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Broadly defined, the subject matter of any audit consists of c) Client's system of internal control had been reviewed and evaluated b) Need not review all audit documentation, but may do so
a) Financial statements d) Unusual matters were resolved c) Need not review all audit documentation
b) Economic data d) Must ask the staff performing the audit work to sign the audit report
c) Assertions 9. Which of the following sampling methods would be most appropriate in
d) Operating data performing tests of controls over authorization of cash disbursements 17. The independent auditor lends credibility to clients financial
a) Attributes statements by
2. The third standard of field work states that sufficient competent b) Variables a) Maintaining a clear-cut distinction between managements
evidential matter may in part be obtained through the following methods c) Ratio representations and the auditors representation
except d) Stratified b) Testifying under oath about clients financial statements
a) Inspection c) Stating in the auditors management letter that the examination was
b) Observation 10. Analytical procedures used in the overall review stage of an audit made in accordance with generally accepted auditing standards
c) Confirmation generally include d) Attaching an auditors opinion to the clients financial statements
d) Reconciliation a) Considering unusual or unexpected account balances that were
not previously identified 18. The most difficult type of misstatement to detect is fraud based on
3. If an auditor believes that material error or fraud exist, the auditor b) Performing test of transactions to corroborate management's financial a) The over-recording of transactions
should statement assertions b) The non-recording of transactions
a) Consider the implications and discuss the matter with appropriate c) Gathering evidence concerning account balances that have not c) Recorded transactions in subsidiaries
levels of management changed from the prior year d) Related party receivables
b) Make the investigation necessary to determine whether errors or fraud d) Re-testing control procedures that appeared to be ineffective during the
have in fact occurred assessment of control risk 19. Assuming a recurring audit, in which of the following situations would
c) Request that management investigate whether errors or fraud have in the auditor be unlikely to send a new engagement letter to the client?
fact occurred 11. Results of the financial statement audit are communicated to users a) A recent change in partner and/or staff involved in the audit
d) Consider whether errors or fraud where the result of employee's failure through engagement
to comply with specific controls a) Financial statement b) A change in the terms of engagement
b) Written management assertion c) A recent change of client management
4. Which of the following is not normally performed in the pre-planning or c) Audit report d) A significant change in the nature or size of the client's business
pre-engagement phase? d) None of the above
a) Deciding whether to accept or reject an audit engagement 20. When an auditor expresses an adverse opinion he/sheshould disclose
b) Inquiring from predecessor auditor 12. What is the primary difference between financial reporting risk and the substantive reasons for such anopinion in an explanatory paragraph
c) Preparing an engagement letter audit risk? a) Within the notes to the financial statements
d) Making a preliminary estimate of materiality a) The application of accounting principles b) Preceding the opinion paragraph
b) Responsibilities of the respective parties involved c) Following the opinion paragraph
5. On the basis of the audit evidence gathered and evaluated, an auditor c) Demands of users of financial statements d) Preceding the introductory paragraph
decides to increase the assessed level of control risk from that originally d) Risks of being sued by third parties
planned. To achieve an overall audit risk level that is substantially the 21. Tolerable error means
same as the planned audit risk level, the auditor would 13. Relationship between control risk and detection risk is ordinarily a) An error that arises from an isolated event that has not recurred other
a) Decrease substantive testing a) Parallel than on specifically identifiable occasions and is therefore not
b) Increase inherent risk b) Inverse representative of errors in the population
c) Decrease detection risk c) Direct b) An error that the auditor expects to be present in the population
d) Increase materiality levels d) Equal c) The maximum error in a population that the auditor is willing to
accept
6. An effective internal control 14. A representation letter issued by a client d) The possibility that the auditor's conclusion, based on a sample may be
a) Cannot be circumvented by management a) Is essential for the preparation of the audit program different from the conclusion reached if the entire population were
b) Can reduce the cost of an external audit b) Is a substitute for testing subjected to the same audit procedure
c) Can prevent collusion among employees c) Does not reduce the auditor's responsibility
d) Eliminates risks and potential loss to the organization d) Reduces the auditor's responsibility only to the extent that it is relied 22. Examples of events or conditions, which individually or collectively,
upon may cast significant doubt about the going concern assumption include
7. In auditing through a computer, the test data method is used by the following except
auditors to test the 15. The recruitment of senior management for an assurance client, such a) Net liability or net current liability position
a) Accuracy of input data as those in a position to affect the subject of the assurance engagement b) Change from credit to cash-on-delivery transactions with suppliers
b) Validity of the output may least likely create c) Labor difficulties or shortages of important supplies
c) Procedures contained within the program a) Self-interest threat d) Compliance with capital or other statutory requirements
d) Normalcy of distribution of test data b) Advocacy threat
c) Intimidation threat 23. Which of the following procedures is not included in a review
8. An auditor's working papers will generally be least likely to include d) Familiarity threat engagement on a nonpublic entity
documentation showing how the a) Inquiries of management
a) Client's schedules were prepared 16. In reviewing the audit work performed, the engagement partner b) Inquiries regarding events subsequent to the balance sheet date
b) Engagement had been planned a) Must review all audit documentation c) Any procedures designed to identify relationships among data that
appear to be unusual b) To assist the auditor in accurately interpreting information date
d) A study and evaluation of internal control structure obtained during an audit c) Should be especially considered when there are rapidly changing
c) To allow the auditor to more accurately perform tests of controls economic conditions
24. In planning the audit engagement, the auditor should consider each of d) To decide whether it will be necessary to perform analytical procedures d) Potentially increases the risk that errors that exist at the balance
the following except sheet date will not be detected
a) The kind of opinion that will likely be given 32. Which of the following is not true about the report release date?
b) Matters relating to the entitys business and the industry in which it a) It is defined as the date after which existing documentation must 39. Close family include the following, except
operates not be deleted, and additions to the documentation file must be a) Parent
c) The entitys accounting policies and procedures documented as such b) Sibling
d) Anticipated levels of control risk and materiality b) It is often the date on which the report is delivered to the client c) Non-dependent child
c) It is the date on which the auditor grants the client permission to use the d) Spouse
25. What assurance is provided by the practitioner in an agreed-upon report
procedures engagement? d) It is used to define the beginning of the retention period 40. A computer-assisted audit technique that is most likely to be effective
a) Reasonable in a continuous auditing environment is
b) Absolute 33. An auditor should not issue a report on a) Parallel simulation
c) Moderate a) Quarterly financial information b) Controlled reprocessing
d) No assurance b) Internal control c) Embedded audit modules
c) Management performance d) Transaction tripping
26. To test for unsupported entries in the journal, the direction of audit d) The achievability of forecasts
testing should be from the 41. Which of the following is not prohibited by the Code of Professional
a) Journal entries 34. Which of the following procedures would an auditor most likely Ethics for CPAs?
b) Ledger entries perform to obtain evidence about the occurrence of subsequent events? a) Advertising and solicitation of clients
c) Original source documents a) Confirming a sample of material accounts receivable established after b) Payment of commissions to obtain a client
d) Externally generated documents year-end c) Receiving a contingent fee on a tax case before the Bureau of
b) Comparing the financial statements being reported on with those of the Internal Revenue
27. For good internal control, the purchasing department should not be prior period d) Offering employment to a staff member of another CPA without first
responsible for c) Investigating personnel changes in the accounting department informing the CPA
a) Authorizing the acquisition of goods occurring after year-end
b) Finding the lowest cost vendor d) Inquiring as to whether any unusual adjustments were made after 42. The management's assessment of the entity's ability to continue as a
c) Reviewing the vendors catalog descriptions and prices for standardized year-end going concern covers a period of
items a) Not longer than 12 months from balance sheet date
d) Designing the purchase order form 35. To which of the following matters would materiality limits not apply b) At least 12 months from the balance sheet date
when obtaining written client representations? c) Not longer than 12 months from the date of audit report
28. Involves tracing a few transactions through the accounting system a) Violations of state labor regulations d) At least 12 months from the date of audit report
a) Test of controls b) Disclosure of line-of-credit arrangements
b) Walk-through test c) Information about related party transactions 43. To obtain evidential matter about control risk, an auditor selects tests
c) Analytical procedures d) Instances of fraud involving management from a variety of techniques including
d) Substantive procedures a) Inquiry
36. Who ultimately determines the scope of the audit? b) Analytical procedures
29. This exists, when other information, not related to matters appearing in a) The auditor c) Calculation
the financial statements, is incorrectly stated or presented b) The client d) Confirmation
a) Material inconsistency c) Both a and b
b) Material misstatement d) Neither a nor b 44. The need for independent audits of financial statements can be
c) Material misstatement of fact attributed to all of the following conditions except
d) Material error affecting the other information 37. Financial statements prepared in accordance with a financial reporting a) Remoteness
framework designed to meet the financial information needs of specific b) Consequence
30. Who appoints the members of the Board of Accountancy users are referred to as c) Complexity of subject matter
a) The chairman of BOA a) Special purpose financial statements d) Validity
b) The president of the Philippines b) Special purpose framework
c) The chairman of the PRC c) General purpose financial statements 45. After issuing a report, an auditor concludes that an auditing procedure
d) The president of PICPA d) Specific purpose financial statements considered necessary at the time of the examination was omitted from the
examination. The auditor should first
31. An auditor is required to obtain an understanding of the entity's 38. An auditor plans to apply substantive tests to the details of asset and a) Undertake to apply the omitted procedure or alternative procedures that
business, including business cycles and reasons for business fluctuations. liability accounts as of an interim date rather than as of the balance sheet would provide a satisfactory basis for the auditor's opinion
What is the audit purpose most directly served by obtaining this date. The auditor should be aware that this practice b) Assess the importance of the omitted procedure to the auditor's
understanding? a) Eliminates the use of certain statistical sampling methods that would ability to support the opinion expressed on the financial statements
a) To enable the auditor to accurately identify significant deficiencies in otherwise be available taken as a whole
internal control b) Presumes that the auditor will reperform the tests of the balance sheet c) Notify the audit committee or the board of directors that the auditor's
opinion can no longer be relied upon c) Established criteria or standards 61. A cash shortage may be concealed by transporting funds from one
d) Review the results of other procedures that were applied to d) Accounting skills location to another or by converting negotiable assets to cash. Because of
compensate for the one omitted or to make its omission less important this, which of the following is vital?
53. Which one of the following is not part of the attest process? a) Simultaneous confirmations
46. This quality control element requires a CPA firm to establish policies a) Providing the accuracy of the books and records b) Simultaneous bank reconciliations
and procedures to provide it with reasonable assurance that engagements b) Gathering evidence about assertions c) Simultaneous verification
are performed in accordance with professional standards and regulatory c) Evaluating evidence against objective criteria d) Simultaneous surprise cash count
and legal requirements, and that the firm or the engagement partner issue d) Communicating the conclusions reached
reports that are appropriate in the circumstances 62. Which of the following is most likely to indicate a significant deficiency
a) Ethical requirements 54. Users of the audit report can reasonably expect the audited financial relating to a client's anti-fraud programs?
b) Engagement performance statements to be a) A broad scope of internal audit activities
c) Monitoring a) Complete and contain many of the important financial disclosures b) A "whistle-blower" program that encourages anonymous submissions
d) Human resources b) Presented fairly according to the substance of GAAP c) Audit committee passivity when conducting oversight functions
c) Free from all errors d) Lack of performance of criminal background investigations for likely
47. Communication with a predecessor auditor is initiated by d) All of the above customers
a) Management
b) The successor auditor 55. Which of the following services is the broadest and most inclusive? 63. Which of the following is not an attestation standard?
c) The audit committee of the board of directors a) Audit a) Sufficient evidence shall be obtained to provide a reasonable basis for
d) The chair of the board of directors b) Attestation the conclusion that is expressed in the report
c) Assurance b) The report shall identify the subject matter on the assertion being
48. In which of the following may confidential information not be d) Compliance reported on and state the character of the engagement
disclosed? c) The work shall be adequately planned and assistants, if any, shall be
a) To comply with the quality review of a member body or professional 56. One reason why an auditor makes an analytical review of the clients properly supervised
body operations is to identify d) A sufficient understanding of internal control shall be obtained to
b) To submit evidence in the course of legal proceedings a) Improper separation of accounting and other financial duties plan the engagement
c) Acquiring information in the course performing professional b) Weakness of a material nature in the system of internal accounting
services and use that information for personal advantages control 64. Proper segregation of functional responsibilities calls for separation of
d) When consent to disclose information is given by the client c) Unusual transactions the functions of
d) Non-compliance with prescribed control procedures a) Authorization, execution, and payment
49. The auditor should perform the following risk assessment procedures b) Authorization, recording, and custody
to obtain an understanding of the entity and its environment, including its 57. Analytical procedures used in planning an audit should focus on c) Custody, execution, and reporting
internal control, except identifying d) Authorization, payment, and recording
a) Inquiries of management and others within the entity a) Material weaknesses in the internal control structure
b) Reperformance b) The predictability of financial data from individual transactions 65. Control risk should be assessed in terms of
c) Analytical procedures c) The various assertions that are embodied in the financial statements a) Specific controls
d) Observation and inspection d) Areas that may represent specific risk relevant to audit b) Types of potential fraud
c) Financial statement assertions
50. The auditor should determine overall responses to address the risks of 58. An integrated test facility (ITF) would be appropriate when the auditor d) Control environment factors
material misstatement at the financial statement level. Such responses needs to
most likely include a) Trace a complex logic path through an application system 66. Which of the following is not a step in an auditor's assessment of
a) Assigning less experienced staff b) Verify processing accuracy concurrently with processing control risk?
b) Performing predictable further audit procedures c) Monitor transactions in an application system continuously a) Evaluate the effectiveness of internal control with tests of controls
c) Performing substantive procedures at an interim date instead of at d) Verify load module integrity for production programs b) Obtain an understanding of the entity's information system and control
period end environment
d) Emphasizing to the audit team the need to maintain professional 59. The rotation of senior accounting personnel can be regarded as a c) Perform tests of details of transactions to detect material
skepticism in gathering and evaluating audit evidence safeguard misstatements in the financial statements
a) Created by the profession d) Consider whether controls can have a pervasive effect on financial
51. The need for assurance services arises for all of the following reason b) Within the clients systems and procedures statement assertions
except c) In the work environment
a) Potential bias in providing information d) Created within the business community 67. Which of the following procedures would an auditor ordinarily perform
b) Closeness between a user and the organization first in evaluating management's accounting estimates for
c) Complexity of the processing systems 60. If certain forms are not consecutively numbered reasonableness?
d) Remoteness between a user and the organization a) Systematic sampling may be appropriate a) Develop independent expectations of management's estimates
b) Selection of a random sample probably is not possible b) Consider the appropriateness of the key factors or assumptions used in
52. Which one of the following is not a key attribute needed to perform c) Stratified sampling should be used preparing the estimates
assurance? d) Random number tables cannot be used c) Test the calculations used by management in developing the estimates
a) Subject matter knowledge d) Obtain an understanding of how management developed its
b) Independence
estimates bank reconciliation 81. Which of the following statements concerning evidential matter is
d) Not have access to the client's cutoff bank statement correct?
68. An entity's income statements were misstated due to the recording of a) Appropriate evidence supporting management's assertions should be
journal entries that involved debits and credits to an unusual combination 75. A material weakness is a significant deficiency (or combination of convincing rather than merely persuasive.
of expense and revenue accounts. The auditor most likely could have significant deficiencies) that results in a reasonable possibility that a b) Effective internal control contributes little to the reliability of the
detected this fraudulent financial reporting by misstatement of at least 'what amount will not be prevented or detected? evidence created within the entity.
a) Tracing a sample of journal entries to the general ledger a) An amount greater than zero c) The cost of obtaining evidence is not an important consideration to an
b) Evaluating the effectiveness of internal control b) An amount greater than zero, but at least inconsequential auditor in deciding what evidence should be obtained.
c) Investigating the reconciliations between controlling accounts and c) An amount greater than inconsequential d) A client's accounting data cannot be considered sufficient audit
subsidiary records d) A material amount evidence to support the financial statements.
d) Performing analytical procedures designed to disclose differences
from expectations 76. The existence of audit risk is recognized by the statement in the 82. Confirmations of accounts receivable address which assertion most
auditor's standard report that the auditor directly?
69. Which of the following is most likely to be unique to the audit work of a) Obtains reasonable assurance about whether the financial a) Completeness
CPAs as compared to work performed by practitioners of other statements are free of material misstatement. b) Existence
professions? b) Assesses the accounting principles used and also evaluates the overall c) Valuation
a) Due professional care financial statement presentation. d) Classification
b) Competence c) Realizes some matters either individually or in the aggregate, are
c) Independence important while other matters are not important. 83. When performing a review of an issuer company, which is least likely
d) Complex body of knowledge d) Is responsible for expressing an opinion on the financial statements, to be included in the CPA's inquires of management members with
which arc the responsibility of management. responsibility for financial and accounting matters?
70. Which of the following would an auditor most likely use in determining a) Subsequent events
the auditor's preliminary judgment about materiality? 77. Which of the following services would be most likely to be structured b) Significant journal entries and other adjustments
a) The anticipated sample size of the planned substantive tests as an attest engagement? c) Communications with related parties
b) The entity's annualized interim financial statements a) Advocating a client's position in tax matter. d) Unusual or complex situations affecting the financial statements
c) The results of the internal control questionnaire b) A consulting engagement to develop a new database system for the
d) The contents of the management representation letter revenue cycle. 84. The adverse effects of events causing an auditor to believe there is
c) An engagement to issue a report addressing an entity's substantial doubt about an entity's ability to continue as a going concern
71. Which of the following conditions identified during fieldwork of an audit compliance with requirements of specified laws. would most likely be mitigated by evidence relating to the
is most likely to affect the auditor's assessment of the risk of misstatement d) The compilation of a client's forecast information. a) Ability to expand operations into new product lines in the future.
due to fraud? b) Feasibility of plans to purchase leased equipment at Jess than market
a) Checks for significant amounts outstanding at year-end 78. Which of the following is ordinarily considered to be a fraud risk value.
b) Computer generated documents factor? c) Marketability of assets that management plans to sell.
c) Missing documents a) The company's financial statements include a number of last d) Committed arrangements to convert preferred stock to long-term debt.
d) Year-end adjusting journal entries. minute material adjustments.
b) Management regularly informs investors of forecast information. 85. One reason that an auditor only obtains reasonable, and not absolute,
72. An auditor ordinarily uses a working trial balance resembling the c) The company has experienced increasing earnings over the previous assurance that financial statements are free from material misstatement is
financial statements without footnotes, but containing columns for five years. a) Comprehensive basis reporting
a) Cash flow increases and decreases d) The company's president is included as a member of the board of b) Employee collusion
b) Audit objectives and assertions directors. c) Material misstatements
c) Reclassifications and adjustments d) Professional skepticism
d) Reconciliations and tick marks 79. Which is least likely to be a question asked of client personnel during
a walk-through in an audit of the internal control of an issuer (public) 86. When an auditor concludes there is substantial doubt about a
73. The risk that an auditor will conclude, based on substantive tests, that company? continuing audit client's ability to continue as a going concern for a
a material misstatement does not exist in an account balance when in fact a) What do you do when you find an error'? reasonable period of time, the auditor's responsibility is to
such misstatement does exist is referred to as b) Who is most likely to commit fraud among your coworkers? a) Issue a qualified or adverse opinion, depending upon materiality, due to
a) Detection risk c) What kind of errors have you found? the possible effects on the financial statements.
b) Sampling risk d) Have you ever been asked to override the process or controls? b) Consider the adequacy of disclosure about the client's possible
c) Non-sampling risk inability to continue as a going concern.
d) Inherent risk 80. An auditor who uses the work of a specialist may refer to and identify c) Report to the client's audit committee that management's accounting
the specialist in the auditor's report if the estimates may need to be adjusted.
74. The usefulness of the standard bank confirmation request may be a) Specialist is also considered to be a related party. d) Reissue the prior year's auditors report and add an explanatory
limited because the bank employee who completes the form may b) Auditor indicates a division of responsibility related to the work of the paragraph that specifically refers to "substantial doubt" and "going
a) Be unaware of all the financial relationships that the bank has with specialist. concern."
the client c) Specialist's work provides the auditor greater assurance of reliability.
b) Not believe that the bank is obligated to verify confidential information d) Auditor expresses an "except for" qualified opinion or an adverse 87. The accountant who is not independent may perform which of the
to a third party opinion related to the work of the specialist. following types of engagements?
c) Sign and return the form without inspecting the accuracy of the client's a) Audit
b) Agreed-upon procedures 94. When auditing merchandise inventory at year-end, the auditor comprehensive basis of accounting other than generally accepted
c) Compilation performs a purchase cutoff test to obtain evidence that accounting principles.
d) Review a) All goods owned at year-end are included in the inventory b) A report on internal control significant deficiencies noted in an audit.
balance. c) A required communication with the audit committee.
88. Which of the following should an auditor obtain from the predecessor b) All goods purchased before year-end are received before the physical d) A report on compliance with aspects of contractual agreements.
auditor prior to accepting an audit engagement? inventory count.
a) Analysis of balance sheet accounts c) No goods held on consignment for customers are included in the 101. Which of the following is always present in an attestation
b) Analysis of income statement accounts inventory balance. engagement?
c) All matters of continuing accounting significance d) No goods observed during the physical count are pledged or sold. a) Subject matter
d) Facts that might bear on the integrity of management b) Assertion about the subject matter
95. A company has changed its method of inventory valuation from an c) Generally accepted assurance principles
89. Which is least likely to be a response when an auditor has obtained unacceptable one to one in conformity with generally accepted accounting d) An examination report
evidence indicating a risk of material misstatement in the area of principles. The auditor's report on the financial statements of the year of
inventory? the change should include 102. Which of the following is least likely to be a test of a control?
a) Request inventory counts at the end of each month. a) No reference to consistency. a) Inquiries of appropriate personnel.
b) Discuss questions of inventory valuation with any other auditors b) A reference to a prior period adjustment in the opinion paragraph. b) Inspection of management's engagement letter.
involved with the audit. c) An explanatory paragraph explaining the change. c) Observation of the application of a policy.
c) Make oral inquiries of major suppliers in addition to written d) A justification for making the change and the impact of the change on d) Reperformance of the application of a policy.
confirmations. reported net income.
d) Perform inventory observations on an unannounced basis. 103. When one auditor succeeds another, the successor auditor should
96. An abnormal fluctuation in gross profit that might suggest the need for request the
90. The independent auditor selects several transactions in each extended audit procedures for sales and inventories would most likely be a) Client to instruct its attorney to send a letter of audit inquiry concerning
functional area and traces them through the entire system, paying special identified in the planning phase of the audit by the use of the status of the prior year's litigation, claims, and assessments.
attention to evidence about whether or not the controls are in operation. a) Tests of transactions and balances b) Predecessor auditor to submit a list of internal control weaknesses that
This is an example of a(n) b) A preliminary review of internal control have not been corrected.
a) Application test c) Specialized audit programs c) Client to authorize the predecessor auditor to respond to
b) Test of controls d) Analytical procedures inquiries.
c) Substantive test d) Predecessor auditor to update the prior year's report to the date of the
d) Test of a function 97. Which of the following statements best describes the ethical standard change of auditors.
of the profession pertaining to advertising and solicitation?
91. Accounting control procedures within computer processing may leave a) All forms of advertising and solicitation are prohibited. 104. A difference of opinion concerning accounting and auditing matters
no visible evidence indicating that the procedures were performed. In such b) There are no prohibitions regarding the manner in which CPAs may relative to a particular phase of the audit arises between an assistant
instances, the auditor should test these controls by solicit new business. auditor and the auditor responsible for the engagement. After appropriate
a) Making corroborative inquiries. c) A CPA may advertise in any manner that is not false, misleading, consultation, the assistant auditor asks to be disassociated from the
b) Observing the separation of duties of personnel. or deceptive. resolution of the matter. The working papers would probably be
c) Reviewing transactions submitted for processing and comparing d) A CPA may only solicit new clients through mass mailings. a) Silent on the matter since it is an internal matter of the auditing firm
them to related output. b) Expanded to note that the assistant auditor is completely disassociated
d) Reviewing the run manual. 98. A note to the financial statements of a bank indicates that all of the from responsibility for the auditor's opinion
records relating to its business operations are stored on magnetic disks; c) Expanded to document the additional work required, since all
92. If information is for management's use only, which of the following and that there are no emergency back-up systems or duplicate disks disagreements of this type will require expanded substantive testing
forms of CPA association with financial information is most likely to result stored since the bank and their auditors consider the occurrence of a d) Expanded to document the assistant auditor's position, and how
in no report being issued? catastrophe to be remote. Based upon this, one would expect the auditor's the difference of opinion was resolved
a) An agreed-upon procedures engagement report to express
b) An audit a) An adverse opinion 105. On the audit of a nonissuer (nonpublic) company, the purpose of
c) A compilation b) An "except for" opinion performing risk assessment procedures is to
d) A review c) An unqualified opinion a) Obtain an understanding of the entity and its environment
d) A qualified opinion b) Reduce detection risk
93. In obtaining an understanding of a manufacturing entity's internal c) Evaluate management ability
control over inventory balances, an auditor most likely would 99. Which of the following is not typically performed when accountants are d) Determine the operating effectiveness of controls
a) Review the entity's descriptions of inventory policies and performing a review of the financial statements of a nonissuer?
procedures. a) Analytical procedures applied to financial data 106. Under the ethical standards of the profession, which of the following
b) Perform test counts of inventory during the entity's physical count. b) Inquiries about significant subsequent events situations involving independent members of an auditor's family is most
c) Analyze inventory turnover statistics-to identify slow-moving and c) Inquiries of the client's attorney about legal matters likely to impair the auditor's independence?
obsolete items. d) Obtaining an understanding of the accounting principles followed by the a) A parent's immaterial investment in a client
d) Analyze monthly production reports to identify variances and unusual client's industry b) A first cousin's loan from a client
transactions. c) A spouse's employment as CEO of a client
100. Which of the following is least likely to be a restricted use report? d) A sibling's loan to a director of a client
a) A report on financial statements prepared following a
107. Which of the following is a control weakness for a company whose a) An analysis of inventory by location. d) Lower the assessed level of control risk from the maximum level to
inventory of supplies consists of a large number of individual items? b) A statement that the allowance for doubtful accounts is adequate. below the maximum.
a) Supplies of relatively little value are expensed when purchased. c) A statement that the depreciable life of a new asset is twenty years.
b) The cycle basis is used for physical counts. d) An analysis of revenue by product line. 120. An auditor was unable to obtain audited financial statements or other
c) The storekeeper is responsible for maintenance of perpetual evidence supporting an entity's investment in a foreign subsidiary.
inventory records. 115. An accountant has been asked to issue a review report on the Between which of the following opinions should the entity's auditor
d) Perpetual inventory records are maintained only for items of significant balance sheet of a nonissuer (nonpublic) company but not to report on the choose?
value. other basic financial statements. The accountant may not do so a) Adverse and unqualified with an explanatory paragraph added
a) Because compliance with this request would result in an incomplete b) Disclaimer and unqualified with an explanatory paragraph added
108. The accounts payable department receives the purchase order form review. c) Qualified and adverse
to accomplish all of the following except b) Because compliance with this request would result in a violation of the d) Qualified and disclaimer
a) Compare invoice price to purchase order price. ethical standards of the profession.
b) Ensure the goods had been received by the party requesting the c) If the scope of the inquiry and analytical procedures has been 121. Which of the following factors is generally not considered in
goods. restricted. determining the sample size for a test of controls?
c) Ensure the purchase had been properly authorized. d) If the review of the balance sheet discloses material departures from a) Risk of incorrect acceptance
d) Compare quantity ordered to quantity purchased. generally accepted accounting principles. b) Tolerable rate
c) Risk of assessing control risk too low
109. Before applying substantive tests to the details of asset and liability 116. According to the standards of the profession, which of the following d) Expected population deviation rate
accounts at an interim date, the auditor should events would require a CPA performing a consulting services engagement
a) Assess the difficulty in controlling incremental audit risk. for a nonaudit client to withdraw from the engagement? 122. Which of the following is least likely to be considered when assessing
b) Investigate significant fluctuations that have occurred in the asset and I. The CPA has a conflict of interest that is disclosed to the client and the inherent risk?
liability accounts since the previous balance sheet date. client consents to the CPA continuing the engagement. a) Nonroutine transactions
c) Select only those accounts that can effectively be sampled during year- II. The CPA fails to obtain a written understanding from the client b) Estimation transactions
end audit work. concerning the scope of the engagement. c) Susceptibility to theft
d) Consider the tests of controls that must be applied at the balance-sheet a) I only d) Expected effectiveness of controls
date to extend the audit conclusions reached at the interim date. b) II only
c) Both I and II 123. A report on the compilation of the financial statements of a nonissuer
110. If the objective of a test of details is to detect overstatements of d) Neither I nor II entity must be modified for
sales, the auditor should trace transactions from the a) A material uncertainty.
a) Cash receipts journal to the sales journal 117. Which of the following services may a CPA perform in carrying out a b) A lack of independence on the part of the CPA.
b) Sales journal to the cash receipts journal consulting service for a client? c) A change in accounting principles.
c) Source documents to the accounting records I. Analysis of the client's accounting system. d) Concern about the entity's existence as a going concern.
d) Accounting records to the source documents II. Review of the client's prepared business plan.
III. Preparation of information for obtaining financing. 124. Which of the following is most likely to result in modification of a
111. The auditor's program for the examination of long-term debt should a) I and II only compilation report?
include steps that require the b) I and III only a) A departure from generally accepted accounting principles
a) Verification of the existence of the bondholders. c) II and Ill only b) A lack of consistency in application of generally accepted accounting
b) Examination of any bond trust indenture. d) I, II, and III principles
c) Inspection of the accounts payable subsidiary ledger. c) A question concerning an entity's ability to continue as a going concern
d) Investigation of credits to the bond interest income account. 118. Which of the following is a conceptual difference between the d) A major uncertainty facing the financial statements
attestation standards and generally accepted auditing standards?
112. An corporate capital stock transactions should ultimately be traced to a) The attestation standards do not apply to audits of historical 125. Which of the following is an accurate statement of the nature of the
the financial statements, while the generally accepted auditing modification of report on a compilation of financial statements of nonissuer
a) Minutes of the Board of Directors. standards do. company when the accountant is not independent?
b) Cash receipts journal. b) The requirement that the practitioner be independent in mental attitude a) The report need not be modified
c) Cash disbursements journal. is omitted from the attestation standards. b) The report must include a statement that the accountant is not
d) Numbered stock certificates. c) The attestation standards do not permit an attest engagement to be independent but cannot indicate the reason for the lack of independence
part of a business acquisition study or a feasibility study. c) The report must include a statement that the accountant is not
113. When the audited financial statements of the prior year are presented d) None of the standards of fieldwork in generally accepted auditing independent and may indicate the reason for the lack of
together with those of the current year, the continuing auditor's report standards are included in the attestation standards. independence
should cover d) A report may not be issued when the accountant is not independent
a) Both years. 119. As the acceptable level of detection risk decreases, an auditor may
b) Only the current year. a) Reduce substantive testing by relying on the assessments of inherent 126. Which of the following is used to obtain evidence that the client's
c) Only the current year, but the prior year's report should be presented. risk and control risk. equipment accounts are not understated?
d) Only the current year, but the prior year's report should be referred to. b) Postpone the planned timing of substantive tests from interim a) Analyzing repairs and maintenance expense accounts
dates to the year-end. b) Vouching purchases of plant and equipment
114. Information accompanying the basic financial statements should not c) Eliminate the assessed level of inherent risk from consideration as a c) Recomputing depreciation expense
include planning factor.
d) Analyzing the miscellaneous revenue account b) The entity prepared several large checks payable to cash during cause the auditor to request clarification?
the year. a) "We believe that the possible liability to the company is nominal in
127. The risk that an auditor's procedures will lead to the conclusion that a c) Material internal control weaknesses previously reported to amount."
material misstatement does not exist in an account balance when, in fact management were not corrected. b) "We believe that the action can be settled for less than the
such misstatement does exist is referred to as d) The entity was a campaign contributor to several local political damages claimed."
a) Audit risk candidates during the year. c) "We believe that the plaintiffs case against the company is without
b) Inherent risk merit."
c) Control risk 134. After considering management's plans, an auditor concludes that d) "We believe that the company will be able to defend this action
d) Detection risk there is substantial doubt about a client's ability to continue as a going successfully."
concern for a reasonable period of time. The auditor's responsibility
128. Which of the following is an audit least likely to detect? includes 140. Which of the following characteristics most likely would heighten an
a) Theft of cash received from collection of accounts receivable. a) Disclaiming an opinion on the financial statements due to the auditor's concern about the risk of material misstatements in an entity's
b) Intentional omission of transactions relating to equipment purchases. indications of possible financial difficulties. financial statements?
c) Intentional violations of occupational safety and health laws. b) Indicating to the client's audit committee whether management's plans a) The entity's industry is experiencing declining customer demand.
d) Misapplication of accounting principles relating to inventory. for dealing with the adverse effects of the financial difficulties can be b) Employees 'who handle cash receipts are not bonded.
effectively implemented. c) Bank reconciliations usually include in-transit deposits.
129. Prior to beginning the fieldwork on a new audit engagement in which c) Considering the adequacy of disclosure about the client's d) Equipment is often sold at a loss before being fully depreciated.
a CPA does not possess expertise in the industry in which the client possible inability to continue as a going concern.
operates the CPA should d) Issuing a qualified or adverse opinion, depending upon materiality, due 141. In considering internal control, the auditor is basically concerned that
a) Reduce audit risk by lowering the preliminary levels of materiality. to the possible effects on the financial statements. it provides reasonable assurance that
b) Design special substantive tests to compensate for the lack of industry a) Operational efficiency has been achieved in accordance with
expertise. 135. To exercise due professional care an auditor should management plans.
c) Engage financial experts familiar with the nature of the industry. a) Critically review the judgment exercised by those assisting in the b) Material misstatements due to errors and fraud have been
d) Obtain a knowledge of matters that relate to the nature of the audit. prevented or detected.
entity's business. b) Examine all available corroborating evidence supporting managements c) Controls have not been circumvented by collusion.
assertions. d) Management cannot override the system.
130. Audit evidence on the proper segregation of duties ordinarily is best c) Design the audit to detect all instances of Illegal acts.
obtained by d) Attain the proper balance of professional experience and formal 142. In properly designed internal control, the same employee should not
a. Preparation of a flowchart of duties performed by available personnel. education. be permitted to
b. Inquiring whether control activities operated consistently throughout the a) Sign checks and cancel supporting documents.
period. 136. A primary objective of analytical procedures used in the final review b) Receive merchandise and prepare a receiving report.
c. Reviewing job descriptions prepared by the personnel department. stage of all audit is to c) Prepare disbursement vouchers and sign checks.
d. Direct personal observation of the employees who apply control a) Identify account balances that represent specific risks relevant to the d) Initiate a request to order merchandise and approve merchandise
activities. audit. received.
b) Gather evidence from tests of details to corroborate financial statement
131. Which of the following fraudulent activities most likely could be assertions. 143. Which of the following is an effective control over cash payments?
perpetrated due to the lack of effective internal controls in the revenue c) Detect fraud that may cause the financial statements to be misstated. a) Signed checks should be mailed under the supervision of the
cycle? d) Assist the auditor in evaluating the overall financial statement check signer.
a) Fictitious transactions may be recorded that cause an understatement presentation. b) Spoiled checks that have been voided should be disposed of
of revenues and an overstatement of receivables. immediately.
b) Claims received from customers for goods returned may be 137. Which of the following conditions or events most likely would cause c) Checks should be prepared only by persons responsible for cash
intentionally recorded in other customers' accounts. an auditor to have substantial doubt about an entity's ability to continue as receipts and cash disbursements.
c) Authorization of credit memos by personnel who receive cash a going concern? d) A check-signing machine with two signatures should be utilized.
may permit the misappropriation of cash. a) Significant related-party transactions are pervasive
d) The failure to prepare shipping documents may cause an b) Usual trade credit from suppliers is denied 144. Inquiries of warehouse personnel concerning possible obsolete or
overstatement of inventory balances. c) Arrearages in preferred stock dividends are paid slow-moving inventory items provide assurance about management's
d) Restrictions on the disposal of principal assets are present assertion of
132. In planning an audit, the auditor's knowledge about the design of a) Completeness
relevant controls should be used to 138. Accepting an engagement to compile a financial projection most b) Existence
a) Identify the types of potential misstatements that could occur. likely would be inappropriate if the projection is to be distributed to c) Presentation
b) Assess the operational efficiency of internal control. a) The entity's principal stockholder, to the exclusion of the other d) Valuation
c) Determine whether controls have been circumvented by collusion. stockholders.
d) Document the assessed level of control risk. b) Potential stockholders in an offering statement. 145. The primary reason an auditor requests letters of inquiry be sent to a
c) A financial institution in a loan application. client's attorney is to provide the auditor with
133. Which of the following information discovered during an audit most d) A state or federal regulatory agency. a) A description and evaluation of litigation, claims, and assessments that
likely would raise a question concerning possible illegal acts? existed at the date of the balance sheet.
a) Related-party transactions, although properly disclosed, were pervasive 139. Which of the following statements extracted from a client's lawyer's b) An expert opinion as to whether a loss is possible, probable, or remote.
during the year. letter concerning litigation, claims, and assessments most likely would c) The opportunity to examine the documentation concerning litigation,
claims, and assessments. b) Observe counts of inventory at all locations. evidence obtained from nonindependent sources.
d) Corroboration of the information furnished by management c) Review accounting estimates for bias. d) Audit evidence provided by original documents is more reliable than
concerning litigation, claims, and assessments. d) Test appropriateness of journal entries and adjustments. audit evidence generated through a system of effective controls.

145. When providing limited assurance that the financial statements of a 152. When an auditor has a question concerning a client's ability to 158. Which of the following types of audit evidence is the most
nonissuer (nonpublic) entity require no material modifications to be in continue as a going concern, the auditor considers management's plans persuasive?
accordance with generally accepted accounting principles, the accountant for dealing with the situation. That consideration is most likely to include a) Prenumbered client purchase order forms.
should consideration of management's plans to b) Client work sheets supporting cost allocations.
a) Understand internal control. a) Decrease ownership equity c) Bank statements obtained from the client.
b) Test the accounting records that identify inconsistencies with the prior b) Dispose of assets d) Client representation letter.
year's financial statements. c) Increase expenditures on key products
c) Understand the accounting principles of the industry in which the d) Invest in derivative securities 159. Which of the following strategies would a CPA most likely consider in
entity operates. auditing an entity that processes most of its financial data only in
d) Develop audit programs to determine whether the entity's financial 153. According to the ethical standards for the profession, which of the electronic form such as a paperless system?
statements are fairly presented. following is not acceptable advertising content? a. Continuous monitoring and analysis of transaction processing
a) The fees for services with an embedded audit module
146. Which of the following procedures is not included in a review b) The qualifications of professional staff b. Increased reliance on internal control activities that emphasize the
engagement of a nonissuer (nonpublic) entity? c) Implications regarding the ability to influence regulatory bodies segregation of duties
a) Inquiries of management d) Implications regarding the value of the services c. Verification of encrypted digital certificates used to monitor the
b) Inquiries regarding events subsequent to the balance sheet date authorization of transactions
c) Any procedures designed to identify relationships among data that 154. A CPA has been engaged to review the financial statements of a d. Extensive testing of firewall boundaries that restrict the recording of
appear to be unusual nonissuer company. The management of that company has refused to outside network traffic
d) Tests of internal control sign a representation letter for the engagement. What should be the
CPAs response? 160. Which of the following is not a major reason for maintaining an audit
147. In estimation sampling for attributes, which one of the following must a) Not issue a review report trail for a computer system?
be known in order to appraise the results of the auditor's sample? b) Issue a standard review report providing all other review procedures a. Deterrent to fraud
a) Estimated dollar value of the population were performed b. Monitoring purposes
b) Standard deviation of the values in the population c) Issue a review report modified for a scope restriction c. Analytical procedures
c) Actual occurrence rate of the attribute in the population d) Issue a review report modified for a possible departure from generally d. Query answering
d) Sample size accepted accounting principles
161) An auditor would least likely use computer software to
148. Processing data through the use of simulated files provides an 155. An auditor's special report on financial statements prepared in a. Access client data files
auditor with information about the reliability of controls. One of the conformity with the cash basis of accounting should include a separate b. Assess computer control risk
techniques involved in this approach makes use of explanatory paragraph before the opinion paragraph that c. Prepare spreadsheets
a) Controlled reprocessing a) Justifies the reasons for departing from generally accepted accounting d. Construct parallel simulations
b) Integrated test facility principles.
c) Input validation b) States whether the financial statements are fairly presented in 162) An auditor most likely would test for the presence of unauthorized
d) Program code checking conformity with another comprehensive basis of accounting. computer program changes by running a
c) Refers to the note to the financial statements that describes the a. Program with test data
149. After the audit documentation completion date, the auditor basis of accounting. b. Check digit verification program
a) May not delete any audit documentation. d) Explains how the results of operations differ from financial statements c. Source code comparison program
b) May not make changes in audit documentation. prepared in conformity with generally accepted accounting principles. d. Program that computes control totals
c) May not add new information to audit documentation.
d) May make changes or deletions to audit documentation providing 156. Which of the following is not an assertion relating to classes of 163) An auditor most likely would introduce test data into a computerized
that the fact that alterations were made is documented. transactions? payroll system to test controls related to the
a) Accuracy a. Existence of unclaimed payroll checks held by supervisors.
150. Prior to or in conjunction with obtaining information to identify risks of b) Consistency b. Early cashing of payroll checks by employees.
fraud, which of the following is required? c) Cutoff c. Discovery of invalid employee ID numbers.
a) A brainstorming session among team members about where d) Occurrence d. Proper approval of overtime by supervisors.
financial statements may be susceptible to fraud.
b) A discussion with the clients legal counsel as to contingent liabilities 157. Which of the following is a general principle relating to the reliability 164) An advantage of using statistical over nonstatistical sampling
likely to affect the financial statements. of audit evidence? methods in tests of controls is that the statistical methods
c) Indirect verification of significant financial statement assertions. a) Audit evidence obtained from indirect sources rather than directly is a. Can more easily convert the sample into a dual purpose test useful for
d) Professional skepticism concerning indirect effect illegal acts. more reliable than evidence obtained directly by the auditor. substantive testing.
b) Audit evidence provided by copies is more reliable than that provided b. Eliminate the need to use judgment in determining appropriate sample
151. Which of the following is not ordinarily performed in response to the by facsimiles. sizes.
risk of management override? c) Audit evidence obtained from knowledgeable independent c. Afford greater assurance than a nonstatistical sample of equal size.
a) Evaluating the rationale for significant unusual transactions. sources outside the client company is more reliable than audit d. Provide an objective basis for quantitatively evaluating sample
risk. d. A foreign CPA with specialization in any branch of accountancy and reporting?
his/her service is essential for the advancement of accountancy in the a. It applies equally to a complete set of financial statements and to
165) An advantage of statistical sampling over nonstatistical sampling is Philippines. each individual financial statement.
that statistical sampling helps an auditor to b. It applies only to a complete set of financial statements.
a. Eliminate the risk of nonsampling errors. 171) The Board of Accountancy may issue a certificate of registration and c. It applies equally to each item in each financial statement.
b. Reduce the level of audit risk and materiality to a relatively low amount. professional identification card to any successful examinee d. It applies equally to each material item in each financial statement.
c. Measure the sufficiency of the evidential matter obtained. a. Of unsound mind
d. Minimize the failure to detect errors and fraud. b. Convicted by a court of political offense 179) An auditor may issue the standard audit report when the
c. Guilty of immoral or dishonorable conduct a. Auditor refers to the findings of a specialist.
166) A CPA is in public practice when he/she d. Who has falsely represented himself/herself in his/her application for b. Financial statements are derived and condensed from complete audited
a. Represents his/her employer before government agencies on tax and examination financial statements that are filed with a regulatory agency.
other matters related to accounting. c. Financial statements are prepared on the cash receipts and
b. Represents his/her clients before government agencies on tax and 172) Who is not permitted by RA9298 to practice public accountancy? disbursements basis of accounting.
other matters related to accounting. a. A corporation, whose stockholders are all CPAs d. Principal auditor assumes responsibility for the work of another
c. Teaches accounting, auditing, management advisory services, b. A general partnership auditor.
accounting aspect of finance, business law, taxation, and other technical c. A limited liability partnership
related subjects. d. A sole proprietorship 180) Which of the following auditing procedures most likely would assist
d. Holds, or is appointed to, in an accounting professional group in an auditor in identifying conditions and events that may indicate
government or in a government-owned and/or controlled corporation 173) The sector that is most represented in the AASC is the substantial doubt about an entity's ability to continue as a going concern?
where the decision making requires professional knowledge in the science a. Commerce and Industry a. Inspecting title documents to verify whether any assets are pledged as
of accounting. b. Academe collateral.
c. Government b. Confirming with third parties the details of arrangements to
167) The following statements relate to the term of Office of the Chairman d. Public Practice maintain financial support.
and members of the Board of Accountancy (BOA). Which is false? c. Reconciling the cash balance per books with the cutoff bank statement
a. The Chairman and members of the BOA shall hold office for a term of 174) Which of the following is not one of the basic elements of the and the bank confirmation.
three years. auditors report? d. Comparing the entity's depreciation and asset capitalization policies to
b. Any vacancy occurring within the term of a member shall be filled up for a. Title other entities in the industry.
the unexpired portion of the term only. b. Date of the report
c. No person who has served two successive complete terms as c. Clients address 181) Financial information is presented in a printed form that prescribes
chairman or member shall be eligible for reappointment until the d. Auditors signature the wording of the independent auditor's report. The form is not
lapse of two years. acceptable to the auditor because the form calls for statements that are
d. Appointment to fill up an unexpired term is not to be considered as a 175) The criteria for evaluating quantitative information vary, for example, inconsistent with the auditor's responsibility. Under these circumstances,
complete term. in the case of an independent audit of financial statements by CPA firms, the auditor most likely would
the criteria are usually the a. Withdraw from the engagement.
168) Which of the following is not represented in the Auditing and a. Philippine Standards on Auditing b. Reword the form or attach a separate report.
Assurance Standards Council (AASC)? b. Philippine Financial Reporting Standards c. Express a qualified opinion with an explanation.
a. Bureau of Internal Revenue c. National Internal Revenue Code d. Limit distribution of the report to the party who designed the form.
b. Board of Accountancy d. Regulations of the Securities and Exchange Commission
c. Bangko Sentral ng Pilipinas 182) When performing an attestation engagement, which of the following
d. Commission on Audit 176) The objective of an accountant's compilation of the financial is least likely to be present?
statements of a nonissuer (nonpublic company) is to provide what type of a. Assertion
169) A registered professional shall be permanently exempted from CPE assurance? b. Practitioner independence
requirement upon reaching the age of a. Absolute assurance c. Subject matter
a. 55 b. Limited assurance d. Suitable criteria
b. 60 c. No assurance
c. 65 d. Reasonable assurance 183) An accountant's compilation report on a financial forecast should
d. 70 include a statement that
177) Which of the following statements is a basic element of the auditor's a. The forecast should be read only in conjunction with the audited
170) Special/temporary permit may be issued by the Board to the standard report? historical financial statements.
following persons except a. The disclosures provide reasonable assurance that the financial b. The accountant expresses only limited assurance on the forecasted
a. A foreign CPA who can prove that the country of which he or she statements are free of material misstatement. statements and their assumptions.
is a citizen admits citizens of the Philippines to the practice of the b. The auditor evaluated the overall internal control. c. There will usually be differences between the forecasted and
same profession without restriction. c. An audit includes assessing significant estimates made by actual results.
b. A foreign CPA called for consultation or specific purpose which is management. d. The hypothetical assumptions used in the forecast are reasonable in
essential for the development of the country and there are no Filipino d. The financial statements are consistent with those of the prior period. the circumstances.
CPAs qualified for such consultation or specific purpose.
c. A foreign CPA engaged as a professor or lecturer in the fields essential 178) Which of the following best describes the reference to the expression 184) Which of the following is a prospective financial statement for general
to accountancy education in the Philippines. "taken as a whole" in the fourth generally accepted auditing standard of use upon which an accountant may appropriately report?
a. Financial projection knowledge of the entity's accounting principles and practices. This b. Preliminary estimates of materiality levels.
b. Partial presentation requirement most likely will include obtaining a general understanding of c. Efficiency of the audit.
c. Pro forma financial statement the d. Effectiveness of the audit.
d. Financial forecast a. Slated qualifications of the entity's accounting personnel.
b. Design of the entity's internal controls placed in operation. 198) Which of the following best illustrates the concept of sampling risk?
185) The primary responsibility for establishing and maintaining an c. Risk factors relating to misstatements arising from illegal acts. a. An auditor may select audit procedures that are not appropriate to
internal control rests with d. Internal control awareness of the entity's senior management. achieve the specific objective.
a. The external auditors b. An auditor may fail to recognize errors in the documents examined for
b. The internal auditors 193) Which of the following procedures is ordinarily performed by an the chosen sample.
c. Management and those charged with governance accountant in a compilation engagement of a nonissuer (nonpublic) c. The documents related to the chosen sample may not be available for
d. The controller or the treasurer entity? inspection.
a. Obtaining written representations from management indicating that the d. A randomly chosen sample may not be representative of the
186) It relates to materiality of the financial statement assertions affected compiled financial statements will not be used to obtain credit. population as a whole on the characteristic of interest.
by the computer processing. b. Making inquiries of management concerning actions taken at meetings
a. Threshold of the stockholders and the board of directors. 199) In assessing sampling risk, the risk of incorrect rejection and the risk
b. Relevance c. Applying analytical procedures designed to corroborate management's of assessing control risk too high relate to the
c. Complexity assertions that are embodied in the financial statement components. a. Effectiveness of the audit
d. Significance d. Reading the financial statements to consider whether they are free b. Efficiency of the audit
of obvious mistakes in the application of accounting principles. c. Selection of the sample
187) A collection of files that is shared and used by a number of different d. Audit quality controls
users. 194) While performing a compilation of financial statements, information
a. Database indicating that the entity whose information is being compiled may lack the 200) Which of the following statements is correct concerning both an
b. Information File ability to continue as a going concern has come to the accountant's engagement to compile and an engagement to review a nonissuer's
c. Master File attention. The client agrees that such a situation does exist but refuses to financial statements?
d. Transaction File add disclosures relating to it. What effect is this most likely to have on the a. The accountant does not contemplate obtaining an understanding
accountant's review' report? of internal control.
188) The essence of due care principle is that the auditor should not be a. No effect, a standard unqualified report is appropriate. b. The accountant must be independent in fact and appearance.
guilty of b. The report should indicate a departure from generally accepted c. The accountant expresses no assurance on the financial statements,
a. Bias accounting principles with modification of the report's third d. The accountant should obtain a written management representation
b. Errors in judgment paragraph and addition of an explanatory paragraph. letter.
c. Fraud c. An adverse opinion should be issued, with modification of the opinion
d. Negligence paragraph and addition of an explanatory paragraph. 201) The third general standard states that due care is to be exercised in
d. A qualified opinion should be issued, with modification of the opinion the performance of an audit. This standard is ordinarily interpreted to
189) In financial statement audits, the audit process should conform with paragraph and addition of an explanatory paragraph. require
a. Philippine Standards on Auditing a. Thorough review of the existing safeguards over access to assets and
b. Philippine Financial Reporting Standards 195) An accountant's compilation report should be dated as of the date of records.
c. The audit program a. Completion of fieldwork. b. Limited review of the indications of employee fraud and Illegal acts.
d. The auditors judgment b. Transmittal of the compilation report. c. Objective review of the adequacy of the technical training and
c. Completion of the compilation. proficiency of film personnel.
190) Non-sampling errors occur when audit tests do not uncover existing d. The latest subsequent event referred to in the notes to the financial d. Critical review of the judgment exercised at every level of
exceptions in the statements. supervision.
a. Population
b. Planning Stage 196) The likelihood of assessing control risk too high is the risk that the 202) Which of the following is not a financial statement assertion relating
c. Sample sample selected to test controls to account balances?
d. Financial Statements a. Contains misstatements that could be material to the financial a. Completeness
statements when aggregated with misstatements in other account b. Existence
191) As a result of tests of controls, an auditor assessed control risk too balances or transactions classes. c. Rights and obligations
low and decreased substantive testing. This assessment occurred b. Contains proportionately fewer monetary errors or deviations from d. Valuation and competence
because the true deviation rate in the population was prescribed controls than exist in the balance or class as a whole.
a. Less than the risk of assessing control risk too low, based on the c. Does not support the auditor's planned assessed level of control 203) As the acceptable level of detection risk decreases, the assurance
auditor's sample. risk when the true operating effectiveness of the control structure directly provided from
b. More than the deviation rate in the auditor's sample. justifies such an assessment. a. Substantive tests should increase.
c. Less than the deviation rate in the auditor's sample. d. Does not support the tolerable error for some or all of management's b. Substantive tests should decrease.
d. More than the risk of assessing control risk too low, based on the assertions. c. Tests of controls should increase.
auditor's sample. d. Tests of controls should decrease.
197) The risk of incorrect acceptance and the likelihood of assessing
192) When engaged to compile the financial statements of a nonissuer control risk too low relate to the 204) Inherent risk and control risk differ from detection risk in that they
(nonpublic) entity, an accountant is required to possess a level of a. Allowable risk of tolerable misstatement. a. Arise from the misapplication of auditing procedures.
b. May be assessed in either quantitative or non-quantitative terms. internal auditor's work relates to assertions about the b. Operational responsibility from the recordkeeping responsibility.
c. Exist independently of the financial statement audit. a. Existence of contingencies. c. Human resources function from the controllership function.
d. Can be changed at the auditor's discretion. b. Valuation of intangible assets. d. Administrative controls from the internal accounting controls.
c. Existence of fixed asset additions.
205) Holding other planning considerations equal, a decrease in the d. Valuation of related-party transactions. 219) A weakness in internal control over recording retirements of
amount of misstatement in a class of transactions that an auditor could equipment may cause an auditor to
tolerate most likely would cause the auditor to 212) When considering internal control. an auditor should be aware of the a. Inspect certain items of equipment in the plant and trace those items to
a. Apply the planned substantive tests prior to the balance sheet date. concept of reasonable assurance which recognizes that the accounting records.
b. Perform the planned auditing procedures closer to the balance a. Internal control may be ineffective due to mistakes in judgment and b. Review the subsidiary ledger to ascertain whether depreciation was
sheet date. personal carelessness. taken on each item of equipment during the year.
c. Increase the assessed level of control risk for relevant financial b. Adequate safeguards over access to assets and records should permit c. Trace additions to the "other assets" account to search for equipment
statement assertions. an entity to maintain proper accountability. that is still on hand but no longer being used.
d. Decrease the extent of auditing procedures to be applied to the class of c. The cost of an entity's internal control should not exceed the d. Select certain items of equipment from the accounting records
transactions. benefits expected to be derived. and locate them in the plant.
d. Establishing and maintaining internal control is an important
206) The audit program usually cannot be finalized until the responsibility of management. 220) Management philosophy and operating style most likely would have
a. Consideration of the entity's internal control has been completed. a significant influence on an entity's control environment when
b. Engagement letter has been signed by the auditor and the client. 213) An entity's ongoing monitoring activities often include a. Management is dominated by one individual.
c. Reportable conditions have been communicated to the audit committee a. Reviewing the purchasing function. b. The internal auditor reports directly to management.
of the board of directors. b. Periodic audits by the audit committee. c. Accurate management job descriptions delineate specific duties.
d. Search for unrecorded liabilities has been performed and documented. c. The audit of the annual financial statements. d. The audit committee actively oversees the financial reporting process.
d. Control risk assessment in conjunction with quarterly reviews.
207) In designing written audit programs, an auditor should establish 221) A report for an agreed upon procedures ordinarily includes
specific audit objectives that relate primarily to the 214) Which of the following most likely would not be considered an a. Findings - Yes; Negative Assurance - Yes
a. Timing of audit procedures. inherent limitation of the potential effectiveness of an entity's internal b. Findings - Yes; Negative Assurance - No
b. Cost-benefit of gathering evidence. control? c. Findings - No; Negative Assurance - Yes
c. Selected audit techniques. a. Management override. d. Findings - No; Negative Assurance - No
d. Financial statement assertions. b. Incompatible duties.
c. Mistakes in judgment. 222) Compilation is an example of
208) With respect to planning an audit, which of the following statements d. Collusion among employees. a. Auditing
is always true? b. Review
a. It is acceptable to perform a portion of the audit of a continuing 215) The overall attitude and awareness of an entity's board of directors c. Consulting
audit client at interim dates. concerning the importance of internal control usually is reflected in its d. Accounting
b. An engagement should not be accepted after the client's year-end. a. Computer-based controls.
c. An inventory count must be observed at year-end. b. System of segregation of duties. 223) Performing inquiry and analytical review procedures is the
d. Final staffing decisions must be made prior to completion of the c. Control environment. preliminary basis for an accountant to issue
planning stage. d. Safeguards over access to assets. a. Compilation reports
b. Management advisory services report
209) The element of the audit planning process most likely to be agreed 216) Sound internal control dictates that defective merchandise returned c. Review report
upon with the client before implementation of the audit strategy is the by customers should be presented initially to the d. Audit report
determination of the a. Salesclerk.
a. Evidence to be gathered to provide a sufficient basis for the auditor's b. Purchasing clerk. 224) Assurance services are independent professional service that
opinion. c. Receiving clerk. improves the quality of information or its
b. Procedures to be undertaken to discover litigation, claims, and d. Inventory control clerk. a. Context
assessments. b. Profitability
c. Pending legal matters to be included in the inquiry of the client's 217) A company uses its sales invoices for posting perpetual inventory c. Reliability
attorney. records. Inadequate controls over the invoicing function allow goods to be d. Sufficiency
d. Timing of inventory observation procedures to be performed. shipped that are not invoiced. The inadequate controls could cause an
a. Understatement of revenues, receivables, and inventory. 225) To maximize independence, the internal auditors should report to the
210) In an audit of a nonissuer (nonpublic) company, the auditors identify b. Overstatement of revenues, receivables, and inventory. a. Audit Committee
significant risks. These risks often c. Overstatement of revenues and receivables and an understatement of b. Director of Information Systems
a. Involve routine, high-volume transactions. inventory. c. Controller
b. Do not require special audit attention. d. Understatement of revenues and receivables, and an d. Chief Financial Officer
c. Involve judgmental matters. overstatement of inventory.
d. Involve items with lower levels of inherent risk. 226). Which of the following is most likely to be a response to the auditor's
218) The purpose of segregating the duties of hiring personnel and assessment that the risk of material misstatement due to fraud for the
211) An internal auditor's work would most likely affect the nature, timing, distributing payroll checks is to separate the existence of inventory is high?
and extent of an independent CPA's auditing procedures when the a. Authorization of transactions from the custody of related assets. a. Perform analytical procedures rather than taking test counts.
b. Request that inventories be counted prior to yearend. d. Business risk. d. Errors Reasonable; Fraud Reasonable; Direct effect illegal acts
c. Observe test counts of inventory at certain locations on an Reasonable
unannounced basis. 233) Audits of financial statements are designed to obtain assurance of
d. Request that inventory counts at the various locations be counted on detecting misstatement due to 240) Because of the risk of material misstatement, an audit of financial
different dates so as to allow the same auditor to be present at every a. Errors Yes; Fraudulent financial reporting Yes; statements in accordance with generally accepted auditing standards
count. Misappropriation of assets Yes should be planned and performed with an attitude of
b. Errors Yes; Fraudulent financial reporting Yes; Misappropriation of a. Objective judgment.
227) An attitude that includes a questioning mind and a critical assets No b. Independent integrity.
assessment of audit evidence is referred to as c. Errors Yes; Fraudulent financial reporting No; Misappropriation of c. Professional skepticism.
a. Due professional care. assets Yes d. Impartial conservatism.
b. Professional skepticism. d. Errors No; Fraudulent financial reporting Yes; Misappropriation of
c. Reasonable assurance. assets No 241) Which of the following most accurately summarizes what is meant by
d. Supervision. the term "material misstatement"?
234) The most difficult type of misstatement to detect is fraud based on a. Fraud and direct-effect illegal acts.
228) When issuing an unqualified opinion, the auditor who evaluates the a. The overrecording of transactions. b. Fraud involving senior management and material fraud.
audit findings should be satisfied that the b. The nonrecording of transactions. c. Material error, material fraud, and certain illegal acts.
a. Amount of known misstatement is documented in the management c. Recorded transactions in subsidiaries. d. Material error and material illegal acts.
representation letter. d. Related-party receivables.
b. Estimate of the total likely misstatement is less than a material 242) Which of the following statements best describes the auditor's
amount. 235) Professional skepticism requires that an auditor assume that responsibility to detect conditions relating to financial stress of employees
c. Amount of known misstatement is acknowledged and recorded by the management is or adverse relationships between a company and its employees?
client. a. Honest, in the absence of fraud risk factors. a. The auditor is required to plan the audit to detect these conditions on all
d. Estimate of the total likely misstatement includes the adjusting entries b. Dishonest until completion of audit tests. audits.
already recorded by the client. c. Neither honest nor dishonest. b. These conditions relate to fraudulent financial reporting, and an auditor
d. Offering reasonable assurance of honesty. is required to plan the audit to detect these conditions when the client is
229) Which of the following is an example of fraudulent financial exposed to a risk of misappropriation of assets.
reporting? 236) When considering fraud risk factors relating to management's c. The auditor is required to plan the audit to detect these conditions
a. Company management changes inventory count tags and characteristics which of the following is least likely to indicate a risk of whenever they may result in misstatements.
overstates ending inventory, while understating cost of goods sold. possible misstatement due to fraud? d. The auditor is not required to plan the audit to discover these
b. The treasurer diverts customer payments to his personal due, a. Failure to correct known reportable conditions on a timely basis. conditions but should consider them if he or she becomes aware of
concealing his actions by debiting an expense account, thus overstating b. Nonfinancial management's preoccupation with the selection of them during the audit.
expenses. accounting principles.
c. An employee steals inventory and the "shrinkage" is recorded in cost of c. Significant portion of management's compensation represented by 243) When the auditor believes a misstatement is or may be the result of
goods sold. bonuses based upon achieving unduly aggressive operating results. fraud but that the effect of the misstatement is not material to the financial
d. An employee steals small tools from the company and neglects to d. Use of unusually conservative accounting practices. statements, which of the following steps is required?
return them; the cost is reported as a miscellaneous operating expense. a. Consider the implications for other aspects of the audit.
237) Which of the following is most likely to be an example of fraud? b. Resign from the audit.
230) An auditor is unable to obtain absolute assurance that misstatements a. Mistakes in the application of accounting principles. c. Commence a fraud examination.
due to fraud will be detected for all of the following except b. Defalcations occurring due to invalid electronic approvals. d. Contact regulatory authorities.
a. Employee collusion. c. Mistakes in processing data.
b. Falsified documentation. d. Unreasonable accounting estimates arising from oversight. 244) Which of the following statements is correct relating to the auditor's
c. Need to apply professional judgment in evaluating fraud risk factors. consideration of fraud?
d. Professional skepticism. 238) Which of the following characteristics most likely would heighten an a. The auditor's interest in fraud consideration relates to fraudulent
auditor's concern about the risk of intentional manipulation of financial acts that cause a material misstatement of financial statements.
231) Which of the following best describes what is meant by the term statements? b. A primary factor that distinguishes fraud from error is that fraud is
"fraud risk factor"? a. Turnover of senior accounting personnel is low. always intentional, while errors are generally, but not always, intentional.
a. Factors whose presence indicates that the risk of fraud is high. b. Insiders recently purchased additional shares of the entity's stock. c. Fraud always involves a pressure or incentive to commit fraud and a
b. Factors whose presence often have been observed in c. Management places substantial emphasis on meeting earnings misappropriation of assets.
circumstances where frauds have occurred. projections. d. While an auditor should be aware of the possibility of fraud,
c. Factors whose presence requires modification of planned audit d. The rate of change in the entity's industry is slow. management, and not the auditor, is responsible for detecting fraud.
procedures.
d. Material weaknesses identified during an audit. 239) What assurance does the auditor provide that misstatements due to 245) Which of the following factors or conditions is an auditor least likely
errors, fraud, and direct effect illegal acts that are material to the financial to plan an audit to discover?
232) When performing a financial statement audit, auditors are required to statements will be detected? a. High turnover of senior management.
explicitly assess the risk of material misstatement due to a. Errors Limited; Fraud Negative; Direct effect illegal acts Limited b. Financial pressures affecting employees.
a. Fraud. b. Errors Limited; Fraud Limited; Direct effect illegal acts c. Inadequate monitoring of significant controls.
b. Errors. Reasonable d. Inability to generate positive cash flows from operations.
c. Illegal acts. c. Errors Reasonable; Fraud Limited; Direct effect illegal acts Limited
246) Which of the following matters is generally included in an auditor's Yes d. The predecessor's assessments of inherent risk and judgments about
engagement letter? materiality.
a. Management's responsibility for the entity's compliance with laws 253) Management's attitude toward aggressive financial reporting and its
and regulations. emphasis on meeting projected profit goals most likely would significantly 259) An auditor is required to establish an understanding with a client
b. The factors to be considered in setting preliminary judgments about influence an entity's control environment when regarding the services to be performed for each engagement. This
materiality. a. External policies established by parties outside the entity affect its understanding generally includes
c. Management's vicarious liability for illegal acts committed by its accounting practices. a. Management's responsibility for errors and the illegal activities of
employees. b. Internal auditors have direct access to the board of directors and the employees that may cause material misstatement.
d. The auditor's responsibility to search for significant internal control entity's management. b. The auditor's responsibility for ensuring that the audit committee
deficiencies. c. Management is dominated by one individual who is also a is aware of any significant deficiencies in internal control that come
shareholder. to the auditor's attention.
247) An engagement letter should ordinarily include information on the d. The audit committee is active in overseeing the entity's financial c. Management's responsibility for providing the auditor with an
objectives of the engagement and reporting policies. assessment of the risk of material misstatement due to fraud.
a. CPA responsibilities Yes; Client responsibilities Yes; d. The auditor's responsibility for determining preliminary judgments about
Limitation of engagement Yes 254) Which of the following is most likely to be an overall response to materiality and audit risk factors.
b. CPA responsibilities Yes; Client responsibilities No; Limitation of fraud risks identified in an audit?
engagement Yes a. Supervise members of the audit team less closely and rely more upon 260) The auditor should document the understanding established with a
c. CPA responsibilities Yes; Client responsibilities No; Limitation of judgment. client through a(n)
engagement No b. Use less predictable audit procedures. a. Oral communication with the client.
d. CPA responsibilities No; Client responsibilities No; Limitation of c. Only use certified public accountants on the engagement. b. Written communication with the client.
engagement No d. Place increased emphasis on the audit of objective transactions rather c. Written or oral communication with the client.
than subjective transactions. d. Completely detailed audit plan.
248) Arrangements concerning which of the following are least likely to be
included in engagement letter? 255) Which of the following is least likely to be included in an auditor's 261) Which of the following is an example of a safeguard implemented by
a. A predecessor auditor. inquiry of management while obtaining information to identify the risks of the client that might mitigate a threat to independence?
b. Fees and billing. material misstatement due to fraud? a. Required continuing education for all attest engagement team
c. CPA investment in client securities. a. Are financial reporting operations controlled by and limited to one members.
d. Other services to be provided in addition to the audit. location? b. Required second partner review of an attest engagement.
b. Does it have knowledge of fraud or suspect fraud? c. An effective corporate governance structure.
249) Which of the following factors most likely would influence an auditor's c. Does it have programs to mitigate fraud risks? d. Management selection of the CPA firm.
determination of the auditability of an entity's financial statements? d. Has it reported to the audit committee the nature of the company's
a. The complexity of the accounting system. internal control? 262) Which of the following is a "self review" threat to member
b. The existence of related-party transactions. independence?
c. The adequacy of the accounting records. 256) Before accepting an engagement to audit a new client, a CPA is a. An engagement team member has a spouse that serves as CFO of the
d. The operating effectiveness of control procedures. required to obtain attest client.
a. An understanding of the prospective client's industry and business. b. A second partner review is required on all attest engagements.
250) An auditor should design the written audit program so that b. The prospective client's signature to the engagement letter. c. An engagement team member has a direct financial interest in the
a. All material transactions will be selected for substantive testing. c. A preliminary understanding of the prospective client's control attest client.
b. Substantive tests prior to the balance sheet date will be minimized. environment. d. An engagement team member prepares invoices for the attest
c. Each account balance will be tested under either tests of controls or d. The prospective client's consent to make inquiries of the client.
tests of transactions. predecessor auditor, if any.
d. The audit procedures selected will achieve specific audit 263) According TO the standards of the profession, which of the following
objectives. 257) During the initial planning phase of an audit, a CPA most likely would activities would most likely not impair a CPA's independence?
a. Identify specific internal control activities that are likely to prevent fraud. a. Contracting with a client to supervise the clients office personnel.
251) Which of the following is least likely to be required on an audit? b. Evaluate the reasonableness of the client's accounting estimates, b. Providing advisory services for a client.
a. Test appropriateness of journal entries and adjustment. c. Discuss the timing of the audit procedures with the client's c. Signing a client's checks in emergency situations.
b. Review accounting estimates for biases. management. d. Accepting a luxurious gift from a client.
c. Evaluate the business rationale for significant unusual transactions. d. Inquire of the client's attorney as to whether any unrecorded claims are
d. Make a legal determination of whether fraud has occurred. probable of assertion. 264) According to the ethical standards of the profession, which of the
following acts is generally prohibited?
252) At which stage(s) of the audit may fraud risk factors be identified? 258) Before accepting an audit engagement, a successor auditor should a. Accepting a commission for recommending a product to an audit
a. Planning Yes; Obtaining understanding Yes; Conducting make specific inquiries of the predecessor auditor regarding client.
fieldwork Yes a. Disagreements the predecessor had with the client concerning b. Purchasing a product from a third party and reselling it to a client.
b. Planning Yes; Obtaining understanding Yes; Conducting fieldwork auditing procedures and accounting principles. c. Writing a financial management newsletter promoted and sold by a
No b. The predecessor's evaluation of matters of continuing accounting publishing company.
c. Planning Yes; Obtaining understanding No; Conducting fieldwork significance. d. Accepting engagements obtained through the efforts of third parties.
No c. The degree of cooperation the predecessor received concerning the
d. Planning No; Obtaining understanding Yes; Conducting fieldwork inquiry of the client's lawyer.
265) Which of the following statements is correct regarding an c. Controls over safeguarding of assets and liabilities are of primary b. Valuation or allocation.
accountant's working papers? importance, while controls over the reliability of financial reporting may c. Existence or occurrence.
a. The accountant owns the working papers and generally may disclose also be relevant. d. Rights and obligations.
them as the accountant sees fit. d. All controls are ordinarily relevant to an audit.
b. The accountant owns the working papers but generally may not 278) Proper authorization of write-offs of uncollectible accounts should be
disclose them without the client's consent or a court order. 271) In assessing control risk, an auditor ordinarily selects from a variety approved in which of the following departments?
c. The client owns the working papers but the accountant has custody of of techniques including a. Accounts receivable
them until the accountant's bill is paid in full. a. Inquiry and analytical procedures. b. Credit
d. The client owns the working papers but, in the absence of the b. Comparison and confirmation. c. Accounts payable
accountant's consent, may not disclose them without a court order. c. Reperformance and observation. d. Treasurer
d. Inspection and verification.
266) Which of the following factors are included in an entity's control 279) Which of the following controls most likely would be used to maintain
environment? 272) Which of the following types of evidence would an auditor most likely accurate inventory records?
a. Audit committee Yes; Integrity and ethical values Yes; examine to determine whether controls are operating as designed? a. Perpetual inventory records are periodically compared with the current
Organizational No a. Confirmations of receivables verifying account balances. cost of individual inventory items.
b. Audit committee Yes; Integrity and ethical values No; Organizational b. Letters of representations corroborating inventory pricing. b. A just-in-time inventory ordering system keeps inventory levels to a
Yes c. Attorneys' responses to the auditor's inquiries. desired minimum.
c. Audit committee No; Integrity and ethical values Yes; Organizational d. Client records documenting the use of computer programs. c. Requisitions, receiving reports, and purchase orders are independently
Yes matched before payment is approved.
d. Audit committee Yes; Integrity and ethical values Yes; 273) Which of the following is correct concerning the level of assistance d. Periodic inventory counts are used to adjust the perpetual
Organizational Yes auditors may provide in assisting management with its assessment of inventory records.
internal control?
267) An auditor suspects that certain client employees are ordering a. Only very limited assistance may be provided. 280) Which of the following is not a component of an entity's internal
merchandise for themselves over the Internet without recording the b. No assistance of any type may be provided. control?
purchase or receipt of the merchandise. When vendors' invoices arrive, c. No limitations on assistance exist. a. Control risk
one of the employees approves the invoices for payment. After the d. As less risk is assumed by the auditors, a higher level of assistance is b. Control activities
invoices are paid, the employee destroys the invoices and the related appropriate. c. Monitoring
vouchers. In gathering evidence regarding the fraud, the auditor most d. Control environment
likely would select items for testing from the file of all 274) Consider an issuer (public) company whose purchases are made
a. Approved vouchers. through the Internet and by telephone. Which of the following is correct? 281) May an accountant accept an engagement to compile or review the
b. Cash disbursements. a. These types of purchases represent control objectives for the audit of financial statements of a not-for-profit entity if the accountant is unfamiliar
c. Vendors' invoices. internal control. with the specialized industry accounting principles but plans to obtain the
d. Receiving reports. b. These purchases are the assertions related to the purchase class of required level of knowledge before compiling or reviewing the financial
transactions. statements?
268) In an integrated audit, which must the auditor communicate in writing c. These types of purchases represent two major classes of a. Compilation No; Review No
to management? transactions within the purchases process. b. Compilation Yes; Review No
a. Only material weaknesses. d. These two types of transactions represent routine transactions that c. Compilation No; Review Yes
b. Material weaknesses and significant deficiencies. must always be investigated in extreme detail. d. Compilation Yes; Review Yes
c. Material weaknesses, significant deficiencies and other control
deficiencies. 275) When an examination has been performed on the effectiveness of 282) If requested to perform a review engagement for a nonissuer in
d. Material weaknesses, significant deficiencies, other control deficiencies, entity's internal control over financial reporting and a material weakness which an accountant has an immaterial direct financial interest, the
and all suspected and possible employee law violations. has been noted, the practitioner's report should express an opinion on accountant is
a. The assertion. a. Not independent and, therefore, may not issue a review report.
269) Which of the following procedures most likely would provide an b. The subject matter to which the assertion relates. b. Not independent and, therefore, may not be associated with the
auditor with evidence about whether an entity's internal control activities c. Neither of the above. financial statements.
are suitably designed to prevent or detect material misstatements? d. Both of the above. c. Not independent and, therefore, may issue a review report but may not
a. Observing the entity's personnel applying the activities. issue an auditor's opinion.
b. Performing analytical procedures using data aggregated at a high level. 276) Tracing shipping documents to prenumbered sales invoices provides d. Independent because the financial interest is immaterial and, therefore,
c. Vouching a sample of transactions directly related to the activities. evidence that may issue a review report.
d. Reperforming the activities for a sample of transactions. a. Shipments to customers were properly invoiced.
b. No duplicate shipments or billings occurred. 283) Which of the following is not generally considered a procedure
270) Which statement is correct concerning the relevance of various types c. All goods ordered by customers were shipped. followed by an accountant in obtaining a reasonable basis for the
of controls to a financial audit? d. All prenumbered sales invoices were accounted for. expression of limited assurance for a review of financial statements?
a. An auditor may ordinarily ignore a consideration of controls when a a. Assess fraud risk
substantive audit approach is taken. 277) An auditor tests an entity's policy of obtaining credit approval before b. Apply analytical procedures
b. Controls over the reliability of financial reporting are ordinarily shipping goods to customers in support of management's financial c. Make inquiries of management
most directly relevant to an audit, but other controls may also be statement assertion of d. Obtain written representations from management
relevant. a. Completeness.
284) Which of the following procedures would an accountant least likely c. Limit the distribution of the accountant's report. principles in a separate paragraph of the report.
perform during an engagement to review the financial statements of a d. Obtain an understanding of internal control.
nonissuer? 296) The audited financial statements to be filed with the SEC shall be
a. Observing the safeguards over access to and use of assets and 291) When providing limited assurance that the financial statements of a accompanied by a
records. nonissuer (nonpublic entity) require no material modifications to be in a. Management Report
b. Inquiring of management about actions taken at the board of directors' accordance with generally accepted accounting principles, the accountant b. Registration Statement
meetings. should c. Statement of Managements Responsibility for Financial
c. Comparing the financial statements with anticipated results in budgets a. Assess the risk that a material misstatement could occur in a financial Statements
and forecasts. statement assertion. d. Statement of the Board of Directors Responsibility for Financial
d. Studying the relationships of financial statement elements expected to b. Confirm with the entity's lawyer that material loss contingencies are Statements
conform to predictable patterns. disclosed.
c. Understand the accounting principles of the industry in which the 297) The following statements relate to the use of seal by registered
285) A compilation report is not required when compiled financial entity operates. CPAs. Which is incorrect?
statements are expected to be used by d. Develop audit programs-to determine whether the entity's financial a. The seal of a CPA shall be circular in form.
a. Management only. statements are fairly presented. b. A registered CPA shall obtain and use a seal of a design that will
b. Management and third parties. suit his/her taste.
c. Third parties only. 292) Financial statements of a nonissuer that have been reviewed by an c. The seal should be of a design prescribed by the Board bearing the
d. A compilation report is required whenever financial statements are accountant should be accompanied by a report stating that CPAs name, registration number, and title.
compiled. a. The scope of the inquiry and analytical procedures performed by the d. The auditors report shall be stamped with the CPAs seal, indicating
accountant has not been restricted. therein his/her current Professional Tax Receipt (PTR) number, date/place
286) Which of the following procedures should an accountant perform b. All information included in the financial statements is the of payment when filed with government authorities or when used
during an engagement to review the financial statements of a nonissuer? representation of the management of the entity. professionally.
a. Communicating significant deficiencies discovered during the c. A review includes examining, on a test basis, evidence supporting the
assessment of control risk. amounts and disclosures in the financial statements. 298) Republic Act 9298 is known as the
b. Sending bank confirmation letters to the entity's financial institutions. d. A review is greater in scope than a compilation, the objective of which is a. Revised Accountancy Law
c. Examining cash disbursements in the subsequent period for unrecorded to present financial statements that are free of material misstatements. b. Philippine Accountancy Act of 2004
liabilities. c. Philippine Accountancy Law of 2004
d. Obtaining a client representation letter from members of 293) Financial statements of a nonissuer that have been reviewed by an d. Code of Ethics for Professional Accountants
management. accountant should be accompanied by a report stating that a review
a. Provides only limited assurance that the financial statements are fairly 299) Which of the following reports may be issued only by an accountant
287) Which of the following procedures would most likely be included in a presented. who is independent of a client?
review engagement of a nonissuer? b. Includes examining, on a test basis, information that is the a. Report on consulting services.
a. Inquiring about related-party transactions. representation of management. b. Compilation report on a financial projection.
b. Preparing a bank transfer schedule. c. Consists principally of inquiries of company personnel and c. Compilation report on historical financial statements.
c. Assessing internal control. analytical procedures applied to financial data. d. Standard report on an examination of a financial forecast.
d. Performing cutoff tests on sales and purchases transactions. d. Does not contemplate obtaining corroborating evidential matter or
applying certain other procedures ordinarily performed during an audit. 300) An auditor who, at the request of the group engagement team,
288) Which of the following would the accountant most likely investigate performs work on financial information related to a component for the
during the review of financial statements of a non issuer if accounts 294) Which of the following inquiry or analytical procedures ordinarily is group audit is a
receivable did not conform to a predictable pattern during the year? performed in an engagement to review a nonissuer's financial a. Group Auditor
a. Sales returns and allowances statements? b. Component Auditor
b. Sales of consigned goods a. Analytical procedures designed to test the accounting records by c. Group Engagement Team
c. Credit sales obtaining corroborating audit evidence. d. Component Engagement Team
d. Cash sales b. Inquiries concerning the entity's procedures for recording and
summarizing transactions. 301) An auditor who discovers that a client's employees paid small bribes
289) An accountant who reviews the financial statements of a nonissuer c. Analytical procedures designed to test management's assertions to municipal officials most likely would withdraw from the engagement if
should issue a report stating that a review regarding continued existence. a. The payments violated the client's policies regarding the prevention of
a. Is substantially less in scope than an audit. d. Inquiries of the entity's attorney concerning contingent liabilities. illegal acts.
b. Provides negative assurance that internal control is functioning as b. The client receives financial assistance from a federal government
designed. 295) During a review of the financial statements of a nonissuer, an agency.
c. Provides only limited assurance that the financial statements are fairly accountant becomes aware of a lack of adequate disclosure that is c. Documentation that is necessary to prove that the bribes were paid
presented. material to the financial statements. If management refuses to correct the does not exist.
d. Is substantially more in scope than a compilation. financial statement presentations, the accountant should d. Management fails to take the appropriate remedial action.
a. Issue an adverse opinion.
290) When performing an engagement to review a nonissuer's financial b. Issue an "except for" qualified opinion. 302) Which of the following factors most likely would cause a CPA to not
statements, an accountant most likely would c. Express only limited assurance on the financial statement accept a new audit engagement?
a. Confirm a sample of significant accounts receivable balances. presentations. a. The prospective client has already completed its physical inventory
b. Ask about actions taken at board of directors' meetings. d. Disclose this departure from generally accepted accounting count.
b. The CPA lacks an understanding of the prospective client's operation a. Unusual transactions and events. b. Document in the engagement letter that the principal auditor assumes
and industry. b. Illegal acts that went undetected because of internal control no responsibility for the other CPA's work and opinion.
c. The CPA is unable to review the predecessor auditor's working papers. weaknesses. c. Obtain written permission from the other CPA to omit the reference in
d. The prospective client is unwilling to make all financial records c. Related-party transactions. the principal auditor's report.
available to the CPA. d. Recorded transactions that were not properly authorized. d. Contact the other CPA and review the audit programs and working
papers pertaining to the subsidiary.
303) Which of the following factors would most likely heighten an auditor's 310) While assessing the risks of material misstatement auditors identify
concern about the risk of fraudulent financial reporting? risks, relate risk to what could go wrong, consider the magnitude of risks 315) In which of the following situations would an auditor ordinarily issue
a. Large amounts of liquid assets that are easily convertible into cash. and an unqualified audit opinion without an explanatory paragraph?
b. Low growth and profitability as compared to other entities in the same a. Assess the risk of misstatements due to illegal acts. a. The auditor wishes to emphasize that the entity had significant related-
industry. b. Consider the complexity of the transactions involved. parry transactions.
c. Financial management's participation in the initial selection of c. Consider the likelihood that the risks could result in material b. The auditor decides to make reference to the report of another
accounting principles. misstatements. auditor as a basis, in part for the auditor's opinion.
d. An overly complex organizational structure involving unusual d. Determine materiality levels. c. The entity issues financial statements that present financial position and
lines of authority. results of operations, but omits the statement of cash flows.
311) How does an auditor make the following representations when d. The auditor has substantial doubt about the entity's ability to continue
304) An auditor who discovers that a client's employees have paid small issuing the standard auditor's report on comparative financial statements'? as a going concern, but the circumstances are fully disclosed in the
bribes to public officials most likely would withdraw from the engagement a. Examination of evidence on a test basis Explicitly; Consistent financial statements.
if the application of accounting principles Explicitly
a. Client receives financial assistance from a federal government agency. b. Examination of evidence on a test basis Implicitly; Consistent 316) When single-year financial statements are presented, an auditor
b. Evidence that is necessary to prove that the illegal acts were committed application of accounting principles Implicitly ordinarily would express an unqualified opinion in an unmodified report if
does not exist. c. Examination of evidence on a test basis Implicitly; Consistent the
c. Employees' actions affect the auditor's ability to rely on application of accounting principles Explicitly a. Auditor is unable to obtain audited financial statements supporting the
management's representations. d. Examination of evidence on a test basis Explicitly; Consistent entity's investment in a foreign affiliate.
d. Notes to the financial statements fail to disclose the employees' actions. application of accounting principles Implicitly b. Entity declines to present a statement of cash flows with its balance
sheet and related statements of income and retained earnings.
305) Which of the following relatively small misstatements most likely 312) The fourth standard of reporting requires the auditor's report to c. Auditor wishes to emphasize an accounting matter affecting the
could have a material effect on an entity's financial statements? contain either an expression of opinion regarding the financial statements comparability of the financial statements with those of the prior year.
a. An illegal payment to a foreign official that was not recorded. taken as a whole or an assertion to the effect that an opinion cannot he d. Prior year's financial statements were audited by another CPA
b. A piece of obsolete office equipment that was not retired. expressed. The objective of the fourth standard is to prevent whose report, which expressed an unqualified opinion, is not
c. A petty cash fund disbursement that was not properly authorized. a. An auditor from expressing different opinions on each of the basic presented.
d. An uncollectible account receivable that was not written off. financial statements.
b. Restrictions on the scope of the audit, whether imposed by the client or 317) A client is presenting comparative (two-year) financial statements.
306) A successor auditor should request the new client to authorize the by the inability to obtain evidence. Which of the following is correct concerning reporting responsibilities of a
predecessor auditor to allow a review of the predecessor's c. Misinterpretations regarding the degree of responsibility the continuing auditor?
a. Engagement letter Yes; Working papers Yes auditor is assuming. a. The auditor should issue one audit report that is on both
b. Engagement letter Yes; Working papers No d. An auditor from reporting on one basic financial statement and not the presented years.
c. Engagement letter No; Working papers Yes others. b. The auditor should issue two audit reports, one on each year.
d. Engagement letter No; Working papers No c. The auditor should issue one audit report, but only on the most recent
313) An auditor issued an audit report that was dual dated for a year.
307) Which of the following procedures would an auditor most likely subsequent event occurring after the completion of fieldwork but before d. The auditor may issue either one audit report on both presented years,
perform in planning a financial statement audit? issuance of the auditor's report. The auditor's responsibility for events or two audit reports, one on each year.
a. Inquiring of the client's legal counsel concerning pending litigation. occurring subsequent to the completion of fieldwork was
b. Comparing the financial statements to anticipated results. a. Extended to subsequent events occurring through the date of issuance 318) The predecessor auditor, who is satisfied after properly
c. Examining computer generated exception reports to verify the of the report. communicating with the successor auditor, has reissued a report because
effectiveness of internal control. b. Extended to include all events occurring since the completion of the audit client desires comparative financial statements. The predecessor
d. Searching for unauthorized transactions that may aid in detecting fieldwork. auditor's report should make
unrecorded liabilities. c. Limited to the specific event referenced. a. Reference to the report of the successor auditor only in the scope
d. Limited to include only events occurring up to the date of the last paragraph.
308) Analytical procedures used in planning an audit should focus on subsequent event referenced. b. Reference to the work of the successor auditor in the scope and opinion
a. Reducing the scope of tests of controls and substantive tests. paragraphs.
b. Providing assurance that potential material misstatements will be 314) A principal auditor decides not to refer to the audit of another CPA c. Reference to both the work and the report of the successor auditor only
identified. who audited a subsidiary of the principal auditor's client. After making in the opinion paragraph.
c. Enhancing the auditor's understanding of the client's business. inquiries about the other CPA's professional reputation and d. No reference to the report or the work of the successor auditor.
d. Assessing the adequacy of the available evidence. independence, the principal auditor most likely would
a. Add an explanatory paragraph to the auditor's report indicating that the 319) Unaudited financial statements for the prior year presented in
309) The objective of performing analytical procedures in planning an subsidiary's financial statements are not material to the consolidated comparative form with audited financial statements for the current year
audit is to identify the existence of financial statements. should be clearly marked to indicate their status and
I. The report on the prior period should be reissued to accompany the a. Block selection d. International auditing standards are based on a risk assessment
current period report. b. Stratified selection approach.
II. The report on the current period should include as a separate c. Systematic selection
paragraph a description of the responsibility assumed for the prior period's d. Sequential selection 332) Which of the following is not true about international auditing
financial statements. standards?
a. I only 326) If the auditor is concerned that a population may contain exceptions, a. Audit report modification for consistency in the application of
b. II only the determination of a sample size sufficient to include at least one such accounting principles is required.
c. Both I and II exception is a characteristic of b. Confirmation of accounts receivable is not required.
d. Either I or II a. Discovery sampling c. The location in which the auditor practices must be disclosed in the
b. Variables sampling audit report.
320) An auditor concludes that there is a material inconsistency in the c. Random sampling d. International auditing standards do not require an audit of internal
other information in an annual report to shareholders containing audited d. Dollar-unit sampling control.
financial statements. If the auditor concludes that the financial statements
do not require revision, but the client refuses to revise or eliminate the 327) When an auditor has chosen a random sample and is using 333) Individuals who commit fraud are ordinarily able to rationalize the act
material inconsistency, the auditor may nonstatistical attributes sampling, that auditor and also have an
a. Revise the auditor's report to include a separate explanatory a. Need not consider the risk of assessing control risk too low. a. Incentive Yes; Opportunity Yes
paragraph describing the material inconsistency. b. Has committed a nonsampling error. b. Incentive Yes; Opportunity No
b. Issue an "except for" qualified opinion after discussing the matter with c. Will have to use discovery sampling to evaluate the results. c. Incentive No; Opportunity Yes
the client's board of directors. d. Should compare the deviation rate of the sample to the tolerable d. Incentive No; Opportunity No
c. Consider the matter closed since the other information is not in the deviation rate.
audited financial statements. 334) Which of the following is most likely to be considered a risk factor
d. Disclaim an opinion on the financial statements after explaining the 328) A number of factors influences the sample size for a substantive test relating to fraudulent financial reporting?
material inconsistency in a separate explanatory paragraph. of details of an account balance. All other factors being equal, which of the a. Domination of management by top executives.
following would lead to a larger sample size? b. Large amounts of cash processed.
321) The expected population deviation rate of client billing errors is 3%. a. Greater reliance on internal control c. Negative cash flows from operations.
The auditor has established a tolerable rate of 5%. In the review of client b. Greater reliance on analytical procedures d. Small high-dollar inventory items.
invoices the auditor should use c. Smaller expected frequency of errors
a. Stratified sampling d. Smaller measure of tolerable misstatement 335) Which of the following is most likely to be presumed to represent
b. Variable sampling fraud risk on an audit?
c. Discovery sampling 329) In the application of statistical techniques to the estimation of dollar a. Capitalization of repairs and maintenance into the property, plant, and
d. Attribute sampling amounts, a preliminary sample is usually taken primarily for the purpose of equipment asset account.
estimating the population b. Improper revenue recognition.
322) Which of the following sampling methods would be used to estimate a. Variability c. Improper interest expense accrual.
a numerical measurement of a population, such as a dollar value? b. Mode d. Introduction of significant new products.
a. Variables sampling c. Range
b. Attribute sampling d. Median 336) To obtain an understanding of a continuing client's business, an
c. Stop-or-go sampling auditor most likely would
d. Random-number sampling 330) The following statements relate to CPE credit units. Which is a. Perform tests of details of transactions and balances.
incorrect? b. Review prior year working papers and the permanent file for the
323) For which of the following audit tests would an auditor most likely use a. The total CPE credit units for registered accounting professionals shall client.
attribute sampling? be sixty (60) credit units for three (3) years, provided that a minimum of c. Read current issues of specialized industry journals.
a. Making an independent estimate of the amount of a LIFO inventory. fifteen (15) credit units shall be earned in each year. d. Reevaluate the client's internal control environment.
b. Examining invoices in support of the valuation of fixed asset additions. b. Any excess credits in one year may be carried over to the succeeding
c. Selecting accounts receivable for confirmation of account balances. years within the three-year period. 337) On an audit engagement performed by a CPA firm with one office, at
d. Inspecting employee time cards for proper approval by c. Excess credit units earned may be carried over to the next three- the minimum, knowledge of the relevant professional accounting and
supervisors. year period including credit units earned for doctoral and masters auditing standards should be held by
degree. a. The auditor with final responsibility for the audit.
324) An underlying feature of random-based selection of items is that d. One credit hour of CPE program, activity or source shall be equivalent b. All professionals working upon the audit.
each to one (1) credit unit. c. All professionals working upon the audit and the partner in charge of the
a. Stratum of the accounting population be given equal representation in CPA firm.
the sample. 331) Which of the following is not true about international auditing d. All professionals working in the office.
b. Item in the accounting population be randomly ordered. standards?
c. Item in the accounting population should have an opportunity to a. International auditing standards do not require an audit of internal 338) An auditor obtains knowledge about a new client's business and its
be selected. control. industry to
d. Item must be systematically selected using replacement. b. International auditing standards do not allow reference to division of a. Make constructive suggestions concerning improvements to the client's
responsibilities in the audit report. internal control.
325) Which of the following statistical selection techniques is least c. International auditing standards require obtaining an attorney's b. Develop an attitude of professional skepticism concerning
desirable for use by an auditor? letter. management's financial statement assertions.
c. Evaluate whether the aggregation of known misstatements causes the a. Estimating payroll expense by multiplying the number of employees by a going concern?
financial statements taken as a whole to be materially misstated. the average hourly wage rate and the total hours worked. a. Significant related-party transactions are pervasive
d. Understand the events and transactions that may have an effect b. Projecting an error rate by comparing the results of a statistical b. Usual trade credit from suppliers is denied
on the client's financial statements. sample with the actual population characteristics. c. Arrearages in preferred stock dividends are paid
c. Computing accounts receivable turnover by dividing credit sales by the d. Restrictions on the disposal of principal assets are present
339) Which of the following procedures would an auditor least likely average net receivables.
perform while obtaining an understanding of a client in a financial d. Developing the expected current year sales based on the sales trend of 351) When management does not provide reasonable justification that a
statement audit? the prior five years. change in accounting principle is preferable and it presents comparative
a. Coordinating the assistance of entity personnel in data preparation. financial statements, the auditor should express a qualified opinion
b. Discussing matters that may affect the audit with firm personnel 346) In the auditors report, the principal auditor decides not to make a. Only in the year of the accounting principle change.
responsible for nonaudit services to the entity. reference to another CPA who audited a client's subsidiary. The principal b. Each year that the financial statements initially reflecting the
c. Selecting a sample of vendors' invoices for comparison to auditor could justify this decision if, among other requirements, the change are presented.
receiving reports. principal auditor c. Each year until management changes back to the accounting principle
d. Reading the current year's interim financial statements. a. Issues an unqualified opinion on the consolidated financial statements. formerly used.
b. Learns that the other CPA issued an unqualified opinion on the d. Only if the change is to an accounting principle that is not generally
340) Ordinarily, the predecessor auditor permits the successor auditor to subsidiary's financial statements. accepted.
review the predecessor's working paper analyses relating to c. Is unable to review the audit programs and working papers of the other
a. Contingencies Yes; Balance sheet accounts Yes CPA. 352) When an entity changes its method of accounting for income taxes,
b. Contingencies Yes; Balance sheet accounts No d. Is satisfied as to the independence and professional reputation of which has a material effect on comparability, the auditor should refer to
c. Contingencies No; Balance sheet accounts Yes the other CPA. the change in an explanatory paragraph added to the auditor's report. This
d. Contingencies No; Balance sheet accounts No paragraph should identify the nature of the change and
347) When an auditor concludes there is substantial doubt about a a. Explain why the change is justified under generally accepted
341) In evaluating the reasonableness of an accounting estimate, an continuing audit client's ability to continue as a going concern for a accounting principles.
auditor most likely would concentrate on key factors and assumptions that reasonable period of time, the auditor's responsibility is to b. Describe the cumulative effect of the change on the audited financial
are a. Issue a qualified or adverse opinion, depending upon materiality, due to statements.
a. Consistent with prior periods the possible effects on the financial statements. c. State the auditor's explicit concurrence with or opposition to the change.
b. Similar to industry guidelines b. Consider the adequacy of disclosure about the client's possible d. Refer to the financial statement note that discusses the change in
c. Objective and not susceptible to bias inability to continue as a going concern. detail.
d. Deviations from historical patterns c. Report to the client's audit committee that management's accounting
estimates may need to be adjusted. 353) An entity changed from the straight-line method to the declining
342) In evaluating an entity's accounting estimates, one of an auditor's d. Reissue the prior year's auditors report and add an explanatory balance method of depreciation for all newly acquired assets. This change
objectives is to determine whether the estimates are paragraph that specifically refers to "substantial doubt" and "going has no material effect on the current year's financial statements, but is
a. Not subject to bias concern". reasonably certain to have a substantial effect in later years. If the change
b. Consistent with industry guidelines is disclosed in the notes to the financial statements, the auditor should
c. Based on objective assumptions 348) In which of the following circumstances would an auditor most likely issue a report with a(n)
d. Reasonable in the circumstances add an explanatory paragraph to the standard report while not affecting a. "Except for" qualified opinion
the auditor's unqualified opinion? b. Explanatory paragraph
343) In testing the existence assertion for an asset, an auditor ordinarily a. The auditor is asked to report on the balance sheet, but not on the other c. Unqualified opinion
works from the basic financial statements. d. Consistency modification
a. Financial statements to the potentially unrecorded items b. There is substantial doubt about the entity's ability to continue as
b. Potentially unrecorded items to the financial statements a going concern. 354) When reporting on comparative financial statements, an auditor
c. Accounting records to the supporting evidence c. Management's estimates of the effects of future events are ordinarily should change the previously issued opinion on the prior year's
d. Supporting evidence to the accounting records unreasonable. financial statements if the
d. Certain transactions cannot be tested because of management's a. Prior year's financial statements are restated to conform with
344) A client uses a suspense account for unresolved questions whose records retention policy. generally accepted accounting principles.
final accounting has not been determined. If a balance remains in the b. Auditor is a predecessor auditor who has been requested by a former
suspense account at year-end, the auditor would be most concerned 349) After considering an entity's negative trends and financial difficulties, client to reissue the previously issued report.
about an auditor has substantial doubt about the entity's ability to continue as a c. Prior year's opinion was unqualified and the opinion on the current
a. Suspense debits that management believes will benefit future going concern. The auditor's considerations relating to management's year's financial statements is modified due to a lack of consistency.
operations. plans for dealing with the adverse effects of these conditions most likely d. Prior year's financial statements are restated following a pooling of
b. Suspense debits that the auditor verifies will have realizable value to would include management's plans to interests in the current year.
the client. a. Increase current dividend distributions
c. Suspense credits that management believes should be classified as b. Reduce existing lines of credit 355) Before reissuing the prior year's auditor's report on the financial
"current liability". c. Increase ownership equity statements of a former client the predecessor auditor should obtain a
d. Suspense credits that the auditor determines to be customer deposits. d. Purchase assets formerly leased letter of representations from the
a. Former clients management Yes; Successor auditor Yes
345) Which of the following would not be considered an analytical 350) Which of the following conditions or events most likely would cause b. Former clients management Yes; Successor auditor No
procedure? an auditor to have substantial doubt about an entity's ability to continue as c. Former clients management No; Successor auditor Yes
d. Former clients management No; Successor auditor No b. Seek the advice of an informed expert qualified to practice law as to c. Cannot be located
possible contingent liabilities. d. Represents an immaterial dollar amount
356) Which of the following statistical sampling plans does not use a fixed c. Report the matter to an appropriate level of management at least one
sample size for tests of controls? level above those involved. 369) An auditor plans to examine a sample of twenty purchase orders for
a. Dollar-unit sampling d. Discuss the evidence with the client's audit committee, or others with proper approvals as prescribed by the client's control procedures. One of
b. Sequential sampling equivalent authority and responsibility. the purchase orders in the chosen sample of twenty cannot be found, and
c. PPS sampling the auditor is unable to use alternative procedures to test whether that
d. Variables sampling 363) An auditor who discovers that client employees have committed an purchase order was properly approved. The auditor should
illegal act that has a material effect on the client's financial statements a. Choose another purchase order to replace the missing purchase order
357) If certain forms are not consecutively numbered most likely would withdraw from the engagement if in the sample.
a. Selection of a random sample probably is not possible a. The illegal act is a violation of generally accepted accounting principles. b. Consider this test of control invalid and proceed with substantive tests
b. Systematic sampling maybe appropriate b. The client does not take the remedial action that the auditor since internal control cannot be relied upon.
c. Stratified sampling should be used considers necessary. c. Treat the missing purchase order as a deviation for the purpose of
d. Random number tables cannot be used c. The illegal act was committed during a prior year that was not audited. evaluating the sample.
d. The auditor has already assessed control risk at the maximum level. d. Select a completely new set of twenty purchase orders.
358) When performing a test of a control with respect to control over cash
receipts, an auditor may use a systematic sampling technique with a start 364) Which of the following would be least likely to be considered an audit 370) When assessing the tolerable rate, the auditor should consider that,
at any randomly selected item. The biggest disadvantage of this type of planning procedure? while deviations from control procedures increase the risk of material
sampling is that the items in the population a. Use an engagement letter misstatements, such deviations do not necessarily result in errors. This
a. Must be systematically replaced in the population after sampling. b. Develop the overall audit strategy explains why
b. May systematically occur more than once in the sample. c. Perform risk assessment a. A recorded disbursement that does not show evidence of required
c. Must be recorded in a systematic pattern before the sample can be d. Develop the audit plan approval may nevertheless be a transaction that is properly
drawn. authorized and recorded.
d. May occur in a systematic pattern, thus destroying the sample 365) Which of the following factors would most likely cause a CPA to b. Deviations would result in errors in the accounting records only if the
randomness. decide not to accept a new audit engagement? deviations and the errors occurred on different transactions.
a. The CPA's lack of understanding of the prospective client's internal c. Deviations from pertinent control procedures at a given rate ordinarily
359) What is the primary objective of using stratification as a sampling auditor's computer-assisted audit techniques. would be expected to result in errors at a higher rate.
method in auditing? b. Management's disregard of its responsibility to maintain an d. A recorded disbursement that is properly authorized may nevertheless
a. To increase the confidence level at which a decision will be reached adequate internal control environment. be a transaction that contains a material error.
from the results of the sample selected. c. The CPA's inability to determine whether related party transactions
b. To determine the occurrence rate for a given characteristic in the were consummated on terms equivalent to arm's-length transactions. 371) The existence of audit risk is recognized by the statement in the
population being studied. d. Management's refusal to permit the CPA to perform substantive tests auditor's standard report that the auditor
c. To decrease the effect of variance in the total population. before the year-end. a. Obtains reasonable assurance about whether the financial
d. To determine the precision range of the sample selected. statements are free of material misstatement.
366) Which of the following statements is correct concerning statistical b. Assesses the accounting principles used and also evaluates the overall
360) Which of the following factors is(are) considered in determining the sampling in tests of controls? financial statement presentation.
sample size for a test of controls? a. Deviations from control procedures at a given rate usually result in c. Realizes some matters, either individually or in the aggregate, are
a. Expected deviation rate Yes; Tolerable deviation rate Yes misstatements at a higher rate. important while other matters are not important.
b. Expected deviation rate No; Tolerable deviation rate No b. As the population size doubles, the-sample size should also double. d. Is responsible for expressing an opinion on the financial statements,
c. Expected deviation rate No; Tolerable deviation rate Yes c. The qualitative aspects of deviations are not considered by the auditor. which are the responsibility of management.
d. Expected deviation rate Yes; Tolerable deviation rate No d. There is an inverse relationship between the sample size and the
tolerable rate. 372) When an accountant performs more than one level of service (for
361) The most likely explanation why the auditor's examination cannot example, a compilation and a review, or a compilation and an audit)
reasonably be expected to bring all illegal acts by the client to the auditor's 367) In determining the sample size for a test of controls, an auditor concerning the financial statements of a nonissuer (nonpublic) entity, the
attention is that should consider the likely rate of deviations, the allowable risk of accountant generally should issue the report that is appropriate for
a. Illegal acts are perpetrated by management override of internal control. assessing control risk too low, and the a. The lowest level of service rendered
b. Illegal acts by clients often relate to operating aspects rather than a. Tolerable deviation rate b. The highest level of service rendered
accounting aspects. b. Risk of incorrect acceptance c. A compilation engagement
c. The client's internal control may be so strong that the auditor performs c. Nature and cause of deviations d. A review engagement
only minimal substantive testing. d. Population size
d. Illegal acts may be perpetrated by the only person in the client's 373) Which of the following is least likely to be a restricted use report?
organization with access to both assets and the accounting records. 368) An auditor is testing internal control procedures that are evidenced a. A report on internal control significant deficiencies noted in an audit.
on an entity's vouchers by matching random numbers with voucher b. A required communication with the audit committee.
362) If specific information comes to an auditor's attention that implies the numbers. If a random number matches the number of a voided voucher, c. A report on financial statements prepared following a
existence of possible illegal acts that could have a material, but indirect that voucher ordinarily should he replaced by another voucher in the comprehensive basis of accounting other than generally accepted
effect on the financial statements, the auditor should next random sample if the voucher accounting principles.
a. Apply audit procedures specifically directed to ascertaining a. Constitutes a deviation d. A report on compliance with aspects of contractual agreements.
whether an illegal act has occurred. b. Has been properly voided
374) An auditor expressed a qualified opinion on the prior year's financial materially misstated. This situation illustrates the risk of d. Data subject to audit testing in the prior year
statements because of a lack of adequate disclosure. These financial a. Assessing control risk too high
statements are properly restated in the current year and presented in b. Assessing control risk too low 386) A basic premise underlying the application of analytical procedures is
comparative form with the current year's financial statements. The c. Incorrect rejection that
auditor's updated report on the prior year's financial statements should d. Incorrect acceptance a. The study of financial ratios is an acceptable alternative to the
a. Be accompanied by the auditor's original report on the prior year's investigation of unusual fluctuations.
financial statements. 380) The size of a sample designed for dual purpose testing should be b. Statistical tests of financial information may lead to the discovery of
b. Continue to express a qualified opinion on the prior year's financial a. The larger of the samples that would otherwise have been material misstatements in the financial statements.
statements. designed for the two separate purposes. c. Plausible relationships among data may reasonably be expected
c. Make no reference to the type of opinion expressed on the prior year's b. The smaller of the samples that would otherwise have been designed to exist and continue in the absence of known conditions to the
financial statements. for the two separate purposes. contrary.
d. Express an unqualified opinion on the restated financial c. The combined total of the samples that would otherwise have been d. These procedures cannot replace tests of balances and transactions.
statements of the prior year. designed for the two separate purposes.
d. More than the larger of the samples that would otherwise have been 387) For all audits of financial statements made in accordance with
375) An auditor's responsibility to express an opinion on the financial designated for the two separate purposes, but Jess than the combined generally accepted auditing standards, the use of analytical procedures is
statements is total of the samples that would otherwise have been designed for the two required to some extent
a. Implicitly represented in the auditor's standard report. separate purposes. a. In the planning stage Yes; As a substantive test No; In the
b. Explicitly represented in the opening paragraph of the auditor's review stage Yes
standard report. 381) What type of analytical procedure would an auditor most likely use in b. In the planning stage No; As a substantive test Yes; In the review
c. Explicitly represented in the scope paragraph of the auditor's standard developing relationships among balance sheet accounts when reviewing stage No
report. the financial statements of a nonpublic entity? c. In the planning stage No; As a substantive test Yes; In the review
d. Explicitly represented in the opinion paragraph of the auditor's standard a. Trend analysis stage Yes
report. b. Regression analysis d. In the planning stage Yes; As a substantive test No; In the review
c. Ratio analysis stage No
376) When unaudited financial statements of a nonissuer are presented in d. Risk analysis
comparative form with audited financial statements in the subsequent 388) An auditor's analytical procedures most likely would be facilitated if
year, the unaudited financial statements should be clearly marked to 382) An auditor may achieve audit objectives related to particular the entity
indicate their status and assertions by a. Segregates obsolete inventory before the physical inventory count
I. The report on the unaudited financial statements should be reissued. a. Performing analytical procedures b. Uses a standard cost system that produces variance reports
Il. The report on the audited financial statements should include a b. Adhering to a system of quality control c. Corrects material weaknesses in internal control before the beginning of
separate paragraph describing the responsibility assumed for the c. Preparing auditor working papers the audit
unaudited financial statements. d. Increasing the level of detection risk d. Develops its data from sources solely within the entity
a. I only
b. II only 383) Auditors try to identify predictable relationships when using analytical 389) Analytical procedures performed in the overall review stage of an
c. Both I and II procedures. Relationships involving transactions from which of the audit suggest that several accounts have unexpected relationships. The
d. Either I or II following accounts most likely would yield the highest level of evidence? results of these procedures most likely would indicate that
a. Accounts receivable a. Irregularities exist among the relevant account balances
377) Which communication option(s) may be used when an accountant b. Interest expense b. Internal control activities are not operating effectively
submits compiled financial statements to be used only by management? c. Accounts payable c. Additional tests of details be required
a. Compilation report Yes; Written engagement letter Yes d. Travel and entertainment expense d. The communication with the audit committee should be revised
b. Compilation report Yes; Written engagement letter No
c. Compilation report No; Written engagement letter Yes 384) Analytical procedures used in the overall review stage of all audit 390) Which of the following comparisons would an auditor most likely
d. Compilation report No; Written engagement letter No generally include make in evaluating an entity's costs and expenses?
a. Gathering evidence concerning account balances that have not a. The current year's accounts receivable with the prior year's accounts
378) An accountant should perform analytical procedures during an changed from the prior year. receivable
engagement to b. Retesting control procedures that appeared to be ineffective during the b. The current year's payroll expense with the prior year's payroll
a. Compile a nonissuer's financial statements No; Review a nonissuer's assessment of control risk. expense
financial statements No c. Considering unusual or unexpected account balances that were c. The budgeted current year's sales with the prior year's sales
b. Compile a nonissuer's financial statements Yes; Review a nonissuer's not previously identified. d. The budgeted current year's warranty expense with the current year's
financial statements Yes d. Performing tests of transactions to corroborate management's financial contingent liabilities
c. Compile a nonissuer's financial statements Yes; Review a nonissuer's statement assertions.
financial statements No 391) Which of the following presumptions is correct about the reliability of
d. Compile a nonissuer's financial statements No; Review a 385) Which of the following tends to be most predictable for purposes of audit evidence?
nonissuer's financial statements Yes analytical procedures applied as substantive tests? a. Information obtained indirectly from outside sources is the most reliable
a. Relationships involving balance sheet accounts audit evidence.
379) While performing a test of details during an audit, an auditor b. Transactions subject to management discretion b. To be reliable, audit evidence should be convincing rather than
determined that the sample results supported the conclusion that the c. Relationships involving income statement accounts persuasive.
recorded account balance was materially misstated. It was, in fact, not c. Reliability of audit evidence refers to the amount of corroborative
evidence obtained. c. Marketability of assets that management plans to sell a. Stock compensation program
d. Effective internal control provides more assurance about the d. Committed arrangements to convert preferred stock to long-term debt b. Personal financial problems
reliability of audit evidence. c. Ineffective internal controls
399) Under which of the following circumstances would a disclaimer of d. Tight debt covenants
392) Which of the following statements relating to the appropriateness of opinion not be appropriate?
audit evidence is always true? a. The auditor is unable to determine the amounts associated with an 406) What is the greatest benefit that can be derived by discussing fraud
a. Audit evidence gathered by an auditor from outside an enterprise is employee fraud scheme. factors with management of the client organization under audit?
reliable. b. Management does not provide reasonable justification for a a. Greater credibility with the client organization and its management.
b. Accounting data developed under satisfactory conditions of internal change in accounting principles. b. Full disclosure of all fraud occurring during the year under audit in the
control are more relevant than data developed under unsatisfactory c. The client refuses to permit the auditor to confirm certain accounts company.
internal control conditions. receivable or apply alternative procedures to verify their balances. c. The impression on the client that fraud is being watched by an
c. Oral representations made by management are not valid evidence. d. The chief executive officer is unwilling to sign the management independent source.
d. Evidence gathered by auditors must be both valid and relevant to representation letter. d. Further identification of specific risks resulting in material
be considered appropriate. misstatements from fraud.
400) In the first audit of a new client, an auditor was able to extend
393) Which of the following types of audit evidence is the least auditing procedures to gather sufficient evidence about consistency. 407) What type of evidence is key to the auditor in ensuring that fraud has
persuasive? Under these circumstances, the auditor should not taken place in financial statements?
a. Prenumbered purchase order forms a. Not report on the client's income statement a. Indirect
b. Bank statements obtained from the client b. Not refer to consistency in the auditor's report b. Sufficient
c. Test counts of inventory performed by the auditor c. State that the consistency standard does not apply c. Persuasive
d. Correspondence from the client's attorney about litigation d. State that the accounting principles have been applied consistently d. Documentary

394) In evaluating the reasonableness of an entity's accounting estimates, 401) Some or all of the following are planning considerations: 408) Which of the following is not one of the components of the fraud risk
an auditor normally would be concerned about assumptions that are I. Criteria to be used model?
a. Susceptible to bias II. Nature and extent of involvement of the experts a. Incentive
b. Consistent with prior periods III. Possible sources of evidence b. Opportunity
c. Insensitive to variations IV. Type of conclusion to be issued c. Susceptibility
d. Similar to industry guidelines V. Preliminary judgment about materiality and engagement risk d. Rationalization
VI. Content of the management letter
395) Which of the following is not a basic procedure used in an audit? Which of the foregoing are matters that need to be considered in planning 409) Which of the following industries is usually considered high risk by
a. Risk assessment procedures an assurance engagement? audit firms?
b. Tests of direct evidence a. I, II, III, V a. High technology companies such as internet firms
c. Substantive procedures c. I, III, V, VI b. Manufacturing companies such as toy producers
d. Tests of controls d. II, III, IV, VI c. Non-profit companies such as trade associations
a. All of them d. Legal services such as attorney firms
396) Which of the following conditions or events most likely would cause
an auditor to have substantial doubt about an entity's ability to continue as 402) Which of the following is not a component of assurance services? 410) Which of the following is not a major emphasis in the design of
a going concern? a. A service provider effective internal control?
a. Cash flows from operating activities are negative b. A report to a third party a. Duties are segregated
b. Research and development projects are postponed c. A user or a group of users who derive value from the service provided b. Processes are efficient
c. Significant related-party transactions are pervasive d. An information or a process on which the assurance services is c. Transactions are authorized
d. Stock dividends replace annual cash dividends provided d. Assets are properly segregated

397) Which of the following audit procedures would most likely assist an 403) Which of the following best describes the relationship that should 411) Which of the following is least likely entitled to the report of the
auditor in identifying conditions and events that may indicate there could exist between the auditor and the client management? service organization auditor on the suitability of internal control design and
be substantial doubt about an entity's ability to continue as a going a. Skeptical vigilance operating effectiveness of the service organization?
concern? b. Advisory relationship a. Client auditors
a. Review compliance with the terms of debt agreements c. Mutual trust and respect b. Service organization customers
b. Confirmation of accounts receivable from principal customers d. Advocacy of managements position c. Service organization stockholders
c. Reconciliation of interest expense with debt outstanding d. Service organization management
d. Confirmation of bank balances 404) Gross negligence can best be defined as:
a. Failure to exercise even a slight care 412) In auditing payroll, an auditor most likely would
398) The adverse effects of events causing an auditor to believe there is b. Failure to exercise reasonable care a. Observe entity employees during a payroll distribution.
substantial doubt about an entity's ability to continue as a going concern c. Misrepresentation b. Compare payroll costs with entity standards and budgets.
would most likely be mitigated by evidence relating to the d. Criminal fraud c. Verify that checks representing unclaimed wages are mailed.
a. Ability to expand operations into new product lines in the future d. Trace individual employee deductions to entity journal entries.
b. Feasibility of plans to purchase leased equipment at less than market 405) Which of the following would not be considered a motivation to
value commit fraud?
413) Each page of the financial information compiled by the accountant d. The likelihood of a review by a concurring (second) partner size except for very small populations.
should include the following reference, except c. The expected population deviation rate has little or no effect on
a. Unaudited 420) Which of the following statements is correct concerning statistical determining sample size except for very small populations.
b. Refer to compilation report sampling in tests of controls? d. For a given tolerable rate, a larger sample size should be selected as
c. Compiled without Audit or Review a. As the population size increases, the sample size should increase the expected population deviation rate decreases.
d. Compiled, Negative Assurance Expressed proportionately,
b. There is an inverse relationship between the expected population 427) When planning a sample for a substantive test of details, an auditor
414) The objective of the tolerable rate in sampling for tests of controls of deviation rate and the sample size. should consider tolerable misstatement for the sample. This consideration
internal control is to c. In determining tolerable rate, an auditor considers detection risk and the should
a. Determine the probability of the auditor's conclusion based upon sample size. a. Not be adjusted for qualitative factors.
reliance factors. d. Deviations from specific internal control procedures at a given b. Be related to the auditor's business risk.
b. Determine that financial statements taken as a whole are not materially rate ordinarily result in misstatements at a lower rate. c. Not be changed during the audit process.
in error. d. Be related to preliminary judgments about materiality levels.
c. Estimate the range of procedural deviations in the population. 421) The tolerable rate of deviations for a test of a control is generally
d. Estimate the reliability of substantive tests. a. Identical to the expected rate of errors in related accounting records. 428) Which of the following is the best example of a substantive test?
b. Lower than the expected rate of errors in the related accounting a. Flowcharting of the client's cash receipts system.
415) Which of the following most likely would be an advantage in using records. b. Confirmation of balances of accounts receivables.
classical variables sampling rather than probability-proportional-to-size c. Higher than the expected rate of errors in the related accounting c. Comparison of signatures on checks to a list of authorized signers.
(PPS) sampling? records. a. Examining a sample of cash disbursements to test whether expenses
a. Inclusion of zero and negative balances generally does not require d. Unrelated to the expected rate of errors in the related accounting have been properly approved.
special design considerations. records.
b. An estimate of the standard deviation of the population's recorded 429) The auditor will most likely perform extensive tests for possible
amounts is not required. 422) The two approaches to audit sampling are: understatement of
c. The auditor rarely needs the assistance of a computer program to a. Stratification and value weighted a. Revenues
design an efficient sample. b. Statistical and nonstatistical b. Assets
d. Any amount that is individually significant is automatically identified and c. Random and nonrandom c. Liabilities
selected. d. Precision and reliability d. Capital

416) In an integrated audit, which of the following lead(s) to an adverse 423) Using the same engagement partner or the same individual for the 430) Operational auditing is primarily oriented toward
opinion on internal control? engagement quality control review on a financial statement audit over a a. The verification that a company's financial statements are fairly
a. Material weaknesses Yes; Significant deficiencies Yes prolonged period may create a presented.
b. Material weaknesses Yes; Significant deficiencies No a. Familiarity threat b. The accuracy of data reflected in management's financial records.
c. Material weaknesses No; Significant deficiencies Yes b. Self-review threat c. Future improvements to accomplish the goals of management.
d. Material weaknesses No; Significant deficiencies No c. Intimidation threat d. Past protection provided by existing internal control.
d. Self-interest threat
417) A client erroneously recorded a large purchase twice. Which of the 431) In financial statement audits, the audit process should be conducted
following internal control measures would be most likely to detect this 424) What threat to independence is created when the litigation support in accordance with
error in a timely and efficient manner? services provided to an audit client include the estimation of the possible a. The audit program
a. Reconciling vendors' monthly statements with subsidiary payable outcome and thereby affects the amounts or disclosures to be reflected in b. Philippine Accounting Standards
ledger accounts. the financial statements c. Philippine Standards on Auditing
b. Tracing totals from the purchases journal to the ledger accounts. a. Intimidation threat d. Philippine Financial Reporting Standards
c. Sending written quarterly confirmations to all vendors b. Self-review threat
d. Footing the purchases journal. c. Familiarity threat 432) Which of the following statements does not properly describe an
d. Advocacy threat element of theoretical framework of auditing?
418) In determining whether transactions have been recorded, the a. An audit benefits the public
direction of the audit testing should be from the 425) A professional accountant in public practice is allowed to b. The data to be audited can be verified
a. Original source documents a. Refer to, use or cite actual or purported testimonials by third parties c. Auditors act on behalf of the management
b. General ledger balances b. Publish services in billboard (e.g., tarpaulin, streamers, etc.) d. Short-term conflicts may exist between managers who prepare the data
c. General journal entries advertisements and auditors who examine the data
d. Adjusted trial balance c. Publish and compare fees with other CPAs or CPA firms or compare
those services with those provided by another firm or CPA practitioner 433) Which of the following quality control procedures relates to
419) Which of the following factors most likely would affect an auditor's d. Inform interested parties through any medium that a partnership engagement performance?
judgment about the quantity, type, and content of the auditor's working or salaried employment of an accountancy nature is being sought a. Hiring
papers? b. Direction
a. The assessed level of control risk 426) Which of the following statements is correct concerning statistical c. Advancement
b. The number of personnel assigned to the audit sampling in tests of controls? d. Professional development
c. The content of the management representation letter a. As the population size doubles, the sample size also should double.
b. The population size has little or no effect on determining sample
434) The primary factor that should be considered in determining the programs 449) All of the following are special reports except reports on financial
extent of supervision needed by an assistant is the assistants statements
a. Competence 442) Totals of amounts in computer-record data fields, which are not a. In which the client has limited the scope of the audit
b. Independence usually added but are used only for data processing control purposes are b. Prepared in accordance with a tax basis of accounting
c. Professional certification called c. Prepared in accordance with a cash basis of accounting
d. Willingness to exercise due care a. Hash totals d. Prepared for limited purposes, such as reports that relate only to certain
b. Field totals aspects of financial statements
435) There are four conditions that give rise to the need for independent c. Record totals
audits of financial statements. One of these conditions is consequence. In d. Processing data totals 450) Which of the following shall be issued to examinees who pass the
this context, consequence means that the CPA licensure examination?
a. Financial statements are used for important decisions 443) Evidential matter is generally considered sufficient when a. Certificate of accreditation and personal identification card
b. Auditor must anticipate all possible consequences of the report issued a. It is appropriate b. Certificate of recognition and professional identification card
c. Users of the statements may not fully understand the consequences of b. It has been obtained by random selection c. Certificate of registration and professional identification card
their actions c. It has the qualities of being relevant, objective, and free from unknown d. Certificate of full compliance and professional identification card
d. Impact of using different accounting methods may not be fully bias
understood by the users of the statements d. There is enough of it to afford reasonable basis for an opinion on 451) Three of the following conditions would, by itself, require the auditor
financial statements to issue a report other than the unqualified report. Which one would not
436) Which of the following conditions would most likely indicate a require such a departure?
possible noncompliance with laws and regulations? 444) Audit files that are updated with new information of continuing a. The scope of the auditor's examination has been restricted, although
a. Media comment importance is called the cause of the restriction was not the client's fault.
b. Payment of commission to sales agent a. Current files b. The auditor is not independent during the fiscal period under audit.
c. Payment for specified services to consultant b. Permanent files c. The financial statements have not been prepared in accordance with
d. Purchasing land for a price significantly different from the sellers c. Working paper files generally accepted accounting principles.
recorded amount d. Correspondence files d. Client's company's financial statements show a significant net
loss for each of the last three years, including the current fiscal
437) An engagement letter would not normally include 445) The final step in the evaluation of audit results is the decision to period.
a. Billing arrangement a. Project the point estimate
b. Arrangement concerning clients assistance b. Determine the error in each sample 452) Control testing is performed in order to determine whether or not
c. Details of the procedure that will be performed c. Accept the population as fairly stated or to require further action a. Necessary controls are absent
d. Expectation of receiving a representation letter from management d. Determine sampling error and calculate the estimated total population b. The assessed level of control risk can be reduced
error c. Material peso error exist
438) The fundamental purpose of an internal control is to d. Incompatible functions exist
a. Safeguard the resources of the organization 446) To operate effectively, an internal auditor must be independent of
b. Encourage compliance with organization objectives a. The entity 453) In compliance with the element of human resources, the firm should
c. Ensure the accuracy, reliability, and timeliness of information b. The line functions of the organization address issues relating to
d. Provide reasonable assurance that the objectives of the c. The audit committee and the board of directors a. assignment of engagement teams
organization are achieved d. The employer-employee relationship which exists for other employees b. engagement performance
in the organization c. difference of opinion
439) Tests of controls are designed to obtain evidence to support the d. consultation
auditors assessment of control risk 447) In performing substantive tests, the auditor is concerned with two
a. at zero level. risks or errors of sampling; the alpha error and the beta error. 454) Independence is required whenever a professional accountant
b. at a high level. a. The alpha error is of greater concern to the auditor than the beta error. performs
c. at less than high level. b. The beta error is of greater concern to the auditor than the alpha a. professional services
d. at the maximum level. error. b. assurance services
c. The alpha error and the beta error are of equal importance to the c. non-assurance services
440) For control purposes, which of the following should be auditor. d. tax consultancy services
organizationally segregated from the computer operations functions? d. Neither the alpha error nor the beta error need to be considered by the
a. Data conversion auditor. 455) Both disclaimers and adverse opinions are used
b. Processing of data a. Only when the conditions is highly material
c. Systems development 448) An auditor who concludes, that an uncertainty is not adequately b. Irregardless of the auditor's independence
d. Minor maintenance according to schedule disclosed in the financial statements should issue a(an) c. Whether the condition is material or not
a. Special report d. Irregardless of client's choice of a appropriate accounting policies
441) Which of the following is not a general control? b. Qualified report
a. Hardware controls c. Disclaimer of opinion
b. Processing controls d. Unqualified report with emphasis of a matter paragraph
c. The plan of organization and operation of CIS activity
d. Procedures for documenting, reviewing, and approving systems and