Вы находитесь на странице: 1из 31

. . .

CPA REVIEW SCHOOL OF TH PHILIPPINES

AUDITING THEORY

;:

n i

1 oi

ATPW-7501
CPA Review

1. The Philippine Framework for Assurance Engagc!ments identifies two types of assurance
engagements a practitioner ts pernittec to pe rfc rm: a reasonable assurance engagement
and a limited assurance engagement. Which ot the follo"'!ing is the objective of a limited
assurance engagementi
A. A reduction in assurance engagement risk tc a very low level in the circu01stances of
the engagement as a basis for a diclaimer ot the practitioner's conclusion.
B. A reduction in assurance engagement r!.k to an acceptably low level in the
circumstances of the engagement as a basi for a positive form of expression of the

practitioner's conclusion.

C. A reduction in assurance engagement nst. to a leve! that is acceptable in the


circumstances of the en agement: as a .basis fvr ct negative form of expression of the

practitioner's conclusion.
D. A reduction in assurance engagement ris1: to. a level that is acceptable in the
circumstances of the engagement s a basi for a modified form of expression of the
practitioner's conclusion.

2. The subject matter of an assurance eng2gemen1: can take the following forms, except
A. Historical or prospective financial statemel'lts.
B. Performance of an entity that could indicte effi,iency and effectiveness.
C. The entity's internal control.
D. Evaluation of a capital investment proposal.
3.

This refer; to the audit procedures that, in tile cuditor's judgment and based on the PSAs
are deemed appropriate in the circumstanc to Khieve the objective of an audit.
C. Audit sampling.
A. Analytical procedures.
B. Scope of an audit.
D. Dccumentation.

4. A firm of CPAs may use policies and procedure such as notifying professional personnel
as to the names of audit clients having publicly '1eld securities and confirming periodically
with such personnel that prohibited ii:l a tio ns do not exist. This is done to achieve
! :
effective quality control in which of the tollo'l'.!ing 9reas?
A. Acceptance and continuance of clients.
B. Human resources.
C. Ethical requirements.
D. Leadership responsibilities for quality within tne firm.

5 . The decision as to whether the criteria are s11itable involves considering whether the
subject matter of the assurance engagement is capable of reasonably consistent
evaluation or measurement using such criteria. Which of the following characteristics is
not considered necessary in determinin! whethe the criteria are suitable?
A. Relevance.
C. Reliability.
B. Neutrality.
D. Sufficiency.
6. Which of the following conditions most i1keiy w< 1U1d pose the greatest risk in accepting a
new audit engagement>
A. Staff will need to be rescheduled to rnver thi0; new client.
B. There will be a client-imposed scope limitatio1.
C. The firm will have to hire an expert in one acdi;: area.
D. The client's financial reporting s1stem has be::n in place for 10 years.
7.

As a condition of obtaining a Joan from Metro Ma n i !:3 Be l.:, Maasim Corp. is quired to submit
.
ated statements of income, changes
an audited statement of financial position but not te
in equity, or cash flows. Maasim would like to e-1qa,;e ,j CPA to audit only its statement of
financial position. Under these circumstances. rl1e :PA
It May not audit only Maaslm's statement: f fir ,'. i ncia l position if the amount of tlie loan is
material to the financial statements t<iKen as 2 .vhole.

--

- - - - -- -- --
- - -- -- - - --

CPA REVIEW SCHOOLOFTHE PHILIPPINES jCPAR1

ATPW-7501

B. May not audit only Maasim's statement of i'inoncial position if Maasi is not a listed ntity.
.
.
C. May audit only Masim's statement of financi2 I position if the CPA d1scla1ms an opinion
on

the other financial statements.

D. May audit only Maasim's statliment of fina11Cial position if access to: the information
underlying the basic financial statements is no1: limited.

8.

risk, contr ol
Using your knowledge of the relationships amon acceptable audit risk, in erent
_ ne tJ
he
risk, planned detection risk, tolerable. misstaterr.ent, and planned evidence, detrmi
factors,
effect on planned evidence (increase or decrease) of changing each of the following
while the other factors remain unchanged.

ir.crec.se

1. An increase in acceptable audit risk.


2. An increase in inherent risk.
3. A decrease in control risk .

4.

5.

Decrease

Decrease . Decrease
Increase
lncrec:se
.
,Decrease
Increase
lncre1se

Increc1se

An increase in planned detection risk.

An increase in tolerable misstatemer1t

Increase.

Decrease

Decrease

Decrease

Increase
Increase

Decrease

Increase

Decrease
Decrease

9. Which of the following payroll control activities would most effectively ensure that
payment is made only for v1ork performed?

A. Require all employees to record amval ad departure by using the time clock.
B. Have a payroll clerk recalculate all time earns
C. Require all employees to sign their-time cards.
.

i
. .

D. Require employees to have their direct supervisors approve their time cards.

10. Which. of the following statements ordinarily is not included among the written client
representations made by the chief executi>;e off cer and the chief financial officer?
A. "Sufficient evidential matter has been ma,je available to the auditor to permit the

issuance of an unqualified opinion."


B. "There are no unasserted claims or assessments that our lawyer has advised us are

C.

probable of assertion and must be disclosed."

"We have no plans or intentions that m<iy materially affect the carrying value or
classification of as:ets and liabilitie;."

D. "No events have 0ccurred subsequent to 1he balance shet


adjustment to, or disclosure in, the fincaricial statements."

11.

9ij

that would require

In evaluating the reasonableness of ;m en tity' 5 accounting estimates, an auditor


would be concerned about assumpiions that are
A. Susceptible to bias.
C. !;)sensitive to variations.
8. Consistent with prior periods.
D. Similar to industry guidelines.

normally

12. When CPA firms do an audit of historical financial statements, part of the audit usually

consists of identifying operational problems and making recommendations that may

benefit the audit client. The recommenaation; can be rnade orally but they are typically
made by use of a
.
A. Letter of represemations.
C. :'-lanagement letter.
B.

13.

Engagement letter.

D. Client letter.

refers tu the appiication of relP-vant training, knowledge ano experience,


within the context provided by auiting, accounting and ethical standards in maklng
informed decisions about the courses of action that are appropriate in the circumstances
of the audit engagement.
A. Professional judgment.
C. Frofessronal skepticism.

----

B. Reasonable assur<nce.

D. Compliance .

14. Which
of the tollowinq is not considered amon. i:he fraud risk fac.tors?
.
A The need to meet expectations of third parties tD obtain additional equity financing.
B. The granting of significant bonuses if unrelistic profit targets are met.
C. Ineffective control environment.
0

. '

D . The existence and enforcement of a writte: code of conduct.

l5. When the auditor issues an erroneOL1s opini0:1 as the result of an underlying failure to
comply with the requirements of standards.on 3Uditing, it results in

------- ----- ----------- - ----

- -:- -:..-

'

! :

'

.GPAREVIEWSCHOOLOFTHE PHILIPPINES(CPA.- I
A.

:,

ATPW-7501
C. , \udit r isk.
D. /\II of the above.

Business failure.

B. Audit failure.

16.

Which of the following statements is flse?


A. The firm should obtain written confirmiltion of compliance with its policies and
procedures on independence from all fim personnel required to be independent. by
the Code of Ethics.
B. The firm should establish policies and procedures designed to provide it with
reasonable assurance that the firm and ts personnel comply with relevant ethical
requirements.
C. The firm's quality control policies and c rocedure s need not be documented and
communicated to the firm's personnel.
D. The firm should establish policies and procdures requiring appropriate documentation
to provide evidence of the operations of eiJ :h element of its system of quality control.

1
need to be available to the intended JJSers in an ass u aric! 'eng ag em ent o allow
them to understand how the subject mat'ter r.as been evaluated or measured. Which of.
the following is not among the ways by whic.1 these criteria could be made available to

17. Criteria

the intended users?


A. Publicly

B. Through inclusion in a clear m a ner i1


C.

D.

information.

the presentation of the subject matter.

Thro ugh inclusion in the firm's office policy manual .


Thro ug h inclusion in a clear manner in the assurance report.

18. The most reliable procedure for an auditor to use to test the existence of a client's
inventory at an outside lo cation woulu be to:
A.

Observe physical counts of t e inventory itms.

B. Trace the total on the inventory liring rn tt1e generai ledger inventory account.

C. Obtain a confirmation from the client indic<-.ting nven tory ownership.


D. Analytically compare the current:year inve11t:0ry bala ce to the prior-year balance.

19. When comparing the auditor's responsibility fo1

etectin employee fraud and for detecting


errors, the profession has placed the responsibili y
A. More on di scove ri
errors than emaloyee f1.iud.
B. More on dis ver g employee fraud thc;in err oi115.

C. Equally on discovering either one.


D. On the senior auditor for detectinl; errors 0rnd ?n the manager for detecting employee.
fraud.
,

ng
co in

20. The primary purpose of performing analytical prxedures in the planning phase of an audit is
to
A. Help the auditor ootain an understa ding of 1.ne client's industry and business.
B. Assess the going concern assumption.
C. Indicate possible misstatements.
D. Reduce d eta il ed te sts .

21. Which of the following circumstances would <.n auditor most likely consider a risk faCtor

rel ati g to misstatements arising from fraudulE nt financial reporting?

A. Several members of managemem hcfve r :cently purchased additional shares of the


entity's stock.
.
B. Several members of the board or dir ect 1 s have recently sold shares of the
en tity 's

stock.
C. The entity distributes financial forecasts tc
anci l analysts that predict conservative
o erating esults .
D. Manageent 1s interested 111 n .<iim:a1n1119 thE entity's earn i ng
s trend by using

aggressive accounting pra ces.


:

fin

cti

22. An audior concluc;les tha the omissio


n of a ubstantive procedure considered necessar-Y
at t e time of the exa nati on .may im ir
p a 1 he auditor's presen t ability to support the
:
prev10usl expressed opinion. The audito neesJ
not apply th e omitted procedure if
r
y
A. The risk of adverse publici ty litiga
101:.
tion is

---------

ii

CPREVIEWSCHOOLOFTHEPHILIPPINES(CPAI:J

ATPW-7501

tend to compensate for the


B. The results of ether procedures. thae Wt!re applied
procedure omitted.
.
financial repo ng
c. The auditor's opinion was qualified becau!;e of a departure from

ft!

standards.
procedure
D. The results of the subsequent period's tes.:s of controls make the omitted
less important.

23.

The auditor's risk assessment procedures shoulj always include the following, except
A. Inquiries of management and .of others within the entity.
B. Analytical procedures.

C. Observation and inspection.

D. subsi:antive test procedures and tests oi' co;1trols.

24. The auditor's risk assessment procedures

._,
.
. .

11:

A. By themselves, do not provide sufficient appropriate audit evidence on which to base


the audit opinion.
B. Should not consider informatian obtained f com the auditor's previous experience with
the entity.

C. Are designed to detect material misstatements at the assertion level fur classes of
transactions, account balances and disclosures.
D. Are designed to test the effectiveness of th< entity's controls.

25.

The auditor should obtain an understanding ol the entity's objectives and strategies, and
those business risks that may result in risk5 of material misstatement. Which of the
following statements concerning file entity's business risk is incorrect?

A.

Business risk is broader than the risk of material misstatement of the financial
statements, though it includes the latter.
B. An understanding of the business risks facing the entity increases the likelihood of

identifying risks of material misstatement.


C. The auditor has a responsibility to identify or assess all business risks.

26

D. Business risk may arise from the developr.ient of new products or services that may
"
fail.
.
.
.
.
'
.

A retailing entity uses the Internet to execute arid record its purchase transactions. The
entity's auditor recognizes that the documentatipn of details of transactions will be
. retained for only a short period of .time. To compensate for this limitation, the auditor
most likely would:
A. Compare a sample of paid vendors' invoice:; to the receiving records at year-end.

8. Plan for a large measure of tolerable misstc!tement in substantive tests.

C. Perform tests several times during.the v.ear, rather than only at year-end.
D. Increase the sample of transactions to .be selected for cutoff tests.
.

27. Which of the followinr statements concerning itUdit risk and its components is incorrect?

A. Regardless of the assessed levels of inhE!rent and control risks, the auditor shQuld

always perform some substantive proce.jures for material account balances and

classes of transactions.

B. The higher the assessment of inherent :ind control risks, the more evidence the
auditor should obtain from the performano! of substantive procedures.

C. The assessed level of inherent risk need n)t be considered in determining the nature,

timing, and extent of substantive proceciures required to reduce audit risk to an

acceptably low levet.


D. After obtaining an understanding of tne a :count ing and internal control systems, the
auditor should m::ike a preliminary assessinel'}t of cntrol .r.is
t the assertion level,
41 :
for each material account balance or c ss of tran sact i ons.

When obtaining an understanding of control!; that relevant to the audit, the auditor is .
required to
A. Evaluate the design of those controls.
B. Determine whether those controls have ben implemented.
etermine whether they have been implemented
C. Evaluate the design of those controis and

_
_

_
_
.

_
_
_
_

. '

CPAREYIEWSCHOOLOF THE PHI


LIPPINES(<:P

AR1

29.

D. E va lua te the design of those


co ntro l s
implemented by performing tests of cont

ATPW-7501
ar d

determine whether they have been

rols.

If an auditor is satisfied that sufficient evidence supports management's assertions about


an uncertainty and its presentation or d isc losure, the auditor should
A. Express a modified opinion with an Emphasis of Matter paragrap h.
B. Express an unmo difi ed opinion w ith an Emph:isis of Matter paragraph.
C. Express an unmodified opinion ith an Other Matter paragraph.
D. Express a qualified opinion or disclaim an opi1ion, depe nding upon the materiality of
the loss.

30. A client makes test counts on the bats of J s: 1tistical plan. The auditor observes such
counts as are deemed necessary and is ab1e to : i ecome satisfied as to the reliability of the
client's procedures. In reporting on the results .: r tile audit, the auditor
A. Must qualify the opinion if the inverli:Ories w-cre material.
B. Can express an unmodifted o pin ion.
.
C. Must comment in an Emphasis of Matter par,1graph as to the inability to observe year

end inventories.

31.

r:>. Is required to disclaim an opinion ir the lnvertories were material.

Which of the following audit procedures most l1<ely would assist an auditor in identifying

conditions and events that may indicate sub5 :antial doubt about an entity's ability to

co ntinu e as a g oi ng concern?
A. Confirming with third parties the details gf ar raagements to maintain financial support.

B. Comparing the entity's depreciationand assEt capitalization policies to other entities in


the ind ustry.
C.

Reconciling the cash balance per books witi1 the cutoff bank statement and the ba1k
confirmation.

D. Inspecting title documents to verify whether any assets are pledged as collateral.

32. Which of the following factors would most !ikely influence an auditor's consideration of ttie
reliability of data when performing analytical pre cedures?

A. Whether the data were developed m a computerized or a manual accoun tin g sy stem .

B. Whether the data were prepared on the cast 1 basis or in conformity with PFRS.

C. Whether the data were developed unjer a ' stern with adequate controls.
D. Whether the data were processed 1n an '?n111. system or a batct\111try system.

Which of the following statements relatea to applic:ation controls is cor rect?


A. Application controls relate to various aspects of the IT function including software
acq ui siti on and the processi:1g of,transactions.
B. Application controls relate to various aspects ,-f the TT function including physical securi"ty

33.

and the processing of transactions in various c.;c!es.


Application controls relate to all aspeccs of thf IT function.
D. Application controls relate to the processing of individual transactions.

c.

An entity's management is responsible for thE preparation and fair presentation of the

34.

financial statements. lts responsibility' includes he fol low in g, except

A. Designing, implementing, and.maintaining i 1terna1 control relevant to the preparation


and presentation of financial statements.

B.

Making accounting estimates that are reasonable in the circumstances.

C. Selecting and applying appropriate accounting policies.


D. Assessing the risks of material missratement of the financial statements.
35.

When companies use information technology ! . T) extensively, evidence


may be available
only in electronic form. What is an auditor's bes: course of action
in such situations]
A. Assess the control risk "?S h ig h.
B. Use audit software to perform analytiral proedur'es.
C. Use gene_ral ized audit software to extract
ev.dence from client databases.
D. Perform li m i_ ted tests of controls over elearrn
ic data.

Page; of 12 r- J es

"

CPAREVIEWSCHOOLOF THE PHILIPPINES(CPAR)

36.

"ATPW-7501

The following statements relate to the use

..

)f analytical procedures as substantive

procedures. Which is false7


A. Substantive analytical procedures are applic2ble when there is only a small. volume of
transactions.
,
B. The application of substantive analytical pro:edures is based on the expectation that

relationships amonJ data exist and continue n the absence of known conditions to the

contrary.

C. The presence of relationships among data provides evidence as to the completeness,

accuracy, and occurrence of transactions captured in the information produced by the


entity's information system.

D. Reliance on the results of substantive ar alytical procedures will depend @n the


auditor's assessment of the risk that the analytical procedurs may identif>t
relationships as expected when, in fact,- a mEh!r;iar misstatement exists.,

37. The reliability of data is influenced by its source and by its nature and is dependent on the
Circumstances under which it is obtained . Which of the following should the auditor
consider in determining whether data is reliat:e for purposes of designing substantive
analytical procedures?

I.

Source of the information availabl'=.

Il. Comparability of the information available.


III. Nature and relevance of the inforr-nation available.
IV. Controls over the preparation of the

A. I; III, and IV only

B. II, !IL and IV only

inforrr ation.

C. I, II, and III only


D. I, II, III, and IV

38. The confirmation of customers' accounts receivc:ble rarely provides reliable evidence about

the valuation assertion because

A. Customers may not be inclined to repon: uMerstatement errors in their accounts.


B. Auditors typically select many accounts with low recorded balances to be confirmed.
C. It is not practicable to ask the customer to confirm detailed information relating to its
ability to pay the account.
D. Recipients usually respond only if they disagree with the inf<Jrrrralliiln on the request.

39. Which of the following items

is not

request<!d on a standard bank account balance '

confirmation form?
A. The principal amount paid on adirect liabilit(.
B. Maturity date of a direct liability.
C Description of collateral for a direct liability.
D. The interest rate of a direct liability.

40. An internal auditor would be concerned about the possibility of fraud if


A. Only one person has access to the petty cah fund.
.
B. Cash receipts, net of the amounts used :o pay petty. cash-type expenditures,
are

deposited in the bank daily.


c. The monthly bank statement reconciliation is performed by the same employee who
maintains the perpetual inventory records
D. The accounts receivable subsidiary ledger <ind accounts payable subsidiary ledger are
maintained by the same person.

41.

When using confirmations to proviae eviden:e about the completeness assertion for
i ely is
accounts payable, the appropriate population most
! dger.
iu
bs1d1ary
able
A. Amounts recordea in tr.e accounts par:
,
ss.
busine
done
B. vendors with whom the entity has previousy
fi!t!.
c. Invoices filed in the entity's open invoice
,
.
quent to t'1e balance sheet date.
D. Payees of checks drawn in the month subs,:

. .

the following usually is considered a risk


42. In an audit of a purchasing department, which of
factor?
department requesting the material.
ons are developed by tr.e
1
A. Purc
11ase spec1ficati
.
1
supp ers m luded on an approved vendor l"st
B. Purchases are not rotated among
...

D::io

f.. of 12 P. 1ees

. .
--------

. '

.CPAREVIEWSCHOOL OFTHEPHILIPPINES(CPA

ATPW750l

RI

C. Purchases are made from parties re:lated to tuyers or other company offi cials .
D. Purchases are made against blanket or open purchase orders for certain tyQes of
items.
.

43. When outside firms of nonaccoun tants soecializing in the taking of physical inventories are
used to count, list, price, and subsequently compute the total peso amount of inventmy
on hanq at the date of the physical count, the aL.ditor will ordinarily
A. Co nside r the reduced audit effort with l'eSpect to the physical count of inventory as a
s co pe l i m itatio n .
B. Make or observe some physical col!nts of tt e inventory, recompute certain inventory

calculations, and test certain inventory trans<ictions.

:aking

C. Consider the report of the outside inventory


firm to be an acceptable alternative
procedure to the observation of physical invr:nt ories .

D. Not reduce the extent of work on tn: pl1ys1.:< i count of inventory.


.

44.

. 11

V\lhi ch of the following most likely would ca se n auditor to consider whether a client's
financial statements contain material misstatemE nts?
A. Management did not disclose to the auditor that it consulted with other acco untan ts

'

about significant accounting matters.


B. The chief financial officer will not sign the rr anagement representation letter until the

last day of the auditor's field work.


C. Audit trails of computer-generated transactions exist only for a short time.

45.

D. The results of an analytical procedure discloe unexpected d iffere n ces .

Which of the followin1 is the best audit test o evaluate the accuracy of the inventory
records for materials inventory in a production OJeration?
A. Reconcile quantities on hand per physical counts of selected items with perpetual
inventory records and verify pricing.
B. Trace selected inventory receipts tc, perpetu<,I inventory records.
C. Vouch selected postings in the perpet ual i nv : ntory records to source docunients.
D. Perform turnover tests for materials inventor)'

46. The physical count of inventory of

a ;t:taiier \vas higher than shown by the pe :petual


records. Whicn of the following could r:::olain tti =difference?
A. Inventory items had baen counted bu'( t!'w. rags. placed on the items had not bee'n
taken off the items and added to the invento !"' '1ccumulation sheets.
B. An item purchased "FOB shipping point" 1ad not arrived yet at the date of the
inventory count and had not been reflected 1 th perpe.tual records.
c. Credit memos for several items returned by wstomers had not been recorded.
D. No journal entry had been made on the reuiler's books for several items returned ta

its suppliers.

47:

After issuing an auditor's report, an au itor has :-io obligation to make continuing inuiries

concerning audited financial statements. unle"ss:


A. Information about a material transtiction th)'( occurred just after the auditor's report
was issued is deemed to be reliable.
B. A final resolution 1s made of a contingent liability that had been disclosed in t e
financial statement:!;.
C. Information that existed at the report date and may affect the report comes to the
auditor's attention.
D. An event occurs just after the auditor's n:0ort was issued that affects the entity's
ability to continue as a going concern.

48.

One payroll audit ob_jective is to det::rmine vhether the employees received pay in
amounts recoroed in the payroll journal. To acn eve this objective, the auditor should
- Determine whether a proper segreqatiori o;'duties exists tiet:Y.A!(!i recording P.ayroll
and reconciling the payroll bank accounC.
B. Requesting that a company official distribute: all pa ychecks.
C. Reconcile the payroll bank account.
D. Compare canceled payroll chec with the pavroll journal.
1

-,

CPAREVIEWSCHOOLOE THEPHILIPPINES(CPARI

ATPW-7501

49. The following statements relate to the forrr. and wntent of working papers.

0false?

Which is

p :s

A. The a udi or should prepare working p a e which are sufficiently complete an


detailed to provide an overall understanding c.f the audit.
.
B. The aud tor should include in the working papers information on planning the audit

\
1\
I

obtained.
C. Working papers should include documentation of every matter the au

pi tor consi ders

I
during the audit.
D. Working papers shcu!d include the auditor's :easoning on all sign ifican t matters which

require the exercise of judgment, together wi:h his/her conclusion thereon.

50. Which of the following factors would least


auditor's working papers?

lir-!y

!It:

a ec t the form, content, a d extent "of an

A. The content of the representati0n letter.

\.

r misstat m ent .

B. The identified risks of mate i al


e
C. The audit methodology and tools used.

1'

\'

work; the nature, timing, and extent of tr.e audit procedures perf rm:d ad the
results of such procedures; and the conclusions drawn from the audit ev1denc

51.

D. The significance of the audit evidence obtainE d.

Financial statements prepared in accorcancc: with a financial reporting framework


designed to meet the financial information needs of specific users are referr d to as
A. Special purpose financial statements

6. Special purpose framework

C. General purpose financial statements


D. Specific purpose financial statements

52. The following are examples of special purpose frc .meworks, except
A. A tax basis of accounting for a set' cf financi:1l statements that accompany an entity's

tax return.
B. The cash receipts and oisbursemer.ts basis of accouming for cash fiow information

that an entity may be requested to prcpure 1:c r creditors.


C. Philippine Financial Reporting Standf!rds {P.FR) promulgated
the Financiai
Reporting Standard Council (FRSC).
D. The financial reporting provisions of i'.1 contra(t (fo[ example, a financing agreement).

. __ .....

by

Which of the f oilowing statements is corre<:t with respect to an auditor's report


expressing an opinion on a specific element on a financial statement?
A. The auditor who hcis expressed an adverse ()pinion on the financial statements as a
whole can never express an unmodmed opinion on a specific element in these financial

53.

B.

statements.
The materiality determined for a specif c eterrient of a financial statement may be
lower than the materiality determined for the entity's complete set of financial

statements.

c. Such a report can only be issued if the audit)r is also engaged to audit the entire set

of financial statements.
D. The attention devoted to the specific eleme1t is usually less than it would be if the
e me nt as a w hole were audited
financial

stat

least likely to perform during a review


54. Which of the following procedures is a practitioner
engagement?
.
. .
.
tth ailtic.1pated results budgets and forecasts.
comparing the financial stater;1ents \
d to conform to
elemen.ts .e
al
B. Studying th.: relationships or financi
predictable patterns.
.
.,
taker! at the board of directors meetings.
c. Inquiring of management about action
s to and use of assets and records.
D. Observing the safeguards over ?cces

A.

s;'lttr;1ent

..

x:i:wf'te

.
.
The date of the review report should
.
lil tne financial statements were approved by
A. Not be e arI.1er than the date on whic
.

management.

__

i-------

: ____________

. ,.,.,
.

. '.

B. Be earlier than the date on whicr, the tinancial statements were approved by
management.
C. Coincide with the balance sheet date.

o.. Not be later than the balance sheet date.

56. Which of the fol l owing is a false stiiJ te ment conctrning fraud?
A. Fraud generally involves incentive or pr ssure tu commit fraud, a perc eived

opportunity to do so, and some rationalizatio11 of th e act.


B. Two types of misstatements relevant to tht: au d itor include material misstatements
arising from fraudulent financial r.eporting i1nd material misstatements arising from
misappropriation of assets.

Fraud involves actions of management but <:<eludes the actions of employees or third

C.

parti es .

D. An audit rarely involve!'i the authentication of documentation; thus, fraud may go


. '

u ndetected by the auditor.

57.

Under which of the following conditions may an -auditor's observation procedure !'or
.
inventory be performed du ring or after the end ,:f the period under audit?
A.

When the client maintains periodic inventory records.

B. When the auditor finds minimal variations in client records and test counts in prior
periods.

C. When total i. nventory has not variedmorE! th:m 5% in the last five years.

D. When well-kept perpetual inventory recerds are checked by the client periodically by
comparisons with physical counts.

58. An entity installed antivirus software en all its personal computers.

The software wcis

designed to prevent initial infections, stop relication attempts, detect infections after
their occurrence, mark affected system compo1ents, and remove viruses from infected
components. The major risk in relying on antivirus software is that it may
A.. Consume too many system resources.
B.

Interfere with system operations.

C. Not detect certain viruses.


D. Make software installation too comp1ex.

59. Which of the following procedures most likely would give tM gtf.Gtest assurance that

securities held. as investments are safeguarded'


A. There is no access to securities between tr:e year end and the date of the auditor's
B.

security count.
Proceeds from the sale of investments are received by an employee who does net
have access to securities.

c. Investment acquisitions are authoned by

a member of the Board of Directors before

execution.

D. Access to securities requires the signatures rnd presence of two designated officials.

60. An auditor is determining if internal control rel<Eive to the revenue cycle of a wholesaling

entity is operating effectively in minimizing Ihe failure to prepare sales invoices. The
auditor most likely would select a ample of tra!1sactions from the population represented

A. Cash receipts file.

Gl.

C. Customer order file.


D. S;,les invoice file.

B. Shipping document file.

Which of the following procedures wuuld an auditor most likely perform prior to the
balance sheet date?
A. Review subsequent ever.ts.

B. Perform search for unretorded liabiiities .


'
C. Send inquiry letter to client's legal coun sel.

D. Review detail and test significant travel and =ntertainment expenses.

62. An entity's contingency plans for computer infor 1nation systems should
include appropriate
.

backup agreements.

Which of the following arrangements would be considered _!:o


---- ----- ----

CPAREYIEWSCHOOLOFTHEPHILIPPINES(CPAR)

ATPW-7501 .

vendor-dependent when vital operations requir- almost immediate availability of computer


resources?
A. A "cold site" arrangement.
B. A "hot site" arrangement.

C. A "cold and hot site" arrange111ent.


D. Using excess capacity at another data center within tbe entity.

63.

Which of the following factors would least- likely affect the extent of .the a uditor's
consideratio n of the client's internal controls?

A. The amount of time budgeted to complete :.he engagement.


B. The size and complexity of the client.
C. The nature of specific relevant controls.

D. The auditor's prior exprience with client operations.

64 . An auditor compared the current-year gross r.nargin with the prior-year gross margin to
determine if cost of sates is reasonable. What 1ype -0f audit procedure was performed?
C. :est of conttols.

A . Test of transactions.
B. Analytical procedures.

65.

D. ;est of details.

Image processing can be used to convert paper documents into electronic images. Which
of the following concepts distinguishes th retention of computerized audit doGuments
from the traditional hard copy form?
A. Analyses, conclusions, and recommendations are filed on electronic media and are
therefore subject to computer system controls and security procedures.
B. Evidential support for all findings is copied and provided to local management during
the closing conference and to each person eceiving the final report.
C . Computerized data files can be used irt corr puter audit proced ures.
D. Audit programs can be standardized to eliminate the need for a preliminary survey at
each location.

66. When erroneous data are detected by computer program controls, such data may be

excluded from processing and printed on an e rror repor:: . Who should review and follow
up this error report7
A. Systems analyst
C. c;omQuter operator ! ":'
B. Data control group
D computer programmer
.

67.

A receiving clerk keyed in a shipment from a remote terminal and inadvertently omitted
the purchase order number. Whi'h of the follJWing controls would most likely detect this

error?
A. Completeness check
B.

68.

C. iequence check

Compatibility check

D. 11.easonableness test

One common type of CAAT is the use of audit software to process data of audit
significance from the entity's information system . An audit software that ha widespread
popularity because it is easy to use and requin!S little computer background on the part of
the auditor; it can be used on troth mainframe and PC systems; it allows the auditor to
perform his/her tests independent of the enticy's comptJter pro essing personnel; and it
.
forrn.ts and st_ructures 1s called a
can be used to audit the data in most file

A. Customized program
B. Purpose-written program

c. Utility program

,.
software (GA. ,)
D . Package or generalized audit

genera IY irs:,I d E! the records of Tnitial entries and


An entity's accounting r.ecords
supporting records inclu di ng
.
_
third parties.
A Confirmations from
ures as inquiry,
.
the a uditor 1 rorn such . audit proced
B. Information o bta ined by
observation and inspection.
ions.
'
ts supporting ost allocat
Worksheets and spread shee
r to permit him/her to reach
audito
the
_
d by, or availab e to'
1
Other information deve ope
sonin9.
concl usi ons thr oug h val id rea

69.

Page_ 1 O of 12 l 'ages

'

CPAREVIEWSCHOOLOFTHEPHILIP
PINES(CPARt

ATPW-7501

70._ Which of the following statements


con ce rn ino t1 ;;:! a ditors use of assertions is correct?
A. The auditor may combine
the as ertio s about transactions and events with the
assertion s about acco unt bala nces
.
B . In every audit engagement, the auditor should use the assertions as described in l'SA

500, i.e., the assertions should always fa.I into three categories: assertions abqut
classes of transactions and events, account l >alances, and presentation and discl osu re .

C. There should always be a separate asseit ion related to cutoff of transactions and
events .

D. The completeness assertion deals on;1 witt whether all transactions and events that
should have been recorded have been recoded.

7 1 . Which of the followin1 would least likely affec: the appropriateness of evidence available
to an auditor?
A. The sam p ling mett1od employed bv hE: aud1 :pr to obta i n a s9(ll ple of such evidence.
B. The relevance of such evidence to th e financral statement assertW being verifieil.
C. The relationship of the preparer of such evicence to the entity being audited.
D. The timeliness of such evidence.
.

72.

A uditors may use positive and/or 'neg ativ e forms of confirmation requests .
most likely will use

An a ud ito r

A. The negative form for small balances.


B. The positive form, when the combined ass!SSed level of inherent an d control risk r
.related assertions is accepta bly low, an d tne neg ative form when it is unacceptably
h ig h.
C. The positive form to confirm all balances re.ardless or size.
D. A combin a tion of th e two forlJlS, with the .)ositive form used for trade balances and
the negative form for other balance.

7 3 . To reduce the risks associated with accepting Nx responses to requests for confirmations
of accounts receivable, an auditor mo.st likely w.)uld
A. I nsp e ct the faxes for fo rge ri es or aiteratiu is and consider them to be acceptable if
none are noted

B.

Consider the faxes to be non response5 c.nc val uate them as u nadj usted di fferen ces.
.

Verify the sources and contents of tne faxes. in teleph0ne calls to the.senders.
D. Examine the shipping documents that proviu2,evit1ence for the existence asserti on .

C.

74. W hich of the following statements is incorrect ,


L The auditor shall determine w he&. er, on trie basis

of"t:he

audit work performed, the

auditor has identified one or more deficienci =s in internal co ntrol .

II. If the auditor has identified one or more creficiencies in inte rna l control, the auditor
shall determine, on the basis of the audit 1r1ork performed, whether, ind ivi d ual ly or in
combination, they constitute significant deficiencies.
m. The aud itor shall communicate, orally ar in wi ti ng , significant deficiencies in internal
control identified during the audit to those c iarged with governance on a timely basis.
C. m only.
A. I only.
D. Ai of the above.
II
o
nly
.
B.

'15 .

Audit efficiency may ne i m proved when the am piing unit is defined as the i ndividua l
monetary units that comprise the popu l ation . r his technique is called
C. S 1stematic selection
A. Stratification
B.

76.

Rand om selection

D:

In planni ng a statistical sample for a test of c< inrols, an auditor increased the expected
population deviation rate (EDR) from :he pnrn ,.-ear'. rate because of the results of the
prior year's tests of c0ntrols and tne overall. co1 1vo1 environm ent ! l auditor most likely
would then increase the planned
A. Risk of assessing control risk too low
B. Sample size

n.

V ll ue -weig hted selection

Which of the following statements is correct

controls?

C. A:lowance for sampling risk


D. T.)lerable deviation rate

:on cerni ng statistical sa mpling in tests of

Page 1 1 of 1 2 p;,ges

---- - ----- -

I
CPAREVIEWSCHOOLOFTHEPHILIPPINES(CPAR)
A.

B:

ATPW-7501

In determining the tolerable rate, an a ud i:? r considers detection risk and the sample
size.
Deviations

from

specific control

misstatements at a lower rate.

activities

at a

given

rate

ordinarily

result

iri

C. As the population size increases, the sample size should increase proportionately.
D. There is an inverse relationship between che expected population deviation rate and
the sample size.

78. The firm shall obtain written col'lfirmation of :ompliance with its policies and procedures
on independence fro m all firm personnel required to be independent by relevant ethical
requirements

A. At least annually
B.

At least monthly

C. At h!ast semi-annually
D. At t:1e completion of each engagement

79. On January 21 2015, the TANYA co. receivtd a notice from its primary suppliers that
effective immediatelv all wholesale prices would be increased 10%. On the bais of the

notice, TANYA revallled its December 3 1 , 201-l inventory to reflect the" higher costs. As a
result, the statement cf financial position ref!eCts inventory stated at an amount higher
than its net realizable value. The invento constituted a material proportion of total
. assets; however, the effect of the revaluaticx1 was matrial to current assets but not ta .
total assets or net income. In reporting on the company's financial statements for the
year ended December 31, 2014, in which inVE!ntory is valued at the adjusted amount, the
auditor would most likely

A.

Express an unmodified opinion . provided the nature of the adjustment and the
amounts involved are disclosed in notes to the financial statements.
B. Express a qualified opinion.
C. Disclaim an opinion.

D . Express an adverse opinion.

80.

SAMANTHA APARTMENTS CO. completed construction and began to lease a 100-unit


apartment on May 28, 2013. During June, 50 units were leased, and an additional 30
u nits were leased in July 2014.

During the month o1 May 2013, the company charged to expense P46,000 for the cost of
advertising, a grand opening party, and tl'e advertising agency fee for planning the
campaign. At December 31, 2014, the statement of financial position reflected Pl75,000
of initial d irect costs incurred by the company including commissions and legal tees paid in
negotiating the lease. These initial direct co:.ts are shown as ah''at:ldition to the carrying
amount of the leased asset and is being recognized as an expense over the term of the

lease on the same basis as the lease income.

During your audit of the company's financial !;tatements for the year ended December 31,
2014 (conducted i n accordance with PSAs), no facts other than those described abov.e
came to your knowledge that would cause your opinion to be other than that the financial
statements were presented fairly in accordance with Philippine Financial Reporting

Standards.

n?
What type of opinio n should your report contai
C.
A
disclaimer of opinion.
A. An adverse opin ion
D
.
A
qualified opinion.
s. An unm odified opin ion

- -- END.---

. '

.
- -- -- -- - - - - - -

//

CPA REVIEW SCHOOL OF THE PHILIPPIN ES


M

AU DITING THEORY

ci n

i I

ATPW-7502

CPA Review

1. Which of the following procedur s is ordinari 1 1 performed by a n accountant during an

engagem ent to compile the financia l stateme nG of an entity?


A. Make inquirie s of the e mployees and senior management regarding transactions with
related pa1ties.

B. Determine whether there is substantial aouc t about the entity's ability to continue

c1s a

going concern.
C . Scan the entity's records for the period iu t after the balance sheet date to tdentify
subsequent events requ ring disclosure.

_i

D. Consider whether the financial statements <ir.free from obvious material mistakes in
the application of c1ccounting principles.

2. Which of the followinq describes how the ob1: ctive of

2 review of financial statements


differs from the objective of a compilation eng 1 1ement?
A. The primary objective of a review engagement is to test the completeness of the
financial statements prepared, but a com pi I;;. tion tests for reasonableness.
B. The primary objective of a review engagement is to provide positive assuranc;e that

the financial statements are fairly preented" but a compilation provides no such
assurance.

C. In a review engagement, accountnts pro11de limited assurance, but a compilation


expresses no assurance.
D. In a review engagement, accountnts provide reaso nable or positive assurance that
the fi nancial statements are fairlv preser ted, but a compilation provides limited
assurance.
3.

Which of the following procedures is usually the first step in reviewing the financial
statements of an entity?
A.

Make preliminary Judgments about risk ar.1 i materiality to determine the scope and

nature of the proCE'.dUieS to be perk rma.

B.

Obtain a general understanding of. tt1P.


characteristics, and its products or servi<:es.

entity's

oran1:.!alion,

its

operating

C. Assess the risk of material misstatement ans1ng from fraudulent financial reporting and
the misappropriation of assets ..
D. Perform a preliminary assessment of the o!Jerating efficiency of the entity's interrral
control activities.

4.

During an engagement to review the financi c:I statements of an entity, a practitionr


becomes aware of a material departure from Pi=RS. If the practitioner decides to modify
the review report because management will not revise the financial statements, the
practitioner should
Express negative assurance on accounting principles not conforming with Philippine

A.

B.

C.

Financial Reporting Standards.


Express positive assurance on
Financial Reporting Standards.

accountiii

principres conforming

with

Philippine

Express a qualified opinion.


D . Express a qualification of the riegative ;1ssurance provided or give an adverse
statement that the financial statemeni:s i !re not presented fairly, in all material
respects, in accord:.mce with Philippine Fina1'cial Repon:ing Standards.

5.

use?

Which

A.
B.

C.
D.

of

'

the following pmspective financial ST f}tents

Financial forecast

Yes
Yes
No
No

Financial project10.1

'(es

is(are) appropriate

for general

No:
Yes
No

Page i of ii Pa.es .

- - - - - - -

I I

. '

CPAREVIEW SCHOOLOFTHEPHILIPPINES(CPAR1

ATPW-7!"ill2

Prior to commencing Held work, an auditor usually discusses the general audit strategy
with the client's management . Which of the following details do management and the
auditor usually agree upon at this time?
A. The specific matters to be included i.n the.communicatio n with the audit committ e.
B. The minimum amount of misstatements that may be considered to be reportable

6.

conditions.

C. The schedules and analyses that the client's 5taff should prepare.
D. The effects that inadequate controls may ha11e over the safeguarding of assets.

7. Tracing copies of computer-prepared sates i.woices to copies of the corresponding


computer-prepared shipping documents provide ; evidence that:
A. Shipments to customers were properly billed

B. Entries i n the accounts receivable subsidiary ledger were for sales actually shipped.
C. Sales billed to customers were actually shipped.
D. No duplicate shipments to customers were rnade.

8.

Restrictions imposed Gy a client prohibit t:hf: c. bser1atior1 of phy.S i ffi


account for 35% of all assets.

Alternative

aud,f procedures

inventories, which

cannot 6e applied, although

the auditor was able to examine satisfact ry evidence for all other items in the financial
statements. The auditor should issue a(an)
A. "EXcept for" qualified opinion.
B.

Disclaimer of opinion.

C. Unmodified opinion with a separate Emphasis of Matter paragraph.

D. Unmodified opinion with an explanation in the Auditor's Responsibility paragraph.

9. A client decides not to make an auditor's prop1 >sed adjustments that collectively are not
material, and wants the auditor to issue the r port based on the unadjusted numbers.
Which of the following statements is correct regarding the financial statement
presentation?
A. The financial statements are free from material misbtatement, and rlo disclosure is
1
required in the notes to the financial statemmts.

---

B. The financial statements do not conform witri PFRS.


C. The financial statements contain unadjustE:d misstatements that should result in a

10

qualified opinion.
D. The financial statements are free f.-om ma0:erial misstatement, but disclosure of the
proposed adjustments is requi red in the notES to the financial statements.
.

An auditor concludes that there is a mateial in. :d11sistency in the other information in an
annual repon: to shcireholders containing aL.dited financial statements. The auditor

believes that the financial statements o not re 1uire- revision, but the client is unwilling to
revise or eliminate the material inconsistenc> in the ofher information. Under these

circumstances, what action would the auditor m)st likely take'


Consider the situation closed because the other information is not in the audited

A.

financial statements.

Issue a n "except for" qualified optt1ion "aft<r discussing the matter with the elient's
audit comm ittee .
. c. Disclaim an opinion on the financial st3tements after explaining the material
r" p<1rag raph.
inconsistency in a separate "other matte
separate "other matter" paragraph describillg
a
include
to
report
auditor's
o. Revise the
y.
tenc
nsis
the .material inco
B.

11.

audit, an audito r is revi!W ig the evidence gathered. in support of


At the conclu siOn of an
.
val uation of i nventory, the auditor concludes
I s tatements With regard to the .
,
.
the finan oa
ment s representations.
d is not sufficient n1 support manage
obtaine
e
d
enc
eVI
t
ie
t
t
tha
. r mo., t ike1Y. to ta ke/.
. aud 1t
ons is the
. .
Wh ich of the follo win g acti
mer of pini on.
mittee and issue '' d!scla
com
it
aud
the
with
sult
A. Con
.
e , 1 qua lified op1 rno n.
1 com mittee ar.d issu
B Con sult with th e aL.: d't
tdr"y
on f
h v
nce reg a rd
Obtain add itio nal evide
t
e
ento
aluation.
g
a g e "' n .... p
D. Obt ain a statement from man

c:

;; :

: ;y

. . . ....
. '

CPAREVIEW SCHOOLOF THE PHILIPPINES(CPAl{1

12:

ATPW-7 :illt

After testing a client's internal cont 0l activtties, an auditor discovers a numbe r of


significant deficiencies in the operation bf " dient's internal controls. Under these

circumstances the auditor most likely would


.
,
A. Issue a disclaimer of opinion about the interial controls as part of the aud1 or s repo .
B. Increase the assessment of control risk and increase the extent of substantive tests.
C. Issue a qualified opinion of this finding as P"rt of the auditor's report.

D. Withdraw from the audit because the i nterr.;il controls are ineffective.

13.

of
When an auditor tests the internal controls of e: computerized accounting system, whicll
the following is true 01 the test data approach /
..
A. Test data are coded to a dummy subsidiary so they can be extracted from the sysLem
under actual operating conditions.
B. Test data programs need not be r_c: llor-mJCJ by th auditor. for

e;ch

client's computer

applications.

.
C. Test data programs usually consist of all po;sible valid and invalid conditions regarding
compliance with internal controls.
.
D. Test data are processed with the c1ient's computer and the results are compared w1.th
the auditor's predetermined results.

14. An audit supervis r reviewed the work perforned by the staff to determine if the audit
was adequately performed. The supervisor acccmplished this by primarily reviewing which
of the following?
C. I\ 1 a lytica l procedures.
A. Checklists.
D. Fnancial statements.
B. Working papers.

15.

In which of the following circumstances is sJbstantive. testing of accounts receivable


. before the balance sheet date most apropriate
A. The client has a new sales incentive progra1 in place.
B. Internal controls during the remaining period are effective.
C. There is a high turnover of senior m anage m c:n t.
D. It is 2 first engagement of a new client.

16. W hi ch of the followiny matters is an auditor ,quired to communicate.to those charged

'

with governance?
'
A. Adjustments that were suggested by t:he .uditor and recorded by management i:hat
have a significant effect on the entity's finar. c1al teporting process.
B. The auditor's consideration of risk fad ors in aessing the risk of material
misstatement arising from the misappropria1 JOn of assets .
C. The results of the auditor's a nal yti ca l proce( lures performed in the review stage of th"e
engagement that indicate significant variances from expected amounts.
D. Changes in the auditor's preliminary judgm nt about materiality that were cal.l.5ed by
projecting the results of statistical sampling ror,tests of transactions.

17. Which of the fol lowing strategies mo$t l i kely could im prove the response rate of the
confirmations of accounts receivable?

A.

l8.

Restrict the selection of account:.; ro be

:o n

fi rm e d to those customers with large

balances.
B. Include a list of items or invoices thut consti :ute the customers' account balances.
C. Explain to customers that discrepancies wi!I be investigated by an independent th ird
party.
D. Ask customers to respond to the cu nrl r ma ti c n requests directly to the auditor by fa>:.
A CPA

firm is compleung the fieldwor;. for an ::udit of Sweden Co. for the c urrent year
31. 1-h e manager in ch a rge or. the audit: is performg the final steps in

ended December

the ev_idence accumulat_ion phase of the audit and notes that there have
been several
h n ges in Swed en during the year under a1 1dit. Which of the following items would
md1cate there could be substantiI doubt about Sweden's
ability
concern for a reasonable period of time: ?
A. Cash infusion by a venture capital firm .
B . Recurring o :king capital shortage
.
C. A lack of significant contracts
with n ew cu stn mers.
Page ;:; of 12 P;1 es

to continue as a going

---- --

CPAREVIEWSCHOOLOFTHE PHILIPPINES(CPAR)

! . .

ATY\V-7502 .

D. Term debt refinanced with a new bank.

19. Which of the following procedu res would an "auditor most likely perform in o btaining .

evidence about subsequent events?


A. Examine changes in the quoted market pric:!s of investments pu rchased since the year
end.
B. Compare i:he latest available interim financi.1 information with the fi nancial state me nts
being reporte d u pon .
.
C. Apply analytical procedu res to the deta i l of the balance sheet accounts that vvere
tested at interim Oates.
D. Inquire about payroll checks that were rewrded before the year end but cashed after
the year end.

20.

On March 1, Gu an zon , CPA, expres sed an unm odified opinion on the fin a n c ial sta teme nts
of Apex Co. On July l, Guanzon's internal inspection program discovered that engagement
personnel failed to observe Apex's physical inv1?ntory. Guanzon believe s that this qmission
impairs Guanzon's ability to support the un ,11odified opinion. If Apx's creditors re
cu rrently relying on G uanzbn 's opinion, G1,Janzo. t>pould first:
A. Request Apex's management to com rn un io te to its creditors that Guanzon's op i n i on
should not be relied on.
B.
Reissue Guanzon's auditor's report with a,1 " other matter" paragraph describing the

depa rtu re from PSAs.

C. Undertake to apply the al tern ative procedures that would provide a satisfactory ba!:ois
for Guanzon's opinion.
D. Advise Apex's board of directors todisclose this development in its next interim report.

2L A client is a defendant in a patent infrtnge ;,ent lawsuit against a major competitor. Which

of the following items wou ld least likely be i 1cluded in the attorney's response to the
auditor's letter of inquiry?
A. A decription of potentia l litigation in other natters or related to an unfavorable verdict

in the patent infringement lawsuit .


A discussion of case progress and th! stra!egy currently in place by client
management to resolve the l awsuit.
C. An evaluation of the probability of loss and a statement of the a mo unt or range of loss
if an unfavorable outcome is reasona bl y po! ;si bl e .
D. An evaluation of the abil ity of the client to con ti nue as a going concern if the verdict is
. unfavorable and maximum damages are av' ard ed .
B.

22.

! 11

.rn assessing the competence of internal quditors, an independent CPA most likely would
obta in inform atio n about th e :
A. Influence of management on the scope of tne internal a ud itors' d uties.
B. Policies limiting internal auditos from communicating with th e audit committee.

c. Qual ity of the internal auditors' working pai:er docum entat io n .


D. Entity's abil ity to continue as a going concern for a rea son ab le period of ti111 e.

23. A client maintains a large data center where 3ccess is iimited to authorized employE!'es.
How may an auditor best determine the effectiveness of this co ntrol a ctivity?
A. Inspect the policy m anual establishi ng this control activity.
s.
B. Ask the chief technology officer about known problem
ored.
is
c. Observe whether the data center monit
loyees.
er
emp
cent
data
nt
e
curr
of
list
a
D. Obtain

24.

vouher is sub;nitted and pa id only once, an. auditor st


To provid e assurance that each
of pa1cl voucher. and determ ine whether each voucher 15\
li kely would exa m i ne d sample
check sign er.
A. Stamped "pa id" by the
rs pay able departmrnt.
che
vou
the
B. Retu rned to
order.
r's invoice and purch2se
C. Supported by a vend o
ted for.

D. rren u m be red and accoim


,

t a possible understatement of
.
.
test of details. is . to detec
If the obJect1ve of an aud '1tor ' s
s fron: th e..
uld tr:a ce tran s: i ct1o n
sales, the aud ito r most likely wo
Page 4 of 12 P<1ges

---=--
. .

A
l'"

r/

CPAREVIEWSCHOOLOFTHEPHILIPPINES
(CP

ATPW-7502

AH1

Sales invoices to the shipping documents.

A.

B. Cah :eceipts journal to the sales journai.

C. Shipping documents to the sales invoices.

'

D. Sales journal to the cash receipts journal.

26.

Which of the following circumsta ces would permit a n independent a uditor to accept a n
engag emen t after the dose of the fisca: year?
A. Issuance of a disclaime r of opinion as a r=sult of inability to conduct certain tests

required by generally accepted auditing sta1 1dards due to the timing of acceptance f>f
the engagement.

Assessment of control risk below the maximt1m level.

B.

C. Receipt of an assertion from the precedin auditor that the entity will be zible to
continue as a goin9 concern.

Remedy of lim itations resulting from accepti n ttie engagement after the close of the

D.

27.

end of the year, such as those relat:ng to th existence of physical inventory.

!n a financial statement audit, inherent -?sk is


the following?

e aluated to

help an auditor assess which of

A. The internal audit department's objectivity n reporting a material misstatement of a


financial statement assertio n it detects to th1! audit committee.
B. The risk that the internal control system wi I not detect a material misstatemel'lt of a
financial statement assertion.

C. The risk that the audit proceciures irr plemented will not detect a material
misstatement of a rinanciat statement assert on.
D. The susceptibility of a financial statemert assertion to a material m isstateme0nt
assuming there are no related controls.

;s.

Which of the following factors is most reieva11t when an auditor considers the cl ient's
organizational structur0. in the context oi' cont;c.: risk?

A.

Management's attitude toward infor1nat1on p-ocessing and accounting departments.

B. The organization's recruiting and hiring prac1 ices.


C. Physical proximity of the accounting functior to upper management.
D. The suitability of the client's lines of reportai

S:

29. Which of the following statements mos( likely \/11ould be included in an engagement letter
from an auditor to a client?
A. The CPA firm will provide absQlute assurance about whether the financial statements

are free of material misstatemel'lt.


B. The CPA firm is responsible for ensuring that 'the diem complies with applicable laws.
C. The CPA firm will involve information techr1ology experts in the performance of the

audit.
D. The CPA firm will adjust the financial sta::ements to correct misstatements befoe
issuing a report.

30. Which of the following represents an inherent lin itation of internal controls?
A. Bank reconciliations are not per-formed on a :imely basis.
B. The CEO can request a check with no ourchc:.se order.
C.

Customer credit

checks are

not perform ed.

D. Shipping documents are not matched to sale:> invoices.

31. An auditor's tests of controls for conpletene:;s for the revenue cycle usually include
determining wnether:
A. Each receivable is collected subsequent tei tl 1 2 year end.
B. An invoice is prepared fr each shippinQ doo 11Vent.

c. Each invoice is supported by a customer purr:ha"se orde:.


D. Each credit memo is properly approved.

32. An auditor is testing the reasonableness of div1c;end income from investments in publicly
.
.

held companies. The auditor most likely would compute the amount that should have
been received and recorded by the cliem by:
A. Reading the details of the board of directors' meetings.
Page of

ii Pai; es

. '

iTAREVIEWSCHOOLOFTHE r HILIPP!NES(C:PAG,l
'

ATPW-7502

e. Confirming the details with the investee corr panies' registrars.

C. Electronically accessing the details of divider;d records on the Internet. ,


D. Examining the details of the client's most recent cutoff bank statement.l

33: An auditor who uses the work of an ex'pert ma' refer to the expert in the auditor's.report
if the:

A.

Auditor bel ieves that the expert's findings ar reasonable in the circumstances.

B. Expert's findings support the related assertirns in the financial statements.

C. Auditor modifies the report because of the difference between the client's and the
expert's valuations of an asset.
D . Expert's findings provide the auditor" wit1 greater assurance of reliability about
management's representations.

34 . . In attri bute sampling, a 25% change in which of the fol lowing factors will have the
smallest effect on the size of the sample?
A. Tolerable rate of deviation .
B. Number of items in the population.
C. Degree of assurance desired.

35.

0. Planned assessed level of control risk.

1:

As a result of sampling procedu,es applied a; tests of controls, an auditor i ncorrectly


assesses control risk higher than a11propriate. l11e most likely explanation for this situation
is that :

A. The deviation rate in the auditor's sample is less than the tolerable rate, but the
deviation rate in the population exceeds the tolerable rate.

.
.

B. The deviation rate in the auditor's samp!e e>:ceeds the tolerable rate, but the deviation
.
rate in the population is less than th to:erable rate .
C. The deviation rates of both the auditor's sample and the population xceed the
tolerable rate.

D. The deviation rates of both th auditor's sample and the population are less than the
tolerable rate.

36.

For which of the following audit tests would a CPA most likely use attribute sampling?
A. Identifying entries posted to incorrect accow1ts.
B. Estimating the amount in an expense accour1t.
.

C. Evaluating the reasonableness of depreciaticn expense.


D. Selecting receivables fo r confirmation of aw ;unt balances .

37 . The blank form of acco unts receivab:e

confirmations rnay
. '

be less efficient than the

positive form because:


ft.. . Shipping documents need to be inspected.
B. Recipients may sign the forms without: propEr investigation.
c. More nonresponses to the requests are likely to occur.
D. Subsequent cash receipts need to be verifiec .

38.

An accountant agrees r.o the client's request. to i:ha nge an engagement from a review to a
.
compilation of financial statements. Thfl compilation report should include:
.
A. No reference to the origin al engag ement:

Reference to a depa rture from PSP..s .


.
c. scope l i mitations that may have resulted in the change of engage ment.
y perfor med.
D. Inform ation about review procedures alread
B.

prede,essor auditor should include questions


39. A successor auditor's inquiries of the

regarding:
1ty
1 .
.
dgment a bot ma tena
a n JU
1t nk
.
A. The predecessor's evalu ation of au?
, s audit rep rt wa issued.
essor
edec
p
;:he

s1.nce

red
occur
that
ts
even
B. Subs eque nt
as to the r<!asons for the chan ge in auditors.
C. The p1-e decessor 's 1.inderstand ing

i
g 1natter 01 con tmu11J g.g rnf1cance.
D . Th e predecessor's l<nowledge of accountin

take in response to discoverin g a


ditor
of the follo wing actions shou ld
eviation from the prescribed cont:ol procedure

Which

ttie

_j

_. _

CPA REVIEWSCHOOL OETHE PHILIP

PINE S (CPA i; .

A.

ATPW-7502

Make inquiries to understan


d the p rnti i :: msequerice of the deviation .
Assume that the deviation is a n isolated "occurrenc without audit significance.
e

B.

C.

Report the matter to the next higher level

D. I ncrease sample size of tests of


controls.

o t authority within the

entity.

ll . Which of the following events least likely would


indicate the existence of related party
transacti ons?

Ma ki ng a loan with no scheduled date for tb: funds to be repaid.


B . Ma inta in ing compensati ng balance arrar.gements for the benefit

A.

of principal
stockholders.
C. Borrowing funds at an interest rate siqnificar :tly below prevailing ma rket rates.
D. Writing off obsolete inve nto ry to rn:::: rea!:zc; !?. value just before year end.

! ti

42. Which of the following factors is most Hkely to affect the extent of the documentation of

the auditor's understa nding of a client's system -)f internal controls?


A; The industry and the business and regu. atory environments in which the client

operates.

B. The degree to which information technology is used in the accounting function.

C. The relationship
stakeholders.

between

management,

board

the

of di rectors,

aCld

external

D. The degree to which the auditor intends to use internal audit personnel to perfor'm
substantive tests.

43. Which of the following procedures is considered a test of controls?

A. An auditor reviews the entity's .check reg1stE:1 for unrecorded liabilities.

B. An auditor evaluates whether a g2neral jurnai ent.-y was recorded at the proper
amount.

C. An auditor interviews and observes o-ippropri3te personnel to determ ine segregation of


duties.
D. An auditor reviews the audit workpapers to E nsure proper sign-off.

,..

Which of the followino would be a c onsider;icion in planning a sample for a test

44.

subsequent cash receipts?


A. Preliminary judgments about materiality leves .

B. The amount of bad debt write-offs 1n the pm1r year.

C. The- size of the intercompany receivoble bala Ke.

'
" The auditor's allow;:ible risk of asses::;i:ig

conirol

risk is

too

of

low.

45. An auditor reconciles the total of the acc ou nts r =ceivable subsidiary ledger to the general
ledger control account as of October 3l, 20XJ .

most likely to learn

which of the followirig?

By this procedure the auditor would be

A. An Qc(Qber invoice was improperly comP'Jte:.


B. An October check from a custome'r was r-osted in error to the account of another
customer.

c. An opening balance in a subsidiarJ iedger account was improperly carried forward

from the previous accounting period.

46.

D. An account balance is past due and shoold b= written off.

Auditors try to identify pred i ctab le rlationsh1p3 when applying analytical procedures.
Relationship involving transactions from which o : the following accounts most likely would
yield the highest level of evidence?
A. Interest exnse.
B. t-.llowance for doubrful accoun'; .

47.

management
management representation letter?

Which

of

the following

Ac :ounts receivable.

C.

:.:.. f.I 0unts payab!e.


.

. . ' =

roles -.vould typically be acknowledged i n a

A. Management has the responsibility h.'r the dsign of controls to detect fraud.
B. Management_ communicates its \Aiews on eth11:al behavior to its employees.

C. Management's knowledge of fraud is comrnu1 1!cated to the audit committee.


D. Management's compensation is contingent uron operating results.

Page ._, Jf 12 P:u:

- -

--

CfA..MYIEWSCHOOLOF THEPHILIPPINES(CPARl
48.

11:

What type of evidence would provide the h i1nest levei of assurance in an assurance
engagement?

A.

Evidence secured solely from within the enti':y . .

C.

Evidence obtained indirectly.

B.

Evidence obtained from independent source:;.

D. Evidence obtained from multiple internal inqJiries.

ATPW-7502

49. Which of the following procedures wouid

be m ost appropriate

completeness assertion as it applies to inventOI''?

for testing

the

A. Scanning perpetual inventory, production, and purchasing records.


B. Examining paid vendor invoices.
C. Tracing inventory items from the ti.lg listing Dack to the physical inventory quantities.

D. Performing cutoff procedures for shipping ilr.1d receivi n g .

50. Whi c of the followin1 activiti=s perforr.iec! by . 1 department supervisor most likely would
help in the prevention or detection of a payroll t rauc1?
A. Distributing paychecks directly to de::iartmer t employees.
B. Setting the pay rate for .departmental emplo 1ees .

C.

Hiring employees and authorizing them to

b1! dded

to payroll .

D. Approving a summary o f hours each er:iploy-:e worked during the pay period.

51. An auditor is concerned about a policy If i!ian gement ove rride as a limitation of internal

control. Which of the following tests would oest assess the validity of the auditor's
concern?

A. Matching purchase orders to accounts payat le.


B. Verifying that approved spending limits are not exceeded.
C. Tracing sales orders to the revenue account.
D. Reviewing minutes of board meetin s.

i2. When an auditor plans to rely on controls that 1ave changed since they were last teste d,
which of the following courses of action wouid be most appropriate?
A. Test the operating effectiveness of s u ch ccn:rnls in the current audit.
B. Document that reliance and proceed with th1! original audit strategy.
C.

S3.

55.

Inquire of management as to the effectiveness of the controls.

D. Report the reliance in the report on internal :ontrols.

In whicfl of the following circumstances wouic1 an auditor expect to find that an entity

im plemented automatE:d controls to reCi uce risk; ol misstatement?


! 1 1
A. When errors are difficult to predict.
B. When m isstatements are difficult to define.
c. When large, unusual, or nonrecurring transactions require judgment.
D. When transactions are high-vok.Jme and rect.: rring.

Which of tile followin1 explanations best describes why an auditor may decide to reduce
objective?
tests of details for a particular audit
soon aftr the :)alance sheet date.
A. The audit is being performed
ced in performing thf planned proced ures.
B. Audit staff are experien
s have revea l ed no unusJ al or unexpected results.
C A lytical -1roce dure
ns posted to the account during the period.
re wer ma ny transactio
0.

monthly statements to a client's customers and


- the mailing of
1 or o bservPS
An au dt
errors re porH d by th e customers. Th.1s test of contra 1s
.
"2 of follow-up on
rev1ec" evi.d enc
manag eme11's financial statement assertions of:
.
med to support .
most likelv 1s pe 11or
Existence or
Presentation
occuirence
and disclosun
Yes
Yes
A.
No
Yes
B.

c.

D.

No

No

Yes
Nu

. '

......
_
_
_
_

CPP:REVIEWSCHOOLOFTHE PHILIP(CPAR)
PINES

ATPW-7502

56. When a company's stock record books are maintained by an outside registra r or tran;fer
agent,. th e auditor should obtain confirmation from the registrar or tran sfe r agent
concerning the:
A. Amount of divid ends paid to relate
d parti es.
B. Expected proceeds from stock s ubscri o ion s receivable.
t
C. Numb er of share s issued and outsta nd
i na .
D. Proper authorization of stock rights and arrants.

57

Which rn= the foll ow i ng outcomes 1s


internal control?

t1 likely t eneftt

of information technology usec for


1:

A. Processing of unusual or nonrecurring trans :ictions.


B. Enhanced timeliness of information.
C. Potential loss of data.

D.
58.

Reco rd i ng of unauthorized tranactions.

When an auditor has substantial douot about: an entity's ability to continue as a going

concern because of the probable discontinua.1Ce of operations, the auditor most likely
would express a qualified opinion if:

A. The effects of the adverse financial conditio 1s likely will cause a bankruptcy filing.
B. Information about the entity's ability to cont inue as a going concern is not disclosed.
C. Management has no plans to reduce or del<1y future expenditures.
D. Negative trends and recurringoperating los!ies appea: to be irreversible.

59. An auditor plans to apply substantive tests to r.1e details of asset and liability accounts as

of an interim date rather than as of th e balanc :l sheet date. The auditor should be aw8:re

that this pra ctice :


A. Eliminates the us1?. of certain stat!Stical sampling methods that would otherwise be
available.

B. Presumes that the auditor will repeforrn chi ! tests as of the balance heet date.

'

.
C. Should be especially cotisidered when here .ar rapidly changing economic conditions.
D. Potentially increases the risk that error th 1t exist at the balance sheet date will not
be detected.

60. A practitioner's report on agreed-upon procedures that is in the form of procedures and
findings should contain:

A. Negative assurance that the procedures c:id not necessarily disclose all reportable

conditions.

B. An acknowledgment of the practitioner's responsibility for the sufficiency of the


procedures.
C. A statement of restrictions on the use of thE report.
D. A disclaimer of opinion on the entity's financial statements.

31. Which of the followin9 statements is corre.c:t about the sample size in statistical sampling

when testing internal controls?


A. Tue auditor should consider the tolerable rate of deviation from the controls being

tested in determining sample size.


B. As the likely rate of deviation decreases, the auditor should increase the planned
sample size.
C. The allowable risk of assessing control rik too low has no effect on the planned
sample size.
=
.
D. Of all the factors to be considered, th population size has the greatest effect-on the
sample size.

62. Which of the following factors would


most likely be considered an inherent limitation to an
entity's internal control?

A. The complexity of the information processin1 system.


B. Human judgment in the decision making precess.
C. The ineffectiveness of the board of directors.
D. The lack of management incentives to imprc ve the control environment.

Page 9 of 12 Pa,:es

i\
ii

\\

.\

CPA,REVIEW SCHOOLOFTHE PHILlpPINES(CPAR)

ATPW-7502

'

63. A successor auditor is required to attempt c;m m1..1 nication with the predecessor auditor
'

prior to:
A. Performing test ot controls.

B. Testing beginning balances for the current 1ear.


C.

Making a proposal for the audit engagemert.

D. Accepting the engagement.

64:

Which of the following is an i nherent limitation in internal control?


C. faulty human judgment.
A. Incompatible duties.

B. lack of segregation of duties.

65.

D. Lack of an audit committe e.

An auditor's engagement letter most likelywould indude a statement that:


A. lists potential significant deficiencies d iscovered during the prior year's audit.

B. Explains the analytical procedures that the .1uditor expects to apply.


C. Describes the auditor's responsibility to eva uate going concern issues.
D. limits the auditor's responsibility to detect 1?rrors and fraud.

66 .

Which ol' the followinq factors most lii-:eiy woLld cause a CPA to decline to accept a new
! 1:
audit engagement?

A. The CPA does not understand the entity's cperations and ind ustry.
B. Management acknowledges that the entity 1as had recurring operating losses.
.

C. The CPA is unable to review ttie predecesscr auditor's working papers.


D. Management is unwilling to permit inquiry
its legal counsel.

o'.

67.

As a result of tests of controls, an auditor as>esses control risk too high. Zhis i ncorrect

assessment most likely occurred because:

A. Control risk based on the auditor's sample :S less than the true operating effectiveness
of the client's control activity.

----

B. The auditor believes that the control activity relates to the client's assertions when, in
fact, it does not.

C.. The auditor believes that the controi activity will reduce the extent of substantive
testing when, in fact, it will not.

D. Control risk based on the auditor's sar,1 ple is greater than the true operating
effectiveness of the client's control activity.

68. An auditor's report on financial statements prepared in accordance with the financial
reportin9 provisions of a contract (that is, a pecial p urpose framework) to comply with
the provisions of that contract should incluc!e o .I of the following, except

A. An opinion as to whetner the financi I staif!Qle11ts are presented fai rly, in a l l material
respects, in accordance with the financial npo'rting provisions of the contract.
B. A statement that indicates the basis of acc(unting used.
c. An opinion as to whether the basis of ;iccounting .used is appropriate under the
circumstances.
o. Reference to the note to the financial statements that describes the basis -0f
presentati on.

. 69.

When an auditor reports on financial state r;ien-:s repared on an entity's income ta'x basis,
the audi tor's report shou ld
financial statements.
A . . State the basis of presentation of the
whether
the
statEments were examined in accordance with
B. Disclaim an opinion on
s).
(PSA
Phili ppin e Standards on Audi ting
.
.
te statements are presented in accordance with
whether
on
opinion
an
c. Not express
.
the tax basi s of accounting used
results of operations differ from the cash receipts
the
how
of
ation
explan
D. Include an
accounting .
and disb ursements bas is of

70.

rental and royalty income of an


to express an opinio n on the
Whe n an auditor 1s requested
entity, the audit or may
wiil coll)ply yvith relevant ethical
provided the <: uditor
A. Accept th e en agen:i en t
ndeno'? 'elating to fjnancial
indepe
to

those pertain ina

require
me nts, inc lud ing
au dit.
the
to
t
van

rele
s
ts an d a 11 PSA
stateme nt aud it eng age men
.

- - - - -- - -

-- - --

.,
,CTAREVI EWSCHOOL OF THE PHILIPP INES(l"'.f'Af{J

ATPW-7502

B. Accept the engagement provi'1ed d1stributicn


of the auditor's report is limited to the
entity's mana geme nt.

C. Not accept the engageme nt uniess also en(.aged to audit the full financial stateme nts
of the entity.

D. Not accept the engagement because to de so would be tantamount to agreeing to


express a piecemeal opinio n.

71 .

An auditor has i den ti fie d the controller:; revie of the bank reconciliation a s a control to
test. In connection wi-ch this test, the auditor !11terviews (he controller tu understand the
specific data reviewed on the reconciliation. In 3dition, the auditor verifies that the bank
reconciliation 1s properly prepared by the accc;ntant and reviewed by the controller as
evidenced by the i r respective si gn -offs. Which )f the following types of a udit p roced u res
(lo these acti o ns il lustrate?

'

A. Observation and inspection of records.


B . Confirm ati on and reperformance.
C. Inquiry and inspection of records.

D. Analytical procedures and reperforrriance:

7 2. Wh ich of the following is least likely to uncover iraud?


A. External auditors
B. Internal auditors

C.

lr temal co ntrols

D. M 3nagement

".73. Two overriding considerations affect the man y v ays an a u d itor can accumul ate evidence:
1. Sufficient appropriate evidence must b1 accumulated to meet the auditor's
professional responsibility.

2. Cost of accumulating evidence should be mmimized.


In evaluating these considerations.

The first is more 1mpon:ant !:han the :.,:(:c. ric

A.

The second is more important than the Wst.

B.

74.

t. They are equally important.


D. It is impossible to prioritize them.

. . . ":

Wh ich of the following is not ordinarily performd in response to the risk of managem erit
override?
A. Evaluating the rationale for significant unusual transactions.
B.

C.

Observe counts of inventory at all locations.


Review accounting estimates for bia::;.

D. Test appropriateness of journal entries and < djustments.

75. In aud i ting an entity's computerized payroll tra11sactions, an auditor would be least likely
to use test data to test controls concerning:

A. Overpayment of employees for hours riot worked.


B.

Control and distribution of unclaimed checl<.$.

C. Withholding of taxes and Social Security rnrnributions.

i'6.

D. Missing employee identification numbers.

An auditor established a P180,000 tole rab l e rn sstatement for an asset with an account

th

The auditor selecte:; a sample of every 20


item frm the
balance of P3,000,00l1.
.m t. balance and d iscovered a net
population that represented the asse acm1

overstatement of Pl0,500 { P l l , 100 overstatem :it:S minus P600 understatements). Under


these circumstances, the auditor most l!kely wold conclude that
A.,. The asset account is fairly stated iiecause o,e toierable. misstatement exceeds the net

of projected actual overstatements and unde rstatemerns.

B. The asset account is fairly stated because th total projected misstatement is less than
the tolerable misstatement.
C. There is an unacceptably high ris k. th at . tl11! actual misstatements in the population

exceed the tolerable misstatement ::iecause the total projected misstatement exceeds
the tolerable misstatement.
D. There is an unacceptably hig h risk that the tolerable misstatement is more than
the
sum of actual overstatements and understatl!ments.

Page l

of ! 2 Pa es

. ... --.

.\

:1

i '

:I.

\ '

i
I

CPA RVIEWSCHOOLOF THE PHILIPPINES(CPAR)

77.

ATPW-7502

PSA 800 applies to

A.

Review engagements

B. Agreed-upon procedures engagE!ments


C. Compilation engagements
D. Audit

of financial

statements

accordance

prepared i n

with

framework.

78. In an audit of special

purpose financial

the

st:itements,

auditor

i
p

s ecial

shall

purpose

obtain

an

understanding of
I.

The purpose for which the financial statern1nts are prepared.

IL

The intended users.

lll.

The steps taken by manage m e nt to d etern 1 i n e that the applicable financial reporting

framework is acceptable in the circumstanc-es.

A. I and HI only

c. I, II, and III


D. i : nd II only

B. II and III only

, ,
' 1

79. Whenever a report, fi l ed on a printed form designed by authorities, calls upQn t:he
independent auditor to make an asse n:io n i:hat the audiror believes is riot justified, the
auditor should

'

A. Withdraw from the en gag ement.


B. Su bm i t the form with q uestionab l e item!:i dearly omitted .
G. Reword the form or attach a separate report'.

D. Submit a standard report with explanations.

80.

An auditor may express an opinion on an entity s accounts receivable balance even if the

. auditor has disclaimed an opinion on the financ,af statements taken as a whole provided
the

A. Report on the accounts receivable is presnted separately from the disclaimer of

81.

opinion on the financial statements.


B. Auditor also reports on the cu rre nt asset port i o n of the entity's balance sheet.
C. Use .of the re port on the accounts receivable :s restri cted .
D. Report on the accounts receivable discloses tne rea:mr. for th e disclaimer of opinion on
the fin anci al state m ents .

An auditor may accept an engagement to report on summary financial statements in

accordanc.e wi t h PSA 810 only when

A. The auditor has been engaged to conduct m audit in accordance with PSAs of the
financial statementr. from which the sumrn<i r\ fi r. an cia l statements are derived.
.
B S u m m a ry fi na ncial statements are distn utej. on l y .to manaemtlEt and the board of
d irecto rs.

c. Auditor describes che additional review procedures performed on the sum m<lry
financ ial statem ents

D. Summary financial statements ate presented in comparative form with the prior year'6
summ ary finan cial stateme nts .
.

82.

financi ai sta :ements that a re derived from an entity's


In the auditor's report on summary
a CPA shou ld indicate that the
audited finan cial statements,
d an ooinion or the comlete financial state ent:
A. CPA has audited and ex pre sse
.
assurance: th2t the financia l statements conform w1h GAAP i n
B. CPA expresses limited
the Phil ipp ine s.
.
.
statements are not fairly presented in all malenal respects.
C. S um ma ry finan cial

iiry w1'th another compre hens1ve

<tateme nts ar oreparea 1 1 con1onr


1 "'
D. Sum ma ry f.111 a nci a'

basis of accountin g .
.

- -- EN D --

'

...

CPA REVIEW SCHOOL OF THE PHILIPPINES


M a n i

AUDITING THEORY

ATPW-7503

Ja

CPA Review
RANDOM NOTES

l . Which of the fo ll owing defines the


specific requi ements of the Securities and Exchan9e
Commission (SEC) rega r din g financial rE:porting c t entities registered with the SEC?


A. SRC Rule
C. SRC Rule @8
ai:

B '. SEC Circulars

2.

SEC: 'Bu ll eti ns

SRC Rule 68, as amended, is effective for audit-:d financial statements covering periods
ended D ecembe r 31, 2011 and onwards, and for interim fi n a nci a l statements starting
the first quarter of 2012, and thereafter.

3.

Part I of SRC Rule 68, as amended, deal


requirements of the SEC to the following entities:

Covered Entity

a. Stock corporations
b.

pJ1d

Non-stock corporations

c.

tot<tl assets ofPS00,000 or more, or with


receipts of Pl00,000 or more

Branch offices of stock foreign

Branch offices
corporations

e.

assigned capital in the equivalent amount


of I 'l million or more

of non-stock

5.

assets in the equivalent aniount of


million or more

tot; ii
Pl

Regional operating headquarters

of foreign corporations

4.

Thresholds
up capital stock of PS0,000 or more

grn ::s annual


.

corporations
d.

with the general financial reporting

tot. 11 revenues in the equivalent amount of


'
Pl million or mOre

Rule 68, as amended, deleted the term "Gem rally Accepted Accounting Principles (or
GAAP)" and replaced it with Financial

eporting Framework.

Large and/or publicly accountable entities snail llse.as their financial reporting fra mework

'the

a. Philippine Financial Reporting Standards, or


b. Financial Reporting Framework Applicable to Banks, Insurance Companies or Pre-need
as allowed by the SEC or the appropriate reJ Jlatory agency.

6.

If an SME that uses the PFRS for SMEs in a cw rent year breaches the floor or ceiling 9f
the size criteria at the end of that current year, and the event that caused the change is
considered "significant and continuing", the mtity shall transition to the applicable
financial reporting framework in the next accouming period.

: I I

The assessmem of "significant and com::1u1ng"

' i

, .

based on management's judgment

would be considered siqnificant.


7.

prescribed the wordi ig of the Statement of Management's


Responsibility (SMR) lor Financial Statements that shall be attached to the financial
statements filed with the S EC . All of the followir g shall sign the SMR:

Rule 68, as amended,

a.

Chairman of the Soard

c.

Chief Financial Officer

b. Chief Executive Officer

1311 be

As a general ru l e, 20% or more of the consolidated tota l assets or total liabilities

:i
I'

::

taking into consideration relevant qualitative sina 'JUantitative factors.,,,

---

'. :\

I
I

:!

I:
;
. i1 :
1

CPAREY
. IEWSCHOOLOrTHEPHILIPl'INES(CPAR)

, J

''

The failure of any of t'le prescribed signatories to sign tile SMR constitutes a material
'
deficiency in the financial statements.

8.

\.I
i

:\

9 . In the case of branch offices or regional operating headquarters of foreign corporations,,


the SMR shall be signed by its local manager who is in charge of its operations within

:!11

ATPW-7503

.'

the Philippines.

10. The SMR of the entities covered undei:; Pa rt II of 'Rule 68, as amended, shall be signed
under oath.

11.

Report .of Independent Auditor when the Compa!1y Incurred Capital Deficiency

The external auditor at' a company which h s in:urred a capital deficiency shall provide in

the audit report an emphas is paragraph indicating the following information:


a. The fact that the company has incurred a e<1pital deficiency that raises an issue on its
going concern status;

b. A brief discussion of a concrete plan of the :ompany to address the capital deficiency
and reference to ti 1e note to financial stater nents that provides a complete disclosure

of the said plan;

c.

A statement that the auditor conductd ;(Jfficierit audit


validity of the aforementioned plan.

proc'i:Jures

for verify the

In case the company fails to prese,nt to the ex;:ernal auditor a concrete plan or sufficient
supporting documen; to address the capital -deficiency, the auditor shall provide an
emphasis paragraph indicating that the company is no longer a going concern and
should use liquidation basis in the preparation of its financial statements.

12. It is considered as a violation of Rule 68, as amended, if the audited financial statements
covered by Part II of tl1e Rule with an auditor's opinion ocher than unqualified arising from
the following:
a. Deviation(s) from the required t'inanci<1I reporti ng framework; or
b. Scope limitations imposed by the comJ:ia ny.

1 3 . Under Rule 68, as amended, fraud means an intentionai act by one or more individual
among management, employees, or. third par:ies that results in a misrepresentation ,of

financial statements which reduces or inrn! ses the consolidated total assets, total
liabilities or income of the company by 50/o.

14.

Under Rule 68, as ame11ded, error means m unintentional mistak i n the finandal
statements which reduces or increases the ojrtsolidated total assets, total liabilities or
income of the company by 5/o .

15. 0The financial statement of companies not cove"ed by SRCRule 68 should be accompanied

by a certification under oath by the company's Treasurer or Chief finance


Officer.

such financ ial statements should have'at least 3


;
a . Statem ent of Financ ial Position or Fund Bal.mc.e
Rece.
pts
of
and
Disbursements); and
Statement
a
b. Income Stateme nt (or
s.
c. Applicable explanatory note

st
ts
stat
but are covered t i nder Ru le 6 :
.
16. Companies with no operation
emen
mu. be
year, a cotn P l ute set of fm a nc1a I
a) If no operation only for 1
_ its non-)peration.
te d by the company despite
su b mil
years tti e income stateme nt need not be included in
b) If' no operat'ion for the last 2
_

tements .
the aud ited fina nci al sta

. mana ;iement to provide all schedules, reports,


0f the entity's
is the responsibility
s' analyses and other financial information
.
.1.iat.10 ns' r::.pcrt
ons reco nci
.
.
com puta tion sI pro1ecl
n requirements in P. 100 0Ph
1 '"formatio
as audt
collectively referred to

It

Page 2 of 6 r_.1ge s
I L

- - -- - - - - - - - -

y!EWSCHOOLOFTHEPHILIPPINES(CPAR)

ATPW-7503
.

18. Which of the following proced u res


1s map ropriate when
the entity's management is

una ble to provide the aud


't
1 1n1o
.
rmat1. on requiremPnts
7

A. The au dit or sha ll prepar


e th e aud't
1 1nto
. rmat10,1 requirements
B Th e a d"1t r shall cons
ider a ssisti n Q the clieff: for exam
ple 0by preparing a pro forma
.
1
reo nciha
tio n statement or
schedule format for the clien to co mplete or use as. a
gu1d e.
C. The itor shall discuss
with ma n ag ement a ,1d/or those cha rg ed with governance the
possibility of outsou rcing the
preparation 01 audit information req ui rem ents t6 third
party serv.ice providers.
D. The auditor shall evaluate
the reason s wh1 an a gem ent is un abl e to prepare the
aud it information requirements
.

. '

in

In situations where the client provided


incomplete ana i nsuffi ci ent audit information
requirements, the auditor shall consider the following, except
A. Communicate in writing the issues and concErns on the incomplete and i n sufficient

19.

audit information req ui reme nts with .ma mger n ent and/or those cha rged with
govern ance.

B. Discuss if the audit information requirem nts can be revised to meet adequately the
needs of the a uditor .
C. Express a qualified or an adverse opinion.
D . Discuss with management and/or those charged with governance the possibility of
outsourcing the completion of the Information to third .party service provi ders .

20. The term "tentative financial statements" is generally used at present to refer to a s-et
of incomplete or unaudited financial statement:; accompanied by a report of an external
auditor who has not yet completed his audit of ! uch financial statements.

n.

Which of the following statements :oncerni11g the form


confirmations is incorrect;'

and content of inter-bank

A. The form and content of a confirmation fequst letter will d enM1n the purpose fo r
which it is requirea, on local practices a"nd 01 the requesting bank's account.

Not all information for which confirmation is usually sought will be required at the

B.

same time.
C. The confirmation request shoul

d be preparr.j in a clear and concise manner to ensure

ready comprehension by the confirming bank.

D. Whenever possible:, the confirmation requesc should be prepared in the language or


the requesting bank or in the language normally used for business purposes.

22.

Which of the following are required to oe reported by th e external a ud itor to the

.
.

BSP?

r. Any material finding during the audit involving fraud or d is honesty which .will reduce

capital funds by at least one. percent ( 1 %. .


Adjustments or potential losses amountinc1 to at least one percent (1 %) of capital
funds of the bani<.
III. Any finding to the effect that the total bal"1 k assets, on a going concern pasis, are no
longer adequate to cover the totai ciaims of creditors.
C II ar. d III only.
A. I and II only.
D. I. II, and III .
B. I and III on ly .
II.

23.

BANKING RISKS:
a.

. '

The risk of foreign customers and counterparti> failing to settle their obligations because of
economic, political and social factors oi' countenarty;s home country and external to the

customer or counterparty.

b.

--

Countryrisk

The risk of loss arising from future movements 1n the exchange rates applicable to foreign
currency assets, liabilities, rights and obligation i.

Currency risk

c.

The risk of loss arising from factors s ch as 0fail Jre to maintain safe custody or negligellce in
the management or assets on behalf ?f ottler p3rties. Fiduciary risk

d.

The risk that a movement in interest rates wou d have an adverse effect on the value of assets
and liabilities or would affect interest cash flow. Interest rate risk

Pae 3 of 6 P 1ges

__.__

_ _ _

rrAREVIEWSCHOOLOfTHEl'HILIPPINESCCPAR;
e.

ATPW-1:503

I I

The risk that contracts are documented incorrectly or are not legally enforceable in the relevant
jurisdiction in which the contracts are to be enfcrced or where the counterparties operate.

Legal and documentary risk


f.

The risk of loss arising from the changes in the I >an k's ability to sell or dispose of an asset.

Liquidity risk

g.

The risk associated with the imperfections and subjectivity of valuation models used to
determine the values of assets or liabilities. Modeling risk

h.

The risk of direct or indirect loss resulting from inadequate or failed internal proceses, people
and systems or from external events. Operaticnal risk

i.

The risk of loss arising from adverse changes i n market prites, including interest rates, foreign
exchange rates, equity and commodity prices arid from movements in the market prices of

investments. Price risk


j.

The risk o f loss arising from failure to comply with regulatory or legal requirements i n the
relevant jurisdiction in which the bank operates. Regulatory risk

k.

).

The nsk of failure or a customer or counterpart} to perforrn the terms of a ontract. This
failure creates the need tb replace the failed traspction with another at the current market
'
price. It is sometimes called performance risk. Replacement risk
The risk of losing business because

of negative.public opinio.n and

consequential damage to the

bank's reputation arising from failure to proper11 manage some of the above risks, or from

involvement in improper or illegal activities by the bank or its senior management, such as
money laundering or attempts to cover up lossEs. Reputational risk
m. The risk that one side of a transaction'will be Sf'ttled without value being received from.the
customer or counterparty. This will generally re suit in toss to the bank of the full principal
amount. Settlement risk

n.

o.

The

risk of loss arising

from the possi bility of th bank not having sufficient funds to meet 11'$

I:

obligations, or from the bank's inability to acces capital markets to raise required funds.
Solvency risk

The risk of loss arising when a counterparty's ohligation is not denominated In the
counterparty's home currency. The counterpany may not obtain the currency of the obligation
irrespective of the counterparty's particular fina,icial condition. Transfer risk

24. In the exercise of its power


organized the

to conduct

O\'ersight into the quality of audits, the BOA

De pa rtme nt of t he
an

Philippine Institute of Certified Public

Accountants (PICPA) co conduct an indepepderit study, appraisal; (tr. review of the quality
of
audit of financial statements.

A. Quality Assurance Review


B. Quality Control Review
c. Independent Qual ity AssurancEi Review
D. Independent Qual ity Control Review
____

Review Department (QARD) of the PICPA shal be


25. The operation of the Quality Assurance

C. Oversight Committee
D. Acceiu ntab i l ity Board

supervised by a/an
A. Executive Committee
B. sup ervisory Board

is an incorrect statement concerning the term of office of the


26. Which of the following
mb ers?
Executive co mm ittee me
rminus with their
Chairman and me 11bers shall be co-te
the
of
office
A. The ter of
by
the Boaro or PICPA.
r
earlie
ced
repla
t
unles
BOA or PICPA
respective term in the
l be more than 3
shal
case
no
in
bers
mem
0f the Cha irma n and
B. The term of office

public
years .
e to be in active practice of
men: bers may continu
and
man
Chair
d
by the Boa rd.
ose
C. The
certain restrictions imp
.
their tem , su bect to
g
durin
y
ointees.
app
tanc
accoun
ll be from the Board'5"
sha
e
itte
J
Comm
ve
the E.xecua
' .
D. The Chairman of
.

Page 4 of 6 P;1ges

- - -

- -

ATPW-750:J

27. The Head of the QARD who


.
will be appo.. nte9 by
:he Executive Committee is the
A. Chief Inspector
_
C. Cfuef uditor
.
. .
B. Chief of Adm inistration
.
.
0 . Chief l.luality Assu ra nce Reviewe r

28. Who i responsible for the non-tec


hnical aspect of the QAR program?
A. Chief Inspector
8.

Chi ef of Administration

C. Assistant to the Chief I n spe cto r

Q. Chairman of the Executive Committee

29.

The QAR program covers all CPAs in


A. Public Accou nting
B. Government

30 .

C. Comm =rce and Industry

D . Educaton/Academe

in p u bl ic practice are required to reg1!;ter with the QAR program under the
prescribed category. Those whose clients are pu bl ic -in te rest entities (listed and no t-lis te.d
but with pub lic accountability) should register un jer
A. Category A
C. Categ 1 iry C

CPAs

B. Category B

c. Categilry D

Section 19 provides that CPA practitioners sho ul d b1! registered in accordance with the following

categories:

:: n

Catego ry A - registration for CPA practitio1.1ers handling clients that use the full IFRS or
their Philippine equivalents. These would civer CPA pra cti tioners auditing ublic-interest
entities (listed and not-listed but With public ilCCOUntability).
Catego ry B - registration for CPA practitioners handling clients that. use the IFRS or their
Philippine equivalents for Small and Medium ;ized enterprises.

What is the effectivity date 'of the BOA Re!jolutlof\

A. Ju ne

4, 2008

8. June 20, 2008

32.

C>. 88 (Seri es of 200B)

rules and regulations for the accreditation of aG ounting tea chers?

prescribing the

C. Decei':1ber, 3 l , 2008
D. June W, 2008

Which of the following requirements for the accredi tation of acc0unting teachers shall not
apply to thos e CPAs cilready engaged in teachng as of the effe ctivity date of the Rules
and Regulations?
I. Poss essio n of relevant Master's degree.

IL

III.
IV.

Co mp leti on of 12 units of re levant education s ubj ects from th e CHED recognized

schools.

A total of 3 years meaningful experience in actual accounting work either in Pu ql ic


Practice, Commerce & Industry or Governr nent sector.

Proof that the CPA has undergone Conti nuing Professional Education (CPE).

A. I and II o nly
8.

II and III only

C. I and IV only
J. II only

33. The following statements relate to the req u ire m ent to complete 12 units of relevant
education subjects for the a ccredita tion of acco1 mting teachers. Which i s incorrect?
A. For purposes of compliance, the -2 unit:: may be earned from the undergraduate

education prograr.i or from a g1aduate .: gree ,progra m . of! ,flY Higher Education
Institution (HEI) duly recog n i zed by CH Eb .
.
B. The 12 units meiy be earned from in-srvice or in-house trainings on relevant .
educa tion subjects offered by schools or tra; ning centers.

C. The 12 units may be a combjnation of in-service trainings and units earned in an

undergraduate or qraduate education progr;ims.

D. CPAs who have passed the Teacners Bo.3 rd Exams and are licensed Profess iona l
Teachers should earn the 12 units through i i-service or in-house tra ini n gs:
34.

Which of the fol l o w i ng shall be considered proof of compliance with the CPE requirement
for accreditation of accounting teachers7
I. Certification of CPE units from accredited :PE provid e rs issued by the PICPA.

-----

- -

- -

- - -

- - - - - -

l
. I

i
!l

! .

CPAREYIEWSCHOOLOFTHEPHILIPPlNES(CPARl

ATPW-7503

.'

II. Certificate of Attendance or other proofs >r meaningful participation in other CPE
programs as approved by the PRC/CPE Council 'llpon recommendation of the PICPA
.
of the individual CPA of a minim um of si)ty (60) cre"dit units earned for the past

I
.

immediate 3 years.
A. I only
B . II only

35

Either or II
D. Neither I nor II

C.

The Certificate of Accreditation issued by the-PRC to-an accounting teacher shall


A. Be valid for 2 years and renewable every 2 yi:ars.

B. Be valid initially for 3 years and renewable an:1ually.


C. Remain in full force and effect unless revoked, cance!led or withdrawn .
D. Be valid for 3 years and renewable every 3 yE ars.

36. According to the Transitory Provisions of the BOA Resolution No. 88, any tenured/fu] I

time/full load faculty member who does not meec the accreditation requirements as of tile
effectivity date of the Rules and Regulations may be issued a Provisional Accreditation.
Choose the correct statement.
I. The Provisional Accreditation will be valid for a period not exceeding 3 years unless
earlit!r withdrawn, revoked, or cancelled for cause by the BOA.

II. The Provisional Accreditation may be issuec! Dnly once and is no1 1 tenewable.
The transitory provision shall also apply t> returning teachers who have not been
teaching for the last 5 years.
A. I only
C . II and III only

B. I and II only
D. I, II, c t;id III

iII.

37.

In case of an initial public offering ( I PC) ct seCL:rities by a company, the inter-irn financial
statements to accompany the Registration Statement (SEC Form 12-1, as amended) shall
be audited by an external auditor accredited by t he
A. Board of Accountancy ( BOA)
B. Professional Regulation Commission (PRC)
C. BOA/ PRC
D. BOA/PRC and SEC (Securities a'hd Exchange Commission)

38. The COA chairman and the two ( 2 ) commission.:!rs shall be appoi nted by the president: of
the Philippines with consent of the Commission on Appointments for a term of
5 years
C. 7 yea ..s
D. 9 yea s
B. 6 years

A.

]9.

40.

In an initial public offering of securities, a writcen communication from the indendent


accountant to an underwriter about proced1!res ,the accountant prformed on the
unaudited financial statements and sctieduli!S1 accompanying a client's registration
statement. Comfort letter

efers to a company's maintaining a steady rat. of earnings growth over a series of years,
thereby providing no reason for the financial markets to impute unexpected risk in the

company or in expected stock prices. Income .Smoothing

41. All the components whose financia l ' inform2tion is included in 'the group financial

statements. Group

nformation of more than one component.


42. Financial statements that include the financial

statements aggregating the financial information


It also refers to combined financial
but are under commo n control .
pare;nt
no
have
that
nents
compo
prepared by

s
Group Fina ncia l Statement

--- END --

.. ! t:

.
.

.
.

MAY 2014
PRE WE EK AU DIT ING TH EOR
Y 7SO l
1. c
2. D
3. B .
4. c

5.

6. D
7. 0
8. D
9. o

10. A

21. [)

22. B
23. D
24. A
25. c

26. c
27. c
28. c
29.
30.

B
B

11. A

31. A

12. c

13. A

41.

32.

42 .

61.D
' ..

62. A

43 . 3

63. A

44.

45. \
46.
47.

64. B
65. A
66. B
67. A

48. j
-

49.
O.

68. D
69. c
.

70. A

5 1 . :\
52.

71. A
72. A

33. D

53. 3

73. c

34. [>

54.

74. c

15. B

35. (

55.

36. A

56.

\
-

75. D

16. c
17. c

37. ()

57.

77. B

18. A

38. c

58. =

78. A

19. c

39. A

59. :)

79. B

20. A

40. ['

60.

80. B

14. D

76. B

.
PRE WEEK AUDITING THEORY 7502

. '
1:4

1. D

21. D

4'1. D

61. A

81. A

2. c

22. c

4Z. B

62. B

82. A

3. B

23. c

43. c

63. D

4. D

24. A

44. A

64. c

5. B

25. c

45. c

65. D

6. c .

26. D

46. A

66. D

7. c

27. D

47. A

67. D

8. B

28. D

48. B

68. c

9. A

29. c

49. D

69. A

10. D

30. B

5'o. D

70. A

11. c

31. B

51. B

71. c

12." B

32. c

52. A

72. A

13. D

33. c

53.

73. A

14. B
15. B

34. B

54. c

74. B

35. B

55. c

75. B

16. A

36. A

56. c

76. c

17. B

37. c

57. B

18. B

38. A

58. B

19. . B

39. c

59. D

20. c

40. A

60. c .

.
.

77. D
. '

'78. c
79. c
80. A

t .
..

. . . . . -.. --.- ------...