CEBU CPAR CENTER - 1st Preboard

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The key takeaways are about the different types of assurance engagements like audits, reviews, and agreed-upon procedures and their objectives and responsibilities. It also discusses concepts like assurance engagement risk, internal auditing, and compilation of financial statements.

An audit provides a higher level of assurance and involves examining evidence to conclude if the financial statements are fairly stated. A review involves performing inquiries and analytical procedures to provide moderate assurance that no material modifications are needed for the financial statements to conform with GAAP.

The objectives of an agreed-upon procedures engagement are for an auditor to carry out procedures agreed upon by the auditor, entity, and third parties and report factual findings. The recipients then assess the procedures and findings to draw their own conclusions.

Page 21 of 24

b. The external auditor should obtain a sufficient


of internal audit activities to
CEBUunderstanding
CPAR CENTER
assist in planning the audit and developingMandaue
an effective
City,audit
Cebuapproach.
c. During the course of planning the audit, the external auditor should perform a preliminary
assessment
of the internal audit function when it appears that internal auditing is relevant to
AUDITING
THEORY
external audit
of the financial statements in specific audit areas.
FINALthe
PREBOARD
EXAMINATION
d. When the external auditor intends to use specific work of internal auditing, the external
auditor need not evaluate and test that work to confirm its adequacy for the external
INSTRUCTIONS:
CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. MARK
auditor's purposes.
THE LETTER OF YOUR CHOICE WITH A VERTICLE LINE ON THE ANSWER SHEET
PROVIDED. STRICTLY NO ERASURES ARE ALLOWED.
8. The independent auditor lends credibility to clients financial statements by
a. Maintaining a clear-cut distinction between managements representations and the auditors
1. Which
of the following best describes high level of assurance?
representation.
a. It
refers to under
the professional
havingstatements.
obtained evidence based on procedures
b.
Testifying
oath aboutaccountant
clients financial
themanagement
practitioner letter
and the
users to be
satisfied
that
findings be
c. agreed
Statingupon
in thebetween
auditors
thatintended
the examination
was
made in
accordance
reported
to the accepted
intended auditing
users. standards.
with
generally
b.
It refers toan
theauditors
professional
accountant
havingfinancial
obtainedstatements.
sufficient external and internal
d. Attaching
opinion
to the clients
appropriate evidence to be satisfied that the subject matter is plausible in the
circumstances.
It refers
to the
professional
accountant
obtained
sufficient appropriate
9.c.Which
of the
following
is responsible
forhaving
the fairness
of representations
made inevidence
financialto
conclude that the subject matter conforms in all material respects with identified suitable
statements?
a. criteria.
The independent auditor.c. The client's management.
d. The
It refers
to the
professional
accountant
having obtained sufficient evidence to conclude that
b.
internal
auditor.d.
The audit
committee.
he has no knowledge of any required modifications to be made in the financial statements
in order for them to conform of prescribed criteria.
10. The exposure period allowed for each exposure draft of PSA to be considered by the
organizations and persons to whom it is sent for comment is generally
a. Four monthsc. Two months
b. Threestatement
monthsd.isSix
monthsregarding assurance engagement risk?
2. Which
incorrect
a. Engagement risk is the risk that the practitioner will express an inappropriate conclusion
that the subject matter conforms in all material respects with suitable criteria.
11. Which statement is incorrect regarding the pronouncements of ASPC?
b. All components of the engagement risk model will be significant for all assurance
a. The PSAs and Interpretations may also have application, as appropriate, to other related
engagements.
activities of auditors.
c. The extent to which the practitioner considers the relevant components of engagement risk
b. PSAs contain basic principles and essential procedures (identified in bold type black
will be affected by the engagement circumstances.
lettering) together with related guidance in the form of explanatory and other material.
d. Business risk is not part of engagement risk and does not affect the application of Philippine
c. PSAs need only be applied to material matters.
Standard on Assurance Engagements.
d. The Interpretations have the same authority as the PAPSs.
3.
statementshould
is incorrect
regarding
to perform
procedures?
12.Which
The following
be occupied
onlyanbyengagement
a duly registered
CPA,agreed-upon
except
a.a.An
auditor
is
engaged
to
carry
out
those
procedures
of
an
audit
nature
to
which
the auditor
Any position in any business or company in the private sector which requires supervising
and
entity and
any appropriate
third parties have agreed and to report on factual
the the
recording
of financial
transactions.
b.findings.
Any position in any business or company in the private sector which requires preparation of
b. The
recipients
of the report must form their own conclusions from the report by the auditor.
financial
statements.
c.c.The
report
is
restricted
to thoseorparties
thatinhave
agreed to
the procedures
to becoordinating
performed.
Any position in any business
company
the private
sector
which requires
d. The
on factual
findings
is expressed
in the form
of negative assurance.
withreport
the internal
auditors
for the
audit of financial
statements.
d. The position of the dean that supervises the BSA program of an educational institution.
4. Which of the following engagements provides third parties the highest level of assurance about
clients
statements?
13.theWhich
of financial
the following
is not represented in the Auditing and Assurance Standards Council?
a.a.Auditc.
Agreed-upon
procedures
Board of Accountancyc.
Bureau of Internal Revenue
b.
Compilation
b.Reviewd.
Bangko Sentral
ng Pilipinasd. Securities and Exchange Commission
5.
the following
situations
third
parties
responsibility
of theof
auditor
14.InAwhich
study, of
appraisal,
or review
by thecan
BOA
or its
duly assume
authorized
representatives,
the quality of
regarding
association
with
financial
information?
audit of financial statements through a review of the quality control measures instituted by an
a.Individual
When theCPA,
auditor
attaches
a report to
information.
Firm
or Partnership
of that
CPAs
engaged in the practice of public accountancy.
b.
the auditor
consentsreview
to the use of the auditor's name in a professional connection.
a. When
Peer reviewc.
Analytical
c.b.Either
a or
b.
Quality
reviewd.
Administrative review
d. Neither a nor b.
15. Emong, CPA is applying for renewal of his professional license. He is exempted from the CPE
6. A
concept relating to the accumulation of the audit evidence necessary for the auditor to
requirements
conclude
there65are
no material
misstatements in the financial statements taken as a whole.
a. If he isthat
at least
years
old.
a.b.Reasonable
assurancec.
Moderate
If he is working abroad and he hasassurance
been out of the country for at least two years
b. immediately
Positive assuranced.
prior to Negative
the date ofassurance
renewal.
c. Either a or b.
d. Under no circumstances.
7. Which statement is incorrect regarding the external auditors consideration of the work of
internal auditing?
a. The external auditor should consider the activities of internal auditing and their effect, if any,
16. The following statements relate to RA 9298. Which statement is true?
on external audit procedures.

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a. The Professional Regulation Commission has the authority to remove any member of the
Board of Accountancy for negligence, incompetence, or any other just cause.
b. Insanity is not a ground for proceeding against a CPA.
c. A person shall be considered to be in the professional practice of accounting if, as an officer
in a private enterprise, he makes decisions requiring professional accounting knowledge.
d. After three years, subject to certain conditions, the Board of Accountancy may order the
reinstatement of a CPA whose certificate of registration has been revoked.
17. There is a need for assurance that all services obtained from a professional accountant are
carried out to the highest standards of performance. This statement relates to
a. Credibilityc. Quality of Services
b. Professionalismd. Confidence
18. Indicate the normal pattern of development for a professional accountant.
I. A period of work experience.
II. High standard of general education.
III. Specific education, training and examination in professionally relevant subjects
a. I, II, IIIb. II, III, Ic. III, II, Id. II, I, III
19. A partner or employee of the firm serving as an officer or as a director on the board of an
assurance client will most likely create
a. Intimidation threatc. Advocacy threat
b. Self-review threatd. Familiarity threat
20. Which of the following least likely create a self-review threat?
a. A former officer, director or employee of the assurance client serve as a member of the
assurance team.
b. A director, an officer or an employee of the assurance client in a position to exert direct and
significant influence over the subject matter of the assurance engagement has been a
member of the assurance team or partner of the firm.
c. Assisting an audit client in matters such as preparing accounting records or financial
statements.
d. A firm, or network firm, provides internal audit services to an audit client.

21. This process may include, particularly in the case of large complex audits, requesting
personnel not otherwise involved in the audit to perform certain additional procedures.
a. Directionc. Review
b. Supervisiond. All of these
22. Which of the following is least likely a factor that affects the extent of quality control
procedures?
a. The size of the firm.c. The number of practice offices.
b. The type of clients that the firm serves.d. The nature of the practice.
23. Which statement is incorrect regarding the auditors responsibility to consider fraud and error in
the audit of financial statements?
a. The auditor is entitled to accept records and documents as genuine.
b. The auditor is may be held responsible for the prevention of fraud and error.
c. The auditor should consider the risk of material misstatements in the financial statements
resulting from fraud or error.
d. The risk of not detecting a material misstatement resulting from error is lower than the risk
of not detecting a material misstatement resulting from fraud.
24. Which statement is incorrect regarding fraud risk factors?
a. Using the auditors knowledge of the business, the auditor may identify events or conditions
that provide an opportunity, a motive or a means to commit fraud, or indicate that fraud may
already have occurred.
b. A missing document, an out of balance general ledger, or an analytical procedure that does
not make sense may be the result of circumstances other than fraud.
c. Fraud risk factors indicate the existence of fraud because they often have been present in
circumstances where frauds have occurred.
d. The presence of fraud risk factors may affect the auditors assessment of inherent risk or
control risk.

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25. Cash receipts from sales on account have been misappropriated. Which of the following acts
would conceal this defalcation and least likely to be detected by an auditor?
a. Understating the sales journal.
b. Overstating the accounts receivable control account.
c. Overstating the accounts receivable subsidiary ledger.
d. Understating the cash receipts journal.
26. Example of the type of information that may come to the auditor's attention that may indicate
that noncompliance with laws or regulations has occurred most likely include
a. Payments for specified services or loans to consultants, related parties, employees or
government employees.
b. Payments for goods or services made to the country from which the goods or services
originated.
c. Purchasing at prices significantly above or below market price.
d. Sales commissions or agent's fees that appear reasonable in relation to those ordinarily
paid by the entity or in its industry or to the services actually received.

27. When the auditor knows that an illegal act has occurred, the auditor must
a. Issue an adverse opinion.
b. Withdraw from the engagement.
c. Report it to the proper government authorities.
d. Consider the effects on the financial statements, including the adequacy of disclosure.
28. Which statement is correct regarding the auditors communications of audit matters with those
charged with governance?
a. The auditors communications of matters include all audit matters of governance interest.
b. An audit of financial statements is designed to identify all matters that may be relevant to
those charged with governance.
c. The auditors communications with those charged with governance may be made orally or
in writing.
d. None of the above.
29. It is in the interest of both client and auditor that the auditor sends an engagement letter,
preferably before
a. The performance of substantive testing.
b. The commencement of the engagement.
c. The completion of audit.
d. Before the issuance of audit report.
30. When a change in the type of engagement from higher to lower level of assurance is
reasonably justified, the report based on the revised engagement (choose the incorrect one)
a. Should not contain a separate paragraph that refers to the original engagement.
b. Should not refer to any procedures that may have been performed in the original
engagement.
c. Should qualify the opinion due to scope limitation.
d. Omits reference to the original engagement.
31. A basic tool used by the auditor to control the audit work and review the progress of the audit.
a. Audit programc. Engagement letter.
b. Progress flowchartd. Time and Expense Summary
32. Which of the following is not normally a planning procedure?
a. Assess the conclusions reached and the evaluation of the overall financial statement
presentation through the use analytical procedures.
b. Consider the risk of the existence of related-party transactions.
c. Consider the nature of the audit reports expected to be rendered.
d. Identify items likely to require adjustments.
33. An understanding of the clients business and industry and knowledge about the companys
operations are essential for doing an adequate audit. For a new client, most of this information
is obtained
a. From the predecessor auditor.c. At the clients premises.
b. From the SEC.d. From the permanent file.

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34. The
c. Eliminate
managements
the risk
assessment
that controls
of the
willentitys
be circumvented.
ability to continue as a going concern covers a
period
d. Consistently
of:
apply predefined business rules and perform complex calculations in
a. Not
processing
longer than
large
12volumes
months from
of transactions
balance date.
or data.
b. At least 12 months from the balance sheet date.
c. Not longer than 12 months from the date of audit report.
43. Control environment
d. At least 12 months from the date of audit report.
a. Consists of the policies and procedures that help ensure that management directives are
carried out.
b.
Includes
governance
andanmanagement
the attitudes,the
awareness,
35. Which
of thethe
following
would
auditor mostfunctions
likely useand
in determining
auditorsand
preliminary
actions
of
those
charged
with
governance
and
management
concerning
the
entitys internal
judgment about materiality?
control
and
in thequestionnaire.
entity.
a. The
results
ofits
theimportance
internal control
c.
Is
the
entitys
process
for
identifying
business letter
risks relevant to financial reporting objectives
b. The contents of the management representation
and
deciding
about
actions
to
address
those
risks,
c. The entitys annualized interim financial statements.and the results thereof.
Consists
of thesample
procedures
totests.
initiate, record, process, and report
d. d.
The
anticipated
size ofand
therecords
plannedestablished
substantive
entity transactions (as well as events and conditions) and to maintain accountability for the
related assets, liabilities, and equity.
36. How can the audit program best be described at the beginning of the audit process?
a. Tentative.c. Conclusive.
b.
Comprehensive.d.
Optional.
44. Which
of the following
situations will normally result to increase in the extent of audit
procedures?
Decrease
in the
risk of is
material
misstatement.
37.a.Which
of the
following
appropriate
about risk assessment?
b.
Decrease in
theisdegree
of assurance
the auditor
to obtain.
a. Detection
risk
eliminated
if an auditor
were toplans
examine
100 percent of the account
c. balance
Decrease
materiality
level.
orin
class
of transactions
d.
None of
theinverse
above. relationship between detection risk and the combined level of inherent
b. There
is an
and control risk.
c. The assessed level of inherent and control risk can be sufficiently low, thus resulting to
45. The
auditor should
determine
overalltests.
responses to address the risks of material misstatement
eliminating
the need
for substantive
at
the
financial
statement
level.
Such
responses
mostby
likely
include
d. Audit risk may be more appropriately determined
assessing
inherent and control risk
a. separately.
Assigning less experienced staff.
b. Emphasizing to the audit team the need to maintain professional skepticism in gathering
and evaluating audit evidence.
c. Performing predictable further audit procedures.
38.d.Which
of the substantive
following shows
an appropriate
relationship
between
acceptable
Performing
procedures
at an interim
date instead
of at the
period
end. level of
detection risk and the combined level of inherent and control risk?
Auditors Assessment of
Acceptable
of timing and extent of tests of controls?
46. Which statement is incorrect regarding
thelevel
nature,
Inherent
RiskControl
Risk__ inquiry combined with inspection or
a. Those
controls
subject toRiskDetection
testing by performing
a.LowHighLower
reperformance ordinarily provide more assurance than those controls for which the audit
b.LowHighMedium
evidence consists solely of inquiry and observation.
c.HighHighLower
b.
If the auditor plans to rely on controls that have not changed since they were last tested, the
d.LowLowHigher
auditor should test the operating effectiveness of such controls at least once in every third
audit.
c. The length of time period between retesting controls is a matter of professional judgment,
39. Which
of the
following
directly illustrates inherent risk?
but cannot
exceed
threemost
years.
a.
segregation
of duties.
d. Inadequate
The more the
auditor relies
on the operating effectiveness of controls in the assessment of
b.risk,
Confirmation
bythe
an auditors
auditor fails
detect
a material misstatement.
the greaterofisreceivables
the extent of
teststoof
controls.
c. ABC Company, a client company, lacks sufficient working capital to continue operations.
d. A client fails to discover employee fraud on a timely basis because bank accounts are not
reconciled monthly.
47. Which of the following statements is correct regarding the auditors primary objective in
performing procedures to obtain an understanding of the internal control structure?
The primary
objective is
provide
the auditor
evaluation
the consistency
of
40.a.Which
of the following
is to
a valid
statement
aboutwith
the an
assessment
ofof
control
risk?
application
of managements
a. There
is a positive
relationshippolicies.
between detection risk and the combined level of inherent
b.and
Thecontrol
primaryrisk.
objective is to provide the auditor with knowledge necessary for audit planning.
c. The
objective
is to provide
the auditor
evidential
use in
b.
The primary
auditor should
consider
the assessed
levelswith
of inherent
andmatter
controltorisks
in assessing
determining
inherent
risk.
the nature, timing, and extent of substantive procedures required to eliminate audit risk.
d.
The primary objective
is toby
provide
the auditor
with aprocedures
basis for modifying
controls.
c. Misstatements
discovered
conducting
substantive
may causetests
the of
auditor
to
modify the previous assessment of control risk.
d. The assessed level of inherent and control risks can be sufficiently low in order to eliminate
48. Which
of the following
would substantive
most likely tests
indicate
internal
control deficiency for the revenue
the auditors
need to perform
on some
assertions.
cycle (including cash receipts)?
a. Credit is granted by a credit department.
Cash
receipts
received
in the
mailof
arethe
received
by aassecretary
with noprocedure?
recordkeeping
41.b.The
auditor
should
perform
which
following
risk assessment
responsibility.
a. Analytical proceduresc. Recalculation
c. Cash
is deposited
weekly.
b.
Confirmationd.
Reperformance
d. Cash disbursements over P100,000 does not require two signatures on the check.
42. Which of the following is least likely a potential benefit of effectiveness and efficiency for an
internal statements
control thatrelate
IT provides?
49.entitys
The following
directly to test of controls except
a. May
Enhance
the timeliness,
availability,
and
accuracy of
information.
involve
comparisons
of financial
information
with
nonfinancial information.
Enhancethe
theplanned
ability to
monitor
the of
performance
activities
and its policies
and
b. Setting
assessed
level
control riskofatthe
theentitys
maximum
will eliminate
these tests.
procedures.
c. Often
performed concurrently with obtaining an understanding of internal control.

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d. Inquire of the accounts receivable clerk regarding the effectiveness of the computer
program in updating accounts receivable balances.
50. After obtaining an understanding of an entitys internal controls, an auditor may assess control
risk at the maximum for some assertions because the auditor:
a. Believes internal control activities are unlikely to be effective.
b. Determines that internal control is not well-documented.
c. Performs tests of controls to restrict detection of risk to an acceptable level.
d. Identifies control activities that are likely to prevent material misstatements.
51. The report of the service organization auditor on the suitability of design (Type A) will not
ordinarily include an opinion by the service organization auditor that:
a. The description of the service organization's accounting and internal control systems,
ordinarily prepared by the management of the service organization is accurate.
b. The systems' controls have been placed in operation.
c. The accounting and internal control systems are operating effectively based on the results
from the tests of control.
d. The accounting and internal control systems are suitably designed to achieve their stated
objectives.

52. Which statement is correct regarding the audit evidence?


a. The greater the risk, the less audit evidence is likely to be required.
b. The higher the quality, the more may be required
c. Merely obtaining more audit evidence may not compensate for its poor quality.
d. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit
evidence regarding another assertion.
53. Assertions used by the auditor fall into three categories. Existence is included under
a. Assertions about classes of transactions and events for the period under audit.
b. Assertions about account balances at the period end.
c. Assertions about presentation and disclosure.
d. All of the above.
54. Which of the following statements is incorrect regarding the reliability of audit evidence?
a. Oral representation by the client management is not a valid evidence.
b. Audit evidence obtained directly by the auditor is more reliable than that one provided by
the client management.
c. The effectiveness of accounting and internal control adds to the reliability of internal audit
evidence.
d. While internal audit evidence is considered to be acceptable, the auditor usually prefers
audit evidence form external sources.
55. Which statement is incorrect regarding the auditors attendance at physical inventory counting?
a. When inventory is material to the financial statements, the auditor should obtain sufficient
appropriate audit evidence regarding its existence and condition by attendance at physical
inventory counting unless impracticable.
b. When the quantities are to be determined by a physical inventory count and the auditor
attends such a count, the auditor would ordinarily observe count procedures and perform
test counts.
c. To obtain assurance that managements procedures are adequately implemented, the
auditor would observe employees procedures and perform test counts.
d. The physical inventory count cannot be conducted at a date other than period end.

56. The auditor considers the status of legal matters up to


a. The date of the audit report. c. The issuance of financial statements.
b. The balance sheet date.d. Up to the date of receipt of letter from lawyers.
57. Which statement is correct regarding valuation and disclosure of long-term investments?
a. Regardless of the amount of long-term investments, the auditor should obtain sufficient
appropriate audit evidence regarding their valuation and disclosure.
b. Audit procedures regarding long-term investments ordinarily include considering evidence
as to whether the entity has the ability to sell the investment in the near term.
c. If the carrying amounts do not exceed market quotations, the auditor would consider
whether a write-down is required.

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d. If there is an uncertainty as to whether the carrying amount will be recovered, the auditor
would consider whether appropriate adjustments and/or disclosures have been made.
58. In relation to opening balances, which of the following may cause the auditor to disclaim his
opinion?
a. The inability of the auditor to obtain sufficient appropriate audit evidence concerning
opening balances.
b. The opening balances contain misstatements that could materially affect the current
periods financial statements and such misstatements have not been corrected.
c. The current periods accounting policies have not been consistently applied in relation to
opening balances and the effect of such change is not properly accounted for or disclosed.
d. The assessed substantial doubt about the entitys ability to continue as a going concern as
indicated by consistent negative cash flows.

59. The auditor notices significant fluctuations in key elements of the company's financial
statements. If management is unable to provide an acceptable explanation, the auditor should
a. Withdraw from the engagement.
b. Consider the matter a scope limitation.
c. Perform additional audit procedures to investigate the matter further.
d. Intensify the examination with the expectation of detecting management fraud.
60. In evaluating the assumptions on which the estimate is based, the auditor would least pay
particular attention to assumptions which are
a. Subjective.
b. Sensitive to variation.
c. Susceptible to material misstatement.
d. Reasonable in light of actual results in prior periods.
61. Which statement is correct regarding auditing fair value measurements and disclosures?
a. Many measurements based on estimates, including fair value measurements, are
inherently precise.
b. Assumptions used in fair value measurements are similar in nature to those required when
developing other accounting estimates.
c. Underlying the concept of fair value measurements is a presumption that the entity will be
liquidated.
d. The measurement of fair value may be relatively complex for assets that are bought and
sold in active and open markets.

62. The auditor needs to be aware of the existence of related parties and transactions between
such parties. Which of the following is the least likely reason?
a. GAAP in the Philippines require disclosure in the financial statements of certain related
party relationships and transactions.
b. Related parties and transactions between such parties are considered unusual features of
business.
c. The source of audit evidence affects the auditor's assessment of its reliability.
d. A related party transaction may be motivated by other than ordinary business
considerations.

63. Which of the following is most likely a procedure that would be performed by the auditor
regarding subsequent events?
a. Reading the minutes of the meetings of shareholders, the board of directors and audit
executive committees held throughout the audit year.
b. Reading the entitys latest available interim financial statements.
c. Send second requests to the clients customer who failed to respond to initial accounts
receivable confirmation requests.
d. Review the cutoff bank statements for several months after the year-end.
64. A client acquired 30% of its outstanding capital stock after year-end and prior to the completion
of the auditors fieldwork. The auditor should
a. Disclose the acquisition in the opinion paragraph of the auditors report.
b. Advise management to adjust the balance sheet to reflect the acquisition.
c. Issue pro forma financial statements giving effect to the acquisition as if it had occurred at
year-end.
d. Advise management to disclose the acquisition in the notes to the financial statements.

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65. If a representation by management is contradicted by other audit evidence, the auditor should
a. Withdraw from the engagement.
b. Investigate the circumstances and, when necessary, reconsider the reliability of other
representations made by management.
c. Issue a qualified or adverse opinion.
d. Issue a qualified or disclaimer of opinion.
66. Which statement is incorrect regarding the auditors use of the work of an expert?
a. Determination of amounts using specialized techniques or methods, for example, an
actuarial valuation will likely require the services of an expert.
b. The auditor's education and experience enable the auditor to be knowledgeable about
business matters in general.
c. The auditor need not assess the objectivity of the expert since latter may be related to the
entity.
d. When planning to use the work of an expert, the auditor should assess the professional
competence of the expert.

67. Which statement is incorrect regarding inter-bank confirmations?


a. The requirement for bank confirmation arises from the need of the bank's management and
its auditors to confirm the financial and business relationships.
b. Inter-bank relationships are different in nature from those between the bank and a non-bank
customer.
c. The auditor should decide from which bank or banks to request confirmation, have regard
to such matters as size of balances, volume of activity, degree of reliance on internal
controls, and materiality within the context of the financial statements.
d. It is not usual practice to request a response only if the information submitted is incorrect or
incomplete.

68. Which statement is correct regarding small entities?


a. There is concentration of ownership and management in a small number of individuals
(often a single individual).
b. An entity owned by another enterprise cannot be regarded as a small entity.
c. The meaning of small entity gives consideration only to the size of an entity.
d. Small entities do not have internal controls.
69. The inability of the client to prepare certain audit requirements may most likely lead the auditor
to
a. Withdraw from the engagement.
b. Express qualified opinion or a disclaimer.
c. Express qualified or adverse opinion.
d. Express unqualified opinion with explanatory paragraph.
70. Which statement is incorrect regarding working papers?
a. The auditor should document matters which are important in providing evidence to support
the audit opinion.
b. The auditor should prepare working papers which are sufficiently complete and detailed to
provide an overall understanding of the audit.
c. Portions of or extracts from the working papers may be made available to the entity at the
discretion of the auditor since working papers are substitute for the entitys accounting
records.
d. Working papers would include the auditors reasoning on all significant matters which
require the exercise of judgment, together with the auditors conclusion thereon.

71. Which of the following statements about working papers is correct?


a. Working papers are not permitted to be used as a reference source by the client.
b. The auditor should document the understanding of the client's internal control obtained to
plan the audit.
c. Working papers may be regarded as a substitute for the client's accounting records.
d. When reporting on comparative financial statements, the independent auditor may discard
working papers after two years.

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79. Which
72.
Identifyofasthe
to following
whether sampling
statements
or nonsampling
most likely represents
risk, following
a disadvantage
the same for
order:
an entity that
I. The microcomputer-prepared
keeps
auditor might reach a different
data files
conclusion
rather than
based
manually
on samples
prepared
used files?
from the conclusion
a. Itifisit usually
were themore
entire
difficult
population
to detect
subjected
transposition
to the same
errors.
audit procedure
II. Transactions
b.
The auditor might
are usually
use inappropriate
authorized before
procedures
they are executed and recorded.
III.
c. ItThe
is usually
auditoreasier
mightfor
misinterpret
unauthorized
the persons
evidenceto access and alter the files.
a.
d. Nonsampling,
Random error sampling,
associated nonsampling
with processing similar transactions in different ways is usually
b.greater.
Sampling, nonsampling, nonsampling
c. Sampling, nonsampling, sampling
d. Nonsampling, sampling, sampling
80. Gateway is
a. A hardware and software solution that enables communications between two dissimilar
networking
or protocols.
73. Which
of thesystems
following
is correct about sampling risks?
b.
A
device
that
forwards
frames based
on to
destination
addresses.
a. The risk of incorrect acceptance
relates
the efficiency
of the audit.
c.
A
device
that
connects
and
passes
packets
between
two
network segments
that use the
b. The risk of assessing control risk too low relates to the efficiency
of the audit.
communication
protocol.
c. same
Sampling
risk includes
the auditors failure to recognize errors in the documents examines
d.for
A device
that regenerates
and retransmits the signal on a network.
the chosen
sample.
d. The likelihood of assessing control risk too high is the risk that the sample selected to test
controls does not support the auditors planned assessed level of control risk when the true
81. Database
are distinguished
bystructure
two important
characteristics:
operatingsystems
effectiveness
of the control
justifies
such an assessment.
a. Data sharing and data independence.
b. Data dictionary and database administration.
c.
Data sharing
and database
74. Identify
the sample
selectionadministration.
method used, following the same order:
d.
Data dictionary
and data
independence.
I. Selecting
items using
a constant
interval between selections; the first interval having a
random start.
II.
Selecting
fromgenerally
the entiredopopulation
with no intention to include or exclude specific
82. General CISitems
controls
not include:
units
I.Controls over processing and computer data files
III.
All items in and
the population
or controls
within each stratum have a known chance of selection
II.Organization
management
a.
Systematic,
random,
haphazard.
III. Development and maintenance controls
b. Systematic,
haphazard,
random.
IV.
Delivery and
support controls
c.
Haphazard,
systematic,
random.
V.Monitoring controls
d. Random,
VI.
Controlssystematic,
over input haphazard.
VII. Controls over output
a. All of the abovec. I, II, III, IV and V
75.b.When
for I,attributes,
which of the following would decrease sample size?
II, III,sampling
IV and Vd.
VI and VII
abcd
Intended reliance internal controlsIncreaseDecreaseIncreaseDecrease
Tolerable
deviation
rateDecreaseIncreaseIncreaseIncrease
83. An auditor
anticipates
assessing control risk
at a low level in a computerized environment.
Expected
deviation
rateIncreaseDecreaseDecreaseDecrease
Under these circumstances, on which of the
following procedures would the auditor initially
Risk of assessing control risk too lowDecreaseIncreaseIncreaseDecrease
focus?
a. Programmed control procedures
c. Application control procedures
b. Output control procedures
General
control procedures
76. In substantive testing, which of the following would increased.sample
size?
abc
offollowing
inherent riskIncreaseIncreaseIncrease
84.Assessment
Which of the
is not explicitly included in the opening paragraph of an audit report?
on internal
a.Reliance
Identification
of thecontrolsIncreaseDecreaseDecrease
financial statements that have been audited.
errorDecreaseIncreaseDecrease
b.Tolerable
A statement
by the auditor that the audit provides a reasonable basis for the opinion.
errorIncreaseDecreaseIncrease
c.Expected
Statement
that the financial statements are the responsibility of the entitys management.
of incorrect
acceptanceDecreaseIncreaseDecrease
d.Risk
Statement
that the
responsibility of the auditor is to express an opinion on the financial
statements based on his audit.

d
Decrease
Increase
Increase
Decrease
Increase

77. A CIS environment least likely affects


The overall
scope
of ana audit.
85.a.Which
of the objective
followingand
is least
likely
description of audit contained in the scope paragraph of
b.
The
procedures
followed
by
the
auditor in obtaining a sufficient understanding of the
the auditors report?
internal
a. accounting
Examining and
evidence
to control
support systems.
the financial statement amounts and disclosures.
c.
consideration
of inherent
risk and
control
through which
auditorstatements.
arrives at the
b. The
Assessing
the accounting
principles
used
in therisk
preparation
of the the
financial
assessment.
c. risk
Assessing
the significant estimates made by management in the preparation of the financial
d. The
auditors design and performance of tests of control and substantive procedures
statements.
the financial
audit objective.
d.appropriate
Evaluating to
themeet
overall
statement presentation.
78. A
CIS
environment
86.
The
auditor
issued a qualified opinion covering the financial statements of Client A for the year
ended
a. Exists
December
when a computer
31, 2004. of
The
any
reason
type or
forsize
the is
qualification
involved inwas
the processing
a departureby
from
theGAAP.
entity of
In
financial comparative
information of
significance
to the
audit,
whether
that computer
operated
by the
presenting
statements
for the
years
ended
December
31, 2004 isand
2005, the
client
entity
revised
or by athe
third
2004
party.
financial statements to correct the previous departure from GAAP. The
b. Is the electronic
transmission
of documents
between
organizations
in a statements
machine-readable
auditor's
2005 report
on the 12/31/04
and 12/31/05
comparative
financial
will
a. form.
Express unqualified opinions on both the 2004 and 2005 financial statements.
c.
the policies
and procedures
the entity
implements
and
the IT infrastructure
b. Consists
Express aofqualified
opinion
on the 2004that
financial
statements
and an
unqualified
opinion on
(hardware,
the 2005 statements.
operating systems, etc.) and application software that it uses to support
operations
achieve
business
c. business
Retain the
qualifiedand
opinion
covering
the strategies.
2004 statements, but add an explanatory
d. A
paragraph
communications
describing
network
the correction
that serves
of the
users
prior
within
departure
a confined
from geographical
GAAP.
area.

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12 of 24

d. Render qualified audit opinions for both 2004 and 2005 financial statements given the 2005
carryover
of theprocedures
2004 error.does an accountant in a compilation engagement of a
95. Which
of theeffect
following
nonpublic entity ordinarily perform?
Reading
financial
statements
to consider
whether
are free the
of obvious
mistakes
87.a.When
the the
financial
statements
of the
prior period
were they
not audited,
incoming
auditorin
the application of accounting principles.
should:
b. Insist
Obtaining
written
from management
that the compiled financial
a.
that an
audit representations
of prior years financial
statementsindicating
must be made.
statements
will
not
be
used
to
obtain
credit.
b. Obtain sufficient appropriate audit evidence that the corresponding figures meet the
c. requirements
Making inquiries
management
concerning
taken at meetings of the stockholders
of theofrelevant
financial
reportingactions
framework.
board
directors.
c. and
Notthe
allow
the of
inclusion
of the corresponding figures in the financial statements of the
d.current
Applying
analytical procedures designed to corroborate management's assertions that are
period.
embodied
in
financial
components.
d. Disclaim histhe
opinion
and statement
treat the unaudited
corresponding figures as basis of scope
limitation.
96. Which of the following should the auditor perform in a review engagement ?
Understand
matters that
arefinancial
relevant statements
to the financial
statements.
88.a.When
a misstatement
in the
exists,
but is unlikely to affect the decisions of
Understanduser,
the entitys
control to
system.
ab.reasonable
it wouldinternal
be appropriate
issue
c.
Observe
the physical
countAof
inventory.
a. An
unqualified
opinion.c.
qualified
opinion.
d.
Inquire
of
legal
counsel
of
pending
litigations.
b. A disclaimer of opinion.d. An adverse
opinion.
97. An
89.
Theauditors
audit report
report
dateonisfinancial
important
statements
to users because
preparedit in
indicates
accordance
the with another
a. Last day of the
comprehensive
basis
fiscal
of period.
accounting should include all of the following except:
b. An
a.
Lastopinion
day of as
thetoauditors
whetherresponsibility
the basis of accounting
for the review
used of
is significant
appropriateevents
under that
the occurred after
the date of the financial statements.
circumstances.
c. An
b.
Dateopinion
on which
as to
thewhether
financial
thestatements
financial statements
were filed are
withpresented
the SEC.fairly in conformity with the
d.comprehensive
Last day on which
basisusers
of accounting.
may institute a lawsuit either client or auditor.
c. Reference to the note to the financial statements that describes the basis of presentation.
d. A statement that the basis of presentation is a comprehensive basis of accounting other
90. When
the principal
auditor
concludesprinciples.
that the work of the other auditor cannot be used and the
than generally
accepted
accounting
principal auditor has not been able to perform sufficient additional procedures regarding the
financial information of the component audited by the other auditor, the principal auditor will
issue report would be designated as a special report when it is issued in connection with
98.likely
An auditor's
a.
Unqualified
opinion.
financial statements
that are
b.
Unqualified
opinion
a. For an interim
periodwith
and explanatory
are subjectedparagraph
to a limited review.
c.
Qualified
or
adverse
opinion
b. Unaudited and are prepared from a client's accounting records.
d.
Qualifiedinoraccordance
disclaimer with
of opinion
c. Prepared
a comprehensive basis of accounting other than generally
accepted accounting principles.
d. Purported to be in accordance with generally accepted accounting principles but do not
91. When
there
is a limitation
on the
scope ofofthe
audit
that results to a disclaimer of opinion, the
include
a presentation
of the
Statement
Cash
Flows.
three paragraphs of the auditor report are:
IntroductoryScopeOpinion
a.ModifiedModifiedModified
99. Eddie Lares, a partner in a CPA firm performs free accounting service for a club of which he is
ab.UnmodifiedModifiedModified
treasurer. The most preferable way for Lares to issue the yearly statements of the club is
a.c.UnmodifiedUnmodifiedModified
On the firm's letterhead with a disclaimer on lack of independence.
b.d.ModifiedUnmodifiedModified
On the firm's letterhead with the caption that the statement is unaudited.
c. On the club's letterhead with Lares signing as treasurer.
d. On plain paper with no reference to Lares as a CPA.
92. If an amendment to other information in a document containing audited financial statements is
necessary and the entity refuses to make the amendment, the auditor would most likely issue
a. Unqualified
opinion.
100.
The CPA who
regularly examines the Marcos corporate financial statements was asked to
b. Unqualified
opinion
with
explanatory
paragraph
prepare
pro forma
income
statements
for the
next three years based on the corporation's
c. Qualified
or adversefor
opinion
operating
assumptions
the internal use of the client. The CPA should
Qualified
or disclaimersince
of opinion
a.d.Reject
the engagement
the statements are to be based on assumptions.
b. Reject the engagement because the statements are for internal use only.
c. Accept the engagement provided full disclosure is made of the assumptions used and the
93. The
auditors
report on summarized
financial statements should include
extent
of the responsibility
of the CPA.
a.
An
opinion
as
to
whether
the
information
in theofsummarized
financial
d. Accept the engagement provided the president
Marcos Corp.
certifiesstatements
in writingisthat the
presented
fairly,
in
all
material
respects.
statement will be solely for internal use.
b. An opinion as to whether the information in the summarized financial statements is
consistent with the audited financial statements from which it was derived.
c. A statement of negative assurance.
101.
When
there isof
a change
from manual
processing
to CIS environment
in anofaudit
client,
d. A
description
the auditors
factual findings
including
sufficient details
errors
and the
overall
objective
and
scope
of
an
audit:
exceptions found.
a. Is modified.c. Is unchanged.
b. Is extended.d. Becomes unlimited.
94. A CPA's report on agreed-upon procedures related to management's assertion about an
entity'sWhich
compliance
specified
should
102.
of the with
following
is therequirements
least affected
by thecontain:
use of computer?
a. A statement
of
limitations
on
the
use
of
the
report.
a. The auditors design and performance of tests of controls.
b. An b.
opinion
about whether
management's
assertion
is fairlyastated.
The procedures
followed
by the auditor
in obtaining
sufficient understanding of the
c. Negative
assurance
control
risk has not been assessed.
accounting
andthat
internal
control.
d. An c.
acknowledgment
of responsibility
for theinternal
sufficiency
of the procedures.
The auditors objective
of considering
control.

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Page 14 of 24

d. The consideration of inherent risk and control risk through which the auditor arrives at
the risk assessment.
103. Which of the following procedures to be performed by the auditor least requires the auditor
to have specialized CIS skills in an audit?
a. Obtain a sufficient understanding of the accounting and internal control systems affected by
the CIS environment.
b. Determine the applicability of using statistical sampling instead of judgmental sampling.
c. Design and perform appropriate tests of controls and substantive procedures.
d. Determine the effect of the CIS environment on the assessment of overall risk and of risk at
the account balance and class of transaction level.
104. Which of the following CIS personal computer environment is a general control?
a. A regular reconciliation of record counts or has totals.
b. A system of authorization and documentation of modification of the systems and
applications software.
c. A system of transaction logs and batch balancing.
d. A practice of direct supervision.
105.

Which of the following is least likely an advantage of using personal computers?


a. They are small enough to be transportable.
b. Their operating system software is equally comprehensive as those found in larger
computerized environments.
c. They are relatively inexpensive to acquire and maintain.
d. There is an ease of using personal computers.

106.

Which of the following is not a type of installation of personal computers?


a. A workstation connected to a server.
b. a stand-alone workstation operated by a single user or a number of users at different
times.
c. A workstation which is part of a local area network of personal computers.
d. A stand-alone workstation operated by a single user or a number of users
simultaneously using the same or different applications.

107. A computer program that attaches itself to a legitimate program or data file and users it as a
transport mechanism to reproduce itself without the knowledge of the user:
a. Trojan horsec. Hacker
b. Virusd. Backup
108. It refers to the plans made by the entity to obtain access to comparable hardware, software
and data in the event of their failure, loss or destruction.
a. Simulation.c. Documentation.
b. Backup.d. Parallel run.
109. Which of the following is the least concern of the auditor when he intends to rely on internal
accounting controls that relate to stand-alone personal computers?
a. Segregation of duties and balancing controls.
b. Access to the personal computers and files.
c. A system of authorization before a transaction is executed.
d. Use of third-party software.
110. How does the stand-alone personal computer environment of the client entity affect the
auditors audit procedures?
a. The auditor often assumes that control risk is reasonably low.
b. Because of the advantage provided by the use of stand-alone personal computers, the
audit procedures are restricted to low level.
c. The auditor usually concentrates the audit efforts on substantive tests at or near the end of
the year.
d. To be cost effective, the auditor makes an extensive review of general CIS and CIS
application controls as basis of reducing the audit efforts to be performed on detailed
testing of balances and transaction classes.

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111. Computer-assisted audit may include the use of:


AB
Client softwareYESYES
Auditors own software programsYESNO

C
NO
YES

D
NO
NO

112. Which of the following may not be a purpose of using computer-audit software?
a. Add transactions or balances in the data files for comparison with control account balances.
b. Select accounts or transactions for detailed testing.
c. To evaluate the collectibility of accounts receivable.
d. To examine data bases for unusual items.
113. When the client has a large number of transactions that are processed by stand-alone
personal computer, the auditor:
a. May do tests of controls which he intends to rely on, if appropriate, to reduce the assessed
control risk, and do audit work on the data at a preliminary date.
b. Understand the control environment and flow of transactions but must omit preliminary audit
tests.
c. May do tests of controls and if those controls can be relied on, do interim testing and
omit year end audit testing.
d. Usually omits the understanding of control environment because the stand-alone personal
computer environment is not reliable.

114. The establishment of a framework of overall control over the computer information systems
activities to provide a reasonable level of assurance that the overall objectives of internal
control are achieved
1. general controls in computer information systems
2. application controls in computer information systems
3. control environment in information systems
4. control procedures in information systems
115. In a computer system environment the GAAS most affected are the
a. general standardsc. general and fieldwork standards
b. fieldwork and reporting standardsd. entire GAAS standards
116. A company that executes transactions and maintains related accountability or records
transactions and processes related data is
a. related partyc. service organization
b. external auditord. expert
117. These represent information obtained by the auditor in arriving at the conclusions on which
the audit opinion is based
a. audit documentationc. audit assertions
b. audit evidenced. audit conclusions
118. Generally, the auditor prefers external evidence to internal evidence. This is a measure of
a. Relevancec. analysis
b. Appropriatenessd. evidence gathering
19.

It refers to the correspondence of an evidence to a particular audit objective:


a. Competence or reliability.c. Persuasiveness.
b. Relevance.d. Corroboration.

20. A transaction or event is recorded at the properly amount and revenue or expense is allocated
at the proper period is a financial assertion of:
a. occurrencec. valuation
b. completenessd. measurement
21. The three major categories of documentary audit evidence are:
1. Documentary audit evidence created by third parties and held by the client entity
2. Documentary audit evidence created and held by third parties
3. Documentary audit evidence created and held by the client eneity
What is the order of their degree of reliability?
a. 1, 3, 2
b. 3, 1, 2

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Page 16 of 24

c. 2, 1, 3
d. 2, 3, 1
22. An audit schedule which is designed to show the activity in a general ledger account during the
period under audit, tying together the beginning and ending balances:
a. Analysisc. reconciliation
b. tests of transactionsd. vouching
23. Confirmation is required for
Accounts receivable
Cash
Inventory
Accounts payable

A
Yes
Yes
Yes
Yes

B
Yes
Yes
No
No

C
No
No
Yes
Yes

D
Yes
No
No
No

24. The negative request form of accounts receivable confirmation is useful particularly when the
Assessed level of controlNumber of smallConsideration by the
Risk relating to receivable isbalances isrecipient is
a.LowManyLikely
b.LowFewUnlikely
c.HighFewLikely
d.HighManyLikely
25. According to PSA 500 (Audit Evidence), which of the following is incorrect of audit evidence?
a. Audit evidence may be obtained entirely from substantive procedures.
b. The appropriateness of the audit evidence is the measure of both the quality and quantity of
audit evidence.
c. Audit evidence is obtained form an appropriate mix of tests of control and substantive
procedures.
d. Substantive procedures mean tests performed to obtain audit evidence to detect material
misstatements in the financial statements.
26.Which of the following is an invalid statement about audit evidence?
a. Ordinarily, audit evidence regarding one assertion will compensate for failure to obtain audit
evidence regarding another assertion.
b. Ordinarily, audit evidence is obtained regarding each financial assertion.
c. The nature, timing and extent of substantive tests will vary depending on the assertions.
d. Audit tests can provide audit evidence about more than one assertion.
27. The following statements are discussions about financial assertions and audit evidence. Which
of them is(are) correct?
II. When in substantial doubt as to a material financial statement assertion, the auditor likely
attempt to obtain sufficient appropriate audit evidence to remove such doubt.
III. Difficulty and cost involved is a valid basis for omitting a necessary procedure.
IV. In obtaining audit evidence, the auditor needs to consider the relationship between the cost
of obtaining it and its usefulness.
V. When there are inconsistent evidences provided by two different sources, the auditor may
need to modify his audit opinion.
a. II, III, IVc. II, IV
b. I, IIId. I, III, IV

28. The detailed instruction for the collection of a type of audit evidence that is to be obtained at
some time during the audit:
a. Audit program.c. Audit technique.
b. Audit procedure.d. Working papers.
29. The following statements relate to audit evidence, except:
a. The competence of audit is likely improved by selecting a larger sample size or different
population items.
b. The evidence obtained from a source outside the client entity is more persuasive than that
one obtained from within.
c. When a clients accounting and internal controls are effective, the evidence obtained is
more reliable.

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Page 18
17 of 24

c. To
d.
Thegather
evidence
corroborative
obtained directly
evidence.
by the auditor through physical examination, computation,
d.observation,
To verify theoraccuracy
confirmation
of account
is more
balances.
competent than an information obtained indirectly.
38. What
30.
Theisfollowing
meant bystatements
timelinesswere
of audit
made
evidence?
in a discussion of audit evidence by two independent
a. Evidence
auditors.isWhich
more reliable
statement
forisbalance
untrue?sheet accounts when it is obtained as close to the
balance
a. I amsheet
seldom
dateconvinced
as possible.
beyond all doubt about all aspects of the financial statements being
b. Evidence
audited.
is more reliable for income statement accounts if the sample comes from part of
the
b. I
period
would
asnot
close
undertake
to balance
thatsheet
procedure
date asbecause,
possible.at best, the results would only be
c. Tests
persuasive
of transactions
and I'm should
lookingbefor
performed
convincing
close
evidence.
to balance sheet date.
d. Tests
c. I evaluate
of account
thebalances
degree ofmust
riskbe
involved
performed
in deciding
before the
thebalance
kind of sheet
evidence
date.I will gather.
d. I evaluate the usefulness of the evidence I can obtain against the cost to obtain it.
31. In which of the following would the judgment of the auditor be least critical?
a. Verification
of the authenticity
of the
transferused
certificate
of title.
39. Which
of the following
would not be
a method
to conduct
tests of controls?
a. b.
Inquiryc.
Confirmation
Determination
of the material level.
b. c.
Walkthroughd.
Observation
Assessment of
the management plans of action in order to improve cash flows.
d. Assessing the reasonableness of the estimates made by the management.
40. In which of the following would the judgment of the auditor be least critical?
Verification
the authenticity
of the
transfer
certificate
of title.
32.a.The
auditors of
attendance
to clients
physical
inventory
count
would not enable him to
b. Physically
Determination
of the
materialitems.
level.
a.
inspect
inventory
c. Assessment
of the management
plans
of actionitems.
in order to improve cash flows.
b.
Review the accuracy
of pricing the
inventory
d. Observe
Assessingcompliance
the reasonableness
of the estimates
made by
management.
c.
with the prescribed
procedures
forthe
recording
and controlling the
results of the count.
d. Provide evidence as to reliability of managements procedures.
41.
Which of the following is the least required of the audit working papers?
a. Confidentiality of information included in the working papers.
33. If,
performing
thepapers
auditor is unable to obtain sufficient, appropriate evidence
b. after
Safe
custody ofprocedures,
the working
concerning
opening
balances,
the
auditor
may
express modified opinion on financial
c. Substitute for the entitys accounting
records
statements
during
and
as
of
year
end
of
the
current
period:of the practice
d. Retention for a period sufficient to meet the needs
Income StatementBalance Sheet
QualifiedDisclaimerQualifiedDisclaimer
42. a.YesYesYesYes
Which of the following statements about working papers is incorrect?
a.b.YesYesNoNo
Working papers are not permitted to be used as a reference source by the client.
b.c.YesNoYesNo
The auditor should document the understanding of the clients internal control in order to
d.NoNoYesYes
plan the audit.
c. Working papers are not be regarded as a substitute for the clients accounting records.
d. When reporting on comparative financial statements, the independent auditor may not
discardofworking
papersisafter
years. concern in obtaining sufficient appropriate audit
34. Which
the following
not two
an auditors
evidence for initial engagements?
a. opening balances do not contain misstatements that materially affect the current periods
43. As afinancial
result ofstatements
tests of controls, an auditor assessed control risk too low and decreased
substantive
testing.
assessment
because
the true
deviation
ratetointhe
thecurrent
b. the prior periodsThis
closing
balancesoccurred
have been
correctly
brought
forward
population
was
period or when appropriate, have been restated
a. c.
Less
than the risk
of assessing
control
risk too low,applied
based on
auditors
sample. policies
appropriate
accounting
policies
are consistently
or the
changes
to accounting
b. Less
than
theproperly
deviationaccounted
rate in theforauditors
sample. disclosed
have
been
and adequately
c. d.
More
than balances
the risk ofhave
assessing
control by
riska competent
too low, based
on the auditors sample.
opening
been audited
auditor
d. More than the deviation rate in the auditors sample.
35. The following considerations need to be observed by the auditor when he has to observe
44. When designing audit procedures, the auditor should determine appropriate means of selecting
physical inventory count or he has to perform alternative procedures:
items for testing. The means available to the auditor are the following except:
ABCD
a. Selecting all items
Inherent, control and detection risks
b. Selecting specific items identified by the auditor
That are related to inventoryYESYESNONO
c. Selecting specific items identified by the client
The timing of the countYESYESNONO
d. Audit sampling
A requirement for an expertNOYESYESYES
The nature of accounting and internal
control all
systems
regarding
45. Selecting
items used
for testing
may least be appropriate for one of the following:
inventoryNOYESYESNO
a. tests
of controls
b. substantive tests
c. when population constitute of small number of large value items
36.d. when
Auditors
try to identify
relationships
whentest
using
analytical
procedures.
the repetitive
naturepredictable
of calculation
makes 100%
more
cost effective
Relationships involving transactions from which of the following accounts most likely would
yield the highest level of evidence?
46. Which
of the payablec.
followingAccounts
factors would
least be considered by the auditor in selecting items for
a. Accounts
receivable
examination
b. Payroll expensed. Advertising expense
a. Items to test proceduresc. High value or key items
b. Items to obtain informationd. Items under a specific amount
37. Which of the following best describes the primary purpose of audit procedures?
a. To detect errors or irregularities.
47. Ab.sample
in which
possible
combination
of items
in the population has an equal chance
To comply
withevery
generally
accepted
accounting
principles.
of constituting the sample is

AT-3rdBatch-FinPB

Page 19 of 24

a. representative sample
b. statistical sample

c. random sample
d. judgment sample

48. A sample in which the characteristics in the sample are the same as those of the population is
a (an)
a. representative samplec. random sample
b. statistical sampled. judgment sample
49. Sampling risk occurs when the auditor
a. uses an inappropriate audit procedure
b. fails to recognize exceptions
c. tests less than the entire population
d. identifies weaknesses in clients internal control system
50. When the auditor goes through a population and selects items for the sample without regard to
their size, source or other distinguishing characteristics, this is called
a. block selectionc. systematic selection
b. haphazard selectiond. statistical selection
51. The risk that the auditor is willing to take of accepting a control as being effective when it is not
is
a. tolerable deviation ratec. estimated population deviation rate
b. acceptable risk of overrelianced. finite correction factor
52. The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to
the:
a. Allowable risk of tolerable misstatement.c. Type I Error
b. Preliminary estimates of materiality levels.d. Type 2 Error
53. The true deviation rate is
a. the number of deviations in the population divided by the sample size
b. the number of items in the population multiplied by the number of deviations in the sample
c. the number of deviations in the sample divided by the sample size
d. the number of deviations in the population divided by the population size
54. An advantage of statistical sampling over nonstatistical sampling is that statistical sampling
helps an auditor to plan the
a. sample sizec. nature and timing of test
b. sampling riskd. report to be issued
55. Difference estimation, ratio estimation, and mean-per-unit estimation are all techniques that
constitute the general class of methods called
a. attribute samplingc. block sampling
b. monetary unit samplingd. variables sampling
56. The method used to measure the estimated total error amount in a population when there is
both a recorded value and an audited value for each item in the sample is
a. difference estimationc. ratio estimation
b. mean-per-unit estimationd. monetary-unit sampling
57. If the size of the errors in the population is proportionate to the recorded value of the population
items, smaller sample sizes will be generated using
a. difference estimationc. ratio estimation
b. mean-per-unit estimationd. monetary unit sampling
58. The auditor is concerned with the audited value rather than the error amount of each item in the
sample when using
a. difference estimationc. ratio estimation
b. mean-per-unit estimationd. monetary-unit sampling
59. Which of the following is not a characteristic of probability-proportional-to-size sampling?
a. Using a sample selection technique in which the same account balance could be selected
more than once.
b. Selecting a random starting point and then sampling every nth peso unit.

AT-3rdBatch-FinPB

Page 20 of 24

c. Combining negative and positive peso error items


d. Defining the sampling unit as an individual peso and not as an individual account balance.
60. What is the relationship of the following factors
controls?
a
Expected Deviation RateInverse
RelianceoninternalInverse
control
Tolerable deviation rateDirect
Population SizeNo Effect

to sample size when using sampling on tests of


b
Direct
Inverse

c
Inverse
Direct

d
Direct
Direct

Inverse
No Effect

Direct
Direct

Inverse
No Effect

61. What is the relationship of the following factors to sample size when using sampling on
substantive tests?
abcd
Reliance on other substantiveInverseDirectInverseDirect
test
Overall assurance requiredInverseDirectDirectInverse
Tolerable ErrorInverseInverseInverseDirect
Confidence LevelDirectInverseDirectDirect

62. Identify as to whether sampling or nonsampling risk, following the same order:
abc
The auditor tests onlySamplingSamplingNon-sampling
few samples
The auditor uses inappropriateNon-sampling Non-sampling Non-sampling
procedures
The auditor fails toSamplingNon-sampling Non-sampling
recognizeerrorin
sample
The auditor haphazardlySamplingSamplingNon-sampling
chose the samples

D
Sampling
Non-sampling
Non-sampling

Non-sampling

63. This refers to the approximation of the amount of the item in the absence of a precise means of
measurement
a. Allocationc. Provision
b. Accounting Estimated. Allowance
64. Which of the following statements is incorrect regarding audit of fair value measurements and
disclosures?
a. The auditor should obtain an understanding of the entity's process for determining fair value
measurements and disclosures and of the relevant control procedures sufficient to develop
an effective audit approach
b. Management is responsible for making the fair value measurements and disclosures
included in the financial statements while the auditor is responsible for ensuring that fair
value measurements are correct
c. The auditor should evaluate whether the fair value measurements and disclosures in the
financial statements are in accordance with GAAP in the Philippines
d. Where alternative methods for measuring fair value are available under GAAP in the
Philippines, or where the method of measurement is not prescribed, the auditor should
evaluate whether the method of measurement is appropriate in the circumstances under
GAAP in the Philippines

65. A representation letter issued by a client


a. is essential for the preparation of the audit program
b. is a substitute for testing
c. does not reduce the auditors responsibility
d. reduces the auditors responsibility only to the extent it is relied upon
66. When the external auditor intends to use specific work of internal auditing, the external auditor
should
a. evaluate and test that work to confirm the adequacy for external auditors purposes
b. reperform the procedures done by the internal auditors
c. place no reliance since internal auditors are not independent of management

AT-3rdBatch-FinPB

Page 22
21 of 24

76. Which
d. ask of
management
the following
to attest
is nottoa the
basic
independence
element of an
ofaudit
the internal
report?auditors
a. opening paragraphc. opinion paragraph
paragraphd.
starting
and would
completion
dates not
of the
audit
67.b.Inscope
which
of the following
cases
an auditor
need
the services of an expert?
a. The measurement of work completed and to be completed on contracts in progress
Legal of
opinions
concerning
of agreements,
statutes and regulations
77.b.Which
the following
is notinterpretations
a basis of dating
the audit report?
c.
of certain
types
of assets like land and buildings
a. Valuations
when the audit
fee was
collected
d.
the companys
control
b. Evaluating
as of the completion
date ofinternal
the audit
c. as of any date earlier than the date on which the financial statements are signed of
approved by management
68. When determining the need to use the work of an expert, the auditor would least likely
d. upon completion of fieldwork
consider:
a. the materiality of the financial statement item being considered;
the risk
based on the
nature
and relevant
complexity
of the an
matter
being considered
78.b.Which
ofof
themisstatement
following procedures
is most
likely
to obtain
information
about events
c.
availability
of
the
expert
or conditions that cast significant doubt on the entitys ability to continue as a going concern
d. the quantity
and assessed
quality ofbyother
audit evidence available.
beyond
the period
management?
a. Inspectionc. Inquiry
b. Observingd. Analysis
69. If as a result of the work of the expert, the auditor decides to issue a modified auditors report,
the auditor should not
the believes
work of the
79.a.Ifdescribe
the auditor
thatexpert
the entity will not be able to continue as a going concern and the
b. refer and
name theare
expert
even on
without
permission
financial
statements
prepared
a going
concern, the auditors report should include
c. Unqualified
describe the opinion
extent ofwith
the experts
workparagraphc. Adverse opinion
a.
explanatory
d.
and name
the expert
only after
obtaining permission from the expert
b. refer
Qualified
opiniond.
Disclaimer
of opinion
80. The
70.
These
management
represent information
denied the in
auditors
the financial
requeststatements
that management
regardinghas
distinguishable
to extend its assessment
components
or its
of
industry
going and
concern
geographical
ability. However,
aspects ofthe
anauditors
entity other procedures are sufficient to assess
a. related
the
appropriateness
party information
of management use of the going concern assumption in the preparation of
the
b. segment
financialinformation
statements. The auditor should issue:
a.
c. confirmation
unqualified opinionc. adverse opinion
d. unqualified
b.
document accompanying
opinion with explanatory
financial statements
paragraphd. disclaimer of opinion
81. A
71.
If matter
comparative
whosefinancial
outcomestatements
depends onare
future
presented
actions
and
or the
events
present
not under
auditorthe
has
direct
audited
control
bothof the
entity but
years,
the may
auditor
affect
should:
the financial statements
a. reissue
Uncertaintyc.
the reportc.
subsequent
redate event
the report
b. accounting
dual date theestimated.
reportd. update
projection
the report
82. An
72.
When
auditor
financial
has astatements
responsibility
of a to
prior
evaluate
periodthe
aregoing
presented
concern
on astatus
comparative
of an audit
basis
client
withfor
financial
a (an)
statements
a. Period ofofone
theyear
current
fromperiod,
the balance
the continuing
sheet date.
auditor is responsible for
a.
b. expressing
Period of one
dual
year
dated
from
report
the date of the auditors report.
c. Period
b.
updating
of the
tworeport
years on
from
thethe
previous
balancefinancial
sheet date
statements only if there has been no change in
d. Indefinite
the opinionperiod.
c. updating the report on the previous financial statements only if the previous audit report
was qualified and the reasons for the qualification no longer exists
73.d.All
the following
mayonindicate
substantial
doubt
as to an entitys
ability
to opinion
continue as a going
updating
the report
the previous
financial
statements
regardless
of the
concern
except
previously expressed
a. Work stoppagesc. Purchase of catastrophe insurance
b. Legal proceedingsd. Operating losses
83. The objective of the consistency standard is to provide assurance that
there audited
are no variations
in the format
presentation
of financial
statements
74.a.When
financial statements
areand
presented
in a clients
document
containing other
b.information,
substantiallythe
different
and events are not accounted for on an identical basis
auditortransactions
should
c.
auditor
is consulted
before material
changes
are made
in thethe
application
of accounting
a. the
Perform
inquiry
and analytical
procedures
to ascertain
whether
other information
is
principles
reasonable.
d. Add
the comparability
ofparagraph
financial statements
between
periods
is not
materially
affectedon
bythe
b.
an explanatory
to the auditors
report
without
changing
the opinion
changes
instatements.
accounting principles without disclosure
financial
c. Perform the appropriate substantive auditing procedures to corroborate the other
information.
84.d.ARead
dual the
dated
report
contains the
dates of a that
subsequent
event and
date
the financial
other
information
to determine
it is consistent
withthethe
audited
a. auditor
completed fieldwork in the clients office
statements.
b. financial statements were prepared
c. subsequent event was resolved
d. audit report was delivered
75. Audit report may be addressed to the:
Audited EntityStockholder
Chair of the Audit
Committee
85. If the principal auditor decides to take responsibility for the work of other auditors,
the principal
No
auditor
should:
a.
No
Yes
No
a. modify
the opening paragraph
b.
Yes
Yes
Yes
b. modify
the opening and Yes
opinion paragraphs
c.
Yes
Yes
c. modify
all three paragraphs
d.
Yes
No
d. issue a standard audit report

AT-3rdBatch-FinPB

Page 23 of 24

86. If an auditor wishes to emphasize a matter included in the financial statements by adding an
explanatory paragraph, the following paragraphs should also be modified
a. introductory paragraphc. opinion paragraph
b. scope paragraphd. none
87. Which of the following modifications of the standard auditors report does not require an
explanatory paragraph?
a. reference to other auditorsc. scope limitation
b. inconsistencyd. adverse opinion
88. When determining whether an exception is highly material, the extent to which the exception
affects different parts of the financial statements must be considered. This is referred to as
a. Materialityc. financial analysis
b. Pervasivenessd. ratio analysis
89. The following circumstances result in a modified, but unqualified report, except:
a. inconsistent application of accounting principles
b. emphasis of a related party transaction that is disclosed in a footnote
c. Lack of disclosure of a restriction on payment of dividends
d. Other auditors perform work for which the principal auditor does not assume responsibility
90. According to PSA 710, how does a CPA issue his independent audit report when comparative
financial statements are issued by the client?
a. For comparative financial statements, the auditors report refers to each period that financial
statements are presented.
b. The auditors report only refers to the financial statements of the current period.
c. The auditors report refers to the financial statements of the current period and explicitly
refers to the financial statements of the prior period(s) as corresponding figures.
d. The auditor issues separate audit report for financial statements of different periods.
91. Special purpose auditors report is one issued in connection with the independent audit of
financial information other than the auditors report and may include the following, except:
a. compliance with contractual agreements
b. summarized financial statements
c. specified accounts, elements of accounts, or items in a financial statement
d. financial statements prepared in conformity with generally accepted accounting principles
92. Which of the following is a criteria least likely required of assurance engagements
a. a subject matterc. an engagement process
b. a two-party relationshipd. a suitable criteria
93. Which of the following describes high level of assurance?
a. It refers to the professional accountant having obtained sufficient external and internal
appropriate evidence to be satisfied that the subject matter is plausible in the circumstances
b. It refers to the professional accountant having obtained evidence based on procedures
agreed upon between the practitioner and the intended users to be satisfied that findings be
reported to the intended users
c. It refers to the professional accountant having obtained sufficient appropriate evidence to
conclude that the subject matter conforms in all material respects with identified suitable
criteria
d. it refers to the professional accountant having obtained sufficient evidence to conclude that
he has no knowledge of any required modifications to be made in the financial statements
in order for them to conform of prescribed criteria

94. Which of the following is least likely an objective of an assurance engagement?


a. The engagement is intended to prevent the issuance of materially misleading information
b. The engagement is intended to enhance the credibility of information about a subject matter
c. An assurance engagement is intended for a professional accountant to express a
conclusion that provides the intended uses with a level of assurance about the subject
matter
d. The engagement is intended to provide a level of assurance to be issued by a professional
accountant about the information of being in conformity, in all material respects , with
suitable criteria

AT-3rdBatch-FinPB

Page 24 of 24

95. Which of the following is least likely a subject matter of an assurance engagement?
a. Datac. Compliance with regulations
b. Systems and processesd. Degree of loyalty of employees to their employer
96. Which of the following is least likely an objective of an assurance engagement?
a. The engagement is intended to prevent the issuance of materially misleading information
b. The engagement is intended to enhance the credibility of information about a subject matter
c. An assurance engagement is intended for a professional accountant to express a
conclusion that provides the intended uses with a level of assurance about the subject
matter
d. The engagement is intended to provide a level of assurance to be issued by a professional
accountant about the information of being in conformity, in all material respects , with
suitable criteria

97. Which is incorrect of the intended user?


a. the intended user is the person or class of persons for whom the professional accountant
prepares the report for a specific use or purpose
b. The intended user is always limited to the addressee of the professional accountants report
c. The responsible party may also be one of the intended users
d. The intended user(s) may not be the addressee of the professional accountants report
98. The objective of a review of interim financial information of a public entity is to provide an
accountant with a basis for reporting whether
a. material modifications should be made to conform with GAAP
b. a reasonable basis exists for expressing an updated opinion regarding the financial
statements that were previously audited
c. condensed financial statements or pro forma financial information should be included in a
registration statement
d. the financial statements are presented fairly in accordance with GAAP
99. Which of the following is not a basis of the auditor in determining the specific nature, timing
and extent of review procedures?
a. Assessed level of control risk
b. The extent to which a particular item is affected by management judgment
c. The materiality of transactions and account balances
d. Any knowledge acquired by carrying out reviews of the financial statements for prior
periods.
100. Which of the following is incorrect about agreed-upon procedures engagement?
a. An engagement to perform agreed-upon procedures may involve the auditor in performing
certain procedures concerning individual items of financial data.
b. Users of the agreed-upon procedures report assess for themselves the procedures and
findings reported by the auditor and draw their conclusion from the auditors work.
c. The auditor should be independent of the financial data or financial statements where
agreed procedures have to be applied.
d. The report is restricted to those parties that have agreed to the procedures to be preformed.

101.
a.
b.
c.
d.
102.
a.
b.
c.
d.

A CPA's 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 opinion about whether management's assertion is fairly stated.
Negative assurance that control risk has not been assessed.
An acknowledgment of responsibility for the sufficiency of the procedures.
When compiling financial statements of an non-public entity, an accountant should
review agreements with financial institutions for restrictions of cash balances
understand the accounting principles and practices of the entitys industry
inquiry of key personnel concerning related parties and subsequent event
perform ratio analyses of the financial data of comparable periods

- end of examinationGood Luck!

AT-3rdBatch-FinPB

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