23. When the auditor is unable to determine the amounts associated with the illegal acts of client personnel because of an inability to obtain adequate evidence, the auditor should issue a(n) a. Qualified opinion b. Disclaimer of opinion c. Adverse opinion d. Unqualified opinion with a separate explanatory paragraph

24. The predecessor auditor, after properly communicating with the successor auditor, has reissued a report because the audit client desires comparative financial statements. The predecessor auditor's report should make a. No reference to the report or the work of the successor auditor b. Reference to the work of the successor auditor in the scope paragraph c. Reference to both the work and the report of the successor auditor in the opinion paragraph d. Reference to the report of the successor auditor in the scope paragraph

26. During a review of the financial statements of a nonpublic entity, the CPA finds that the financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the problem, the CPA should a. Disclose the departure in a separate paragraph of the report b. Issue an adverse opinion c. Attach a footnote explaining the effects of the departure d. Issue a compilation report

29. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that a. Distribution of the report is to be restricted to the specified users involved b. The prospective financial statements also are 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

31. Responding to a question such as "What would happen if…" is an attribute of which of the following types of engagements? a. Financial projection b. Financial forecast c. Financial forecast and financial projection d. Review

41. What is the general character of the work conducted in performing a forensic audit for a company? a. Providing assurance that the financial statements are not materially misstated b. Detecting or deterring fraudulent activity c. Offering an opinion on the reliability of the specific assertions made by management d. Identifying the causes of an entity's financial difficulties

42. Which of the following is NOT a requirement of the Sarbanes-Oxley Act? a. Audit firms cannot provide most types of nonaudit services to their public company audit clients b. Audit firms are required to rotate audit partners off audit engagements every five years for public company audits c. Firms that audit public companies are subject to inspection by the PCAOB d. A certain number of hours, which is based on the size of the company being audited, must be spent on each audit engagement

45. Which of the following is not included in the broad category of assurance services? a. operational audit b. reporting on internal control c. accounting or review services d. evaluation of the client's risk management framework

49. Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality? a. Potential for fraud b. The company is close to violating loan covenants c. Firm policy sets materiality at 4% of pretax income d. A small misstatement would interrupt an earnings trend

50. Engagement risk can be eliminated by

a. Establishing policies for client acceptance and continuance b. Lowering audit risk c. Lowering materiality d. Engagement risk cannot be eliminated

52. The risk of material misstatement differs from detection risk in that it a. Arises from the misapplication of auditing procedures b. May be assessed in either quantitative or qualitative terms c. Exists independently of the actions of the auditor d. Can be changed at the auditor's discretion

53. When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the a. Extent of tests of controls b. Level of detection risk c. Extent of substantive tests d. Level of inherent risk

54. The risk of material misstatement includes which of the following: a. Detection risk c. Inherent risk b. Audit risk d. Nonsampling risk

55. Which of the following procedures would not be used to obtain an understanding of the entity and its environment? a. Observe entity operations b. Reperform entity processes c. Verify proper valuation of inventory subject to technological obsolescence d. Review prior year's audit documentation

58. As the acceptable level of detection risk decreases, an auditor may change the a. Timing of tests of controls by performing them at an interim date rather than at year-end b. Nature of substantive procedures from less effective to more effective procedures c. Timing of tests of controls by performing them at several dates rather than at one time d. Assessed level of risk of material misstatement to a higher amount

60. Which of the following is correct concerning required auditor communications about fraud? a. Fraud that involves senior management should be reported directly by the auditor to the audit committee regardless of the amount involved b. Fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission c. Any requirement to disclose fraud outside the entity is the responsibility of management and not that of the auditor d. The professional standards provide no requirements related to the communication of fraud, but the auditor should use professional judgment in determining communication responsibilities

61. Which of the following statements is not correct about materiality? a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important b. An auditor considers materiality for the aggregate level of misstatements that could be material to any one of the financial statements individually c. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments d. An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements

62. An example of audit evidence with a medium level of reliability is: a. Scanning. c. Observation. b. Recalculation. d. All of the above.

64. All of the following are typically in the current file except a. Adjusting journal entries

b. Copies of the audit report c. Chart of accounts d. Lead schedules

65. You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment. Which account balance assertion for inventory should you be most concerned about verifying? a. Existence or occurrence b. Completeness c. Rights and obligations d. Valuation or allocation

67. Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for transactions within the purchasing process are you most concerned with? a. Existence or occurrence b. Completeness c. Rights and obligations d. Presentation and disclosure

72. Which of the following would be least likely to be comparable between similar corporations in the same industry or line of business? a. Earnings per share b. Return on total assets before interest and taxes c. Accounts receivable turnover d. Operating cycle

76. Which of the following input controls is a numeric value computed to provide assurance that the original value has not been altered in construction or transmission? a. Hash total c. Encryption b. Parity check d. Check digit

78. A limit test is a a. Test to ensure that a numerical value does not exceed some predetermined value b. Check to ensure that the value in a field falls within an allowable range of values c. Check to ensure that the data in a field have the proper arithmetic sign d. Check on a field to ensure that it contains either all numeric or alphabetic characters

79. A field test is a a. Test to ensure that a numerical value in a field does not exceed some predetermined value b. A check to ensure that the value in a field falls within an allowable range of values c. A check to ensure that the data in a field have the proper arithmetic sign d. A check on a field to ensure that it contains either all numeric or alphabetic characters

81. An effective control environment a. Allows management to identify all relevant risks b. Creates a commitment to competence c. Guarantees that all controls are followed as prescribed d. Requires an internal audit department

83. A substantive strategy differs from a reliance strategy in that a substantive strategy includes a. Increased implementation of detailed tests of transactions and balances b. Extra tests of controls c. Increased emphasis on verbal representations from management d. Setting control risk at a minimum level

84. Walkthroughs usually involve all of the following audit procedures except a. Reperformance c. Observation b. Inquiry d. Inspection

87. As a result of tests of controls, an auditor over relied on internal control and decreased substantive testing. This overreliance occurred because the true deviation rate in the population was a. Less than the risk of assessing control risk too low on the auditor's sample b. Less than the deviation rate in the auditor's sample c. More than the risk of assessing control risk too low on the auditor's sample

d. More than the deviation rate in the auditor's sample

91. In all of the following situations except one, a person is deemed to be engaged in professional accounting practice. Which of them is the exception? a. Performing audits or verification of financial transactions and records for more than one client. b. Employed as the department chairman that supervises the BSA program of an educational institution. c. Employment as controller of a private business enterprise and such employment requires that the holder thereof should be a CPA. d. Appointment in the government where first grade civil service eligibility is a prerequisite.

92. Any position in any business or company in the private sector which requires supervising the recording of financial transactions, preparation of financial statements, coordinating with the external auditors for the audit of such financial statements and other related functions shall be occupied only by a duly registered CPA. Provided (choose the incorrect one) a. That the business or company where the above position exists has a paid-up capital of at least P5,000,000 and/or an annual revenue of at least P10,000,000. b. The above provision shall apply only to persons to be employed after the effectivity of the Implementing Rules and Regulations of RA 9298. c. The above provision shall not result to deprivation of the employment of incumbents to the position. d. None of the above.

94. Which of the following is not one of the grounds for proceedings against a CPA? a. Gross negligence or incompetence in the practice of his profession. b. Engaging in public practice while being employed in a private enterprise. c. Insanity. d. Immoral or dishonorable conduct.

96. May a CPA hire for the CPA’s public accounting firm a non-CPA systems analyst who specializes in developing computer systems?

a. Yes, provided the CPA is qualified to perform each of the specialist’s tasks. b. Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s end

product. c. No, because non-CPA professionals are not per- mitted to be associated with CPA firms in public practice. d. No, because developing computer systems is not recognized as a service performed by public

accountants.

97. Juan Dela Cruz is a CPA who is working as a controller for Bayabas Corporation. Which statement is true? a. He may use the CPA designation on his business cards if he also puts his employment title on

them. b. He may use the CPA designation on his business cards as long as he does not mention Bayabas

Corporation or his title as controller. c. He may use the CPA designation on company transmittals but not on his business cards. d. He may not use the CPA designation because he is not in public practice.

98. According to the standards of the profession, which of the following activities would most likely not impair a CPA’s independence?

a. Providing advisory services for a client. b. Contracting with a client to supervise the client’s office personnel. c. Signing a client’s checks in emergency situations. d. Accepting a luxurious gift from a client.

100. Based on the Code of Ethics for Professional Accountants, threats to compliance with fundamental principles arise from all of the following except:

a. Self-interest. b. Advocacy. c. The audit relationship. d. Intimidation.

Which one of the following is more difficult to evaluate objectively?a. Efficiency and effectiveness of operations.b. Compliance with government regulations.c. Presentation of financial statements in accordance with generally accepted accounting principles.d. All three of the above are equally difficult.

Which of the following criteria is unique to the independent auditor’s attest function?a. General competenceb. Familiarity with the particular industry of each clientc. Due professional cared. Independence

The single feature that most clearly distinguishes auditing, attestation, and assurance isa. Type of service. b. Training required to perform the service c. Scope of services.d. CPA’s approach to the service

Assurance engagementa. Is an engagement in which a practitioner is engaged to issue, or does issue, a written communication that

expresses a conclusion about the reliability of a written assertion that is the responsibility of another party.

b. Is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.

c. Is an engagement in which the auditor provides a moderate level of assurance that the information subject to the engagement is free of material misstatement.

d. Is an engagement intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the information will meet the needs of an intended user.

Independent auditing can best be described as aa. Branch of accountingb. Discipline that attests to the results of accounting and other operations and datac. Professional activity that measures and communicates financial and business datad. Regulatory function that prevents the issuance of improper financial information

An audit can have a significant effect ona. Information Risk b. The risk-free interest ratec. Business Riskd. All of these

The main way(s) to reduce information risk is to havea. The user verify the informationb. The user share the information risk with managementc. Audited financial statements providedd. All of the above

To operate effectively, an internal auditor must be independent ofa. The line functions of the organizationsb. The entityc. The employer-employee relationship which exists for other employees in the organizationd. All of the above

Which of the following statements is not a distinction between independent auditing and internal auditing?a. Independent auditors represent third party users external to the auditee entity, whereas internal auditors

report directly to management.b. Although independent auditors strive for both validity and relevance of evidence, internal

auditors are concerned almost exclusively with validity.c. Internal auditors are employees of the auditee, whereas independent auditors are independent

contractors.d. The internal auditor's span of coverage goes beyond financial auditing to encompass operational and

performance auditing.

Which of the following is a correct qualification of the Chairman and Two Commissioners of the Commission on Audit?

a. A citizen of the Philippines.

b. At least 40 years of age upon appointment.c. CPA’s with no less than 5 years of auditing experience or members of Philippine bar who have been

engaged in law practice for at least 5 years.d. Must not have been candidates for any elective position preceding appointment.

The 1986 Constitution provides that the Chairman and Commissioners of the Commission on Audit shall bea. All Certified Public Accountantsb. All lawyersc. One or two lawyers and one or two CPAs for a total of threed. Two lawyers and one CPA

Which of the following is not one of the duties of the Commission on Audita. Define the scope of its audit and examinationb. Assume fiscal responsibility for the government and its instrumentalitiesc. Keep the general accounts of the governmentd. Promulgate accounting rules and regulations

A governmental audit may extend beyond an examination leading to the expression of an opinion on the fairness of financial presentation to include

Program results Compliance Economy and efficiencya. Yes Yes Nob. Yes Yes Yesc. No Yes Yesd. No No Yes

An audit designed to determine the extent to which the desired results of an activity established by the legislative or other authorizing body are being achieved is a (an)

a. Economy audit b. Efficiency audit c. Program auditd. Financial related audit

A government auditor evaluates a disbursement to determine if it is necessary, excessive or extravagant in accordance with existing rules and regulations. What kind of audit is he conducting?

Compliance audit Economy audita. Yes Nob. No Yesc. Yes Yesd. No No

Which of the following is incorrect regarding the Philippine Standards on Assurance Engagements (PSAE)?a. It provides an overall framework for assurance engagements intended to provide either a high or

moderate level of assuranceb. It provides basic principles and essential procedures for engagements intended to provide a

moderate level of assurance.c. When a professional accountant is engaged to perform an assurance engagement for which specific

standards exist, those standards apply.d. If no specific standards exist for an assurance engagement, PSAE apply.

An assurance engagement should exhibit the following elements excepta. A three party relationship b. A conclusionc. Appropriate professional feed. A subject matter

Which of the following is incorrect regarding the “three-party relationship” element of assurance engagements?a. Professional accountants as those persons who are members of an IFAC member body, which

should be in public practice.b. The responsible party and the intended user will often be from separate organizations but need not be.c. The responsible party is the person or persons, either as individuals or representatives of an entity,

responsible for the subject matter.d. The intended user is the person or class of persons for whom the professional accountant prepares the

report for a specific use or purpose.

The subject matter of an assurance engagement may take many forms, includinga. Datab. Systems and processesc. Behavior d. All of these

14. The decision as to whether the criteria are suitable involves considering whether the subject matter is capable of reasonably consistent evaluation against or measurement using such criteria. The characteristics for determining whether criteria are suitable include the following, except

a. Relevanceb. Reliabilityc. Understandabilityd. Sufficiency

An auditor is associated with financial information whena b c d

• The auditor attaches a report to that information Yes No Yes No• Consents to the use of the auditor’s name in a professional connection Yes Yes No No

It refers to the audit procedures deemed necessary in the circumstances to achieve the objective of the audit.a. Scope of an audit b. Audit programc. Objective of an audit d. Reasonable assurance

A basic objective of a CPA firm is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through

a. A system of peer review.b. Continuing professional education.c. A system of quality controls.d. Compliance with generally accepted reporting standards.

The examination by CPAs of a CPA firm’s auditing practices to ascertain compliance with its quality control system

a. Compliance audit b. Examination c. Peer reviewd. Quality control audit

Quality control policies and procedures are required to be implemented ata b c d

• Audit firm level Yes Yes No No• Individual audit level Yes No Yes No

In connection with the element of professional development, a CPA firm’s system of quality control should ordinarily provide that all personnel

a. Have the knowledge required to enable them to fulfill responsibilities assigned.b. Possess judgment, motivation, and adequate experience.c. Seek assistance from persons having appropriate levels of knowledge, judgment, and authority.d. Demonstrate compliance with peer review directives.

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

a. Technical training that assures proficiency as an auditor.b. Professional education that is required in order to perform with due professional care.c. Knowledge required to fulfill assigned responsibilities and to progress within the firm.d. Knowledge required in order to perform a peer review.

The firm’s evaluation of the performance of its personnel and advising them of their progress is a quality control procedure that relates to

a. Promotion

b. Advancement c. Monitoringd. Directing

Which of the following practices will promote the objectives of assignment of personnel?A. Evaluates partners periodically by means of senior partner or fellow partner evaluation and counseling as to

whether they continue to have the qualifications to fulfill their responsibilities.B. Identifies on a timely basis the staffing requirements of specific auditsC. Periodically counsels personnel as to their progress and career opportunitiesD. Prepares time budget for audit to determine manpower requirements and to schedule audit work.a. A b. A Cc. B D d. d. All of them

Which of the following quality control procedures is a monitoring activity?a. Evaluates the firm’s independence and its ability to serve the prospective clientb. Reviews and tests compliance with the firm’s general quality control policies and procedures.c. Designates individuals as specialists to serve as authoritative sources and define their authority in

consultative situations.d. Monitors continuing professional education programs and maintain appropriate records, both on a firm and

an individual audit engagement basis.

Which of the following objectives are generally a component of a firm’s quality control?A. Professional requirements B. Skills and competence C. Assignment D. Inspection E. ConsultationF. Due professional careG. MonitoringH. Delegation

a. A, B, C, D, E, F b. A, B, C, F, E, G c. A, B, C, E, G, Hd. B, C, G, F, H

Which of the following is(are) quality control policies on an audit firm level?Consultation Assignment Direction

a. Yes No Yesb. No No Yesc. Yes No Yesd. Yes Yes No

Which one of the following relates to delegation objective of quality control?a. The firms creates a group that provides technical training to audit staff.b. There is to be a sufficient direction, supervision, and review of work at all levels to provide

reasonable assurance that the work performed meets appropriate standards of quality.c. Assignment of work to the more qualified personnel.d. Whenever necessary, consultation within or outside the firm is to occur with those who have appropriate

expertise.

Which of the following best describes what is meant by Generally Accepted Auditing Standards?a. Pronouncements issued by the Auditing Standards and Practices Council.b. Procedure to be used to gather evidence to support financial statements.c. Rules acknowledged by the accounting profession because of their universal compliance.d. Measures of the quality of the auditor’s performance

An auditor need not abide by an auditing standard if the auditor believes thata. The amount is immaterialb. The requirement of the standard is impractical to performc. The requirement of the standard is impossible to perform

d. Any of the three above is correct.

A CPA should comply with applicable generally accepted auditing standards on every engagementa. Without exceptionb. Except in examinations that result in a qualified reportc. Except in engagements where the CPA is associated with unaudited financial statements.d. Except in examinations of interim financial statements.

To exercise due professional care the auditor should examine all available corroborating evidences supporting management’s assertions.

The proper attitude of an auditor who is performing an examination in accordance with GAAS should be professional responsiveness.

GAAS means rules acknowledged by the accounting profession because of their universal application.a. b. c. d.

First statement True False True TrueSecond statement False False True FalseThird statement False False True True

A CPA is most likely to refer to one or more of the three general auditing standards in determininga. The nature of the CPA’s auditing qualification.b. The scope of the CPA’s auditing procedures.c. Requirements for the review of internal control.d. Whether the CPA should undertake an audit engagement.

The general standards stress the importance ofa. The personal qualities which the auditor should haveb. Evidence accumulationc. Communicating the auditor’s finding to the readerd. All of the above

The Audit Standard which requires “adequate technical training and proficiency” is normally interpreted as requiring the auditor to have

a. Formal education in auditing and accountingb. Adequate practical experience for the work being performedc. Continuing professional educationd. All of the above

Which of the following is not required by the Generally Accepted Auditing Standards that states that due professional care is to be exercised in the performance of the audit?

a. Observance of the standards of field work and reportingb. Critical review of the audit work performed at every level of supervisionc. Degree of skill commonly possessed by others in the profession.d. Responsibility for losses because of errors of judgment

The first general standard requires that the audit of financial statements be performed by a person or persons having adequate technical training and

a. Independence with respect to the financial statements and supplementary disclosures.b. Exercising professional care as judged by peer reviewers.c. Proficiency as an auditor, which likely has been acquired from previous experience.d. Objectivity as an auditor, as verified by proper supervision.

Which of the following is mandatory if the auditor is to comply with generally accepted auditing standards?a. Possession by the auditor of adequate technical training.b. Use of analytical review on audit engagements.c. Use of statistical sampling whenever feasible on an audit engagement.d. Confirmation by the auditor of material accounts receivable balances.

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity, should

a. Engage financial experts familiar with the nature of the business entity.

b. Obtain a knowledge of matters that relate to the nature of the entity's business.c. Refer a substantial portion of the audit to another CPA who will act as the principal auditor.d. First inform management that an unqualified opinion cannot be issued.

In any case in which the CPA or the CPA’s assistants are not qualified to perform the work, a professional obligation exists to

a. Acquire the requisite knowledge and skillsb. Suggest someone else who is qualified to perform the workc. Decline the engagementd. Any of the above

A CPA, while performing an audit, strives to achieve independence in appearance in order toa. Reduce risk and liability.b. Comply with the generally accepted standards of field workc. Become independent in fact.d. Maintain public confidence in the profession.

The standard of due audit care requires the auditor toa. Apply judgment in a conscientious manner, carefully weighing the relevant factors before

reaching a decision.b. Ensure that the financial statements are free from error.c. Make perfect judgment decisions in all cases.d. Possess skills clearly above the average for the profession.

The third general standards states that due care is to be exercised in the performance of the examination. This standard should be interpreted to mean that a CPA who undertakes an engagement assumes a duty to perform.

a. With reasonable diligence and without fault or error.b. As a professional who will assume responsibility for losses consequent upon error of judgment.c. To the satisfaction of the client and third parties who may rely upon it. d. As a professional possessing the degree of skill commonly possessed by others in the field.

With respect to the auditor’s planning of a year-end audit, which of the following statements is always true?a. An engagement should not be accepted after the fiscal year-end.b. An inventory count must be observed at the balance sheet date.c. The client’s audit committee should not be told of the specific audit procedures that were performed.d. It is an acceptable practice to carry out part of the audit at interim dates.

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

a. An auditor from expressing different opinions on each of the basic financial statements.b. Restrictions on the scope of the examination, whether imposed by the client or by the inability to obtain

evidence.c. Misinterpretations regarding the degree of responsibility the auditor is assumingd. An auditor from reporting on one basic financial statement and not the others.