d) Guarantees that financial data are fairly presented. c) Lends credibility to the financial statements. d) A study and review of the I/C's that include tests of controls 10. b) Auditor in charge of field work. the auditor should conduct the examination with an attitude of a) Professional responsiveness. 3. if any. 14. c) The verification that a company's financial statements are fairly presented. b) Measures and communicates financial and business data in the F/S. An independent audit aids in the communication of economic data because the audit a) Assures the reader of financial statements that any fraudulent activity has been corrected. d) Past protection provided by existing internal control. b) The auditor must adopt a critical attitude during the audit. and reporting on. What is the meaning that requires the auditor to be independent? a) The auditor must be without bias with respect to the client under audit. 12. d) Performance of substantial parts of the examination is necessary at interim dates. management-prepared statements. d) Professional skepticism. d) Examine all corroborating evidence available. b) Different interests may exist between the company preparing the statements and the persons using the statements. d) The auditor may have a direct ownership interest in the client's business if it is not material. 4. The exercise of due professional care requires that an auditor a) Use error-free judgment. The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the a) Partner assigned to the engagement. b) A discipline that attests to the results of accounting and other functional operations and data. d) Audit judgments. Which of the following best describes the reason why an independent auditor reports on financial statements? a) A management fraud may exist and is more likely to be detected by independent auditors. b) Audit principles. d) Securities & Exchange Commission. d) Poorly designed internal control may exist. d) Obtain benefits that are guaranteed implicitly by the CPA. The primary objective of the ordinary examination of financial statement by a CPA is the expression of an opinion on a) The competence of management in accounting matters which is implied by whether the opinion is qualified or not. strives to achieve independence in appearance in order to a) Reduce risk and liability. b) The conformity of the statements with the book of account. The work is to be adequately planned. c) The conformity of the financial statements with generally accepted auditing standards applied on a basis consistent with that of the prior year. c) Objective judgment. 7. b) Acceptance of an audit engagement after the close of the client's fiscal year is generally not permissible. c) Document and quantify its future plans without impairing the CPA's objectivity or allowing the CPA to assume the role of management.NAME:______________________________________________________SCORE:______RATING:______ 1. . b) Determination of fair presentation of financial statements. c) Improvement of accounting systems. The primary purpose of a management advisory services engagement is to help the client a) Become more profitable by relying upon the CPA's existing personal knowledge about the client's business. Operational auditing is primarily oriented toward a) Future improvements to accomplish the goals of management. c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work. 9. 5. 16. b) Improve the use of its capabilities and resources to achieve its objectives. b) Comply with the generally accepted standards of field work. recognizes that a) Early appointment of the auditor is advantageous to the auditor and the client. c) Critically review the work done at every level of supervision. d) A regulatory function that prevents the issuance of improper financial information. while performing an audit. including tests of controls. d) Maintain public confidence in the profession. Because an examination is influenced by the possibility of material errors. c) Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion. Auditing standards differ from auditing procedures in that procedures relate to a) Measure of performance. c) A professional activity that measures and communicates financial and business data. 11.

The SA should obtain permission from the prospective client to contact the PA. A CPA establishes QC policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with a) Technical training that assures proficiency as an auditor. Which quality control objective would this be most likely to satisfy? a) Acceptance of client. b) Due professional care. d) Auditing and accounting and review services. c) Determine the beginning balances of the current year's financial statements. a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. c) Make inquiries of previous auditors. c) Auditing and tax services. c. c) Suggesting that employees conduct their banking transactions with banks that do not maintain accounts with client firms. b) Supervision. 18. b) Comply with the quality control standards established by regulatory bodies. 19. d) Time studies. . The least important evidence of a CPA firm's evaluation of its system of QC would concern the CPA firm's policies and procedures for a) Employment (hiring). d) Field work. a CPA firm's system of quality control should ordinarily provide for the maintenance of a) A file of minutes of staff meetings. b) Establish. d.17. The SA should contact the PA regardless of whether the prospective client authorizes contact. In pursuing its quality control objectives with respect to acceptance of a client. d) Review the personnel practices of the proposed client. In pursuing its quality control objectives with respect to independence. 21. in fact as well as in appearance. The primary purpose for establishing such policies is to a) Enable the auditor to attest to the integrity or reliability of a client. b. Which of the following is an element of quality control? a) Supervision b) Inspection c) Personnel management d) Consultation 25. c) The extent of supervision and review in a given instance will be appropriate. A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. c) Documentation to demonstrate compliance with its policies and procedures. applies to a) Auditing services only. b) Auditing and management advisory services. 30. 26. c) Assigning personnel to audit engagements. CPA firms should establish quality control policies and procedures for personnel management in order to provide reasonable assurance that a) Employees promoted possess the appropriate characteristics to perform competently. b) Personnel will have the knowledge required to fulfill responsibilities assigned. a CPA firm may use policies and procedures such as a) Emphasizing independence of mental attitude in firm training programs and in supervision and review of work. d) All of the above are reasons. d) Assigning employees who may lack independence to research positions that do not require participation in field audit work. Within the context of quality control. a CPA firm is not likely to a) Make inquiries of the proposed client's legal counsel. 27. 31. 24. c) Minimize the likelihood of association with clients whose management lacks integrity. c) Provide a forum for staff accountants to exchange their experiences and views concerning firm policies and procedures. b) Professional education that is required in order to perform with due professional care. c) Engagement performance. The SA has no responsibility to contact the PA. b) Prohibiting employees from owning stock of public companies. What is the responsibility of a successor auditor (SA) with respect to communicating with the predecessor auditor (PA) in connection with a prospective new client? a. One element of the personnel management quality control standard is professional development. b) Determine the integrity of management. 22. d) Monitoring. c) Independence. Which of the following is a quality control standard? a) Peer review. d) Determination of audit fees. The primary reason why a CPA firm establishes policies and procedures for professional development of staff accountants is to a) Comply with the continuing educational requirements imposed by various states for all staff accountants in CPA firms. 20. c) Knowledge required to fulfill assigned responsibilities and to progress within the firm. The SA need not contact the PA if the successor is aware of all available relevant facts. Quality control for a CPA firm as referred to in Statements on Quality Control Standards. A prospective client's refusal to grant a CPA permission to communicate with the predecessor auditor will bear directly on the CPA's ability to a) Determine appropriate pricing of the audit. b) Review financial statements of the proposed client. d) Knowledge required in order to perform a peer review. b) Updated personnel files. This is evidence of the CPA firm's adherence to prescribed standards of a) Quality control. d) Provide reasonable assurance that staff personnel will have the knowledge required to enable them to fulfill responsibilities. c) Supervision and review. 28. d) To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements. In pursuing a CPA firms' quality control objectives. b) Confidentiality of audit engagements. b) Administrative control. that staff accountants are increasing their knowledge of accounting and auditing matters. d) Documentation to demonstrate compliance with peer review directives. In connection with the element of monitoring. 23. 29.

33. both Dela Cruz and Gomez b. Awareness of the consistency in the application of GAAP between periods. Not communicate with the predecessor auditor because this would. 34. Richard refers Tower to Cruz. if anyone. d. has a law practice. CPA performs accounting services for Tower Corporation. d. a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's a. Gomez has agreed to pay Dela Cruz 10% of the fee for services rendered by Gomez to Dela Cruz client. Dela Cruz has recommended one of his clients to Gomez. b. Understanding as to the reasons for the change of auditors. only Richard b. neither Dela Cruz nor Gomez c. Advise the client of the intention to contact the predecessor auditor and request permission for the contact. Who. c. CPA. b. neither Richard nor Cruz . has violated professional ethics? a. Who. the CPA should a. Before accepting an audit engagement. if anyone. c. Richard. Evaluation of all matters of continuing accounting significance. Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor. Cruz performs the audit of Tower’s financial statements and subsequently thanks Richard for the referral by giving Richard a portion of the audit fee collected. Richard accepts the fee.d) Establish consistency in application of GAAP between years. both Richard and Cruz c. Contact the predecessor auditor without advising the prospective client and request a complete report of the circumstances leading to the termination with the understanding that all information disclosed will be kept confidential. CPA. Accept the engagement without contacting the predecessor auditor since the CPA can include audit procedures to verify the reason given by the client for the termination. be asking the auditor to violate the confidential relationship between auditor and client. Tower wishes to offer its shares to the public and asks Richard to audit the financial statements prepared for registration purposes. only Cruz d. is in violation of the Code of Ethics? a. only Dela Cruz d. Opinion of any subsequent events occurring since the predecessor's audit report was issued. Dela Cruz. in effect. only Gomez 35. who is more competent in the area of registration statements. 32 . a non-CPA.

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