ASUPRIN

ACTIVITY WORKSHEET

Compiled by: A. S. MALQUISTO No. 002

__________________________________________________________________________________________

Name: ___________________________________________________ Time & Schedule: __________________________

I. SHORT ANSWER QUESTIONS: Answer each question in a clear and organized paragraph. One or two sentences
that directly answer the short-answer question. Each question is worth 2 points.

1. Explain why an audit is a systematic process?

2. Who is responsible for initiating the communication between the predecessor and successor auditors?

3. Describe the purpose of an engagement letter and list at least four (4) items that are normally included in an
engagement letter.

4. What is the general objective of audit planning?

5. Explain why auditors gather evidences?

II. TRUE OR FALSE: Write the word TRUE for each correct statement; otherwise, write FALSE.

1. __________ Preliminary arrangements with clients should be set forth in the management letter.
2. __________ If the audit is not properly planned, the auditor may issue an incorrect audit report or conduct
an inefficient audit.
3. __________ If the prospective client refuses to allow the predecessor auditor to communicate with the
successor auditor, the successor auditor should have reservations about accepting the client.
4. __________ The auditor should not agree to a change of the engagement where there is no reasonable
justification for doing so.
5. __________ Philippine Standards on Auditing require the auditor to obtain and document an understanding
of the entity’s internal control sufficient to plan the audit.
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 6. __________ In the case of recurring audits, the auditor need not send a new engagement letter, except in
certain circumstances.
7. __________ “Unrestricted access to whatever record, documentation and other information requested in
connection with the audit” is usually one of the items documented in an audit engagement letter.
8. __________ If an auditor is not independent of the client, it is unlikely that a user of financial statements will
place much reliance on the CPA's work.
9. __________ Independence from the audit client is required only during the engagement period.
10. __________ The final phase in the audit process is to evaluate results and choose the appropriate audit
report to issue.
III. MULTIPLE CHOICE QUESTIONS: Read each item carefully. Select the correct/best answer for each of the following
questions and write the letter of your choice before the number.

__________ 1. Which of the following factors most likely would cause an auditor to decline a new audit
engagement?
A. an inadequate understanding of the entity’s internal control
B. the close proximity to the end of the entity’s fiscal year
C. concluding that the entity’s management probably lacks integrity
D. an inability to perform preliminary analytical procedures before assessing control risk

__________ 2. Before accepting an engagement to audit a new client, an auditor is required to

A. make inquiries of the predecessor auditor after obtaining the consent of the prospective
client
B. obtain the prospective client’s signature to the engagement letter
C. prepare a memorandum setting forth the staffing requirements and documenting the
preliminary audit plan
D. discuss the management representation letter with the prospective client’s audit
committee

__________ 3. An auditor’s engagement letter most likely will include

A. management’s acknowledgement of the responsibility for maintaining effective internal
control
B. the auditor’s preliminary assessment of the risk factors relating to misstatement arising
from fraudulent financial reporting
C. a reminder that management is responsible for illegal acts committed by employees
D. a request for permission to contact the client’s lawyer for assistance in identifying
litigation, claims and assessments

__________ 4. The auditor should have or obtain knowledge of the client’s business sufficient to
A. Evaluate whether the financial statements are materially misstated
B. Document material weaknesses in accounting and internal control systems
C. Identify and understand events, transactions and practices that may have effect on
financial statements
D. Have an overall evaluation of whether financial assertions are fairly presented in the
financial statements

__________ 5. While performing services for their clients, professional accountants have a duty to provide a
level of care which is
A. Free from judgment errors C. Superior
B. Greater than average D. Reasonable

__________ 6. Consideration of risk factors and materiality factors is most associated with which stage in the
auditing process?
A. Evaluation of audit evidence C. Collection of audit evidence B.
Communication of audit results D. Audit planning

__________ 7. Ultimately, the decision about whether or not the auditor is independent must be made by the
A. Auditor C. Audit committee
B. Client D. Public
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 __________ 8. Which of the following matters is generally included in an auditor's engagement letter? A.
Limitations of the engagement.
B. Factors to be considered in establishing preliminary judgments about materiality.
C. Management's liability for illegal acts committed by its employees.
D. The auditor's responsibility to obtain negative assurance relating to the occurrence of
illegal acts.

__________ 9. The term "except for" in an audit report is: A. Used in an adverse opinion.
B. No longer considered appropriate.
C. Used in a qualified opinion
D. Used for an unqualified opinion when an explanatory paragraph is added.

__________ 10. The auditor may accept or continue an audit engagement only when the basis upon which it is to
be performed has been agreed, through
I. Establishing whether the preconditions for an audit are present.
II. Confirming that there is a common understanding between the auditor and
management and, where appropriate, those charged with governance of the terms of
the audit engagement.
A. I only C. II only
B. Both I and II D. Neither I nor II

IV. SITUATIONAL PROBLEM:

Jacky, CPA, audited Viceral Company's financial statements for the year ended December 31, 2019. On
November 1, 2020, Viceral notified Jacky that it was changing auditors and that Jacky's services were being
terminated. On November 5, 2020, Viceral invited Perez, CPA, to make a proposal for an engagement to audit its
financial statements for the year ended December 31, 2020.

What procedures concerning Jacky should Perez, CPA perform before accepting the engagement?

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