-At Reviewer Part II - (May 2015 Batch)

8/9/2019 -At Reviewer Part II - (May 2015 Batch)

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AT Reviewer- Part II

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6. To help plan the nature, timing and extent of substantive auditing procedures, preliminary auditingprocedures, preliminary analytical procedures should focus ona. Enhancing the auditor’s understanding of the client’s business and event that have occurred since

the last audit date.b. Developing plausible relationships that corroborate anticipated results with a measurable amount

of precision.c. Applying ratio analysis to externally generated data such as published industry statistics or priceindices.

d. Comparing recorded financial information to the results of other tests of transactions andbalances.

7. Analytical procedures performed in the final review stage of an audit generally would includea. Reassessing the factors that assisted the auditor in deciding on preliminary materiality levels and

audit risk.b. Considering the adequacy of the evidence gathered in response to unexpected balances

identified in planning.c. Summarizing uncorrected misstatements specifically identified in planning.d. Calculating projected uncorrected misstatements estimated through audit sampling techniques.

8. Which of the following ratios would an engagement partner most likely calculate when reviewing thebalance sheet in the overall review stage of an audit?a. Quick assets/current assets.b. Accounts receivable/inventory.c. Interest payable/interest receivable.d. Total debt/total assets.

9. What should a prudent auditor do when the aggregate of uncorrected misstatements approaches the

materiality level?

a b c d

Perform analytical procedures Yes No No Yes

Request management to adjustf/s for identified misstatements

Yes Yes No Yes

Request management to adjustf/s for projected misstatements

Yes Yes Yes No

PSA 530, “Audit Sampling and Other Selective Testing Procedures”

10. Which of the following factors is generally not considered in determining the sample size for tests ofcontrols?a. Risk of incorrect acceptance.b. Tolerable rate.c. Risk of assessing control risk too low.d. Expected population deviation rate.

11. The most common method used of performing statistical tests of transactions isa. Variable sampling.b. Attribute sampling.c. Judgment sampling.d. Random selection of samples.

12. The initial sample size is so called becausea. The auditor must take several samples to ensure randomness.b. The auditor must take several samples to ensure that the final sample is representative of the

population.c. The deviations must be evaluated before deciding whether the sample is sufficiently large to

achieve the objectives.

d. There is always another sample to be done.


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13. Of the four factors which determine the initial sample size (population size, tolerable deviation rate,acceptable risk of overreliance and expected population deviation rate), a combination of two factorshas the greatest effect on the sample size.a. Population size times expected population deviation rate.b. Expected population deviation rate plus acceptable risk of overreliance.c. Tolerable deviation rate minus expected population deviation rate.

d. Acceptable risk of overreliance minus tolerable deviation rate.

14. The sample deviation rate equalsa. The number of deviation in the population divided by the sample size.b. The number of items in the population multiplied by the number of deviations in the sample.c. The number of deviations in the sample divided by the sample size.d. The number of deviations in the population divided by the population size.

15. One of the ways to eliminate non sampling risk is througha. Proper supervision and instruction of the client’s employees. b. Proper supervision and instruction of the audit team.c. The use of attribute sampling rather than variable sampling.d. Controls which ensure that the sample drawn is random and representative.

16. PSA 530 states, “The auditor may decide to select specific items from a populati on based on suchfactors as the auditor’s understanding of the entity, the assessed risk of material misstatement, andthe characteristics of the population being tested.” Specific items that may be selected for testingusually include the following, except:a. Items that are of high value.b. Items that are suspicious, unusual, risk-prone, or have a history of error.c. All items whose values do not exceed a certain amount so as to verify only a small portion of the

total amount of class of transactions or account balance.d. Items that provide information about matters such as the nature of the entity, the nature of

transactions, and internal control.

17. An advantage of using statistical over non-statistical sampling methods in tests of controls is that

statistical methodsa. Afford greater assurance than a non-statistical sample size of equal size.b. Provide an objective basis for quantitatively evaluating sampling risks.c. Can more easily convert the sample into dual-purpose test useful for substantive testing.d. Eliminate the need to use judgment in determining appropriate sample sizes.

18. The risk of assessing control risk too high is the probability that the compliance evidence in thesample indicatesa. Low control risk when the actual degree of compliance does not justify a low control risk

assessment.b. Low control risk when the actual degree of compliance justifies a low control risk assessment.c. High control risk when the actual degree of compliance justifies a low control risk assessment.d. High control risk when the actual degree of compliance justifies a high control risk assessment.

19. Auditors who prefer statistical sampling to nonstatistical sampling may do so because statisticalsampling helps the auditora. Measure the sufficiency of the evidential matter obtained.b. Eliminate subjectivity in the evaluation of sampling results.c. Reduce the level of tolerable misstatement (error) to a relatively low amount.d. Minimize the failure to detect a material misstatement due to nonsampling risk.

20. Which of the following selection methods is least desirable for use by an auditor?a. Block selection.b. Random selection.c. Systematic selection.d. Haphazard selection.

21. In planning statistical sample test of controls, an auditor increased the expected population deviationrate (EDR) from the prior year’s rate because of the results of the prior year’s tests of controls andthe overall control environment. The auditor most likely would then increase the planneda. Risk of assessing control risk too low.b. Sample size.


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c. Allowance for sampling risk.d. Tolerable deviation rate.

22. An error that arises from an isolated event that has not recurred other than on specifically identifiableoccasions and is therefore not representative of similar errors in the population is a/ana. Anomalous error.

b. Isolated error.c. Scandalous error.d. Non-recurring error.

23. What is the primary objective of using stratification as a sampling method in auditing?a. To increase the confidence level at which a decision will be reached from the results of the

sample selected.b. To determine the occurrence rate for a given characteristic in the population being studied.c. To decrease the effect of variance in the total population.d. To determine the precision range of the sample selected.

24. When planning a sample for a substantive test of details, the auditor should consider tolerablemisstatement for the sample. This consideration should

a. Be related to the auditor’s business risk. b. Not be adjusted for qualitative factors.c. Be related to preliminary judgments about materiality levels.d. Not be changed during the audit process.

25. Which of the following statements regarding documentation of the sample selection process is nottrue?a. Regardless of the method used in selecting a random sample, it is necessary to have proper

documentation.b. When comparing statistical sampling to judgmental sampling, it is more important that statistical

sampling be properly documented because of is mathematical nature.c. Minimum documentation would include sufficient information to permit the reproduction of the

sample at a later date.

d. For documentation, it is permissible for the auditor to include in the working papers a copy of thetable used, with the random numbers identified.

PSA 540, “ Audit of Accounting Estimates”

26. Which of the following procedures would an auditor ordinari ly perform first in evaluating thereasonableness of management’s accounting estimates? a. Review transactions occurring prior to the completion of fieldwork that indicate variations from

expectations.b. Compare independent expectations with recorded estimates to assess management’s process. c. Obtain an understanding of how management developed its estimates.d. Analyze historical data used in developing assumptions to determine whether the process is

consistent.

27. The auditor should adopt one or a combination of the following approaches in the audit of accountingestimate:

I. Review and test the process used by management to develop the estimate.

II. Use an independent estimate for comparison with that prepared by management.

III. Review subsequent events which confirm the estimate made.a. Any of the above.b. None of the above.c. Either I or II.d. I only.

28. In evaluating the assumptions on which the estimate is based, the auditor would need to payparticular attention to assumptions which are

a. Reasonable in light of actual results in prior periods.b. Consistent with those used for other accounting estimates.c. Consistent with management’s plans which appear appropriate. d. Subjective or susceptible to material misstatement.


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29. The auditor should normally concentrate on the key factors and assumptions used by managementincluding all of the following except those that are:a. Insignificant to the accounting estimates.b. Sensitive to variations.c. Deviations from historical patterns.

d. Susceptible to misstatement and bias.

PSA 545, “Auditing Fair Value Measurements and Disclosures”

30. When auditing the fair value of an asset or liability, valuation issues ordinarily arise at the point ofInitial Recording Subsequent to initial recording

a. Yes Yesb. Yes Noc. No Yesd. No No

31. Which of the following is least likely to be an approach when auditing the fair values of assets and

liabilities?a. Review and test management’s process of valuation. b. Confirm valuations with audit committee members.c. Independently develop an estimate of the value of the account.d. Review subsequent events relating to the account.

PSA 550, “Related Parties”

32. Which of the following statements is correct concerning related-party transactions?a. In the absence of evidence to the contrary, related party transactions should be assumed to be

outside the ordinary course of business.b. An auditor should determine whether a particular transaction would have occurred if the parties

had not been related.

c. An auditor should substantiate that related-party transactions were consummated on termsequivalent to those that prevail in an arm’s-length transactions.

d. The audit procedures directed toward identifying related party transactions should includeconsidering whether transactions are occurring, but are not being given proper accountingrecognition.

33. Which of the following would not necessarily be a related party transaction?a. A purchase from another corporation that is controlled by the corporation’s chief shareholder. b. A loan from the corporation to a major shareholder.c. Sale of land to the corporation by the spouse of a director.d. A sale of another corporation with a similar name.

34. When auditor searching for related party transactions should obtain an understanding of each

subsidiary’s relationship to the total entity because a. This may permit the audit of intercompany account balances to be performed as of concurrent

dates.b. This may reveal whether particular transactions would have taken place if the parties had not

been related.c. The business structure may be deliberately designed to obscure related party transactions.d. Intercompany transactions may have been consummated on terms equivalent to arm’s -length

transactions.

35. An auditor most likely would modify an unqualified opinion if the entity’s financial statements includea footnote on related-party transactionsa. Disclosing loans to related parties at interest rates significantly below prevailing market rates.b. Describing an exchange of real estate for similar party in a nonmonetary related-party

transaction.c. Stating that a particular related-party transaction occurred on terms equivalent to those that

would have prevailed in an arm’s-length transaction.d. Present the peso volume of related-party transactions and the effects of any change in the

method of establishing terms from prior periods.


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36. When auditing related-party transactions, an auditor places primary emphasis ona. Ascertaining the rights and obligations of the related parties.b. Confirming the existence of the related parties.c. Verifying the existence of the related parties.d. Evaluating the disclosure of the related-party transactions.

37. After determining that a related-party transaction has, in fact, occurred, an auditor shoulda. Add a separate paragraph to the auditor’s standard report to explain the transaction. b. Perform analytical procedures to verify whether similar transactions occurred, but were not

recorded.c. Obtain an understanding of the business purpose of the transaction.d. Substantiate that the transaction was consummated on terms equivalent to an arm’s-length

transaction.

38. Which of the following procedures most likely could assist an auditor in identifying related-partytransactions?a. Performing tests of controls concerning the segregation of duties.b. Evaluating the reasonableness of management’s accounting estimates. c. Reviewing confirmations of compensating balance arrangements.

d. Scanning the accounting records for recurring transactions.

PSA 560, “Subsequent Events”

39. Which of the following audit procedures is most likely to assist an auditor in identifying conditionsand events that may indicate substantial doubt about an entity’s ability to continue as a goingconcern?a. Review compliance with terms of debt agreements.b. Confirm accounts receivable from principal customers.

c. Reconcile interest expense with outstanding debt.d. Confirm bank balances.

40. If the balance sheet of a publicly-held company is dated December 31, 2014, the audit report is

dated March 6, 2015, and both are released to the public on March 15, 2015, this indicates that theauditor has searched for material subsequent transactions and events that occurred up toa. December 31, 2014b. March 6, 2015c. March 15, 2015d. None of these

41. The auditor’s formal review of subsequent events normally should be extended through the date ofthea. Auditor’s report. b. Next formal interim financial statements.c. Delivery of the audit report to the client.d. Mailing of the financial statements to the stockholders.

42. Auditors should perform audit procedures relating to subsequent events?a. Through the year end.b. Through the issuance of the audit report.c. Through the last day of field work.d. For a reasonable period after the year ends.

43. Which of the following events occurring after the issuance of an auditor’s report most likely wouldcause the auditor to make further inquiries about the previously issued financial statements?a. An unissued natural disaster occurs that may affect the entity’s ability to continue as a going

concern.b. A contingency is resolved that have been disclosed in the audited financial statements.c. New information is discovered concerning undisclosed lease transactions of the audited period.

d. A subsidiary is sold that accounts for 25% of the entity’s consolidated net income.


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44. Which of the following statements best describes the “date of the financial statements?” a. The date on which those with the recognized authority assert that they have prepared the

entity’s complete set of financial statements, including the related notes, and that they havetaken responsibility for them.

b. The date that the auditor’s report and the audited financial statements ar e made available to

third parties.c. The date of the end of the latest period covered by the financial statements, which is normallythe date of the most recent balance sheet in the financial statements subject to audit.

d. The date on which the auditor has obtained sufficient appropriate evidence on which to basethe opinion on the financial statements.

45. Which of the following events occurring after the issuance of an auditor’s report most likely wouldcause the auditor to make further inquiries about the previously issued financial statements?a. A technological development that could affect the entity’s future ability to continue as a going

concern.b. The entity’s sale of a subsidiary that accounts for 30% of the entity’s consolidated sales. c. The discovery of information regarding a contingency that existed before the financial

statements were issued.

d. The final resolution of a lawsuit disclosed in the notes to the financial statements.

46. Which of the following procedures would an auditor most likely perform in obtaining evidence aboutsubsequent events?a. Determine that changes in employee pay rates after year-end were properly authorized.b. Recompute depreciation charges for plant assets sold after year-end.c. Inquire about payroll checks that were recorded before year-end but cashed after year-end.d. Investigate changes in long-term debt occurring after year-end.

PSA 570, “Going Concern”

47. Which of the following auditing procedures most likely would assist an auditor in identifyingconditions and events that may indicate substantial doubt about an entity’s ability to continue as a

going concern?a. Inspecting title documents to verify whether any assets are pledged as collateral.b. Confirming with third parties the details of arrangements to maintain financial support.c. Reconciling the cash balance per books with the cutoff bank statement and the bank

confirmation.d. Comparing the entity’s depreciation and asset capitalization policies to other entities in the

industry.

48. Which of the following conditions or events most likely would cause an auditor have a substantialdoubt about an entity’s ability to continue as a going concern? a. Cash flows from operating activities are negative.b. Stock dividends replace annual cash dividends.c. Significant related party transactions are pervasive.

d. Research and development projects are postponed.

49. The adverse effects of events causing an auditor to believe that there is substantial doubt about anentity’s ability to continue as a going concern would most likely be mitigated by evidence relating tothea. Ability to expand operations into new product lines in the future.b. Feasibility of plans to purchase leased equipment at less than market value.c. Marketability of assets that management plans to sell.d. Committed arrangements to covert preferred stock to long-term debt.

50. After considering an entity’s negative trends and financial difficulties, an auditor has substantialdoubt about the entity’s ability to continue as a going concern. The auditor’s considerations relatingto management’s plans for dealing with the adverse effects of these conditions most likely would

include management’s plans to a. Increase current dividend distributions.b. Reduce the existing lines of credit.c. Increase ownership equity.d. Purchase assets formerly leased.


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51. Which of the following audit procedure most likely would assist an auditor in identifying conditionsand events that may include substantial doubt about an entity’s ability to continue as a goingconcern?a. Reading the minutes of meetings of the stockholders and the board of directors.b. Comparing the market value of property to amounts owed on the property.c. Reviewing lease agreements to determine whether leased assets should be capitalized.

d. Inspecting the documents to verify whether any assets are pledged as collateral.

52. Which of the following is incorrect about the management’s responsibility to make an assessment ofan entity’s ability to continue as a going concern? a. In assessing whether the going concern assumption is appropriate, the management takes into

account all available information for the foreseeable future, which should be at least twelvemonths from the balance sheet date.

b. Though there is a history of profitable operations and a ready access to financial statements,management must make the assessments with detailed analysis.

c. Management’s assessment of the going concern assumption involves making a judgment, at aparticular point of time, about the future outcomes of events or conditions which are inherentlyuncertain.

d. Management should make explicit assessment of its ability to continue as a going concern.

PSA 580, “Management Representations”

53. For which of the following matters should an auditor obtain written management representations?a. Management’s cost-benefit justifications for not correcting internal control weaknesses.b. Management’s knowledge of future plans that may affect the price of the entity’s stock. c. Management’s compliance with contractual agreements that may affect the financial statements. d. Management acknowledgement of its responsibility for employees’ violation of laws.

54. The purpose of a management representation letter is to reducea. The possibility of misunderstanding concerning management’s responsibility for the financial

statements.b. The scope of an auditor’s procedures concerning related party transactions and subsequent

events.c. Audit risk to an aggregate level of misstatement that could be considered material.d. An auditor’s responsibility to detect material misstatements only to the extent that the letter is

relied on.

55. A written management representation letter is most likely to be an auditor’s best source ofcorroborative information of a client’s intention to a. Settle an outstanding lawsuit for an amount less than the accrued loss contingency.b. Discontinue a line of business.c. Terminate an employee pension plan.d. Make a public offering of its common stock.

56. Which of the following should be included in written management representations obtained by the

auditor in connection with a financial statement audit?a. Management’s belief that the effects of uncorrected misstatements are not material.b. Management’s belief that the effects of uncorrected misstatements are material. c. Management’s belief that the effects of uncorrected misstatements are in the aggregate, but not

individually, immaterial.d. A summary of all corrected misstatements.

57. Auditors are required to obtain a letter of representation from their clients. Which of the followingstatements regarding the letter of representation is correct?a. A letter of representation should impress upon management its responsibility for the assertions

in the financial statements.b. A letter of representation should be signed by the company’s officials and attorneys. c. A letter of representation documents the responses from management to inquiries about various

aspects of the audit.d. A letter of representation is a written statement from a non-independent party and as such

should be regarded as valid evidence.


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58. Which of the following statements is true with respect to management representations?a. Management representations are dated as of the balance sheet date.b. Management representations may serve as a substitute for various types of substantive

procedures.c. Management representations are signed by the auditor and delivered to the client’s officers.

d. Management representations are used to corroborate information obtained during the audit.

59. A written representation from a client’s management that, among other matters, acknowledgesresponsibility for the fair presentation of financial statements, should normally signed by thea. Chief financial officer and the chair of the board of directors.b. Chief executive officer and the chief financial officer.c. Chief executive officer, the chair of the board of directors, and the client’s lawyer. d. Chair of the audit committee of the board of directors.

60. Which of the following expressions most likely would be included in a management representationletter?a. No events have occurred subsequent to the balance sheet date that require adjustment to, or

disclosure in the financial statements.

b. There are no reportable conditions identified during the prior year’s audit of which the auditcommittee of the board of directors is unaware.

c. We do not intend to provide any information that may be construed to constitute a waiver of theattorney-client privilege.

d. Certain computer files and other required evidential matter may exist only for a short period oftime and only in computer-readable form.

PSA 600, “Using the Work of Another Auditor”

61. When the principal auditor decides to refer to another auditor in his/her report, the report shouldalways include:a. A qualified or adverse opinion.b. A disclaimer of opinion regarding the financial statements audited by the other auditor.

c. The percentage and monetary amounts of the portion of the financials statements examined bythe other auditor.

d. Reference to a footnote where the division of responsibility between the principal auditor andthe other auditor is described in detail.

62. When the financial statements of the prior period were audited by another auditor

I. The predecessor auditor may reissue the audit report on the prior period with the incomingauditor only reporting on the current period.

II. The incoming auditor’s report should state that the prior period was audited by another auditorand the incoming auditor’s report should indicate that the financial statements of the prior periodwere audited by another auditor.

a. I onlyb. II only

c. Both I and IId. Either I or II

63. The auditor with responsibility for reporting on the financial statements of an entity when thosefinancial statements include financial information of one or more components audited by anotherauditor is thea. Parent auditor.b. Principal auditor.c. External auditor.d. Independent auditor.

64. As used in PSA 600 (Using the Work of Another Auditor), a _________ means a division, branch,subsidiary or other entity whose financial information is included in financial statements audited by

the principal auditor.a. Division.b. Related party.c. Component.d. Separate entity.


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PSA 610, “Considering the Work of Internal Auditing”

65. In a financial statement audit, the independent auditor would not rely on the work of an internalauditor ina. Obtaining an understanding of the internal control structure.b. Assessing risk.

c. Determining a preliminary estimate of materiality.d. Performing substantive tests.

66. Which of the following is an incorrect statement concerning the relationship of the internal auditorand the scope of the external audit of an entity’s financial statements? a. The external auditor is not required to give consideration to the internal audit function beyond

obtaining a sufficient understanding to identify and assess the risks of material misstatement ofthe financial statements and to design and perform further audit procedures.

b. The internal auditors may determine the extent to which audit procedures should be employed bythe external auditor.

c. Under certain circumstances, the internal auditors may assist the external auditor in performingsubstantive tests and tests of controls.

d. The nature, timing and extent of external auditor’s substantive tests may be affected by t he work

of internal auditors.

67. The overall objective of internal auditing is toa. Design and implement an effective internal control structure.b. Assist the independent auditors in gathering evidence needed to form an opinion on the fairness

of the financial statements.c. Ensure that assets are properly accounted for and protected from loss or misuse.

d. Provide information about any phase of business activity to assist members of management indischarging their responsibilities.

68. Internal auditors’ role in preventing and detecting fraud would not include thea. Audit of abnormal expenditures.b. Audit of sensitive expenses such as foreign sale expenses.

c. Review of the company’s policies regarding questionable payments. d. Direct responsibility of reporting fraud to the SEC

69. When considering the objectivity of internal auditors, an independent auditor shoulda. Evaluate the quality control program in effect for the internal auditors.b. Examine documentary evidence of the work performed by the internal auditors.c. Test a sample of the transactions and balances that the internal auditors examined.d. Determine the organization level to which internal auditors report.

PSA 620, “Using the Work of An Expert”

70. In using the work of a specialist, an auditor referred to the specialist’s findings in the auditor’sreport. This would be an appropriate reporting practice if the

a. Client is not familiar with the professional certification, personal reputation, or particularcompetence of the specialist.

b. Auditor, as a result of the specialist’s findings , adds an explanatory paragraph emphasizing amatter regarding the financial statements.

c. Client understands the auditor’s corroborative use of the specialist’s findings in relation to therepresentations in the financial statements.

d. Auditor, as a result of the specialist’s findings, decides to indicate a division of responsibilitywith the specialist.

71. In using the work of a specialist, an understanding should exist among the auditor, the client, andthe specialist as to the nature of the specialist’s work. The documentation of this understandingshould covera. A statement that the specialist assumes no responsibility to update the specialist’s report for

future events or circumstances.b. The conditions under which a division of responsibility may be necessary.c. The specialist’s understanding of the auditor’s corroborative use of the specialist’s findings. d. The auditor’s disclaimer as to whether the specialist’s findings corroborate the representations

in the financial statements.


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72. Which of the following statements is correct concerning an auditor’s use of the work of an expert? a. The work of an expert who is related to the client may be acceptable under certain

circumstances.b. If an auditor believes that the determination made by an expert are unreasonable, only a

qualified opinion may be issued.c. If there is a material difference between the expert’s findings and the assertions in the financial

statements, only an adverse opinion may be issued.d. An auditor may not use an expert in the determination of physical characteristics relating toinventories.

73. In using the work of an expert, an auditor may refer to the expert in the auditor’s report, if as a resultof the expert’s findings, the auditor a. Becomes aware of conditions causing substantial doubt about the entity’s abi lity to continue as

a going concern.b. Desires to disclose the expert’s findings, which imply that a more thorough audit was performed. c. Is able to corroborate another specialist’s earlier findings that were consistent with

management’s representations. d. Discovers significant deficiencies in the design of the entity’s internal control that management

does not correct.

PSA 700 (Revised) “The Independent Auditor’s Report on a

Complete Set of a General Purpose Financial Statements”

74. PSA 700 (Revised), The Independent Auditor’s Report on a Complete Set of General PurposeFinancial Statements, provides the following basic elements of the auditor’s report except a. introductory paragraphb. management’s responsibility for the financial statements c. auditor’s opinion paragr aph.

d. starting and completion dates of the audit.

75. Which of the following elements is a basic element of the auditor’s standard report? a. An audit includes assessing significant estimates made by management.

b. The auditor evaluated the internal control.c. The disclosures provide reasonable assurance that the financial statements are free from

material misstatements whether due to fraud or error.d. The financial statements are consistent with those of prior period.

76. Which of the following sentences or phrases from the auditor’s report is not correctly stated? a. We have audited the accompanying….. b. We conducted our audit in accordance with generally accepted auditing standards.c. In our opinion, the financial statements referred to above present fairly the financial position…. d. ….. in conformity with generally accepted accounting principles.

77. Which of the following statements expresses the objective of the traditional audit of financialstatements?

a. To express an opinion on the fairness with which the statements present financial position,financial performance, and cash flows in accordance with Philippine Financial ReportingStandards.

b. To express an opinion on the accuracy with which the statements present financial position,financial performance, and cash flows in accordance with Philippine Financial ReportingStandards.

c. To make suggestions as to the form or content of the financial statements or to draft them inwhole or in part.

d. To assure adoption of sound accounting policies and the establishment and maintenance ofinternal control.

78. Which of the following best describes why an independent auditor is asked to express an opinionon the fair presentation of financial statements?

a. It is a customary courtesy that all shareholders receive an independent report on management’sstewardship in managing the affairs of the business.

b. The opinion of an independent party is needed because a company may not be objective withrespect to its own financial statements.

c. It is difficult to prepare financial statements that fairly present a company’s financial position,financial performance, and cash flows without the expertise of an independent auditor.


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d. It is management’s responsibility to seek available independent aid in the appraisal of thefinancial information shown in its financial statements.

79. Which of the following statements is a basic element of the auditor’s standard report? a. The disclosures provide reasonable assurance that the financial statements are free of material

misstatement.

b. The auditor evaluated the overall internal control.c. An audit includes assessing significant estimates made by management.d. The financial statements are consistent with those of the prior period.

80. Which of the following circumstances would not be considered a departure from the auditor’sstandard report?a. The auditor wishes to emphasize a particular matter regarding the financial statements.b. The auditor’s opinion is based in part on the report of another auditor. c. The financial statements are affected by a departure from a generally accepted accounting

principle.d. The auditor is asked to report only on the balance sheet but has unlimited access to information

underlying all the basic financial statements.

81. The auditor would most likely issue a disclaimer of opinion because ofa. The client’s failure to present supplementary information required by FRSC.b. Inadequate disclosure of material information.c. A client-imposed scope limitation.d. The qualification of an opinion by the other auditor of a subsidiary where there is a division of

responsibility.

82. A limitation on the scope of the auditor’s examination sufficient to preclude an unqualified opinionwill always result when managementa. Engages an auditor after the year-end physical inventory count.b. Refuses to furnish a representation letter.c. Knows that direct confirmation of accounts receivable with debtors is not feasible.d. Engages an auditor to examine only the balance sheet.

83. Which of the following will not result in modification of the auditor’s report to a scope limitation? a. Restrictions imposed by the client.b. Reliance placed on the report of another auditor.c. Inability to obtain sufficient competent evidential matter.

d. Inadequacy in the accounting records.

84. When an accountant performs more than one level of service (for example, a compilation and areview, or a compilation and an audit) concerning the financial statement of a non public entity, theaccountant should generally issue the report that is appropriate fora. The lowest level of service rendered.b. The highest level of service rendered.c. A compilation engagement.

d. A review engagement.

85. An auditor may issue the standard audit report when thea. Auditor refers to the findings of a specialist.b. Financial statements are derived and condensed from complete audited from financial

statements that are filed with a regulatory agency.c. Financial statements are prepared on the cash receipts and disbursements basis of accounting.d. Principal auditor assumes responsibility for the work of another auditor.

PSA 705 “Modifications to the Independent Auditor’s Report”

86. An independent auditor discovers that a payroll supervisor of the company being audited hasmisappropriated P50,000. The company’s total assets and income before tax are P70 million and

P15 million, respectively. Assuming no other issues affect the report, the auditor’s report will mostlikely contain a/ana. Unqualified opinion.b. Disclaimer of opinion.c. Adverse opinion.d. Scope qualification.


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87. When financial statements contain a departure from an acceptable Financial Reporting Framework(FRF) because, due to unusual circumstances, the statements would otherwise be misleading, theauditor should explain the unusual circumstances in a separate paragraph and express an opinionthat isa. Adverse

b. Qualifiedc. Unqualifiedd. Qualified or Adverse, depending on materiality

88. When would the auditor refer to the work of an appraiser in the auditor’s report? a. An adverse opinion is expressed based on a difference of opinion between the client and the

outside appraiser as to the value of certain assets.b. A disclaimer of opinion is expressed because of a scope limitation imposed on the auditor by

the appraiser.c. A qualified opinion is expressed because of a matter unrelated to the work of the appraiser.d. An unqualified opinion is expressed and an emphasis of matter paragraph is added to disclose

the use of the appraiser’s work.

89. An auditor decides to express a qualified opinion on an entity’s financial statements because amajor inadequacy in its computerized accounting records prevents the auditor from applyingnecessary procedures. The opinion paragraph of the auditor’s report should state that thequalification pertains toa. A client-imposed scope limitation.b. A departure from generally accepted auditing standards.c. Inadequate disclosure of necessary information.d. The possible effects on the financial statements.

90. In which of the following situations would an auditor ordinarily choose between a qualified opinionor an adverse opinion?a. The auditor wishes to emphasize an unusually important subsequent event.b. The financial statements fail to disclose information that is required by Philippine Financial

Reporting Standards.c. Events disclosed in the financial statements cause the auditor to have substantial doubt about

the entity’s ability to continue as a going concern. d. The auditor did not observe the entity’s physical inventor y and is unable to become satisfied as

to its balance by other auditing procedures.

91. The distinction between an adverse opinion and a disclaimer of opinion isa. Lack of PFRS versus lack of GAAS.b. Knowledge versus lack of knowledge.c. The CPA’s report versus the CIA’s report. d. FRSC statement versus the PICPA standards.

92. In order to make materiality decisions when a condition requiring departure from unqualified report

exists, the auditor must evaluatea. The magnitude of the error on the account involved.b. The effect on the financial statement which contains the erroneous account.c. The effects of the error on both the income statement and the balance sheet.d. All the effects on the financial statements.

93. The primary concern in measuring materiality when a client has failed to follow PFRS is usuallya. The total peso error in the accounts involved, compared with some base.b. Measurability of the peso error.c. The nature of the item in error.d. Whether it can materially affect some future period.

94. Whenever there is a scope restriction, the appropriate response is to issue

a. A disclaimer of opinion.b. An adverse opinion.c. A qualified opinion.d. An unqualified report, a qualification of scope and opinion, or a disclaimer of opinion,

depending on materiality.


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95. The most common case in which conditions beyond the client’s and auditor’s control can cause ascope restriction is an engagementa. Agreed upon after the client’s balance sheet date. b. Where the client would not allow auditor to confirm receivables for fear of offending his

customers.c. Where the auditor does not have enough staff to audit all of the client’s foreign subsidiaries

satisfactorily.d. Where client is going through bankruptcy.

96. A scope and opinion qualification can be issued only when the auditora. Is not independent.b. Has not been able to accumulate all the evidence required by generally accepted auditing

standards.c. Has accumulated all the evidence required by generally accepted auditing standards.d. Has been restricted by client from gathering the needed information to form an opinion.

97. A qualified opinion is appropriate when the auditor is satisfied that the financial statements area. Fairly stated.b. Materially misstated.

c. Fairly stated, but there is a material exception.d. Fairly stated, even though there is an immaterial exception.

98. When a client will not permit inquiry of outside legal counsel, the audit report will ordinarily containa/ana. Disclaimer of opinion.b. Adverse opinion.c. “Subject to” qualified opinion. d. Unqualified opinion with an emphasis of matter paragraph.

PSA 710 “Comparatives”

99. There are two broad financial reporting frameworks for comparatives: the corresponding figures

and the comparative financial statements. Which of the following statements is correct concerningthese reporting frameworks?a. Under the corresponding figures framework, the corresponding figures for the prior period(s)

are integral part of the current period financial statements.b. Under the corresponding figures framework, the corresponding figures for the prior period(s)

are considered separate financial statements.c. Under the comparative financial statements framework, the comparative financial statements for

the prior period(s) are intended to be read in conjunction with the amounts and otherdisclosures relating to the current period.

d. Under the comparative financial statements framework, the amounts and other disclosures forthe prior period(s) form part of the current period financial statements.

100. Unaudited financial statements for the prior year presented in comparative form with audited

financial statements for the current year should be clearly marked to indicate their status andI. The report on the prior period should be reissued to accompany the current period report.

II. The report on the current period should include as a separate paragraph a description of theresponsibility assumed for the prior period’s financial statements.

a. I only.b. II only.c. Both I and II.d. Either I or II.

PSA 720, “Other Information in Documents Containing Audited Financial Statements

101. Which of the following is considered “unaudited” information when included with historical financialstatement?

a. Interim information.b. Segment information.c. Notes to financial statements.d. Investment security classifications.


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102. Which of the following statements regarding the auditor’s responsibilities for supplem entaryinformation required by the FRSC?a. Because the supplementary information is required part of the basic financial statements, the

auditor should apply normal auditing procedures.b. The omission of, but not deficiencies in, supplementary information should be disclosed in the

opinion paragraph of the auditor’s report.

c. Because the supplementary information is not a required part of the basic financial statements ,the auditor should apply only certain limited procedures.d. The omission of supplementary information ordinarily requires the auditor to issue an adverse

opinion, but mere deficiencies require an “except for” qualified opinion.

103. Which of the following best describes the auditor’s responsibility for “other information” included inthe annual report to stockholders that contains financial statements and the auditor’s report? a. The auditor has no obligation to read “other information”. b. The auditor has no obligation to corroborate the “other information” but should read the “other

information” to determine whether it is materially inconsistent with the financial statements.c. The auditor should extend the examination to the extent necessary to verify the “other

information”. d. The auditor must modify the auditor’s report to state that the other information “is audited” or “is

not covered by the auditor’s report”.

104. According to PSA 720, when audited financial statements are presented in document (e.g. annualreport) containing other information, the auditora. Should read the other information to consider whether it is inconsistent with the audited

financial statements.b. Has no responsibility for the other information because it is not part of the basic financial

statements.c. Has an obligation to perform auditing procedures to corroborate the other information.d. Is required to express a qualified opinion if the other information has a material misstatement of

fact.

105. Which of the following best describes the auditor’s reporting responsibility concerning information

accompanying the basic financial statements in an auditor-submitted document?a. The auditor should report on all the information included in the document.b. The auditor should report on the basic financial statements but may not issue a report covering

the accompanying information.c. The auditor should report on the information accompanying the basic financial statements only

if the auditor participated in the preparation of the accompanying information.d. The auditor should report on the information accompanying the basic financial statements only

if the document is being distributed to public shareholders.

PSA 800, “The Auditor’s Report on Special Purpose Audit Engagements”

106. Whenever special reports, filed on a printed form designed by authorities, call upon theindependent auditor to make an assertion that the auditor believes is not justified, the auditor

shoulda. Submit a short-form report with explanations.b. Reword the form or attach a separate report.c. Submit the form with questionable items clearly omitted.d. Withdraw from the engagement.

107. Reports are considered special reports when issued in connection witha. Compliance with aspects of regulatory requirements related to audited financial statements.b. Pro forma financial presentations designed to demonstrate the effect of hypothetical

transactions.c. Feasibility studies presented to illustrate an entity’s results of operations. d. Interim financial information reviewed to determine whether modifications should be made to

conform with generally accepted accounting principles.

108. If the auditor believes that financial statements which are prepared on a comprehensive basis ofaccounting other than generally accepted accounting principles are not suitably titled, the auditorshoulda. Modify the auditor’s report to disclose any reservations. b. Consider the effects of the titles on the financial statements taken as a whole.


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c. Issue a disclaimer of opinion.d. Add a footnote to the financial statements which explains alternative terminology.

109. When asked to perform an examination in order to express an opinion on one or more specifiedelements, accounts, or items of a financial statement, the auditora. May not describe auditing procedures applied.

b. Should advise the client that the opinion will result in a piecemeal opinion.c. May assume that the first standard of reporting with respect to generally accepted principlesdoes not apply.

d. Should comply with the request if they constitute a major portion of the financial statements onwhich an auditor has disclaimed an opinion based on an audit.

110. The term ‘special reports: may include all of the following, except reports on financial statementsa. Of an organization that has limited the scope of the auditor’s examination. b. Prepared for limited purposes such as a report that relates to only certain aspects of financial

statements.c. Of a not-for-profit organization which follows accounting by business enterprises organized for

profit.d. Prepared in accordance with historical cost/constant peso accounting.

PSA 810, “The Examination of Prospective Financial Information”

111. An examination of a financial forecast is a professional service that involvesa. Compiling or assembling a financial forecast that is based on management’s assumptions. b. Limiting the distribution of the accountant’s report to management and the board of directors. c. Assuming a responsibility to update management on key events for one year after the report’s

date.d. Evaluating the preparation of a financial forecast and the support underlying management’s

assumptions.

112. An accountant may accept an engagement to apply agreed-upon procedures to prospectivefinancial statements provided that

a. Use of the report is restricted to the specified parties.b. The prospective financial statements are also examined.c. Responsibility for the adequacy of the procedures performed is taken by the accountant.d. Negative assurance is expressed on the prospective financial statements taken as a whole.

113. Which of the following statements is correct concerning an auditor’s responsibilities regardingfinancial statements?

a. Making suggestions that are adopted about the form and content of an entity’s financialstatements impairs an auditor’s independence.

b. An auditor may draft an entity’s financial statements based on information frommanagement’s accounting system.

c. The fair presentation of audited financial statements in conformity with GAAP is an implicitpart of the auditor’s responsibilities.

d. An auditor’s responsibilities for audited financial statements are not confined to theexpression of the auditor’s opinion.

114. When a CPA is associated with the preparation of forecasts, all of the following should bedisclosed except thea. Sources of information.b. Character of the work performed by the CPA.c. Major assumptions in the preparation of the forecasts.d. Probability of achieving estimates.

115. On an audit engagement performed by a CPA firm with one office, at a minimum, knowledge ofthe relevant professional accounting and auditing standards should be held bya. The auditor with final responsibility for the audit.

b. All professionals working upon the audit.c. All professionals working upon the audit and the partner in charge of the CPA firm.d. All professionals working in the office.


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116. PSA establishes standards and procedures for which of the following engagements?a. Assisting in adjusting the books of account for a partnership.b. Reviewing interim financial data required to be filed with the SEC.c. Processing financial data for clients of other accounting firms.d. Compiling an individual’s personal financial statements to be used to obtain a mortgage.

117. PSA require an accountant to report when the accountant hasa. Typed client-prepared financial statements, without modification, as an accommodation to the

client.b. Provided a client with a financial statement format that does not include peso amounts, to be

used by the client in preparing financial statements.c. Proposed correcting journal entries to be recorded by the client that change client-prepared

financial statements.d. Generated, through the use of computer software, financial statements prepared in accordance

with a comprehensive basis of accounting other than GAAP.

PSRE 2400 “Engagements to Review Financial Statements”

118. In a review engagement, the practitioner and the client should agree on the terms of engagement.The agreed terms would be recorded in an engagement letter or other suitable form such as acontract. The engagement letter should include all of the following, excepta. A provision that the engagement cannot be relied upon to disclose errors, fraud or illegal acts.b. A provision that any errors, fraud, or illegal acts that come to the practitioner’s attention need not

be reported.c. A sample of the report expected to be rendered.

d. The objective of the service to be performed.

119. The objective of a review of interim financial information of a public entity is to provide theaccountant with a basis fora. Determining whether the prospective financial information is based on reasonable assumptions .b. Expressing limited opinion that the financial information is presented in conformity with generally

accepted accounting principles.c. Deciding on whether to perform substantive audit procedures prior to balance sheet date.d. Reporting whether the material modifications should be made for such information to conform

with generally accepted accounting principles.

120. An accountant has been engaged to review a nonpublic entity’s financial statements that containseveral departures from GAAP. If the financial statements are not revised and modifications of thestandard review report is not adequate to indicate the deficiencies, the accountant shoulda. Withdraw from the engagement and provide no further services concerning these financial

statements.b. Inform management that the engagement can proceed only if distribution of the accountant’s

report is restricted to internal use.c. Determine the effects of the departures from GAAP and issue a special report on the financial

statements.d. Issue a modified review report provided the entity agrees that the financial statements will not be

used to obtain credit.

121. Which of the following should be included in an accountant’s standard report based upon thereview of a nonpublic entity’s financial statements? a. A statement that the review was performed in accordance with generally accepted review

standards.b. A statement that a review consists primarily of inquiries and analytical procedures.c. A statement that the accountant is independent with respect to the entity.d. A statement that a review is substantially greater in scope than a compilation.

122. An auditor who was engaged to perform an audit of the financial statements of a nonpublic entity

has been asked by the client to refrain from performing various audit procedures and change thenature of the engagement to a review of the financial statements in accordance with standardsestablished by ASPC. The client’s request was made because the cost to complete the audit wassignificant. Under the circumstances the auditor would most likely

a. Qualify the auditor’s report and refer to the scope limitation. b. View the request as an indication of a possible irregularity.


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c. Complete the examination which was in progress.d. Honor the client’s request.

PSRS 4400 “Engagements to Perform Agreed-Upon Procedures Regarding Financial Information”

123. Which of the following is correct concerning an engagement to apply agreed-upon procedures?

a. A clear understanding of the terms of the engagement must be established through the use ofan engagement letter.

b. Independence of the CPA is not required.c. The procedures may be as limited or extensive as the CPA’s desire ranging from a mere

reading of the information to performing search and verification procedures.d. Use of the report is restricted to the specified users.

124. Which of the following is least likely to be included in a agreed-upon procedures engagementreport?

a. Identification of the purpose for which the agreed-upon procedures were performed.b. A summary of procedures performed.c. Limited assurance on the information presented.d. Use of the report is restricted.

125. Which of the following procedures is most likely to be appropriate procedure when performed as anagreed-upon procedures engagement under the attestation standards?a. Evaluation of the competence or objectivity of another party.b. Interpreting documents outside the scope of the practitioner’s professional expertise. c. Obtaining an understanding about a particular subject.d. Performance of mathematical computations.

PSRS 4410 “Engagements to Compile Financial Information”

126. When engaged to compile the financial statements of a nonpublic entity, an accountant is requiredto possess a level of knowledge of the entity’s accounting principles and practices. Thisrequirement most likely will include obtaining a general understanding of the

a. Stated qualifications of the entity’s accounting personnel. b. Design of the entity’s internal controls placed in operation. c. Risk factors relating to misstatements arising from illegal acts.d. Internal control awareness of the entity’s senior management.

127. Each page of the financial statements compiled by an accountant should include a reference suchas

a. Subject to Compilation Restrictions.b. Refer to Compilation Report.c. Unaudited, See Accountant’s Disclaimer.d. See Accompanying Accountant’s Footnotes.

128. An accountant’s compilation report on the financial forecast should include a statement that the

a. Compilation does not include evaluation of the support of the assumptions underlying theforecast.

b. Hypothetical assumption used in the forecast are reasonable.c. Range of assumptions selected in one in which one end of the range is likely to occur than the

other.d. Prospective statements are limited to presenting, in the form of a forecast, information that is

the accountant’s representation.

129. When compiled financial statements are accompanied by a report, that report should state all of thefollowing excepta. The accountant does not express an opinion or any other form of assurance on them.b. A compilation has been performed.c. A compilation is limited to presenting in the form of financial statements information that is

representation of management.d. A compilation consists principally of inquiries of company personnel and analytical procedures

applied to financial data.


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130. An accountant’s compilation report should be dated as of the date of the a. Completion of field work.b. Completion of compilation.c. Transmittal of the compilation report.d. The latest subsequent event referred to in the notes to financial statements.

131. When an accountant is not independent of a client and is requested to perform a compilation of itsfinancial statements, the accountanta. Is precluded from accepting the engagement.b. May accept the engagement and should disclose the lack of independence, but not the reason

for the lack of independence.c. May accept the engagement and need not disclose the lack of independence.d. May accept the engagement and should disclose both the lack of independence and the

reason for the lack of independence.

132. How does an accountant make the following representations when issuing the standard report forthe compilation of a nonpublic entity’s financial statements?

The financial statements The accountant has compiledhave not been audited the financial statements

a. Implicitly Implicitlyb. Explicitly Explicitlyc. Implicitly Explicitlyd. Explicitly Implicitly

PAPS 1008, “ Risk Assessments and Internal Control – CIS Characteristics and Considerations”

133. Which of the following statements is not correct?a. There is no distinction between the audit concepts applicable to complex electronic data

processing and those applicable to non-complex systems.b. When computers or other aspects of EDP systems are introduced, generally accepted auditing

standards and their interpretations, the Code of Professional Conduct, legal liability, and thebasic concepts of evidence accumulation remain the same.

c. Most EDP-based accounting systems rely extensively on the same types of procedures forcontrol that are used in non-complex systems.

d. The specific methods appropriate for implementing the basic auditing concepts do not changeas systems become more complex.

134. Regardless of the nature of an entity’s information system, the auditor must consider internalcontrol. In a CIS environment, the auditor, must, at a minimum, havea. A background in programming procedures.b. An expertise in computer systems analysis.

c. A sufficient knowledge of the computer’s operating system. d. A sufficient knowledge of the computer information system.

135. Which of the following is not a general control?a. The plan of organization and operation of EDP activity.b. Procedures for documenting, reviewing and approving systems and programs.c. Processing controls.d. Hardware controls.

136. A hardware element that takes the computer’s digital information and transforms it into signals thatcan be sent over ordinary telephone lines is a/ana. Intelligent terminal.b. Point-of-sale terminal.

c. Terminal emulator.d. Modem.


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137. A CIS where two or more personal computers are linked together through the use of specialsoftware and communication lines and allows the sharing of application software, data files, andcomputer peripherals, such as printers and optical scanners is a/ana. Local area network (LAN).b. On-line system.c. Batch processing system.

d. Wide area network (WAN).

138. A computer information system that allows individual users to develop and execute applicationprograms, enter and process data, and generate reports in a decentralized manner is called a/an:a. Online system.b. Batch processing system.c. End-user computing.d. Networking.

139. To protect the integrity of the database, data sharing by different users requires organization,coordination, rules and guidelines. The individual responsible for managing the database resourceis thea. Programmer.

b. Database administrator.c. User.d. CIS manager.

140. The following statements relate to internal control in an electronic data interchange (EDI)environment. Which is false?a. In EDI systems, preventive controls are generally more important than detective controls.b. Control objectives for EDI systems generally are different from the objectives for other

computer information systems.c. Internal controls that relate to the segregation of duties generally are the most important

controls in EDI systems.d. Internal controls in EDI systems rarely permit control risk at below the maximum.

141. A systems analyst should have access to each of the following excepta. Edit criteriab. Source code.c. Password identification tables.d. User procedures.

142. One of the major problems in a CIS environment is that incompatible duties may be performed bythe same individual. One compensating control is the use ofa. Computer-generated hash totals.b. A computer log.c. A self-checking digit system.d. Echo checks.

143. Which of the following groups should have the operational responsibility for the accuracy andcompleteness of computer-based information?a. External auditors.b. Internal auditors.c. Users.d. Top management.

144. Which of the following is not an example of an applications control?a. An equipment failure causes an error message on the monitor.b. There is preprocessing authorization of the sales transactions.c. There are reasonableness tests for the unit selling price of a sale.d. After processing, all sales transactions are reviewed by the sales department.


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145. An auditor may decide not to perform tests of controls related to computer portion of the client’scontrols. Which of the following would not be valid reason for choosing to omit tests of controls?a. The controls appear adequate.b. The controls duplicate operative controls existing elsewhere in the system.c. There appear to be major conditions that would preclude reliance on the stated procedure.d. The time and peso costs of testing exceed the time and peso savings in substantive testing if

the tests of controls show the controls to be operative.

146. Controls within the computer system may leave no visible evidence indicating that theprocedures were performed. In such instances, the auditor should tests these controls bya. Making corroborative inquiries.b. Observing the separation of duties of personnel.c. Reviewing transactions submitted for processing and comparing them to related output.d. Reviewing the run manual.

147. One of the major problems in computer information system is that incompatible functions may beperformed by the same individual. One compensating control for this is use ofa. A tape library.b. A self-checking digit system.

c. Computer generated hash totals.d. A computer log.

148. The auditor’s computer program approach and the test data approacha. Are complementary.b. Are mutually exclusive.c. Are incompatible.d. Must be used simultaneously.

149. The reprocessing of live data to test program controls is calleda. Test data.b. Test check.c. Generalized audit software.

d. Parallel simulation.

150. Techniques needed to select the specific live data transactions of audit interest for testing wouldnot includea. Audit hooks.

b. Test data.c. Trap data.d. Transaction tags.

151. Comparing data on separate files can be accomplished by generalized audit software to determinewhether compatible information is in agreement. Examples of such comparisons would notinclude:a. Payroll details with personnel records.

b. Current and prior inventory to details of purchases and sales.c. Paid vouchers to disbursements.d. Observation of inventory counts.

152. Which of the following is likely to be of least importance to an auditor in reviewing the internalcontrol in a company with a computerized system?a. The segregation of duties within the data processing center.b. The control over source documents.c. The documentation maintained for accounting applications.d. The cost/benefit ratio of data processing operations.

153. Which of the following is classified as general CIS controls that relates to segregation of duties?a. Reconciliation of record counts.

b. Authorization of modifying the operating system.c. A system of transaction logs.d. Follow up all errors detected during processing.


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154. When the auditor encounters sophisticated computer-based systems, he or she may need tomodify the audit approach. Of the following conditions, which one is not a valid reason formodifying the audit approach?a. More advanced computer systems produce less documentation, thus reducing the visibility of

audit trail.

b. In a complex computer-based systems, computer verification of data at the point of inputreplaces the manual verification found in less sophisticated data processing systems.c. Integrated data processing has replaced the more traditional separation of duties that existed

in manual and batch processing systems.d. Real-time processing of transactions has enabled the auditor to concentrate less on the

completeness assertion.

155. A computer-assisted audit technique that is most likely to be effective in a continuous auditingenvironment isa. Parallel simulation.b. Controlled reprocessing.c. Embedded audit modules.d. Transaction tripping.

156. Which of the following is correct concerning electronic commerce security?a. Since they cannot use both, companies must decide whether to use an electronic data

interchange approach or an approach using the Internet.b. Companies that wish to use the Internet for electronic commerce must adhere to the Uniform

Internet Service Provider Code of Conduct.c. Use of a website “home page” instead of encryption leads to a greater security in electronic

transactions.d. The successful use of a firewall will help assure the security of a firm’s computer systems.

157. Which of the following is not a problem associated with the use of test data for computer-auditpurposes?

a. Auditing through the computer is more difficult than auditing around the computer.

b. It is difficult to design test data that incorporate all potential variations in transactions.c. Test data may be commingled with live data causing operating problems for the client.d. The program with which the test data are processed may differ from the one used in actual

operations.

158. In parallel simulation, actual client data are reprocessed using an auditor software program. Anadvantage of using parallel simulation, instead of performing tests of controls without a computer,is thata. The test includes all types of transaction errors and exceptions that may be encountered.b. The client’s computer personnel do not know when the data are being tested. c. There is no risk of creating potentially material errors in the client’s data. d. The size of the sample can be greatly expanded at relatively little additional cost.

159. A client that recently installed a new accounts payable system assigned employees a useridentification code (UIC) and a separate password. Each UIC is a person’s name, and theindividual’s password is the same as the UIC. Users are not required to change their passwords atinitial log-in nor do passwords over expire. Which of the following statements do not reflect alimitation of the client’s computer access control?

a. Employees can easily guess fellow employees’ passwords. b. Employees are not required to change passwords.c. Employees can circumvent procedures to segregate duties.d. Employees are not required to take regular vacations.

160. Which of the fol lowing strategies would a CPA most likely consider in auditing an entity thatprocesses most of its financial data only in electronic form, such as a paperless system?

a. Continuous monitoring and analysis of transaction processing with an embedded audit module.

b. Increased reliance on internal control activities that emphasize the segregation of duties.c. Verification of encrypted digital certificates used to monitor the authorization of transaction.d. Extensive

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-At Reviewer Part II - (May 2015 Batch)

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