Philippine Standard on auditing,

Chapter 1 he is required to comply with

those standards in order
Multiple Choice Questions A. Eliminate audit risk
B. Meet the minimum requirement when
Audit in General providing audit services
C. To reduce the auditor's
1. Recording, classifying, and responsibility
summarizing economic events in D. Eliminate the professional
logical manner for the purpose of judgment in resolving audit issues
providing financial information
for decision making is commonly 5. The criteria for evaluating
called: quantitative information vary. For
A. Finance example, in the case of an
B. Auditing independent audit of financial
C. Accounting Statements by CPA firms, the
D. Economics criteria are usually the
A. Philippine Standards on Auditing
2. An audit involves ascertaining B. Philippine Financial Reporting
the degree of correspondence Standards
between assertions and established C. National Internal Revenue Code
criteria. In the case of financial D. Regulations of the Securities and
statement audit, which of the Exchange Commission
following is not a valid criterion?
A. Philippine Standards on Auditing 6. In "auditing" financial
B. International Accounting accounting data, the primary
Standards concern is with:
C. Authoritative financial reporting A. Determining whether recorded
framework information properly reflects the
D. Accounting standards generally economic events that occurred
accepted in the Philippines during the accounting period.
B. Determining if fraud has occurred.
3. The subject matter of the C. Determining if taxable income has
financial audit is the been calculated correctly.
A. Financial statements D. Analyzing the financial
B. Economic data information to be sure that it
C. Assertions complies with government
D. Operating data requirements.

4. Whenever a CPA professional is 7. An audit of financial statements

engaged to perform an audit of is conducted to determine if the
financial statements according to
A. Organization is operating B. Philippine Standards on Auditing.
efficiently and effectively C. Generally accepted accounting
B. Auditee is following specific principles
procedures or rules set down by D. Quality Control Standards
some higher authority
C. Overall financial statements are 10. Most of the independent
stated in accordance with the auditor's work in formulating an
applicable financial reporting opinion on financial statements
framework. consists of
D. Client's internal control is A. Obtaining and examining evidence
functioning as intended. B. Examining cash transactions
C. Comparing recorded accountability
8. In determining the primary with assets
responsibility of the external D. Studying and evaluating internal
auditor for an audit of a control
company's financial statements,
the auditor owes primary 11. Which of the following is more
allegiance to: difficult to evaluate objectively?
A. Stockholders, creditors and the A, Efficiency and effectiveness of
investing public. operations
B. The management of the audit B. Compliance with applicable
client because the auditor is government regulations
hired and paid by management C. Presentation of financial
C. The Auditing and Assurance statements in accordance with the
Standards Council, because it applicable financial reporting
determines auditing standards and criteria
auditor's responsibility. D. All the given criteria are
D. The audit committee of the audit equally difficult to evaluate
client because that committee is objectively
responsible for coordinating and
reviewing all audit activities 12. An audit that involves obtaining
within the company. and evaluating evidence about the
efficiency and effectiveness of an
9. An audit involves ascertaining entity's operating activities in
the degree of correspondence relation to specified objectives
between assertions and established is a(n):
criteria. In the case of an audit A. External audit
of financial statements, which of B. Compliance audit
the following would be a valid C. Operational audit
criterion? D. Financial statement audit
A. International Standards on
Auditing.
13. In financial statement audits, C. It concentrates on seeking out
the audit process should be aspects of operations in which
conducted in accordance with waste would be reduced by the
A. The audit program introduction of controls.
B. Philippine Standards on Auditing D. It requires a constant review of
C. Philippine Accounting Standards the administrative controls by
D. Philippine Financial Reporting internal auditors as they relate
Standards to operations of the company.

14. Internal auditors are expected 17. A typical objective of an

to add value to the organization operational audit is to determine
through improved operational whether an entity's
effectiveness. In addition, their A. Internal control structure is
responsibilities include all the adequately operating as designed
following except: B. Operational information is in
A. Reviewing the reliability and accordance with generally accepted
integrity of information. accounting principles.
B. Ensuring compliance with the C. Specific operating units are
company's accounting policies. functioning efficiently and
C. Verifying accounting information effectively
for external users. D. Financial statements present
D. Ensuring compliance with fairly the results of operations
applicable governmental
regulations. 18. One objective of an operational
audit is to:
15. Which of the following types of A. Determine whether the financial
audit uses laws and regulations as statements fairly present the
its criteria? entity's operations.
A. Operational audit B. Evaluate the feasibility of
B. Financial statement audit . attaining the entity's operational
C. Compliance audit objectives.
D. Performance audit C. Make recommendations for
improving performance.
16. Which of the following best D. Report on the entity's relative
describes an operational audit? success in attaining profit
A. It attempts of verifying the fair maximization.
presentation of a company's
results of operations. 19. An audit designed to provide
B. It concentrates on implementing reasonable assurance of detecting
financial and accounting control violations of a specific
in a newly organized company. provisions of contracts or grant
agreements would be called a(n):
A. Performance audit A. Operational audit.
B. Management audit B. Compliance audit.
C. Operational audit C. Financial statement audit.
D. compliance audit D. Production audit.

20. The auditor communicates the 24. Which of the following is not
results of his or her work through one of the major differences
the medium of the between financial and operational
A. Engagement letter between auditing?
B. Audit report. A. The financial audit is oriented
C. Management letter to the past, but an operational
D. Financial statements audit concerns performance for the
future.
21. When performing an operational B. The financial audit report has
audit, the internal audit team widespread distribution, but the
must first determine that: operational audit report has
A. A financial audit has been limited distribution.
performed by an independent C. Financial audits deal with the
auditor. information on the financial
B. A financial audit has been statements, but operational audits
performed by an internal auditor. are concerned with the information
C. A review was performed by either in the ledgers and journals.
an independent or an internal D. Financial audits are limited to
auditor. matters that directly affect the
D. Specific criteria are developed fairness of the financial
to define effectiveness. statement presentation, but
Operational audits cover any aspect
22. Which of the following types of of efficiency and effectiveness.
auditing is performed most
commonly by CPA's on a contractual 25. Independent external auditing
basis? can best be described as a
A. Internal auditing A. Professional activity that
B. Income tax auditing measures and communicates
Government auditing financial accounting data.
D. External auditing B. Subset of accounting.
C. Professional activity that
23. An examination of part of an attests to the fair presentation
organization's procedures and of financial statements.
methods for the purpose of D. Regulatory activity that prevents
evaluating efficiency and the issuance of misleading
effectiveness is what type of financial information
audit?
26. Which one of the following is 30. Internal auditing is an
NOT a major difference between independent appraisal function
operational and financial auditing? established within an organization
A. Purpose of the audit to examine and evaluate its
B. Distribution of the report activities. To that end, internal
C. Testing the effectiveness of auditing provides assistance to
internal controls A. External auditors
D. Audits of non-financial areas B. Stockholders
C. Management and the board of
27. The overall objective of directors
internal auditing is to D. Government
A. Attest to the efficiency with
which resources are employed 31. Which of the following groups
B. Ascertain that controls are costs could not be involved in an
justified operational audit?
C. Provide assurance that financial A. External auditors
data have been accurately recorded. B. Internal auditors
D. Assist members of the C. Government auditors
organization in the effective D. All of the above could be
discharge of their involved.
responsibilities.
32. Which of the following
28. Internal auditors report to: statements is not a distinction
A. The audit committee of the board between independent auditors and
of directors. internal auditors?
B. Management. A. Independent auditors represent
C. External auditors. third party users external to the
D. The government regulators. auditee entity, whereas internal
auditors report directly to
29. Which of the following is not a management
similarity between external and B. Although independent auditors
internal auditors? strive for both validity and
A. Both must be independent of the relevance of evidence, internal
company. auditors are concerned almost
B. Both must be competent. exclusively with validity.
C. Both follow a similar methodology C. Internal auditors are employees
in performing their audits. of the auditee, whereas
D. Both consider risk and independent auditors are
materiality deciding the extent of independent contractors.
their tests and evaluating results. D. The internal auditor's span of
coverage goes beyond financial
 auditing to encompass operational whole are free from material
and performance auditing. misstatement.
C. The procedures required to
Financial Statement Audit conduct an audit in accordance
with PSAs should be determined by
33. Which of the following has the the client who engaged the
primary responsibility for the services of the auditor.
fairness of the representations D. The auditor's opinion is not an
made in the financial statements? assurance as to the future
A. Client's management viability of the entity as well as
B. Audit committees the effectiveness and efficiency
C. Independent auditor with which management has
D. Board of Accountancy conducted the affairs of the
entity. .
34. An audit of the financial
statements of JMV Corporation is 36. The primary purpose of an
being conducted by an external independent financial statement
auditor. The external auditor is audit is to
expected to A. Provide a basis for assessing
A. Express an opinion as to the management's performance.
fairness of JMV's financial B. Comply with government regulatory
statements. requirements.
B. Express an opinion as to the C. Assure management that the
attractiveness of JMV for financial statements are unbiased
investment purposes. and free from material error.
C. Certify the correctness of JMV's D. provide users with an unbiased
financial statements. opinion about the fairness of
D. Examine all evidence supporting information reported in the
JMV's financial statements. financial statements.

35. Which of the following 37. Financial statements normally

statements about independent prepared in accordance with one,
financial statement audit is or a combination of:
correct? Other Philip
A. The audit of financial statements Philip Philipp authorita pine
relieves management of its pine ine tive or Financ
responsibilities for the financial Standa Account Comprehen ial
statements. rds On ing sive Report
B. An audit is designed to provide Auditi Standar financial ing
limited assurance that the ng ds reporting Standa
financial statements taken as a framework rds
A Yes Yes Yes Yes
 B No Yes Yes Yes A. Low
C No Yes No No B. high
D Yes No No No C. Moderate
D. None
38. By providing high level of
assurance on audit reports on 42. Theoretically, it is possible to
financial statements, the auditor provide an infinite range of
A. Guarantees the fair presentation assurance from a very low level of
of the financial statements assurance to an absolute level of
B. Confirms the accuracy of the assurance. In practice, the
financial statements. professional accountants cannot
C. Enhances the credibility of the provide absolute assurance because
financial statements. of the following except,
D. Assures the readers that A. The internal control has its
fraudulent activities of employees inherent limitations.
have been detected. B. The professional accountants
employ testing process.
39. The reason an independent C. The lack of expertise of the
auditor gathers evidence is to professional accountants in doing
A. Form an opinion on the financial a systematic engagement process.
statements. D. The use of judgment in gathering
B. Detect fraud. evidence and drawing conclusions
C. Evaluate management's performance. based on that evidence.
D. Evaluate the entity's internal
control. 43. Which of the following is not
one of the limitations of an audit?
40. The trait that distinguishes A. The use of testing
auditors from accountants is the: B. Limitations imposed by client
A. Auditor's ability to interpret C. Human error
accounting standards. D. Nature of evidence that the
B. Auditor's education beyond the auditor obtains
Bachelor's degree.
C. Auditor's ability to interpret 44. Which of the following
PFRS. statements does not properly
D. auditor's accumulation and describe a limitation of an audit?
interpretation of evidence related A. Many audit conclusions are made
to the company's financial on the basis of examining a sample
statements. of epidence.
B. Some evidence supporting peso
41. The level of assurance provided representation in the financial
by an auditor on an audit report statements must be obtained by
is:
 oral or written representation of
management. 47. The primary reason for an audit
C. Fatigue can cause auditors to by an external audit firm is
overlook pertinent evidence. A. To satisfy governmental
D. Many financial statement regulatory requirements.
assertions cannot be audited B. To guarantee that there are no
misstatements in the financial
45. Which of the following is one of statements.
the limitations of an audit? C. To provide increased assurance to
A. The possibility that management users as to the fairness of the
may prevent the auditor from financial statements.
performing the necessary audit D. To ensure that any fraud will be
procedures. discovered.
B. The likelihood that the auditor
may not be able to detect material 48. Which of the following is not
misstatements in the financial one of the general principles
statements because the auditor is governing the audit of financial
engaged only after year-end. statements?
C. The fact that most audit evidence A. The auditor should plan and
is persuasive rather than perform the audit with an attitude
conclusive in nature. of professional skepticism.
D. The risk that the auditor may not B. The auditor should obtain
possess the training and sufficient appropriate evidence
proficiency required by the primarily through inquiry and
engagement. analytical procedures to be able
to draw reasonable conclusions.
46. The independent audit is C. The auditor should conduct the
important to readers of financial audit in accordance with PSA.
statement because it D. The auditor should comply with
A. Determines the future stewardship the Philippine Code of
of the management of the company professional Ethics.
whose financial statements are
audited. 49. Financial statement users often
B. Measures and communicates receive unreliable financial
financial and business data information from companies. Which
involved in financial statements. of the following is not a common
C. Involves the objective reason for this?
examination of and reporting on A. Complex exchange transactions.
management prepared statements. B. Voluminous data.
D. Reports on the accuracy of all C. Bias in the preparation of
information in the financial financial statements.
statements.
D. Each of these choices is a common 53. Which of the following best
reason for unreliable financial describes the reason why an
information. independent auditor reports on
financial statements?
50. Which one of the following is A. A management fraud may exist and
not among the conditions that give it is more likely to be detected
rise to a demand by external users by independent auditors.
for independent audits of B. Different interests may exist
financial statements? between the company preparing the
A. Remoteness of users statements and the persons using
B. complexity of making economic the statements.
decisions C. A misstatement of account
C. Potential conflict of interest balances may exist and is
between users and preparers of the generally corrected as the result
statements of the independent auditor's work.
D. Consequence for making decisions D. A poorly designed internal
control system may be in existence.
51. Which of the following would not
represent one of the primary 54. Which of the following
problems that would lead the users statements does not describe a
to demand for i independent audits condition that creates a demand
of a company's financial for auditing?
statements? A. Conflict between an information
A. The downsizing of business and preparer and a user can result in
financial markets biased information.
B. Management bias in preparing B. Information can have substantial
financial statement economic consequences for a
C. The complexity of transactions decision-maker.
affecting financial statements. C. Expertise is often required for
D. The remoteness of the user to information preparation and
directly obtain financial verification
information from the company. D. Users can directly assess the
quality of information.
52. The need for independent audits
of financial statements can be 55. There are four conditions that
attributed to all of the following give rise to the need for
conditions except: independent audits of financial
A. Remoteness statements. One of these
B. Consequence conditions is consequence. In this
C. Complexity of subject matter context, consequence means that
D. Validity the:
A. Users of the statements may not
fully understand the consequences 58. The best statement of the
of their actions. responsibility of the auditor with
B. Auditor must anticipate all respect to audited financial
possible consequences of the statement is:
report issued. A. The auditor's responsibility on
C. Impact of using different fair presentation of financial
accounting methods may not be statements is limited only up to
fully understood by the users of the date of the audit report
the statements. B. The auditor's responsibility is
D. Financial statements are used for confined to the expression of
important decisions. opinion on the financial
statements audited.
56. Which of the following C. The responsibility over the
statements does not properly financial statements rests with
describe an element of theoretical the management and the auditor
framework of auditing? assumes responsibility with
A. The data to be audited can be respect to the notes of financial
verified statements.
B. Short-term conflicts may exist D. The auditor is responsible only
between managers who prepare the to his unmodified opinion but not
data and auditors who examine the for any other types of opinion.
data.
C. Auditors act on behalf of the 59. Which of the following is
management incorrect about responsibility for
D. An audit benefits the public financial statements?
A. Management is responsible for
57. Auditing is based on the fair presentation of the financial
assumption that financial data are statements.
verifiable. Data are verifiable B. Auditor is responsible for
when two or more qualified expressing an opinion on the
individuals, financial statements
A. Working together, can prove, C. Audit of financial statements
beyond doubt, the accuracy of the does not reduce management's
data. responsibility
B. Working independently, each reach D. Fair presentation of financial
essentially similar conclusions. statements is an implicit part of
C. Working independently, can prove, the auditor's responsibility:
beyond reasonable doubt, the
truthfulness of the data. 60. Which of the following one of
D. Working together, can agree upon the assumptions when auditing
the accuracy of the data. financial statements?
A. The data in the financial D. Most of the items in the
statements are verifiable. financial statements do not have
B. Compliance to PFRS results in supporting evidence.
fair presentation of financial
statements. 63. Which of the following is one of
C. Effective internal control system the limitations of an audit?
contributes little to the A. Nature of evidence obtained
reliability of financial B. Inadequacy of the accounting
information. records
D. The auditor should be independent C. Confidentiality of information
D. Scope limitations imposed by the
61. Which of the following entity
statements about independent
financial statement audit is 64. The assumption underlying an
incorrect? audit of financial statements is
A. Scope of the audit refers to that they will be used by
audit procedures deemed necessary A. Different groups for different
in the circumstances to achieve purposes.
the objective of the audit. B. The general public in making
B. The auditor's opinion enhances investment decisions.
the credibility of the financial C. The board of directors as basis
statements. of declaring cash dividends.
C. The phrase used to express the D. The regulatory agencies to verify
auditor's opinion is “present information that is relevant to
fairly, in all material respects”. their supervisory functions.
D. The risk that the auditor will
fail to uncover material 65. The procedures deemed necessary
misstatement is eliminated when in the circumstances to achieve
the auditor conducts the audit in the objective of a financial
accordance with PSAs. statement audit shall be
determined by the
62. Which of the following A. Client management
statements does not properly Br Independent auditor
describe a limitation of an audit? C. Internal Auditor
A. Many audit conclusions are made D. Those charged with governance
on the basis of examining a sample
of evidence. 66. Which one of the following is an
B. The work undertaken by the example of management expectations
auditor is permeated by judgment. from the independent auditors?
C. The auditor might misinterpret A. An active participant in
the evidence obtained. management decision making.
B. An internal source of expertise C. Reasonable assurance that all
of financial and other matters. material errors and irregularities
C. An expert providing a written have been detected.
communication as the product of D. A low level of assurance that all
the engagement. material errors and irregularities
D. Individuals who perform day-to- have been found.
day accounting functions on behalf
of the company. 69. Which of the following is not
one of the reasons why auditors
67. One of the conditions that give provide only reasonable assurance
rise to a demand for an external on the financial statements?
audit of financial statements is A. The auditor commonly examines a
expertise. Which of the following sample, rather than the entire
best describes the meaning of population of transactions.
expertise as used in this context? B. Accounting presentations contain
A. Auditors usually rely on the work complex estimates which involve
of an expert as a basis for uncertainty.
evaluating some assertions C. Fraudulently prepared financial
embodied in the financial statements are often difficult to
statements. detect.
B. The readers of the financial D Auditors believe that reasonable
statements must possess the assurance is sufficient in the
necessary expertise to be able to vast majority of cases.
understand the financial
statements. 70. The objective of the ordinary
C. Users usually lack the necessary examination by the independent
expertise to verify the auditor is the expression of an
reliability of the financial opinion on
information. A. The fairness of the financial
D. As experts, auditors are expected statements
to detect all material B. The accuracy of the financial
misstatements in the financial statements
statements. C. The accuracy of the annual report
D. The balance sheet and income
68. Upon completion of a financial statement
statement audit, the auditor has
A. No assurance that the financial 71. Auditors accumulate evidence to
statements are fairly resented A. Defend themselves in the event of
B. Absolute assurance that the a lawsuit
financial statements are fairly B. Justify the conclusions they have
presented otherwise reached
C. Satisfy the requirements of the has primary responsibility to be
Securities Acts of 1933 and 1934. an advocate for the client.
D. Enable them to reach conclusions B. The CPA firm is engaged and paid
about the fairness of the by the client, but the primary
financial statements and issue an beneficiaries of the audit are the
appropriate audit report. statement users.
C. Should a situation arise where
72. Which of the following is not there is no convincing
one of the reasons that auditor authoritative standard available,
provide reasonable, but not and there is a choice of actions
absolute assurance on the which could impact client's
financial statements? financial statements either
A. The auditor commonly examines a positively or negatively, the CPA
sample, rather than the entire is free to endorse the choice
population of transactions. which is in the client's interests.
B. Accounting presentations contain D. As long as CPA firms are
complex estimates which inherently competent, it is not required that
involve uncertainty. they remain unbiased.
C. Fraudulently prepared financial
statements are often difficult to
detect
D. Auditors believe that reasonable
assurance is sufficient in the
vast majority of cases.

73. The responsibility for the

preparation of the financial
statements and the accompanying
footnotes belongs to
A. The auditor
B. Management
C. Both management and the auditor
equally
D. Management for the statements and
the auditor for the notes

74. Which of the following

statements is true when the CPA
has been engaged to do an audit
engagement?
A. The CPA firm is engaged and paid
by the client; therefore, the firm
 Chapter 2 4. Which of the following best
describes what is meant by
Multiple Choice Questions generally accepted auditing
standards?
Generally Accepted Auditing A. Audit objectives generally
Standards (GAAS) determined on audit engagements.
B. Acts to be performed by the
1. In the auditing environment, auditor.
failure to meet auditing standards C. Measures of the quality of the
is often: auditor's performance.
A. An accepted practice D. Procedures to be used to gather
B. A suggestion of negligence evidence to support financial
C. Conclusive evidence of negligence statements.
D. Tantamount to criminal behavior
5. Requirements for training,
2. Audit standard requires an independence and due professional
auditor to: care are included in which group
A. Perform procedures that are of the generally accepted auditing
designed to detect all instances standards?
of fraud. A. Fieldwork.
B. Provide reasonable assurance that B. Genera
the financial statement are not C. Reporting
materially misstated. D. Quality control
C. Issue an unmodified opinion only
when the auditors satisfied that 6. The general standards of the
no instances of fraud have generally accepted auditing
occurred. standards include a requirement
D. Design the audit program to meet that
financial statement users A. The fieldwork to be adequately
expectations concerning fraud. planned.
B. The auditor's report to state
3. Which of the following underlies whether the financial statements
the application of generally are presented in conformity with
accepted auditing standards, PFRS.
particularly the standards of C. Due professional care be
field work and reporting? exercised by the auditor.
A. Element of internal control. D. The auditor to obtain sufficient,
B. Elements of materiality and risk. competent evidential matter.
C. Element of reasonable assurance.
D. Element of corroborating evidence. 7. Under GAAS, which of the
following reflects a concept from
the general group?
A. The confirmation of accounts D. The need to maintain an
receivable. independence in mental attitude
B. Completing an internal control In all matters relating to the audit
questionnaire. Cy
C. The initial planning of the audit
with the audit partner, manager, 10. Which of the following does not
senior, staff and client personnel. pertain to the standards of
D. The assignment of audit personnel Fieldwork?
to an engagement where they have A, Adequate planning and supervision
no financial interest. IM DEPPO. B. Obtaining sufficient competent
evidential matter.
8. C. Proper study and evaluation of
What is the general character of the internal control as a basis
three generally accepted For reliance thereon.
Auditing standards classified as D. Technical training and
general standards? proficiency.
A, Criteria for competence,
independence, and 11. While performing audit services
Professional care of individuals for their clients,
performing the audit. Professional accountants have a duty
B. Criteria of evidence gathering to provide a level of
C. Criteria for the content of the Care which is
auditors' report on Al Reasonable
Financial statements and related B. Greater than average
footnote disclosures. C. Superior
D. The requirements for the planning D. Guaranteed to be free from error.
of the audit and
Supervision of assistants, if any. 12. The standard of due audit care
requires the auditor to
9. A. Make perfect judgment decisions
What is the general character of the in all cases.
three generally accepted B. Ensure that the financial
Auditing standards classified as statements are free from error.
standards of field work? C. Possess skills clearly above the
A. The competence of persons average for the profession.
performing the audit. D.) Apply judgment in a
B. Criteria for the content of the conscientious manner, carefully
auditor's report on financial Weighing the relevant factors before
Statements and related footnote reaching a decision.
disclosures.
The criteria of audit planning and 13. The third standard of field work
evidence-gathering, states that sufficient
Competent evidential matter may in Financial statements.
part be obtained through B. Substantially different
The following methods except transactions and events are not
A. Inspection Accounted for on an identical basis.
C. Confirmation C. The auditor is consulted before
B. Observation material changes are made
D. Reconciliation In the application of accounting
principles.
14 D. The comparability of financial
The generally accepted standards of statements between
reporting encos Periods in not materially affected
Of the following except by changes in accounting
2. Consideration of an entity's Principles without disclosure.
internal control
B. Consistent application of 17. The fourth generally accepted
accounting principles auditing standard of reporting
C. Informative disclosures Requires an auditor to render a
D. Conformity of financial report whenever an auditor's
statements with GAAP Name is associated with financial
Of reporting encompass all statements. The overall
Purpose of the fourth standard of
15. The third generally accepted reporting is to require that
standard of reporting in Reports:
Auditing refers to A. State that the examination of
A. Whether financial statements are financial statements has
presented in conformity Been conducted in accordance with
With GAAP generally accepted
B. Whether accounting principles Auditing standards.
have been consistently B,
Observed. C.
Chadequacy of disclosures. Indicate the character of the
An expression of opinion on the auditor's examination and
financial statements The degree of responsibility assumed
Taken as a whole. by the auditor.
D. Imply that the auditor is
An independent in mind as well as
In appearance with respect to the
16. The objective of the consistency financial statements
standard is to provide Under examination.
Assurance that Express whether the accounting
A. There are no variations in the principles used in
format and presentation of
Preparing the financial statements Ar are interpretations of generally
have been applied accepted auditing
Consistently in the period under Standards.
examination. B. Are the criteria used in
evaluating the fair presentation
18. The fourth reporting standard of
requires the auditor's report to The financial statements.
Contain an expression of opinion Principles.
regarding the financial Ons of generally accepted accounting
Statements taken as a whole, or an Are optional guidelines which an
assertion to the effect that auditor may choose to
An opinion cannot be expressed. The Follow or not follow when conducting
objective of the fourth an audit
Standard is to prevent
A. An auditor from reporting on one 21
basic financial statement According to Philippine Standards on
And not on the others. Auditing, because there
An auditor from expressing different Are inherent limitations in an audit
opinions on each of that affect the auditor's
The basic financial statements. Ability to detect material
C. Management from reducing its misstatements, the auditor is:
final responsibility for the A. A guarantor but not an insurer of
Basic financial statements the statements.
Do Misinterpretations regarding the B. An insurer but not a guarantor of
degree of responsibility the statements.
The auditor is assuming C. Neither a guarantor nor an
B. insurer of financial statements.
The dasic D. Both a guarantot and an insurer
of the financial statements.
**19. The auditor is not liable to
his client for 22. An auditor need not abide with a
A. Negligence specific requirement of PSA
B. Fraud If the auditor believes that:
C. Dishonesty A. The amount is insignificant.
D. Errors in application of judgment B. The requirement of the PSA is
Philippine Standards on Auditing impractical to perform.
(PSA) C. The requirement of the PSA is
impossible to perform.
20. The Philippine Standards on D. Any of the given three choices is
Auditing issued by the Auditing correct.
And Assurance Standards Council:
23. The Philippine Standards on Standards on Standards on Standards
Auditing can be described as on
A. Providing very specific guidance Auditing Assurance Review
about the specific Engagements Engagements
Activities an auditor must perform Yes
on each engagement. Yes
B. Similar to Philippine Financial Yes
Reporting Standards Yes
(PFRS). No
C, Defining the minimum standards of Yes
performance for an Yes
Auditor. Yes
D. Providing assurance that an No
auditor will not issue an Yes
Inappropriate audit opinion No
Yes
24. Which of the following best Yes
describes the function of No
Auditing and Assurance Standards A,
Council (AASC)? ·b.
A. To establish and promulgate C.
generally accepted D.
Accounting principles in the .
Philippines. No
B. To investigate violations of Yes
Accountancy Law.
C. To promulgate auditing standards, 26. Which of the following is
practices and correct about Philippine Auditing
Procedures that shall be generally Practices Statements (PAPS)?
accepted by the A. These are issued to resolve
Accounting profession in the issues relating to psas.
Philippines. B. These statements are intended to
D. To determine the minimum have the authority of
requirements for admission Psas.
In the accounting profession. C. These statements are issued to
provide practical assistance
25. Pronouncements issued by AASC To auditors in implementing psas or
may be in the form of to promote good
Philippine Practice.
Stand D. These statements are forms of
Related interpretations issued by
Philippine Philippine Philippine AASC.
 D. Under no circumstances.
27. Which of the following
pronouncements issued by AASC is 30. The auditor's best defence when
Designed to resolve issues relating material misstatements are
to psas? Not uncovered is to have conducted
A. Philippine Auditing Practices the audit:
Statements A, in accordance with PSA.
By Interpretations B. As effectively as reasonably
C. Statements of Auditing Standards possible.
in the Philippines C. In a timely manner.
D. Generally Accepted Auditing D. Only after an adequate
Standards investigation of the management
Team.
28. Based on the structure of AASC
pronouncements, related 31. The failure of the auditor to
Services include? meet the requisites of PSA is
Assurance Review Agreed-upon A. An accepted practice.
procedures Compilation B. A suggestion of negligence.
A. Yes Yes C, An evidence of negligence.
No D. Tantamount to criminal behavior.
No Quality Control System
B. No No
Yes 32. A firm of independent auditors
C. Yes must establish and follow
No Quality control policies and
D. No procedures because these
Yes Standards
Yes Are necessary to meet increasing
Yes requirements of
Yes Auditors' liability as insurers.
Yes B. Are required by the SEC for
Yes auditors of all firms.
C. Include formal filing of records
29. The risk that an auditor will of such policies and
fail to uncover a material Procedures to a regulatory agency.
Misstatement is eliminated D. Give reasonable assurance that
A. If client has good internal the firm as a whole will
control. Comply with professional standards.
B. If auditor observes the Code of
Professional Ethics. 33.. The main purpose of
C. When the auditor complies with implementing a system of quality
PSA. control
Is to provide the firm with By firm personnel meet applicable
reasonable assurance that: professional standards.
A. The firm and its personnel will C. Policies to ensure that personnel
comply regulatory and maintain their
Legal requirements. Independence in fact and in
B. The audit will be performed in appearance.
accordance with PSA. D. Policies that ensure that
C. The firm will issue a report that monitoring activities are
is appropriate in the Effectively applied.
Circumstances.
D. All of the above. 36. The objective of the quality
control policies to be adopted by
34. The nature and extent of a CPA An audit firm will ordinarily
firm's quality control policies incorporate all of the following
And procedures depend on Except:
The CPA Firm's Size The nature of 4. Risk assessment
the CPA Cost-benefit B. Leadership responsibilities
Size 'C. Engagement performance
Firm's Practice considerations D. Human resources
Yes
Yes 37. The person responsible for the
: Yes audit engagement and its
Yes Performance, and for the auditor's
Yes report that is issued in behalf
No Of the firm is the
Yes A. Quality control reviewer
No B, engagement partner
Yes C. Client's management
Yes D. Audit manager
No
Yes 38. Which of the following is an
element of a CPA firm's quality
35. Which of the following is not an Control system that should be
essential component of considered in establishing its
Quality control? Quality control policies and
A, Policies and procedures to ensure procedures?
that firm personnel are A. Complying with laws and
Actively engaged in marketing regulations
strategies. B. Using statistical sampling
B. Policies and procedures to ensure techniques
that the work performed . Cy Independence
D. Consideration of audit risk and Adhere to independence, integrity,
materiality objectivity, confidentiality
And professional behavior, relates
39. Elements of a CPA firm's quality to
control that should be A, Ethical Requirements
Considered in establishing its B. Human resources
quality control policies and C. Assignment
Procedures must include: D. Consultation
Monitoring Ethical Requirements
Engagement Performance 43. Which of the following quality
Ar Yes control policies and procedures
Yes Does not relate to human resources
Yes and assignment?
Yes A, Emphasize independence of mental
No attitude in training
No Programs and in supervision and
Yes review of the audits.
No B. Monitor the effectiveness of
Yes recruiting programs.
Yes Identify criteria which will be
Yes considered in evaluating
Eo Individual performance and expected
proficiency.
40. Which of the following is one of D. Identify on a timely basis the
the elements of a CPA firm's staffing requirements of
Quality control system? Specific audits.
A/ Leadership responsibilities
B. Computer assisted audit 44. In pursuing a CPA firm's quality
techniques control objectives, a CPA
C. Control activities Firm may maintain records indicating
D. Control environment which partners or
Employees of the CPA firm were
41. Which of the following quality previously employed by the
control objectives would be CPA firm's clients. Which quality
Least important to the auditor? control element would this
A. Engagement performance Be most likely to satisfy?
B. Human resources A. Monitoring
C. Determination of audit fee B. Assignment
D. Independence. C, Independence
D. Skills and competence
42. A quality control policy that
requires personnel in the firm to
45. A procedure in which a quality 48. Which of the following quality
control partner periodically control procedures relates to
Tests the application of quality Engagement performance?
control procedures is most A. Hiring
Directly related to which quality By Direction
control element? C. Professional development
A. Engagement performance D. Advancement.
B. Independence, integrity, and
objectivity 49. Within the context of quality
C, Monitoring control, the primary purpose of
D. Personnel management Continuing professional education
and training activities is to
46. In connection with the element Enable a CPA firm to provide its
of engagement performance, personnel with:
Acrtims system of quality control A. Technical training that assures
should ordinarily provide proficiency as a valuation
That all personnel Expert.
A. "Have the knowledge required to B. Professional education that is
enable them to fulfil required in order to perform
Responsibilities assigned. With due professional care.
B. Review and test compliance with C knowledge required to fulfil
the firm's quality control assigned responsibilities.
Policies and procedures. D. Knowledge required to perform a
Cy Seek assistance from persons peer review.
having appropriate levels
Of knowledge, judgment and authority. 50. In compliance with the element
D. Appropriately maintain of human resources, the firm
independence when providing Should address issues relating to
Assurance services A. Engagement performance
B/ assignment of engagement teams
47. Maintaining or providing access C. Consultation
to adequate reference libraries D. Differences of opinion
And other authoritative sources is a
procedure that is most 51. In pursuing the firm's quality
Likely performed to comply with the control objectives with respect
policy of To assigning personnel to
A. Monitoring engagements, the auditors may use
B. Skills and competence Policies and procedures such as
C, consultation A. Designating senior qualified
D. Assignment personnel to provide advice
On accounting or auditing questions
throughout the
Engagement. 53. Which of the following i
By Requiring timely identification Ing is a policy that must be
of the staffing established to
Requirements of specific engagements Comply with the quality control
so that enough engagement performans
Qualified personnel can be made A. The firm is to be staffed by
available. personnel who have att
Establishing at entry levels a Ained the technical standards and
policy for recruiting that professional
Includes minimum standards of Competence required to enable them
academic preparation and to fulfill their
Accomplishments. Responsibilities.
D. Evaluate clients upon occurrence B. There is a sufficient direction,
of specified events to supervision, and review
Determine whether the relationships Of work performed at all levels to
ought to be provide reasonable
Continued. Assurance that the work performed
C. meets appropriate
Standards of quality.
52. In connection with the element C. The firm should assign
of assignment, a CPA firm's responsibility for each engagement
System of quality control should To an engagement partner.
ordinarily establish procedures The continued adequacy and
That operational effectiveness
A. Provide adequate supervision at Of quality control policies and
all levels, considering procedures are to be
The training, ability and experience Observed.
of the personnel
Assigned 54. The work performed by the
B. Encourage personnel to use assistants should be reviewed by
authoritative sources on Personnel of at least equal
Complex or unusual matter. competence to consider all of the
C. Require preparation of time Following except::
budgets for audits to A. Whether the conclusions expressed
Determine manpower requirements and are consistent with
to schedule the The results of the work performed.
Audit work. B. Whether the work was adequately
D. Establish qualifications deemed performed and
necessary for various Documented.'
Levels of responsibility within the C. Whether the objectives of the
firm. audit have been achieved.
D. Whether the engagement personnel D. All three should be considered.
maintained
Independence. 58. A CPA firm's quality control
procedures pertaining to the
55. The primary factor that should Acceptance of a prospective audit
be considered in determining client would most likely
The extent of supervision needed by Include
an assistant is the assistant's A. Inquiry of management as to
A. Willingness to exercise due care whether disagreements
B. Competence Between the predecessor auditor and
C. Professional certification the prospective client
D. Independence Were resolved satisfactorily.
B. Consideration of whether
56. The primary purpose of sufficient competent evidential
establishing quality control Matter may be obtained to afford a
policies reasonable basis for
And procedures for deciding whether An opinion.
to accept a new client is C, Inquiry of third parties, such as
To the prospective client's
A. Enable the CPA firm to attest to Bankers and attorneys, about
the integrity of the client information regarding the
Management. Prospective client and its
B. Satisfy the CPA firm's duty to management.
the public concerning the D. Consideration of whether the
Acceptance of new clients. internal control structure
D. Is sufficiently effective to permit
Minimize the likelihood of a reduction in the
association with clients whose Required substantive tests.
Management lacks integrity.
Anticipate before performing any 59. Quality control policies and
field work whether an procedures should provide the
Unmodified opinion can be expressed. Firm reasonable assurance that the
policies and procedures
57. In making a decision to accept Relating to the other elements of
or retain a client, the firm quality control are being
should Effectively applied. This statement
Consider defines the quality control
A. Its competence Element of
B. Its ability to comply with A. Planning
ethical requirements B. Independence, integrity and
C. The integrity of the client's objectivity.
management. C. Assignment
Dmonitoring
63. Which of the following is
60. In connection with the element responsible for establishing
of monitoring, a CPA DE auditing
System of quality control should Standards that will become generally
ordinarily provide to accepted in the
Maintenance of Philippines?
A. A file of minutes of staff A. Securities and Exchange
meetings. Commission
B. Updated personnel files. B. Financial Reporting Standards
C Documentation to demonstrate Council
compliance with C. Commission on Audit
Policies and procedures. D/ Auditing and Assurance Standards
Documentation to demonstrate Council
compliance with peer
Review directives.

61. A deficiency in the firm's

system of quality control is an
Indication that:
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 norb

62. It involves a study or 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.
Ay Quality review
B. Peer review
C. Compliance audit
D. External audit