CHAPTER 2: THE PROFESSIONAL STANDARDS (NO 20, 40, 60)

1. In the auditing environment, failure to meet auditing standards is often:

a. An accepted practice c. Conclusive evidence of negligence

b. A suggestion of negligence d. Tantamount to criminal behavior

2. Audit standard requires an auditor to:

a. Perform procedures that are designed to detect all instances of fraud.

b. Provide reasonable assurance that the financial statements are not materially misstated.

c. Issue an unmodified opinion only when the auditor is satisfied that no instances of fraud have
occurred.

d. Design the audit program to meet financial statement users' expectations concerning fraud

3. Which of the following underlies the application of generally accepted auditing standards,
particularly the standards of field work and reporting?

a. Element of internal control c. Element of reasonable assurance.

b. Elements of materiality and risk. d. Element of corroborating evidence.

4. Which of the following best describes what is meant by generally accepted auditing standards?

a. Audit objectives generally determined on audit engagements.

b. Acts to be performed by the auditor.

c. Measures of the quality of the auditor’s performance.

d. Procedures to be used to gather evidence to support financial statements.

5. Requirements for training, independence and due professional care are included in which group of
the generally accepted auditing standards?
 a. Fieldwork b. General c. Reporting d. Quality control

6. The general standards of the generally accepted auditing standards include a requirement that

a. The fieldwork to be adequately planned

b. The auditor’s report to state whether the financial statements are presented In conformity with
PFRS.

c. Due professional care be exercised by the auditor.

d. The auditor to obtain sufficient, competent evidential matter.

7. Under GAAS, which of the following reflects a concept from the general group?

a. The confirmation of accounts receivable.

b. Completing an internal control questionnaire.

c. The initial planning of the audit with the audit partner, manager senior, staff and client
personnel.

d. The assignment of audit personnel to an engagement when they have no financial interest.

8. What is the general character of the three generally accepted auditing standards classified as
general standards?

a. Criteria for competence, independence, and professional care of individuals performing the
audit.

b. Criteria of evidence gathering.

c. Criteria for the content of the auditor’s report on financial statements and related footnote
disclosures.

d. The requirements for the planning of the audit and supervision of assistant if any.

A
9. What is the general character of the three generally accepted auditing standards classified as
standards of field work?

a. The competence of persons performing the audit

b. Criteria for the content of the auditor’s report on financial statements and related footnote
disclosures

c. The criteria of audit planning and evidence-gathering.

d. The need to maintain an independence in mental attitude in all matters relating to the audit

10. Which of the following does not pertain to the standards of fieldwork?

a. Adequate planning and supervision.

b. Obtaining sufficient competent evidential matter.

c. Proper study and evaluation of internal control as a basis for reliance thereon.

d. Technical training and proficiency.

11. While performing services for their clients, professional accountants have a duty to provide a level
of care which is

a. Reasonable c. Superior

b. Greater than average d. Guaranteed to be free from error

12. The standard of due audit care requires the auditor to

a. Make perfect judgment decisions in all cases

b. Ensure that the financial statements are free from error

c. Possess skills clearly above the average for the profession

d. Apply judgments in a conscientious manner, carefully weighing the relevant factors before
reaching a decision.
D
13. The third standard of field work states that sufficient competent evidential matter may in part be
obtained through the following methods except

a. Inspection b. Observation c. Confirmation d. Reconciliation

14. The generally accepted standards of reporting encompass all of the following except

a. Consideration of an entity’s internal control

b. Consistent application of accounting principles

c. Informative disclosures

d. Conformity of financial statements with GAAP

15. The third generally accepted standard of reporting in auditing refers to

a. Whether financial statements are presented in conformity with GAAP.

b. Whether accounting principles lave been consistently observed

c. Adequacy of disclosures.

d. An expression of opinion on the financial statements taken as a whole.

16. The objective of the consistency standard is to provide assurance that

a. There are no variations in the format and presentation of financial statements.

b. Substantially different transactions and events are not accounted for on an identical basis.

c. The auditor is consulted before material changes are made to the application of accounting
principles.

d. The comparability of financial statements between periods is not materially affected by changes
in accounting principles without disclosure.

D
17. The fourth generally accepted auditing standard of reporting requires an auditor to render a report
whenever an auditor's name is associated with financial statements. The overall purpose of the
fourth standard of reporting is to require that reports:

a. State that the examination of financial statements has been conducted in accordance with
generally accepted auditing standards.

b. Indicate the character of the auditor’s examination and the degree of responsibility assumed by
the auditor.

c. Imply that the auditor is independent in mind as well as in appearance with respect to the
financial statements under examination.

d. Express whether the accounting principles used in preparing the financial statements have been
applied consistently in the period under examination.

18. The fourth reporting standard requires the auditor's report to contain an expression of opinion
regarding the financial statements taken as a whole, or an assertion to the effect that an opinion
cannot be expressed. The objective of the fourth standard is to prevent

a. An auditor from reporting on one basic financial statement and not on the others.

b. An auditor from expressing different opinions on each of the basic financial statements.

c. Management from reducing its final responsibility for the basic financial statements

d. Misinterpretations regarding the degree of responsibility the auditor is assuming

19. The auditor is not liable to his client for

a. Negligence c. Dishonesty

b. Fraud d. Errors in application judgment

20. According to Philippine Standards on Auditing, because there are inherent limitations in an audit
that affect the auditor’s ability to detect material misstatements, the auditor is:

a. A guarantor but not an insurer of the statements.

b. An insurer but not a guarantor of the statements

 c. Neither a guarantor nor an insurer of financial statements

d. Both a guarantor and an insurer of the financial statements.

21. An auditor need not abide with a specific requirement of PSA if the auditor believes that:

a. The amount is insignificant

b. The requirement of the PSA is impractical to perform.

c. The requirement of the PSA is impossible to perform.

d. Any of the given three choices is correct.

22. The Philippine Standards on Auditing can be described as

a. Providing very specific guidance about the specific activities an auditor must perform on each
engagement.

b. Similar to Philippine Financial Reporting Standards (PFRS)

c. Defining the minimum standards of performance for an auditor,

d. Providing assurance that an auditor will not issue an inappropriate audit opinion

23. Which of the following best describes the function of Auditing and Assurance Standards Council
(AASC)?

a. To establish and promulgate generally accepted accounting principles in the Philippines.

b. To investigate violations of Accountancy Law.

c. To promulgate auditing standards, practices and procedures that shall be generally accepted by
the accounting profession in the Philippines.

d. To determine the minimum requirements for admission in the accounting profession.

24. Pronouncements issued by AASC may be in the form of

 Philippines Philippine Standards Philippine Standards Philippine Standards
sStandards on Assurance oon Review on Related Services
on Auditing Engagements Engagements
a. Yes Yes Yes Yes

b. Yes No Yes No

c. Yes Yes Yes No

d. No Yes No Yes

25. Which of the following is correct about Philippine Auditing Practices Statements (PAPS)?

a. These are issued to resolve issues relating to PSAs.

b. These statements are intended to have the authority of PSAs.

c. These statements are issued to provide practical assistance to auditors in implementing PSAs or
to promote good practice.

d. These statements are forms of interpretations issued by AASC.

26. Which of the following pronouncements issued by AASC IS designed to resolve issues relating to
PSAs?

a. Philippine Auditing Practices Statements

b. Interpretations

c. Statements of Auditing Standards in the Philippines

d. Generally Accepted Auditing Standards

27. Based on the structure of AASC pronouncements, related services include?

Assurance Review Agreed-upon Compilation

procedures

a. Yes Yes No No
 b. No No Yes Yes

c. Yes Yes Yes No

d. No Yes Yes Yes

28. The risk that an auditor will fail to uncover a material misstatement is eliminated

a. If the client has good internal control.

b. If auditor observes the Code of Professional Ethics.

c. When the auditor complies with PSA.

d. Under no circumstances.

29. The auditor's best defence when material misstatements are not unwanted is to have conducted the
audit:

a. In accordance with PSA.

b. As effectively as reasonably possible.

c. In a timely manner.

d. Only after an adequate investigation of the management team

30. The failure of the auditor to meet the requisites of PSA is

a. An accepted practice. c. An evidence of negligence.

b. A suggestion of negligence. d. Tantamount to criminal behavior.

31. A firm of independent auditors must establish and follow quality control policies and procedures
because these standards

a. Are necessary to meet increasing requirements of auditors’ liability as insurers.

 b. Are required by the SEC for auditors of all firms.

c. Include formal filing of records of such policies and procedures to a regulatory agency.

d. Give reasonable assurance that the firm as a whole will comply with professional standards.

32. The main purpose of implementing a system of quality control is to provide the firm with reasonable
assurance that:

a. The firm and its personnel will comply regulatory legal requirements.

b. The audit will be performed in accordance with PSA.

c. The firm will issue a report that is appropriate in the circumstances.

d. All of the above.

33. The nature and extent of a CPA firm’s quality control policies and procedures depend on

The CPA’s The Nature of the CPA Cost-benefit

firm Firm’s Practice considerations

a. Yes Yes Yes

b. Yes Yes No

c. Yes No Yes

d. No Yes Yes

34. Which of the following is not an essential component of quality control?

a. Policies and procedures to ensure that firm personnel are actively engaged in marketing
strategies

b. Policies and procedures to ensure that the work performed by firm personnel meet applicable
professional standards

c. Policies to ensure that personnel maintain their independence in fact and in appearance
 d. Policies that ensure that monitoring activities are effectively applied

35. The objective of the quality control policies to he adopted by an audit firm will ordinarily
incorporate all of the following except:

a. Risk assessment c. Engagement’s performance

b. Leadership responsibilities d. Human resources

36. The person responsible for the audit engagement and its performance, and for the auditor’s report
that is issued in behalf of the firm is the

a. Quality control reviewer c. Client’s management

b. Engagement partner d. Audit manager

37. Which of the following is an element of a CPA firm’s quality control system that should be
considered in establishing its quality control policies and procedures?

a. Complying with laws and regulations c. Independence

b. Using statistical sampling techniques d. Consideration of audit risk and materiality

38. Elements of a CPA firm’s quality control that should be considered in establishing its quality control
policies and procedures must include:

Monitoring Ethical Requirement Engagement Performance

a. Yes Yes Yes

b. Yes Yes No

c. Yes No Yes

d. No Yes Yes

A
39. Which of the following quality control objectives would be least important to the auditor?

a. Engagement performance c. Determination of audit fee

b. Human resources d. Independence

40. A quality control policy that requires personnel in the firm to adhere to independence, integrity,
objectivity, confidentiality and professional behavior, relates to

a. Ethical Requirements c. Assignment

b. Human resources d. Consultation

41. Which of the following quality control policies and procedures does not relate to human
resources and assignment?

a. Emphasize independence of mental attitude in training programs and in supervision and review
of the audits.

b. Monitor the effectiveness of recruiting programs.

c. Identify criteria which will be considered in evaluating individual performance and expected
proficiency.

d. Identify on a timely basis the staffing requirements of specific audits.

42. In pursuing a CPA firm's quality control objectives, a CPA firm may maintain records implicating
which partners or employees of the CPA firm were previously employed by the CPA firm‘s clients.
Which quality control element would this be most likely to satisfy?

a. Monitoring c. Independence

b. Assignment d. Skills and competence

43. A procedure in which a quality control partner periodically tests the application of quality control
procedures is most directly related to which quality control element?
 a. Engagement performance c. Monitoring

b. Independence, integrity, and objectivity d. Personnel management

44. In connection with the element of engagement performance, a CPA firm’s stem of quality control
should ordinarily provide that all personnel

a. Have the knowledge required to enable them to fulfill responsibilities assigned

b. Review and test compliance with the firm’s quality control policies and procedures.

c. Seek assistance from persons having appropriate levels of knowledge, judgment and authority.

d. Appropriately maintain independence when providing assurance

45. Maintaining or providing access to adequate reference libraries and other authoritative sources is a
procedure that is most likely performed to comply with the policy of

a. Monitoring c. Consultation

b. Skills and competence d. Assignment

46. Which of the following quality control procedures relates to engagement performance?

a. Hiring c. Professional development

b. Direction d. Advancement

47. Within the context of quality control, the primary purpose of continuing professional education and
training activities is to enable a CPA firm to provide its personnel with:

a. Technical training that assures proficiency as a valuation expert.

b. Professional education that is required in order to perform with due professional care.

c. Knowledge required to fulfill assigned responsibilities.

 d. Knowledge required to perform a peer review.

48. In compliance with the element of human resources, the firm should address issues relating to

a. Engagement performance c. Consultation

b. Assignment of engagement teams d. Differences of opinion

49. In pursuing the firm’s quality control objectives with respect to assigning personnel to engagements,
the auditors may use policies and procedures such as

a. Designating senior qualified personnel to provide advice on accounting or auditing questions

throughout the engagement.

b. Requiring timely identification of the staffing requirements of specific engagements so that

enough qualified personnel can be made available.

c. Establishing at entry levels a policy for recruiting that includes minimum standards of academic
preparation and accomplishments.

d. Evaluate clients upon occurrence of specified events to determine whether the relationships
ought to be continued.

50. In connection with the element of assignment, a CPA firm's system of quality control should
ordinarily establish procedures that

a. Provide adequate supervision at all levels, considering the training, ability and experience of the
personnel assigned.

b. Encourage personnel to use authoritative sources on complex or unusual matter.

c. Require preparation of time budgets for audits to determine manpower requirements and to
schedule the audit work.

d. Establish qualifications deemed necessary for various levels of responsibility within the firm.

C
51. Which of the following is a policy that must be established to comply with the quality control
engagement performance?

a. The firm is to be staffed by personnel who have attained and maintained the technical
standards and professional competence required to enable them to fulfill their responsibilities.

b. There is a sufficient direction, supervision, and review of work performed at all levels to provide
reasonable assurance that the work performed meets appropriate standards of quality.

c. The firm should assign responsibility for each engagement to an engagement partner.

d. The continued adequacy and operational effectiveness of quality control policies and
procedures are to be observed.

52. The work performed by the assistants should be reviewed by personnel of at least equal
competence to consider all of the following except:

a. Whether the conclusions expressed are consistent with the results of the work performed.

b. Whether the work was adequately performed and documented.

c. Whether the objectives of the audit have been achieved.

d. Whether the engagement personnel maintained independence.

53. The primary factor that should be considered in determining the extent of supervision needed by an
assistant is the assistant's

a. Willingness to exercise due care c. Professional certification

b. Competence d. Independence

54. The primary purpose of establishing quality control policies and procedures for deciding whether to
accept a new client is to

a. Enable the CPA firm to attest to the integrity of the client management.

b. Satisfy the CPA firm‘s duty to the public concerning the acceptance of new clients.

c. Minimize the likelihood of association with clients whose management lacks integrity.
 d. Anticipate before performing any field work whether an unmodified opinion can be expressed.

55. In making a decision to accept or retain a client, the firm should consider

a. Its competence c. The integrity of the client’s management.

b. Its ability to comply with ethical d. All three should be considered.

requirements
D

56. A CPA firm's quality control procedures pertaining to the acceptance of a prospective audit client
would most likely include

a. Inquiry of management as to whether disagreements between the predecessor auditor and the
prospective client were resolved satisfactorily.

b. Consideration of whether sufficient competent evidential matter may be obtained to afford a

reasonable basis for an opinion.

c. Inquiry of third parties, such as the prospective client’s bankers and attorneys, about
information regarding the prospective client and its management.

d. Consideration of whether the internal control structure is sufficiently effective to permit a

reduction in the required substantive tests.

57. Quality control policies and procedures should provide the firm reasonable assurance that the
policies and procedures relating to the other elements of quality control are being effectively
applied. This statement defines the quality control element of

a. Planning c. Assignment

b. Independence, integrity and objectivity d. Monitoring

58. A deficiency in the firm’s system of quality control is an indication that:

a. The audit engagement was not performed in accordance with the professional standards.

b. The audit reports issued were not appropriate.

 c. Both a and b

d. Neither a nor b

59. It involves a study of appraisal by the Board or its duly authorized representatives, of the quality of
audit of financial statements through an evaluation of the quality control measures instituted by the
CPA firm to ascertain compliance with ethical and technical standards of public practice.

a. Quality review b. Peer review c. Compliance audit d. External audit

60. A body created to conduct an oversight of the quality of audit of financial statements by reviewing
the firm’s quality control is known as:

a. Quality Review Committee (QRC) c. Financial Reporting Standards Council (FRSC)

b. Educational Training Committee (ETC) d. Auditing and Assurance Service Council (AASC)

61. Which of the following is one of the functions of the QRC?

a. To promulgate accounting and auditing standards that will be generally accepted in the
Philippines.

b. To adopt a Code of Ethics for the practice of accountancy.

c. To evaluate periodically the performance of educational institutions offering accountancy

education.

d. To conduct a review on applicants for registration to practice public accountancy and render a
report which shall be attached to the application for registration

62. Which of the following is responsible for establishing auditing standards that will become generally
accepted in the Philippines?

a. Securities and Exchange Commission c. Commission on Audit

b. Financial Reporting Standards Council d. Auditing and Assurance Standards Council

D