1. Preliminary knowledge about the entity must be obtained after 13.

13. If planned detection risk is reduced, the amount of evidence the

accepting the engagement to determine whether the auditor auditor accumulates will decrease. * FALSE
has the necessary knowledge to perform the audit. * FALSE 14. Errors are always frauds; frauds are always errors. * FALSE
2. A general approach in auditing financial statements would 15. For continuing engagements, the auditor may no longer obtain
require consideration of financial statement assertions, audit knowledge about the client’s business. * FALSE
procedures and audit opinion. * FALSE 16. It is usually equally difficult for the auditor to uncover errors and
3. The level of knowledge about the client’s business required of fraud. * falsE
the auditor is ordinarily more than the level of knowledge 17. Planning is a discrete phase of an audit. * FALSE
possessed by management. * FALSE 18. An auditor obtains knowledge about a new client’s business and
4. An auditor must have a good understanding of the risks its industry in order to maintain professional skepticism
associated with a client's industry in order to ensure that the concerning management’s financial statement assertions. *
financial statements reflect the underlying substance of FALSE
accounting transactions and the economic effects of such 19. Analytical procedures are required for planning, substantive
transactions. * TRUE testing and overall review of the financial statements. * FALSE
5. Materiality and audit risk are considered throughout the audit. * 20. The risk that material misstatements will not be prevented or
TRUE detected on a timely basis by internal control can be reduced to
6. Following the acceptance of the engagement, the auditor zero by effective controls. * FALSE
should obtain detailed knowledge about the client’s business 21. Professional judgement *
preferably at the start of the engagement. * TRUE a. Is not used in making decisions about materiality and audit
7. Planning is not required in an audit as long as an audit program risk.
has been developed. * FALSE b. Should be exercised in planning and performing an audit of
8. The concept of materiality recognizes that some matters are financial statements but need no be documented
important for fair presentation of financial statements in c. Is necessary in the evaluation of management’s judgments
conformity with acceptable financial reporting framework, while in applying the entity’s applicable financial reporting
other matters are not important. * TRUE framework
9. Engagement letter that documents and confirms the auditor’s d. Can be used as the justification for the decisions made by
acceptance of the engagement would normally be sent to the the auditor that are not supported by the facts and
client before the audit report is issued or at end of fieldwork, circumstances of the engagement
whichever comes earlier. * FALSE 22. An auditor need not abide with a specific requirement of PSA if
10. In making a decision to accept or retain a client, the firm should the auditor believes that: *
consider its competence, the integrity of the client’s a. The requirement of the PSA is impractical to perform.
management and its ability to pay the professional fees. * FALSE b. Any of the given three choices is correct.
11. Before accepting an engagement to audit a new client, a CPA is c. The amount is insignificant.
required to obtain a preliminary understanding of the d. The requirement of the PSA is impossible to perform.
prospective client’s industry and business, including its control 23. The objective of the quality control policies to be adopted by an
environment. * FALSE audit firm will ordinarily incorporate all of the following
12. An auditor’s responsibility to detect illegal acts that have a except: *
direct and material effect on the financial statements is the a. Human resources
same as that for errors and irregularities. * TRUE b. Risk assessment
c. Engagement performance
 d. Leadership responsibilities d. Only 1 statement is true
24. Which of the following statements is correct concerning an 27. A report may be based upon applying agreed-upon procedures
auditor’s responsibilities regarding financial statements? * to specified elements, accounts or items of a financial
a. An auditor’s responsibilities for audited financial statement. The users of the report should participate in
statements are confined to the expression of the auditor’s establishing the procedures to be performed. If the auditor
opinion. cannot discuss the procedures with all the parties who will
b. Making suggestions that are adopted about the form and receive the report, he/she may I. Discuss the procedures to be
content of an entity’s financial statements impairs an applied with appropriate representatives of the parties involved.
auditor’s responsibilities II. Review relevant correspondence from the parties involved.
c. The auditor’s report should provide an assurance as to the III. Distribute a draft of the type of report that will be issued to
future viability of the entity. the parties involved. *
d. The fair presentation of audited financial statements in a. I and II only
accordance with an applicable financial reporting b. II and III only
framework is an implicit part of the auditor’s responsibilities c. I, II and III
25. S1: Attainment of professional competence requires initially a d. I and III only
high standard of general education followed by specific 28. A CPA firm can issue a review report: *
education, training, and examination in professionally relevant a. Only if all the partners and the staff in the office performing
subjects and a period of work experience. S2: The engagement the engagement are independent
partner should set example regarding the quality of audit by b. Only if the partners are independent
emphasizing through actions and messages the importance of c. Of the partners have no material or direct immaterial
performing work that complies with professional standards, interest in client
complying with the film's quality control policies and d. Even if the CPA is not independent.
procedures, and issuing appropriate audit reports. S3: The 29. Audit standard requires an auditor to: *
engagement partner should be satisfied that the engagement a. Design the audit program to meet financial statement users'
team collectively has the appropriate capabilities, competence expectations concerning fraud.
and time to perform. * b. Provide reasonable assurance that the financial statements
a. All statements are true are not materially misstated.
b. All statements are false c. Perform procedures that are designed to detect all
c. 2 statements are true instances of fraud.
d. Only 1 statement is true d. Issue an unmodified opinion only when the auditor is
26. S1: Sufficiency and appropriateness of audit evidence are not satisfied that no instances of fraud have occurred.
interrelated S2: The quantity of audit evidence is affected by its 30. S1: Engagement to apply agreed-upon procedures on certain
quality and the risk of misstatement S3: A given set of accounts within a financial statement may be accepted provided
procedures may provide audit evidence that is relevant to that the distribution of the reports is limited only to specified
certain assertions, but not others. S4: An entity's accounting parties involved. S2: Failure to comply with the standards
records can be sufficient audit evidence to support the financial exposes the auditor to risk such as loss of public respect or even
statements * assessment of legal damages. S3: Review involves monitoring
a. All statements are true the progress of the audit resolving accounting and audit issues,
b. 3 statements are true and considering the level of consultation appropriate for the
c. 2 statements are true engagement. *
 a. All statements are true d. Modify the scope of the audit to reflect an increased risk of
b. All statements are false material misstatement due to fraud
c. 2 statements are true 35. Preliminary knowledge about the client’s business and industry
d. Only 1 statement is true must be obtained prior to the acceptance of the engagement
31. S1: Auditing is a subset of attestation engagements that focuses primarily to *
on the certification of financial statements. S2: Fair presentation a. Determine the degree of knowledge and expertise
of financial statements is an implicit part of the auditor’s required by the engagement
responsibility. S3: Audit of financial statements does not reduce b. Gather evidence about the fairness of the financial
management’s responsibility. * statements
a. All statements are true c. Determine the integrity of management
b. All statements are false d. Determine whether the firm is independent with the client
c. 2 statements are true 36. Which of the following is the most appropriate action to be
d. Only 1 statement is true taken by a CPA who has been asked to perform a consulting
32. S1: the criteria against which the subject matter of the assurance services engagement concerning the analysis of a potential
engagement is to be evaluated or measured should be relevant, merger if he/she has little experience with the industry
concise and neutral. S2: Established criteria are those that are involved? *
embodied in laws or regulations, or issued by authorized or a. Accept the engagement but he/she should conduct
recognized bodies. S3: The responsible party may or may not be research or consult with others to obtain sufficient
the party who engages the professional accountant. S4: competence.
Complete criteria allow reasonably consistent evaluation or b. Decline the engagement because he/she lacks sufficient
measurement of the subject matter including where relevant, knowledge
presentation and disclosure, when used in similar circumstances c. Accept the engagement and issue a report that contains
by similarly qualified practitioners. * his/her opinion on the achievability of the results of the
a. All statements are true merger.
b. 3 statements are true d. Accept the engagement and perform it n accordance with
c. 2 statements are true Philippine Standards on Auditing
d. Only 1 statement is true 37. The term efficiency in performance auditing refers to *
33. Auditing standards differ from auditing procedures in that a. The acquisition of resources at appropriate times and within
procedures relate to: * a specified time frame.
a. Audit judgements b. The achievement of intended results of operations
b. Measures of performance programs or activities
c. Audit principles c. Using resources to maximize output for a given input, or to
d. Acts to be performed minimize input for any given quantity or quality of output
34. If an auditor believes that an understanding with the client has d. The achievement of objectives within a specified time
not been established he or she should ordinarily * frame.
a. Decline to accept or perform the audit 38. A firm of independent auditors must establish and follow quality
b. Assess the control risk at the maximum level and perform a control policies and procedures because these standards *
primarily substantive audit a. Give reasonable assurance that the firm as a whole will
c. Perform the audit with increased professional skepticism comply with professional standards.
 b. Include formal filing of records of such policies and a. In a timely manner.
procedures to regulatory agency. b. Only after an adequate investigation of the management
c. Are required by the SEC for auditors of all firms. team.
d. Are necessary to meet increasing requirements of auditors c. As effectively as reasonably possible.
liability as insurers. d. In accordance with PSA.
39. The risk that an auditor will fail to uncover a material 44. The general Standards of the generally accepted auditing
misstatement is eliminated * standards include a requirement that *
a. If auditor observes the Code of Professional Ethics. a. Due Professional care be exercised by the auditor
b. Under no circumstances. b. The fieldwork to be adequately planned
c. When the auditor complies with PSA. c. The auditor to obtain sufficient, competent evidential
d. If client has good internal control. matter.
40. Which of the following statements best describes the primary d. The Auditor’s report to state whether the financial
purpose of Statements on Auditing Standards? * statements are presented in conformity with PFRS.
a. They are authoritative statements, enforced through the 45. The auditor’s judgment concerning the overall fairness of
Code of Professional Conduct, and are intended to limit the presentation of financial position, results of operations, and
degree of auditor judgment. changes in cash flow is applied within the framework of: *
b. They are guides intended to set forth auditing procedures a. Generally accepted accounting principles.
that are applicable to a variety of situations. b. The auditor’s evaluation of the audited company’s internal
c. They are procedural outlines that are intended to narrow control.
the areas of inconsistency and divergence of auditor c. Quality control.
opinion. d. Generally accepted auditing standards which include the
d. They are interpretations that are intended to clarify the concept of materiality.
meaning of “generally accepted auditing 46. The single feature that most clearly distinguishes auditing,
standards.”Correct answer attestation, and assurance *
41. In audit communication between the predecessor and incoming a. CPA’s approach to the service
auditor should be * b. Type of service
a. Written and included in the working papers c. Scope of services
b. Acknowledged in a representation letter d. Training required to perform the service
c. Either written or oral 47. S1: Informative disclosure are to be regarded as reasonably
d. Authorized in an engagement letter adequate unless otherwise stated in the report. S2: Standards of
42. The Philippine Standards on Auditing can be described as * reporting states that the report shall state whether the financial
a. Defining the minimum standards of performance for an statements are presented in accordance with generally accepted
auditor. accounting principles. S3: Sufficient competent evidential
b. Providing assurance that an auditor will not issue an matters is to be obtained through inspection, observation,
inappropriate audit opinion inquiries and confirmations to afford a reasonable basis for an
c. Similar to Philippine Financial Reporting Standards (PFRS). opinion regarding the financial statement under examination. *
d. Providing very specific guidance about the specific activities a. All statements are true
as auditor must perform on each engagement. b. All statements are false
43. The auditor’s best defense when material misstatements are not c. 2 statements are true
uncovered is to have conducted the audit: * d. Only 1 statement is true
48. Which of the following is correct about Philippine Auditing c. Less evidence is accumulated
Practices Statements (PAPS)? *
a. These statements are intended to have the authority of d. More evidence is accumulated
PSAs. 1. Which of the following procedures would an auditor most likely
b. These are issued to resolve issues relating to PSAs. perform to obtain evidence about the occurrence of subsequent
c. These statements are forms of interpretations issued by events? *
AASC.
d. These statements are issued to provide practical assistance a. Confirming a sample of material accounts receivable
to auditors in implementing PSAs or to promote good established after the date of the financial statements.
practice. b. Inquiring as to whether any unusual adjustments were made
49. S1: According to the standard, maintaining professional after the date of the financial statements.
skepticism reduces the risk of overlooking unusual
circumstances. S2: The auditor cannot be expected to disregard c. Investigating personnel changes in the accounting
past experience of the honesty and integrity of the entity's department occurring after the date of the financial
management and those charged with governance, a belief that statements.
they are honest and have integrity does not relieve the auditor
d. Comparing the financial statements being reported on with
to maintain professional skepticism in conducting the audit. S3:
those of the prior period.
The auditor is required to document the exercise of professional
judgment. S4: The auditor exercises professional judgment in 2. The following are the circumstances that an auditor will most
evaluating management's judgment in applying the entity's likely meet the client's legal counsel to discuss the likely outcome
applicable financial reporting framework * of the litigation and claims. S1: The auditor determines that there
a. All statements are true is a risk that needs to be brought up. S2: There is a disagreement
b. 3 statements are true between management and the entity's legal counsel. S3: The
c. 2 statements are true subject matter of the litigation is complex. *
d. Only 1 statement is true
50. Which one is an example of management expectations from the a. All statements are true
independent auditors? * b. All statements are false
a. An active participant in management decision making
b. An expert providing a written communication as the c. 2 statements are true
product of the engagement
d. Only 1 statement is true
c. Individuals who perform day-to-day accounting functions on
behalf of the company 3. S1: The objectives of financial audit in the public sector are often
d. An internal source of expertise of financial and other broader than expressing an opinion whether the financial
matters. statements have been prepared, in all material respects, in
51. Which of the following is not correct regarding an auditor’s accordance with the applicable financial reporting framework S2:
decision that a lower acceptable audit risk is appropriate? * COA is mandated under the constitution and the PD 1445 to
conduct audits of all government agencies and instrumentalities
a. Review of audit documentation is performed by personnel
including unethical practices. S3: There is no need to seek
not assigned to the engagement
conformity by the auditees with the terms of engagement
b. Special care is required in assigning experience staff because COA is constitutionally and legally mandated to audit all
 government agencies S4: Establishing the audit strategy involves 6. The following are generalizations that relates to the reliability of
setting the scope, timing, and direction of the audit towards the audit evidence. S1: Audit evidence is more reliable when it is
development of an audit engagement plan. * obtained from independent sources outside the entity. S2: Audit
evidence is more reliable when it exists in documentary form,
a. All statements are true
whether paper, electronic or other medium. S3: An auditor's
b. 3 statements are true opinion, to be economically useful, is formed within a reasonable
time and based on audit evidence obtained at a reasonable cost.
c. 2 statements are true S4: Audit evidence that is generated internally is more reliable
d. Only 1 statement is true when the related controls imposed by the entity are effective *

4. S1: Entities that are under the common control by a state, that is a. All statements are true
national, regional or local government are not considered as b. 3 statements are true
related unless they engage in significant transactions or share
resources to a significant extent with one another. S2: The c. 2 statements are true
concept of materiality is applied both in planning and performing d. Only 1 statement is true
the audit S3: The management and the auditor shall determine
the materiality thresholds particular to the audited entity. S4: Risk 7. Under PSA 580 (Written Representations), The auditor is required
of material misstatement at the assertion level consists of to obtain audit evidence that management S1: Has provided the
inherent risks and control risks * auditor with all relevant information and access agreed in the
terms of the audit engagement. S2: Has fulfilled its responsibility
a. All statements are true for the fair presentation of the financial statements in accordance
b. 3 statements are true with the applicable financial reporting framework. S3: All
transactions have been recorded and reflected in the financial
c. 2 statements are true statements *
d. Only 1 statement is true a. All statements are true
5. Under which of the following circumstances would a disclaimer of b. All statements are false
opinion not be appropriate? *
c. 2 statements are true
a. The financial statements fail to contain adequate disclosure
concerning related party transactions. d. Only 1 statement is true

b. The auditor is unable to determine the amounts associated 8. During the review of a small business client's internal control
with illegal acts committed by the client's management. system, the auditor discovered that the accounts receivable clerk
approves credit memos and has access to cash. Which of the
c. The auditor is engaged after fiscal yearend and is unable to following controls would be most effective in offsetting this
observe physical inventories or apply alternative procedures weakness? *
to verify their balances.
a. The controller receives the monthly bank statement directly
d. The client refuses to permit its attorney to furnish information and reconciles the checking accounts.
requested in a letter of audit inquiry
 b. The owner reviews errors in billings to customers and c. 2 statements are true
postings to the subsidiary ledger.
d. Only 1 statement is true
c. The controller reconciles the total of the detail accounts
receivable accounts to the amount shown in the ledger. 11. Which of the following events most likely indicates the existence
of related parties? *
d. The owner reviews credit memos after they are recorded.
a. Selling real estate at a price that differs significantly from its
9. The following statements are ordinarily included in a book value
management representation letter, except *
b. Making loan without scheduled terms for repayment of the
a. Sufficient appropriate audit evidence has been made funds
available to permit the expression of an unmodified opinion
c. Borrowing a large sum of money at a variable rate of interest
b. The completeness and availability of minutes of shareholders'
and directors' meetings d. Discussing merger terms with a company that is a major
competitor.
c. The financial statements are free of material misstatements,
including omissions. 12. Which of the following statements is incorrect regarding the
International Standards of Supreme Audit Institutions(ISSAI)
d. There have been no irregularities involving management or guideline and COA's existing policies and practices? *
employees who have a significant role in internal control of
that could have a material effect on the financial statements. a. Professional Judgement, Due Care, and Skepticism are
considerations in the general auditing principles
10. S1: In testing internal control design, the auditor should only test
those controls that are important to the auditor's conclusion b. The audit tools to assist and guide Auditors in ensuring the
about whether the controls of the Agency/Unit/Corporation? quality of audit are prescribed in the audit manual.
project sufficiently address the assessed risk of misstatement to c. Auditors should consider Materiality on the basis of the
each relevant assertion. S2: The auditor should test the operating threshold stated in the policies and procedures of each
effectiveness of control by determining whether the control is government agency
operating as designed and whether the person performing the
control possesses the necessary authority and competence to d. Auditors should manage the risks of providing an
perform the control effectively. S3: External Auditor, in this case, inappropriate report in the circumstances of the audit
COA Auditors, can also use the works of Internal Auditors, when 13. Under which of the following circumstances would a disclaimer of
they have determined that the internal audit function is likely to opinion not be appropriate? *
be relevant to the audit. S4: The external auditor has sole
responsibility for the audit opinion expressed and that a. The auditor is engaged after fiscal yearend and is unable to
responsibility is not reduced by the external auditor's use of the observe physical inventories or apply alternative procedures
work of the internal auditors. * to verify their balances.
a. All statements are true b. The client refuses to permit its attorney to furnish information
requested in a letter of audit inquiry.
b. 3 statements are true
 c. The auditor is unable to determine the amounts associated b. The auditor shall request written representations from
with illegal acts committed by the client's management management with appropriate responsibilities for the
financial statements and knowledge of the matters
d. The financial statements fail to contain adequate disclosure concerned.
concerning related party transactions.
c. The auditor may consider it necessary to request
14. Which of the following subsequent events will be least likely to management to provide a written representation that it
result in an adjustment to the financial statements? * has communicated to the auditor all deficiencies in
a. Material changes in the settlement of liabilities which internal control of which management is aware.
were estimated as of the balance sheet date. d. The written representations shall be in the form of a
b. Material changes in the quoted market prices of listed representation letter addressed to the entity's chief
investment securities since the balance sheet date. executive officer and chief financial officer.

c. Culmination of events affecting the realization of 17. In determining whether transactions have been recorded, the
inventories owned as of the balance sheet date. direction of the audit testing should be from the *

d. Culmination of events affecting the realization value of a. Adjusted Trial Balance

accounts receivable owned as of the balance sheet date. b. Original Source Documents
15. Which of the following audit procedures would most likely assist c. General Ledger Balances
an auditor in identifying conditions and events that may indicate
there could be substantial doubt about an entity's ability to d. General Journal Entries
continue as a going concern? *
18. Which of the following is not a universal rule for achieving control
a. Review of compliance with terms of det agreements over cash? *
b. Confirmation of accounts receivable from major a. Have bank reconciliation’s performed by employees who
customers do not handle cash.
c. Reconciliation of interest expense with debt outstanding b. Separate the cash-handling and record-keeping functions.
d. Confirmation of bank balances. c. Decentralize the receiving of cash as much as possible.
16. Which of the following statements concerning written d. Deposit each day’s cash receipts by the end of the day.
management representations is incorrect? *
19. Which of the following statements about analytical procedures is
a. Audit evidence obtained during the audit that incorrect? *
management has fulfilled its responsibility for the
preparation of the financial statements in accordance a. Analytical procedures are required to be performed in the
with the applicable financial reporting framework is not planning phase of the audit.
sufficient without obtaining confirmation from b. Analytical procedures are required to be done during the
management that it believes that it has fulfilled its testing phase of the audit.
responsibility
 a. All statements are true
c. Analytical procedures may be performed in the planning, b. 3 statements are true
testing and completion phases of the audit.
c. 2 statements are true
d. Analytical procedures are required to be done during the
d. Only 1 statement is true
completion phase of the audit.
20. The following are the financial audit guidelines of COA except * 23. A written management representation letter is most likely to be
an auditor's best source of corroborative information of a client's
a. Quality Control Review intention to *
b. Communication a. Discontinue a line of business
c. Preliminary Engagement Activities b. Terminate an employee pension plan
d. Planning Phase c. Settle an outstanding lawsuit for an amount less than the
accrued loss contingency.
21. Morgan, CPA, is the principal auditor for a multi-national
corporation. Another CPA has examined and reported on the d. Make a public offering of its ordinary share capital
financial statements of a significant subsidiary of the corporation.
Morgan is satisfied with the independence and professional
reputation of the other auditor, as well as the quality of the other 24. Fly High Butterfly maintains a large internal audit staff that
auditor's examination. With respect to Morgan's report on the reports directly to the chief financial officer. Audit reports
consolidated financial statements, taken as a whole, Morgan * prepared by the internal auditors indicate that the system is
a. May refer to the examination of the other auditor functioning as it should and that the accounting records are
reliable. An independent auditor will probably: *
b. Must refer to the examination of the other auditor.
a. Avoid duplicating the work performed by the internal
c. Must not refer to the examination of the other auditor audit staff.
d. May refer to the examination of the other auditor, in b. Eliminate tests of controls.
which case Morgan must include in the auditor's report on
the consolidated financial statements a qualified opinion c. Place limited reliance on the work performed by the
with respect to the examination of the other auditor. internal audit staff.

22. S1: The auditor is required to perform substantive test procedures d. Increase the depth of the study and evaluation of
to verify the expert’s assumptions and findings. S2: The auditor administrative controls.
should obtain an understanding of the methods and assumptions 25. Which of the following audit procedures is most likely to assist an
used by the expert. S3: The entity should not have an auditor in identifying related party transactions *
understanding of the nature of the work to be performed by the
expert. S4: The expert should not have an understanding of the a. Retesting ineffective controls previously reported to the
auditor’s corroborative use of the expert’s findings. * audit committee
 b. Inspecting communications with law firms for evidence of b. Discloses material related party transactions in the
unreported contingent liabilities footnotes to the financial statements.
c. Sending second requests for unanswered positive c. Knows that confirmation of accounts receivable is not
confirmations of accounts receivable feasible
d. Reviewing accounting records for nonrecurring d. Refuses to permit its lawyer to respond to the letter of
transactions recognized near the balance sheet date. audit inquiry
26. A component of Internal Control which includes the procedures 29. The following statements relate to the use of analytical
that an organization puts in place to treat risk * procedures as substantive procedures. Which is false? *
a. Risk Assessment a. Substantive analytical procedures are applicable when there
is only a small volume transactions
b. Monitoring
b. The presence of relationships among data provides evidence
c. Control Activities
as to the completeness, accuracy, and occurrence of
d. Control Environment transactions captured in the information produced by the
entity's information system.
27. Which of the following observations, made during the preliminary
survey of a local department store's disbursement cycle, reflects a c. Reliance on the results of substantive analytical procedures
control strength? * will depend on the auditor's assessment of the risk that the
analytical procedures may identify relationships as expected
a. Individual department managers are responsible for the when, in fact, a material misstatement exists.
movement of merchandise from the receiving dock to
storage or sales areas as appropriate. d. The application of substantive analytical procedures is based
on the expectation that relationships among data exist and
b. Individual department managers use pre-numbered forms continue in the absence of known conditions to the contrary.
to order merchandise from vendors.
30. Comparative financial statements include the financial statements
c. The treasurer's office prepares checks for suppliers of a prior period which were examined by a predecessor auditor
based on vouchers prepared by the accounts payable whose report is not presented. If the predecessor auditor's report
department. was qualified, the successor auditor must *
d. The receiving department is given a copy of the purchase a. Express an opinion on the current year statements alone
order complete with a description of goods, quantity and make no reference to the prior year statements.
ordered, and extended price for all merchandise ordered.
b. Disclose the reasons for any qualification in the
28. A limitation on the scope of the auditor's examination sufficient predecessor auditor's opinion.
to preclude an unqualified opinion will always result when
management * c. Obtain written approval from the predecessor auditor to
include the prior year's financial statements.
a. Asks the auditor to report on the balance sheet and not
on the other basic financial statements d. Issue a standard comparative audit report indicating the
division of responsibility.
31. Which of the following is the correct definition of “control a. Branch office petty cash - ledger amount, Php 50,000; ten
deficiency?” * branch offices, equal amounts; replenishment of accounts
requires three separate approvals.
a. A control deficiency exists if the design or operation of
controls does not permit company personnel to prevent b. Precious metals inventory - book value, Php 1,000,000;
or detect misstatements on a timely basis. separately stored, but access not restricted.
b. A control deficiency exists if one or more deficiencies c. Sales force travel expenses - budget, Php 1,000,000; 50
exist that adversely affect a company’s ability to prepare sales people; all expenditures over Php 25 must be
external financial statements reliably. receipted.
c. A control deficiency exists if the design or operation of d. Expendable tools inventory - book value, Php 500,000;
controls results in a more than remote likelihood that issued by tool crib attendant upon receipt of
controls will not prevent or detect misstatements. authorization form.
d. A control deficiency exists if the design or operation of 34. Cutoff tests designed to detect credit sales made before the end
controls results in a more than probable likelihood that of the year that have been recorded in the subsequent year
controls will prevent or detect misstatements. provide assurance about management's assertion of *
32. An audit report contains the following paragraph: "Because of the a. Classification
inadequacies in the company's accounting records during the year
ended June 30, 2019, it was not practicable to extend our auditing b. Cutoff
procedures to the extent necessary to enable us to obtain certain c. Accuracy
evidential matter as it relates to classification of certain items in
the consolidated statements of operations." This paragraph most d. Rights and Obligations
likely describes * 35. S1: Misappropriation of an asset or groups of assets if material,
a. A material scope restriction requiring a qualification of would be considered fraud. S2: Approval occurs as a matter of
the audit opinion general policy and includes significant transactions only. S3: A
control deficiency exists if a necessary control is missing or not
b. An uncertainty that should not lead to a qualified opinion properly formulated. *
c. A material departure from GAAP requiring a qualified a. All statements are true
audit opinion
b. All statements are false
d. A matter that the auditor wishes to emphasize and that
does not lead to a qualified audit opinion. c. 2 statements are true

33. The director of internal auditing of a manufacturing company is d. Only 1 statement is true
updating the long-range audit schedule. There are several 36. A large University has relatively ineffective internal control. To
possible audit assignments that can fill a given time spot. obtain assurance that all tuition revenue has been recorded, the
Information on potential dollar exposure and key internal auditor should *
controls have been gathered. Based on perceived audit risk,
select the assignment of greatest merit. *
 a. Compare business office revenue records with registrar's 3. Which of the following statements concerning the auditor's
office records of students enrolled. responsibility to detect conditions relating to financial stress of
employees or adverse relationships between a company and its
b. Observe tuition payment procedures on a surprise basis employees is correct? *
c. Confirm a sample of tuition payments with the students.
a. The auditor is required to plan the audit to detect these
d. Prepare a year-end bank reconciliation conditions on all audits.

1. S1: The confirmation requests should be mailed to respondents by b. The auditor is not required to plan the audit to discover
the auditor. S2: Second requests are ordinarily sent for positive these conditions, but should consider them if he/she
form confirmation requests when the first request is not becomes aware of them during the audit.
returned. S3: Confirmations address existence more than they c. These conditions relate to fraudulent financial reporting,
address completeness. S4: The best way to evaluate the results of and an auditor is required to plan the audit to detect
the confirmation process is to total the misstatements identified
these conditions when the client is exposed to a risk of
and to compare that total to the account's tolerable error misappropriation of assets.
amounts. *
d. The auditor is required to plan the audit to detect these
a. All statements are true conditions whenever they may result in missatements
b. 3 statements are true 4. Which of the following controls most likely would provide
c. 2 statements are true reasonable assurance that all credit sales transactions of an entity
are recorded? *
d. Only 1 statement is true
a. The accounting department supervisor controls the
2. Analytical procedures enable the auditor to predict the balance or mailing of monthly statements to customers and
quantity of an item under audit. Information to develop this investigates any differences reported by customers.
estimate can be obtained from all of the following except *
b. The billing department supervisor matches prenumbered
a. Comparison of financial data for comparable prior shipping documents with entries in the sales journal.
periods, anticipated results (budgets and forecasts), and
similar data for the industry in which the entity operates c. The billing department supervisor sends copies of
approved sales orders to the credit department for
b. Study of the relationship of financial data with relevant comparison to authorized credit limits and current
nonfinancial data. customer account balances.
c. Tracing transactions through the system to determine d. The accounting department supervisor independently
whether procedures are being applied as prescribed reconciles, on a monthly basis, the accounts receivable
d. Study of the relationships of elements of financial data subsidiary ledger to the accounts receivable control
that would be expected to conform to a predictable account
pattern based upon the entity's experience. 5. A CPA has completed his audit of the financial statements of ABC
Bus Company for the year ended December 31, 2021. Prior to 2021,
the company had been depreciating its buses over a 10-year
 period. During 2021, the company determined that a more realistic competence required by the engagement or whether such
estimated life of its buses was 12 years and computed the 2021 competence can be obtained before the completion of the audit.
depreciation on the basis of the revised estimate. The CPA has S2: PSA 220 suggests that audit work should be assigned to
satisfied himself that the 12-year life is reasonable. The company personnel who have the appropriate capabilities, and time to
has adequately disclosed the change in estimated useful lives of perform the audit engagement in accordance with professional
its buses and the effect of the change in 2021 income in a note to standards. S3: Inadequacy of the accounting records is sufficient
the financial statements. Based on the situation, what will you reason for the auditor to decline an audit engagement. S4: Clients
recommend an appropriate audit opinion? * should be evaluated at least once a year or occurrence of major
events such as changes in management, directors, ownership,
a. Qualified. nature of client’s business, or other changes that may affect the
b. Unmodified. scope of the examination. *

c. Disclaimer. a. All statements are true

d. Adverse. b. 3 statements are true

6. In audit communication between the predecessor and incoming c. 2 statements are true
auditor should be * d. Only 1 statement is true
a. Acknowledged in a representation letter 9. S1: The objectives of financial audit in the public sector are often
b. Either written or oral broader than expressing an opinion whether the financial
statements have been prepared, in all material respects, in
c. Written and included in the working papers accordance with the applicable financial reporting framework S2:
d. Authorized in an engagement letter COA is mandated under the constitution and the PD 1445 to
conduct audits of all government agencies and instrumentalities
7. PIGHATI’s inventories on December 31, 2021 have a cost of Php including unethical practices. S3: There is no need to seek
100,000 and a net realizable value of Php 80,000. Shortly after conformity by the auditees with the terms of engagement
December 31, 2021, but before the financial statements were because COA is constitutionally and legally mandated to audit all
authorized for issue, the inventories were sold for a net sale government agencies S4: Audit Planning involves setting the
proceeds of Php 70,000. The correct valuation f PIGHATI’s scope, timing, and direction of the audit towards the
inventories in December 31, 2021 financial statements is? * development of an audit engagement plan. *
a. Php 70,000 a. All statements are true
b. Php 80,000 b. 3 statements are true
c. None of these. c. 2 statements are true
d. Php 100,000 d. Only 1 statement is true
8. S1: Before accepting an audit engagement, the auditor should 10. Which of the following statements best describes why the
obtain a preliminary knowledge of the client’s business and auditor's examination cannot reasonably be expected to bring all
industry to determine whether the auditor has the degree of
 acts of noncompliance with existing laws and regulations by the c. Perform procedures to understand the design of the
client to the auditor's attention? * internal control system policies
a. Noncompliance may involve conduct designed to conceal d. Search for significant deficiencies in the operation
it, such as collusion, forgery, deliberate failure to record
13. S1: Testing the operating effectiveness of controls is different
transactions, senior management override of controls, or
intentional misrepresentations being made to the from obtaining audit evidence that controls have been
auditor implemented. S2: Documentation requirements for auditors when
considering internal control is required at the conclusion stage
b. The client's internal control may be so strong that the even if the control risk is at less than a high level. S3: The auditor
auditor performs only minimal substantive testing. shall obtain an understanding of the control environment and
evaluate whether the management, with the oversight of those
c. Acts of noncompliance by clients often relates to charged with governance, has created and maintained a culture
accounting aspects rather than operating aspects.
of honesty and ethical behavior. S4: Organizational Structure
d. Noncompliance may be perpetrated by the only person in provides a framework for planning, directing, and controlling the
the client's organization with access to both assets and entity’s operations. *
the accounting records. a. All statements are true
11. Which of the following is false statement concerning fraud? * b. 3 statements are true
a. Fraud involves actions of management but excludes the c. 2 statements are true
action of employees or third parties.
d. Only 1 statement is true
b. An audit rarely involves the authentication of
documentation; thus, fraud may go undetected by the 14. An audit in accordance with PSAs is performed on the premise
auditor that management and, where appropriate, those charged with
governance have responsibilities that are fundamental to the
c. Fraud generally involves incentive or pressure to commit conduct of the audit. Which of the following is not one of those
fraud, a perceived opportunity to do so, and some responsibilities? *
rationalization of the act.
a. To design, implement, and maintain internal control
d. To types of misstatements relevant to the auditor include relevant to the preparation of financial statements that
material misstatements arising from fraudulent financial are free from material misstatement, whether caused by
reporting and material misstatements arising from
fraud or error
misappropriation of assets.
b. To provide unrestricted access to those within the entity
12. When considering an entity's internal control system, an auditor is from whom the auditor determines it necessary to obtain
not required to * audit evidence
a. Determine whether relevant controls have been been c. To provide the auditor with all information, such as
placed in operation. records and documentation, and other matters that are
b. Understand the components of the entity's internal relevant to the preparation and presentation of the
control system. financial statements
 d. To comply with all relevant PSAs in the preparation and d. State that the audit revealed material misstatement that
presentation of the entity's financial statements the client would not revise.
18. Specific control procedures that are relevant to financial
statement audit would include the following, except *
15. Control activities include those that relate to physical controls
over access to and use of assets and records. A departure from a. Control risk assesment
the purpose of physical controls is that *
b. Performance reviews
a. Only sales personnel use sales department vehicles.
c. Information processing
b. Only warehouse personnel and production supervisors
have access to raw materials storeroom d. Physical controls

c. The mail room clerk complies a list of the checks received 19. Which of the following statements would least likely appear in an
in the incoming mail auditor's engagement letter? *
a. After performing our preliminary analytical procedures,
d. Access to safe-deposit box requires two officers
we will discuss with you the other procedures we
16. As a result of tests of controls, an auditor assessed control risk consider necessary to complete the engagement.
too low and decreased substantive testing. This occurred because
the true deviation rate in the population was * b. Our fees, which will be billed as work progresses, are
based on the time required by the individuals assigned to
a. Less than the risk of assessing control risk too low, based the engagement plus out-of-pocket expenses.
on the auditor’s sample.
c. Our audit will be made with the objective of our
b. More than the risk of assessing control risk too low, based expressing an opinion on the financial statements.
on the auditor’s sample.
d. We remind you that the responsibility for the preparation
c. More than the deviation rate in the auditor's sample of financial statements including adequate disclosure is
that of the management of the entity.
d. Less than the deviation rate in the auditor’s sample.
20. S1: Informative disclosure are to be regarded as reasonably
17. A predecessor withdrew from the engagement after discovering adequate unless otherwise stated in the report. S2: Standards of
that the client's financial statements are materially misstated that reporting states that the report shall state whether the financial
it would not revise. if asked by the successor auditor about the statements are presented in accordance with generally accepted
termination of the engagement, the predecessor should * accounting principles. S3: Sufficient competent evidential matters
a. Suggest that the successor auditor should obtain the is to be obtained through inspection, observation, inquiries and
client's consent to discuss the reasons. confirmations to afford a reasonable basis for an opinion
regarding the financial statement under examination. *
b. Indicate that there was a misunderstanding.
a. All statements are true
c. Suggest that the successor auditor ask the client
b. All statements are false
 c. 2 statements are true 24. Accounting control procedures within computer processing may
leave no visible evidence indicating that the procedure were
d. Only 1 statement is true performed. In such instances, the auditor should test these
controls by *

21. A requirement that working papers be reviewed by the COA's a. Making corroborative inquiries
Audit Team Leader , and any deficiencies be discussed with the b. Reviewing the run manual
preparer is an example of a quality control procedure in the area
of * c. Reviewing transactions submitted for processing and
comparing them to related output
a. Acceptance and continuance of client relationships and
specific engagements d. Observing the separation of duties of personnel.
b. Relevant ethical requirements 25. Which of the following auditing procedures most likely would
assist a State Auditor in identifying related party transactions? *
c. Human resources
a. Reviewing accounting records for nonrecurring
d. Engagement performance transactions recognized near the end of the reporting
22. In connection with the planning phase of an audit engagement, period.
which of the following statements is always correct? * b. Inspecting communications with law firms for evidence of
a. Observation of inventory count should be performed at unreported contingent liabilities.
year-end c. Retesting ineffective internal control procedures
b. A portion of the audit of a continuing client can be previously reported to the audit committee
performed at interim dates. d. Sending second requests for unanswered positive
c. An engagement should not be accepted after the client's confirmations of accounts receivable
financial year-end 26. What is the responsibility of an auditor who is engaged to audit
d. Final staffing decisions must be made prior to completion the financial statements of a government entity? *
of the planning stage a. Assume responsibility for assuring that the entity
complies with applicable laws and regulations

23. Proper segregation of duties reduces the opportunities for b. Obtain an understanding of the possible financial
persons to be in positions to both * statement effects or laws and regulations having direct
and material effects on amounts reported.
a. Establish internal control and authorize transactions
c. Design the audit to provide reasonable assurance that the
b. Record cash receipts and cash disbursements statements are free of material misstatements resulting
c. Record transactions and prepare financial statements from illegal acts having direct or indirect effects

d. Perpetrate and conceal errors or fraud

 d. Assess control risk with respect to each component of c. The firm will issue a report that is appropriate in the
internal control circumstances.
27. An auditor need not abide with a specific requirement of PSA if d. The firm and its personnel will comply regulatory and legal
the auditor believes that: * requirements.
a. The amount is insignificant. 30. The statement "Quality control policies and procedures should be
relevant adequate, effective, and complied with" is most closely
b. The requirement of the PSA is impractical to perform. associated with what quality control environment? *
c. Any of the given three choices is correct. a. Leadership responsibilities for quality within the firm
d. The requirement of the PSA is impossible to perform. b. Engagement Performance
28. Assuming the tolerable deviation rate is 5 percent, the expected c. Monitoring
population deviation rate is 3 percent, and the allowable for
sampling risk is 2 percent. What should an auditor conclude if d. Relevant ethical requirements
tests of 100 randomly chosen documents reveal 4 deviations? *
31. Sherwin Magmanlac, CPA, is the principal auditor for a multi-
a. Accept the sample result as support for assessing control national corporation. Another CPA has examined and reported on
risk below the maximum because the sample deviation the financial statements of a significant subsidiary of the
rate plus the allowance for sampling risk exceeds the corporation. Magmanlac is satisfied with the independence and
tolerable rate. professional reputation of the other auditor, as well as the quality
of the other auditor’s examination. With respect to his report on
b. Accept the sample results as support for assessing control the consolidated financial statements, taken as a whole,
risk below the maximum level because the tolerable Magmanlac: *
deviation rate less the allowance for sampling risk equals
the expected population deviation rate. a. Must not refer to the examination of the other auditor.
c. Assess control risk at the maximum level because the b. Must refer to the examination of the other auditor.
tolerable deviation rate plus the allowance for sampling
risk exceeds the expected population deviation rate. c. May refer to the examination of the other auditor.

d. Assess control risk at the maximum level because the d. May refer to the examination of the other auditor, in
sample deviation rate plus the allowance for sampling which case Magmanlac must include in the auditor’s
risk exceeds the tolerable deviation rate. report on the consolidated financial statements a
qualified opinion with respect to the examination of the
29. The main purpose of implementing a system quality control is to other auditor.
provide the firm reasonable assurance that: *
32. The objective of the quality control policies to be adopted by an
a. All of the above. audit firm will ordinarily incorporate all of the following except: *
b. The audit will be performed in accordance with PSA. a. Risk assessment
b. Leadership responsibilities
 c. Engagement performance c. The system verifies that the user is entitled to enter the
transactions requested.
d. Human resources
d. The user indicates to the system that the transaction was
33. S1: Entities that are under the common control by a state, that is processed correctly
national, regional or local government are not considered as
related unless they engage in significant transactions or share 36. The statements below describe the interrelationship of audit risk
resources to a significant extent with one another. S2: The components. Which is false? *
concept of materiality is applied both in planning and performing
the audit S3: The management and the auditor shall determine 37. When inherent and control risks are high, the acceptable level of
the materiality thresholds particular to the audited entity. S4: Risk detection risk needs to be low to reduce audit risk to an
of material misstatement at the assertion level consists of acceptably low level.
inherent risks and control risks * 38. The assessed level of inherent and control risks can be
sufficiently low to eliminate the need for the auditor to perform
a. All statements are true
any substantive procedures.
b. 3 statements are true
39. When inherent and control risks are low, an auditor can accept a
c. 2 statements are true higher detection risk and still reduce audit risk to acceptably low
level.
d. Only 1 statement is true
40. There is an inverse relationship between detection risk and the
34. DEF Company is a defendant in a lawsuit alleging infringement of combined level of inherent and control risks
certain patent rights. However, the ultimate outcome of the
litigation cannot be reasonably be estimated by management at 41. When there is uncertainty about a company’s ability to continue
this time. The auditor believes that it is reasonably possible for as a going concern, the auditor’s concern is the possibility that the
the client to incur a significantly material loss. The lawsuit is client may not be able to continue its operations or meet its
adequately disclosed in the notes to the financial statements. obligations for a “reasonable period of time.” For this purpose, a
Based on the situation, what will you recommend an appropriate reasonable period of time is considered not to exceed: *
audit opinion? *
42. Six months from the date of the financial statements.
a. Qualified.
43. Six months from the date of the audit report.
b. Unmodified.
44. One year from the date of the financial statements.
c. Adverse.
45. One year from the date of the audit report.
d. Disclaimer.
46. Which of the following would not create a threat to
35. Which of the following best describes the process called independence? *
authentication? *
a. A deposit made by the firm or a member of the firm if
a. The user identifies himself/herself to the system the assurance team with an assurance client that is a
bank and such deposit is held under normal commercial
b. The system verifies the identify of the user terms.
 b. A loan, or a guarantee of a loan, to the firm from an 49. An audit is conducted on the premise that management and,
assurance client that is a bank or a similar institution and where appropriate, those charged with governance, have
the loan or guarantee is material to both the firm and the acknowledged and understand that they have responsibilities
assurance client that are fundamental to the conduct of an audit in accordance
with PSAs. Which of the following is not one of those
c. A loan, or a guarantee of a loan, to a member of the responsibilities? *
assurance team from an assurance client that is a bank or
a similar institution and the loan or guarantee is not made a. The preparation of financial statements in accordance
under normal lending procedures. with relevant pronouncements issued by the AASC
d. A loan, or guarantee of a loan, to the firm from an b. The establishment and maintenance of an adequate
assurance client that is a bank or a similar institution and internal control system that is necessary to enable the
the loan or guarantee is made under normal lending preparation of financial statements that are free from
procedures, terms and requirements and it is material to material misstatement, whether due to fraud or error.
the assurance client or firm receiving the loan.
c. To provide the auditor with access to all information that
47. Which of the following statements indicates the wrong way to is relevant to the preparation of the financial statements
sue an internal control questionnaire * such as records, documentation, and other matters.
a. Filling out the questionnaire during an interview with the d. To provide the auditor with unrestricted access to
person who has responsibility for the area that is being persons within the entity from which the auditor
audited determines it necessary to obtain audit evidence.
b. Constructing the questionnaire so that no response 50. Analytical procedures performed in the *
requires attention
a. The planning stage of the audit should address the risk of
c. Supplementing the completed questionnaire with a material misstatement of revenue due to fraudulent
narrative description or flowchart financial reporting.
d. Clarifying all answers with written remarks and b. Final review stage of the audit should achieve audit
explanations objectives related to specific assertions in the financial
statements.
48. If the results of the expert's work do not provide sufficient
appropriate audit evidence or are not consistent with other audit c. Final review stage of the audit should focus on identifying
evidence, the audit should. * specific risks.
a. Resolve the matter d. Planning stage of the audit should assist in assessing the
validity of the conclusions reached.
b. Withdraw from the engagement
51. Because the concepts of audit risk and materiality are
c. Report the matter to the appropriate regulatory agency interrelated, they must be considered together by the auditor.
of the government Which of the following statements is correct. *
d. Express an unmodified opinion with reference to the work
of the expert.
 a. If misstatements are not individually material, but are c. Controls over the safeguarding of assets and liabilities are
material when aggregated with other misstatements, the of primary importance, while controls over the reliability
concept of materiality does not apply. of financial reporting may also be relevant.
b. Audit risk is the risk that an auditor may unknowingly d. Controls over the reliability of financial reporting are
modify his/her opinion when, in fact, the financial ordinarily most directly relevant to a financial statement
statements are fairly presented. audit, but other controls may also be relevant.
c. The phrase in the auditor's report "present fairly, in all 54. S1: There is a direct relationship between the entity’s objectives
material respects, in accordance with Philippine Financial and the internal control it implements to provide reasonable
Reporting Standards "indicates the auditor's belief that assurance about their achievement. S2: Control Environment is
the financial statements taken as a whole are not the foundation for effective internal control, providing discipline
materially misstated. and structure. S3: Human Resource Policies and Procedures are
management’s approach to taking and managing business risks,
d. Only material errors cause financial statements to be attitudes and actions toward financial reporting, and attitudes
materially misstated. toward information processing and accounting functions and
52. Which of the following circumstances would permit an personnel. S4: For audit purpose the auditor is concerned only
independent auditor to accept an engagement after the end of with those risk that are relevant to the preparation of reliable
the reporting period? * financial statements *

a. Issuance of a disclaimer of opinion as a result of the a. All statements are true

inability to conduct certain tests required by PSAs due to b. 3 statements are true
the timing of the acceptance of the engagement.
c. 2 statements are true
b. Remedy the limitations resulting from accepting the
engagement after the end of the reporting period, such d. Only 1 statement is true
as those relating to the existence of physical inventory.
55. Using Laptop computers in conducting financial statement audits
c. Expectation of the operating effectiveness of controls may affect the methods used to review the work of staff
assistants because? *
d. Receipt of an assertion from the predecessor auditor that
the entity will be able to continue as a going concern. a. Supervisory personnel may not have an understanding of
the capabilities and limitations of computers
53. Which of the following statements concerning the relevance of
various types of controls to a financial statement audit is b. The overall audit objectives may differ
correct? *
c. Working paper documentation may not contain readily
a. An auditor may ordinarily ignore a consideration of observable details of calculations
controls when a substantive audit approach is taken.
d. Documenting the supervisory review may require
b. All controls are ordinarily relevant to a financial statement assistance of management services personnel.
audit.
56. S1: Attainment of professional competence requires initially a high
standard of general education followed by specific education,
 training, and examination in professionally relevant subjects and a b. The auditor's communications with those charged with
period of work experience. S2: The engagement partner should governance may be made orally or in writing
set example regarding the quality of audit by emphasizing
through actions and messages the importance of performing c. In an audit in accordance with PSAs, the auditor should
design audit procedures for the specific purpose of
work that complies with professional standards, complying with
the film's quality control policies and procedures, and issuing identifying matters of governance interest
appropriate audit reports. S3: The engagement partner should be d. Audit matters of governance interest include only those
satisfied that the engagement team collectively has the matters that have come to the attention of the auditor as
appropriate capabilities, competence and time to perform. S4: a result of the performance of the audit
Review involves monitoring the progress of the audit resolving
accounting and audit issues, and considering the level of 59. After gaining an understanding of internal control and assessing
consultation appropriate for the engagement. * the risks of material misstatements, an auditor decided to
perform tests of controls. The auditor most likely decided that *
a. All statements are true
a. There were many internal control weaknesses that could
b. 3 statements are true allow misstatements to enter the accounting system
c. 2 statements are true b. It is not possible or practicable to reduce the risks of
d. Only 1 statement is true material misstatement at the assertion level to an
acceptably low level with audit evidence obtained only
57. Assume an auditor’s interim consideration of internal control in from substantive test procedures
the expenditure/disbursement cycle reveals that control risk can
be assessed below the maximum and detection risk above the c. An increase in the assessed level of control risk is justified
for certain financial statement assertions.
minimum for some assertions. Which of the following is true
about substantive tests applied to accounts payable? * d. Additional evidence supports a further reduction in
a. The auditor is more apt to confirm payable balances. control risk is not available.

b. The auditor is more apt to ignore the risk of incorrect 60. In performing a walk-through test, the *
acceptance when sampling accounts payable. a. Auditor traces one or several transactions within each
c. The auditor is less apt to perform substantive tests at the major class through the transaction trail to confirm the
balance sheet date cut off period.
b. Auditor traces one or several transactions within each
d. The auditor is more apt to increase the extent of
substantive tests. major class through that transaction trail to confirm his
or her understanding of the information system and
58. Which of the following statements relating to communication of control procedures.
audit matters of governance interest is incorrect? *
c. Senior auditor "walks-through" the processing of the
a. The auditor should identify relevant persons who are entity's transactions with other members of the audit
charged with governance and with whom audit matters of team focusing on the control processes which aim to
governance interest are to be communicated prevent misstatements in the financial statements
 d. The auditor performs a physical review of the entity's a. Have you ever been asked to override the process or
property, plant, and equipment to confirm the physical controls?
location of major assets.
b. Who is most likely to commit fraud among your
61. A university does not have a centralized receiving function for coworkers?
departmental purchases of books, supplies, and equipment.
which of the following controls would most effectively prevent c. What do you do when you find an error?
payment for goods not received, if performed prior to invoice d. What kind of errors have you found?
payment? *
64. Which of the following statements concerning materiality is not
a. Names and addresses on vendor invoices should be correct? *
compared to a list of department authorized vendors.
a. The materiality level for the financial statements as a
b. Vendor invoices should be matched with department whole determined in the planning stage of the audit
purchase orders. should not be affected by changes in the circumstances
c. Invoices over a specified amount should be approved by of the engagement.
the vice president of finance b. If, in the specific circumstances of the entity, there is one
d. Vendor invoices should be approved by a departmental or more particular classes of transactions, account
supervisor other than the employee ordering the goods balances or disclosures for which misstatements of lesser
amounts that materiality for the financial statements as a
62. Under which circumstances below would the auditor conclude whole could reasonably be expected to influence to
that withdrawal from the engagement is necessary? * economic decisions of users taken on the basis of the
financial statements, the auditor shall also determine the
a. The auditor concludes that then on compliance has a
materiality level or levels to those particular classes of
material effect on the financial statements and has not transactions, account balances or disclosures.
been properly reflected in the financial statements
c. When establishing the overall audit strategy, the auditor
b. The auditor is precluded by the entity from obtaining shall determine materiality for the financial statements as
sufficient appropriate audit evidence to evaluate whether a whole.
noncompliance that may be material to the financial
statements, has, or is likely to have, occurred d. Determining materiality involves the exercise of
professional judgement
c. The entity does not take the remedial action that the
auditor considers necessary in the circumstance. 65. S1: Attainment of professional competence requires initially a high
standard of general education followed by specific education,
d. The auditor is unable to determine whether non training, and examination in professionally relevant subjects and a
compliance has occurred because of limitations imposed period of work experience. S2: The engagement partner should
by the circumstances rather than by the entity. set example regarding the quality of audit by emphasizing
63. Which is least likely to be a question asked of client personnel through actions and messages the importance of performing
during a walk-through in an audit of the internal control of an work that complies with professional standards, complying with
issuer (public company)? * the film's quality control policies and procedures, and issuing
 appropriate audit reports. S3: The engagement partner should be accounting estimates that could be material to the financial
satisfied that the engagement team collectively has the statements? *
appropriate capabilities, competence and time to perform. *
a. Inquire about the existence of related part transactions
a. All statements are true
b. Confirm inventories at locations outside the entity
b. All statements are false
c. Determine whether accounting estimates deviate from
c. 2 statements are true historical patterns
d. Only 1 statement is true d. Review the lawyer's letter for information about
litigation
66. If the balance sheet of a company is dated December 31, 2019, the
audit report is dated February 8, 2020, and both are released on 69. The following are the financial audit guidelines of COA except *
February 15, 2020, this indicates that the auditor has searched for
subsequent events that occurred up to: * a. Communication
b. Quality Control Review
a. December 31, 2019.
b. February 8, 2020. c. Planning Phase

c. February 15, 2020. d. Preliminary Engagement Activities

d. January 1, 2020.
67. On January 2, 2022, the GHI Auto Supply Company received a
notice from its primary supplier that effective immediately, all
wholesale prices would be increased by 10%. On the basis of the
notice, GHI Auto Supply revalued its December 31, 2021 inventory
to reflect the higher costs. The inventory constituted a material
proportion of total assets; however, the effect of the revaluation
was material to current assets but not to total assets or net
income. The increase in valuation is adequately disclosed in the
notes to the financial statements. Based on the situation, what
will you recommend an appropriate audit opinion? *
a. Unmodified.
b. Disclaimer.
c. Qualified.
d. Adverse.
68. Which of the following procedures will most likely assist an
auditor in determining whether management has identified all