Since 1977
AUDITING THEORY
AT.CDrill9—Simulated Examination (DIY)
The Practitioner’s Engagements
1. Which of the following services is the broadest and
most inclusive?
a. Audit c. Assurance
b. Attestation d. Compliance
2. Which one of the following is not a key attribute
needed to perform assurance?
a. Subject matter knowledge
b. An assurance service provide and its independence
c. Established criteria or standards
d. Accounting skills
3. Which of the following services would be most likely to
be structured as an assurance engagement?
a. Advocating a client’s position in tax matter.
b. A consulting engagement to develop a new data
base system for the revenue cycle.
c. An engagement to issue a report addressing an
entity’s compliance with requirements of specified
laws.
d. The compilation of a client’s forecast information.
Auditing: An Overview
Auditing in General
4. The main objective of operations auditing is
a. To verify fulfillment of plans and sound business
requirements.
b. To evaluate the integrity of accounting information.
c. To measure and evaluate the effectiveness of
controls.
d. To produce results as desired or directed.
5. What of the following is the criteria used in a
compliance audit?
a. Effectiveness and efficiency c. Company policies
b. Rules and regulations d. Both B and C
F/S Audit
6. According to PSAs, because there are inherent
limitations in an audit that affect the auditor’s ability to
detect material misstatements, the auditor is
a. A guarantor but not an insurer of the FSs
b. An insurer but not a guarantor of the FSs
c. Both a guarantor and an insurer of the FSs
d. Neither a guarantor nor an insurer of the FSs
7. Management of a company is responsible for
a. Hiring the auditor
b. Preparing the financial statements
c. The audit workpapers
d. Independence and obtaining evidence
8. Which of the following most accurately defines
professional skepticism as it is used in auditing
standards?
a. It either assumes management is honest or slightly
dishonest, but neither all the time.
b. It neither assumes that management is dishonest
nor assumes unquestioned honesty.
c. It assumes management is honest most of the
time.
d. It assumes that management is dishonest in only
rare instances.
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L. R. CABARLES/J.M. D. MAGLINAO
MAY 2020
9. Which of the following is not a financial statement
assertion relating to account balances?
a. Completeness. c. Rights and obligations.
b. Existence. d. Valuation and competence.
10. Which of the following is true concerning audit risk?
a. Audit risk is a function of only inherent risk and
control risk.
b. Audit risk includes the risk that the auditor might
express an opinion that the financial statements
are materially misstated when they are not.
c. Audit risk includes the auditor’s business risks,
such as losses from litigation.
d. Audit risk is a function of the risks of material
misstatement and detection risk.
Audit Evidence and Documentation: The Framework
11. Identify the nature of the evidential matter, (AR for
accounting records, OI for other information)
• Lawyer’s reply on status of legal cases
• Minutes of board and stockholders meetings
• Worksheets in support of cost allocations
• Benchmarking
• Invoices, paid checks, vouchers
The following are the respective nature of evidential
matter:
a. OI, AR, OI, AR, AR c. OI, OI, AR, OI, AR
b. AR, OI, AR, OI, AR d. AR, AR, OI, AR, AR
12. Reperformance
a. Consists of looking at a process or procedure being
performed by others.
b. Consists of seeking information of knowledgeable
persons, both financial and non-financial,
throughout the entity or outside the party.
c. Is the process of obtaining a representation of
information or of an existing condition directly from
a third party.
d. Is the auditor’s independent execution of
procedures or controls that were originally
performed as part of the entity’s internal control.
13. Which statement is incorrect regarding inspection as
an audit procedure?
a. Inspection consists of examining records or
documents or physical examination of assets.
b. Inspection of tangible assets may provide reliable
audit evidence with respect to their existence and
about the entity’s rights and obligations on the
assets.
c. Inspection of individual inventory items ordinarily
accompanies the observation of inventory
counting.
d. Some documents represent direct audit evidence
of the existence of an asset.
14. Which of the following is not a primary purpose of
audit working papers?
a. To coordinate the examination.
b. To assist in preparation of the audit report.
c. To support the financial statements.
d. To provide evidence of the audit work performed.
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15. The permanent files included as part of audit
documentation do not normally include:
a. a copy of the current and prior years’ audit
programs.
b. copies of articles of incorporation, bylaws and
contracts.
c. information related to the understanding of
internal control.
d. results of analytical procedures from prior years.
16. Working papers prepared by a CPA in connection with
an audit engagement are owned by the CPA, subject to
certain limitations. The rationale for this rule is to
a. Protect the working papers from being
subpoenaed.
b. Provide the basis for excluding admission of the
working papers as evidence because of the
privileged communication rule.
c. Provide the CPA with evidence and documentation
which may be helpful in the event of a lawsuit.
d. Establish a continuity of relationship with the client
whereby indiscriminate replacement of CPAs is
discouraged.
b. Assess the control risk at the maximum level and
perform a primarily substantive audit
c. Decline to accept or perform the audit
d. Modify the scope of the audit to reflect an
increased risk of material misstatement due to
fraud
Planning an Audit
22. Which of the following procedures would an auditor
ordinarily perform during an audit planning?
a. Review the client’s bank reconciliation
b. Obtain client’s representation letter
c. Obtain understanding of the client’s business and
industry
d. Review and evaluate client’s internal control
23. Which of the following procedures is not performed as
a part of planning an audit engagement?
a. Performing analytical procedures
b. Reviewing the working papers of the prior year
c. Designing an overall audit strategy and audit
program/plan
d. Testing of controls

Performing Preliminary Engagement Activities 24. A listing of all the things which the auditor will do to
17. Which of the following factors most likely would cause gather sufficient, competent evidence is the:
a CPA to not accept a new audit engagement? a. Audit strategy c. Audit procedure
a. The prospective client has fired its prior auditor. b. Audit program d. Audit risk model
b. The CPA lacks a thorough understanding of the
prospective client's operations and industry. Determining Materiality
c. The CPA is unable to review the predecessor 25. When planning an examination, an auditor should
auditor's working papers. a. Consider whether the extent of substantive tests
d. The prospective client is unwilling to make financial may be reduced based on the results of the
records available to the CPA or is unwillingness to internal control questionnaire.
permit inquiry of its legal counsel. b. Make preliminary judgments about materiality
levels for audit purposes.
18. Before accepting an engagement to audit a new client, c. Conclude whether changes in compliance with
a CPA is required to obtain prescribed control procedures justifies reliance on
a. A preliminary understanding of the prospective them
client’s industry and business. d. Prepare a preliminary draft of the management
b. The prospective client’s signature to the representation letter.
engagement letter.
c. An understanding of the prospective client’s control 26. Since materiality is relative, it is necessary to have
environment. bases for establishing whether misstatements are
d. A representation letter from the prospective client. material. Normally, the most common base for
deciding materiality is:
19. Before accepting an audit engagement, a successor a. Net income before taxes c. Working capital
auditor should make specific inquiries of the b. Net income after taxes d. Total assets
predecessor auditor regarding the predecessor’s
a. opinion of any subsequent events occurring since 27. Only the amount of misstatements need to be
the predecessor’s audit report was issued considered in assessing materiality.
b. understanding as to the reasons for the change of
auditors Both the amount and nature of misstatements need to
c. awareness of the consistency in the application of be considered in assessing materiality.
GAAP between periods a. True, True c. False, False
d. evaluation of all matters of continuing accounting b. False, True d. True, False
significance
Understanding the Entity and its Environment
20. Before performing any audit procedures. The auditor 28. Of the following procedures, which is not considered
and the client should agree on the part of “obtaining an understanding of the client’s
environment?”
Type of opinion to be Terms of the a. Examining trade publications to gain a better
expressed engagement understanding of the client's industry.
a. Yes Yes b. Confirming customer accounts receivable for
b. No Yes existence and valuation.
c. No Yes c. Touring the client's manufacturing and
d. Yes Yes warehousing facilities to gain a clearer
understanding of operations.
21. If the auditor believes that an understanding with the d. Studying the internal controls over cash receipts
client has not been established, he or she should and disbursements.
ordinarily
a. Perform the audit with increased professional
skepticism

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EXCEL PROFESSIONAL SERVICES, INC.

29. Analytical procedures are used for the following properly approved shipping order and bill of lading
purposes except signed by the carrier.
a. To assist the auditor in planning the nature, timing d. Forward a copy a the signed bill of lading to the
and extent of other auditing procedures. stores manager.
b. As a substantive test to obtain evidential matter
about a particular assertion related to account 35. The accounts payable department generally should
balances or classes of transactions. a. Cancel supporting documentation after a cash
c. As an overall review of financial information in the payment is mailed
final review stage of the audit. b. Approve the price and quantity of each purchase
d. To evaluate the effectiveness of the client’s requisition
internal control. c. Assure that the quantity ordered is omitted from
the receiving department’s copy of the purchase
Understanding the Entity’s Internal Control order
30. The following are the components of the internal d. Agree the vendor’s invoice with the receiving
control, except report and purchase order
a. Risk assessment process
b. Monitoring 36. With regard to the physical count of inventory,
c. Control activities necessary control procedures include:
d. Control risk a. proper instructions for the physical count.
b. independent third-party verification of the counts.
31. Management philosophy and operating style most c. third-party reconciliations of the physical counts
likely would have a significant influence on an entity's with perpetual inventory master files.
control environment when d. counting the inventory only on the year-end date.
a. The internal auditor reports directly to
management. 37. In meeting the control objective of safeguarding of
b. Management is dominated by one individual. assets, which department should be responsible for
c. Accurate management job descriptions delineate Distribution of Custody of
specific duties. paychecks unclaimed paychecks
d. The audit committee actively oversees the financial a. Treasurer Treasurer
reporting process. b. Payroll Treasurer
c. Treasurer Payroll
32. Incompatible duties most likely would not be d. Payroll Payroll
considered an inherent limitation of the potential
effectiveness of an entity’s internal control. 38. Responsibility for the issuance of new notes payable
should be vested in the:
Mistakes in judgment most likely would not be a. board of directors.
considered an inherent limitation of the potential b. purchasing department.
effectiveness of an entity’s internal control. c. accounting department.
d. accounts payable department.
Collusion among employees most likely would not be
considered an inherent limitation of the potential 39. It should ordinarily be unnecessary to examine
effectiveness of an entity’s internal control. supporting documentation for each addition to
a. first statement is not correct; the second and third property, plant, and equipment, but it is customary to
statements are correct. verify:
b. all above statements are correct. a. all large transactions.
c. first statement is correct; the second and third b. all unusual transactions.
statements are not correct. c. a representative sample of typical additions.
d. second statement is correct; the first and third d. all three of the above.
statements are not correct.
Identifying and Assessing ROMM
33. The performance of walkthroughs provides the auditor 40. Inherent risk is _______ related to detection risk and
with primary evidence to _______ related to the amount of audit evidence.
Evaluate the Confirm whether controls a. directly, inversely c. inversely, inversely
effectiveness of the have been placed in b. directly, directly d. inversely, directly
design of controls operation
a. Yes Yes 41. An auditor assesses control risk because it
b. Yes No a. Is relevant to the auditor's understanding of the
c. No Yes control environment.
d. No No b. Provides assurance that the auditor's materiality
levels are appropriate.
Internal Control—Transaction Cycles c. Indicates to the auditor where inherent risk may
34. The most effective control to prevent unbilled and be the greatest.
unrecorded shipments of finished goods is to d. Affects the level of detection risk that the auditor
a. Require all outgoing shipments to be accompanied may accept.
by a prenumbered shipping order and bill of lading
(signed by the carrier). Forward a copy of these 42. In an audit of a company’s financial statements, the
documents to accounting, to be placed in an open auditors identify significant risks. These risks often
file awaiting receipt of the customer invoice copy. a. Involve routine, high-volume transactions.
b. Forward a copy of the shipping order and bill of b. Do not require special audit attention.
lading to billing. c. Involve items with lower levels of inherent risk.
c. Implement a policy that prevents sales invoices d. Involve judgmental matters.
from being mailed to customers in the absence of a

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EXCEL PROFESSIONAL SERVICES, INC.
Responding to Assessed Risks
43. Shown below (1 through 5) are the five types of tests
which auditors use to determine whether financial
statements are fairly stated. Which three are
substantive tests?
1. procedures to obtain an understanding of internal
control
2. tests of controls
3. tests of transactions
4. analytical procedures
5. tests of details of balances
a. 1, 2, and 3. c. 2, 3, and 5.
b. 3, 4, and 5. d. 2, 3, and 4.
44. The extent of procedures is affected mostly by which of
the following factors?
a. the sheer volume of procedures to be applied by
the auditor.
b. the time of year in which the client takes a physical
inventory in the warehouse.
c. the auditor's judgment that misstatements are
probable in certain balances.
d. the availability of the client's staff at or near the
balance sheet date.
Determining the Extent of Testing
45. Which of the following best illustrates the concept of
sampling risk?
a. A randomly chosen sample may not be
representative of the population as a whole on the
characteristic of interest.
b. An auditor may select audit procedures that are
not appropriate to achieve the specific objective.
c. An auditor may fail to recognize errors in the
documents examined for the chosen sample.
d. The documents related to the chosen sample may
not be available for inspection.
46. In assessing sampling risk, the risk of assessing
control risk too high (under reliance) and risk of
incorrect rejection relate to the
a. Efficiency of the audit.
b. Effectiveness of the audit.
c. Selection of the sample.
d. Audit quality controls.
47. An advantage of using statistical over nonstatistical
sampling methods in tests of controls is that the
statistical methods
a. Can more easily convert the sample into a dual-
purpose test useful for substantive testing.
b. Eliminate the need to use judgment in determining
appropriate sample sizes.
c. Afford greater assurance than a nonstatistical sam-
ple of equal size.
d. Provide an objective basis for quantitatively evalu-
ating sample risk.
48. One cause of nonsampling risk is:
a. ineffective use of audit procedures.
b. testing less than the entire population.
c. use of extensive tests of controls.
d. the possibility that a properly-selected sample still
may not be representative.
49. To determine the sample size for a test of control, an
auditor should consider the tolerable rate of deviation,
the allowable risk of assessing control risk too low, and
the
a. Expected deviation rate
b. Upper precision limit
c. Risk of incorrect acceptance
d. Risk of incorrect rejection
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50. An auditor who uses statistical sampling for attributes
in testing internal controls should increase the
assessed level of control risk (CR is high) when the
a. Sample rate of deviation is less than the expected
rate of deviation used in planning the sample.
b. Tolerable rate less the allowance for sampling risk
exceeds the sample rate of deviation.
c. Sample rate of deviation plus the allowance for
sampling risk exceeds the tolerable rate.
d. Sample rate of deviation plus the allowance for
sampling risk equals the tolerable rate.
51. Which of the following methods of sample selection are
acceptable when using statistical sampling in an audit
of financial statements?
a. Haphazard selection only
b. Random selection, systematic selection, and
haphazard sampling only
c. Random selection and systematic selection only
d. Random selection only
52. In applying variables sampling, an auditor attempts to
a. Estimate a qualitative characteristic of interest
b. Determine various rates of occurrence for specified
attributes
c. Discover at least one instance of a critical error
d. Predict monetary population value within a range
of precision
53. The advantage of systematic sample selection is that:
a. it is easy to use.
b. there is limited possibility of it being biased.
c. it is unnecessary to determine if the population is
arranged randomly.
d. it automatically selects items material to the
financial statements.
54. The process which requires the calculation of an
interval and then selects the items based on the size of
the interval is:
a. statistical sampling.
b. random sample selection.
c. systematic sample selection.
d. computerized sample selection.
Considering Fraud and Error, and NOCLAR
Fraud and Error
55. Which statement is (are) incorrect regarding fraud?
a. Auditors make legal determinations of whether
fraud has actually occurred
b. Fraud involving one or more members of
management or those charged with governance is
referred to as “employee fraud”
c. Fraud involving only employees of the entity is
referred to as “management fraud”
d. All of the above
56. Fraudulent financial reporting is often called:
a. management fraud. c. defalcation.
b. theft of assets. d. embezzlement.
57. In general, material fraud perpetrated by which of the
following are most difficult to detect?
a. Cashier. c. Keypunch operator.
b. Internal auditor. d. Controller.
58. The most difficult type of misstatement to detect is
fraud based on
a. The overrecording of transactions.
b. The nonrecording of transactions.
c. Recorded transactions in subsidiaries or incorrect
postings of recorded transactions.
d. Related-party receivables.
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59. The primary responsibility for the prevention and
detection of fraud and error rests with.
a. Auditor c. TCWG
b. Management d. Both b and c
60. Which of the following is not a category of fraud risk
factors (whose presence often has been observed in
circumstances where frauds have occurred) in relation
to misstatements arising from misappropriation of
assets and fraudulent financial reporting?
a. Attitudes/Rationalizations c. Opportunities
b. Pressures/Incentives d. Controls
61. The following are examples of circumstances that may
indicate the possibility that the financial statements
may contain a material misstatement resulting from
fraud, except
a. Fewer responses to confirmations than anticipated
or a greater number of responses than anticipated.
b. Large numbers of debit entries and other
adjustments made to accounts receivable records.
c. Missing inventory or physical assets of significant
magnitude.
d. Unusual discrepancies between the entity's records
and confirmation replies.
62. Which of the following could indicate that the risk of
fraud and other irregularities perpetrated by senior
management is higher than normal?
a. There are very few related party transactions.
b. The auditor has not audited this client before.
c. Management turnover is unusually high.
d. The auditor discovers a GAAP departure during the
audit.
63. Which of the following risks of fraud should ordinarily
be presumed on a financial statement audit by the
audit team?
a. Chief financial officer misappropriation of funds.
b. Misapplication of revenue recognition principles.
c. Management's inappropriate use of reserves.
d. Lack of expenses related to stock options.
64. Which of the following is least likely to be required on
an audit in accordance with PSAs?
a. Test appropriateness of journal entries and
adjustment.
b. Review accounting estimates for biases.
c. Evaluate the business rationale for significant
unusual transactions.
d. Make a legal determination of whether fraud has
occurred.
65. What is the best method an auditor may use to detect
fraud in the financial statements of clients?
a. Use professional skepticism.
b. Understand and properly apply Generally Accepted
Accounting Standards.
c. Brainstorm with the client to find the types of fraud
occurring.
d. Actively search for all errors in the financial
statements.
66. The most effective way to prevent and deter fraud is
to:
a. implement programs and controls that are based
on core values embraced by the company.
b. hire highly ethical employees.
c. communicate expectations to all employees on an
annual basis.
d. terminate employees who are suspected of
committing fraud.
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NOCLAR
67. When the auditor becomes aware of information
concerning a possible noncompliance to laws or
regulations, the auditor should appropriately:
a. Obtain an understanding of the nature of the act
and the circumstances in which it has occurred,
and evaluate the possible effect on the financial
statements.
b. Discuss his suspicion with the management.
c. Ask management to determine whether a violation
is really committed.
d. Consult with the entity’s legal counsel as to what
appropriate action the auditor should do.
68. Most illegal acts affect the financial statements:
a. directly.
b. only indirectly.
c. both directly and indirectly.
d. materially if direct; immaterially if indirect.
69. The following are conditions that non-compliance may
have occurred, except
a. Payments for unspecified services or loans to
consultants, related parties, employees or
government employees
b. Existence of an accounting system which fails,
whether by design or by accident, to provide an
adequate audit trail or sufficient evidence.
c. Unusual payments in cash, purchases in the form
of cashiers’ cheques payable to bearer or transfers
to numbered bank accounts.
d. Sales commissions or agent's fees that appear
reasonable in relation to those ordinarily paid by
the entity or in its industry or to the services
actually received.
Considering Work of Other Practitioners
70. If the independent auditors decide that the work
performed by the internal auditor may have a bearing
on their own procedures, they should consider the
internal auditor's
a. Competence and objectivity.
b. Efficiency and experience.
c. Independence and review skills.
d. Training and supervisory skills.
71. During an audit, the auditor may need the assistance
of an expert in obtaining sufficient appropriate
evidence. A common example is
a. Determining the sufficiency and appropriateness of
evidential matter obtained.
b. Evaluating the potential financial statements effect
of an employee fraud.
c. Evaluating the integrity of management.
d. Determination of amounts using actuarial
computations.
Considering Certain F/S Items
72. Which of the following is true concerning the audit of
the cash account?
a. A recommended audit step in the audit of cash
accounts is to verify all adjusting entries and year-
end accruals.
b. There are no disclosure requirements for the cash
account, since the amount is already stated at its
fair market value.
c. Valuation is only an issue if there is a foreign
currency account.
d. The most important assertion for the cash account
is accuracy.
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73. Which of the following statements about confirmations
that traditionally been used to verify bank balances
and accounts receivable is true?
a. Confirmations are expensive and so are often not
used.
b. Confirmations may inconvenience those asked to
supply them, but they are widely used.
c. Confirmations are sometimes not reliable and so
auditors use them only as necessary and properly
controlled.
d. Confirmations are required for several balance
sheet accounts but no income statement accounts.
74. On the last day of the fiscal year, the cash
disbursements clerk drew a company check on bank A
and deposited the check in the company account in
bank B to cover a previous theft of cash. The
disbursement has not been recorded. The auditor will
best detect this form of kiting by:
a. examining the composition of deposits in both
bank A and bank B subsequent to year-end.
b. examining paid checks returned with the bank
statement of the next account period after year-
end.
c. preparing, from the cash disbursements records, a
summary of bank transfers for one week prior to
and subsequent to year-end.
d. comparing the detail of cash receipts as shown by
the client’s cash receipts records with the detail on
the confirmed duplicate deposit tickets for three
days prior to and subsequent to year-end.
75. The cashier of Brooke Company covered a shortage in
the cash working fund with cash obtained on December
31 from a local bank by cashing, but not recording, a
check drawn on the Company's out-of-town bank. How
would the auditor discover this manipulation?
a. Confirming all December 31 bank balances
b. Counting the cash working fund at the close of
business on December 31
c. Preparing independent bank reconciliations as of
December 31
d. Preparing and detail testing a bank transfer
schedule
76. An auditor is examining accounts receivable. What is
the most competent type of evidence in this situation?
a. Interviewing the personnel who record accounts
receivable.
b. Verifying that postings to the receivable account
from journals have been made.
c. Receipt by the auditor of a positive confirmation.
d. No response received for a request for a negative
confirmation.
77. An auditor concluded that no excessive costs for idle
plant were charged to inventory. This conclusion most
likely related to the auditor's objective to obtain
evidence about the financial statement assertions
regarding inventory, including presentation and
disclosure and
a. Valuation. c. Existence.
b. Completeness. d. Rights.
78. Which of the following statements relates to the
ownership assertion?
a. Inventory listings are accurately included in the
inventory accounts.
b. Inventory excludes items billed to customers.
c. Inventory is properly classified as a current asset.
d. Inventory is properly stated at cost.
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79. Which of the following audit procedures would provide
the least reliable evidence that the client has legal title
to inventories?
a. Confirmation of inventories at locations outside the
client’s facilities
b. Analytical review of inventory balances compared
to purchasing and sales activities
c. Observation of physical inventory counts
d. Examination of paid vendor’s invoices
80. An auditor would be least likely to use confirmations in
connection with the examination of:
a. inventories.
b. long-term debt.
c. property, plant, and equipment.
d. stockholders’ equity.
81. In evaluating the reasonableness of an entity's
accounting estimates, an auditor normally would be
concerned about assumptions that are
a. Susceptible to bias.
b. Consistent with prior periods.
c. Insensitive to variations.
d. Similar to industry guidelines.
82. Which of the following statements is correct concerning
related-party transactions?
a. In the absence of evidence to the contrary,
related-party transactions should be assumed to
be outside the ordinary course of business.
b. An auditor should determine whether a particular
transaction would have occurred if the parties had
not been related.
c. An auditor should substantiate that related-party
transactions were consummated on terms
equivalent to those that prevail in arm’s-length
transactions.
d. The audit procedures directed toward identifying
related-party transactions should include
considering whether transactions are occurring,
but are not being given proper accounting
recognition.
83. The auditor should carry out procedures in order to
become aware of any litigation and claims involving
the entity which may have a material effect on the
financial statements. Such procedures least likely
include
a. Making appropriate inquiries of management
including obtaining representations.
b. Reviewing board minutes and correspondence with
the entity’s lawyers.
c. Examining interest expense accounts.
d. Using any information obtained regarding the
entity’s business including information obtained
from discussions with any in-house legal
department.
84. Which of the following statements extracted from a
client's lawyer's letter concerning litigation, claims, and
assessments most likely would cause the auditor to
request clarification?
a. "I believe that the possible liability to the company
is nominal in amount."
b. "I believe that the action can be settled for less
than the damages claimed."
c. "I believe that the plaintiff's case against the
company is without merit."
d. "I believe that the company will be able to defend
this action successfully."
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85. If the auditor concludes that there may be a going
concern problem, the auditor should do which of the
following?
a. withdraw from the engagement.
b. issue a qualified or adverse opinion.
c. identify and assess management's plan to
overcome the problem.
d. communicate this fact with management one level
above the controller.
Completing the Audit and Considering Post-audit
Responsibilities
86. If the balance sheet of a company is dated December
31, 2018, the audit report is dated February 8, 2019,
and both are released on February 15, 2019, this
indicates that the auditor has searched for subsequent
events that occurred up to:
a. December 31, 2018. c. February 8, 2019.
b. January 1, 2019. d. February 15, 2019.
87. Which one of the following is not a key condition
indicating doubt regarding an entity's ability to
continue as a going-concern?
a. Adverse key financial ratios.
b. Employee strike that halts operations for several
months.
c. Company has not paid dividends to date.
d. Default on bank debt.
88. It is an accepted practice for external auditors to
request letter of representation from their clients. A
principal purpose of a letter of representation form the
client is to
a. Discharge the auditor from legal liability of his
examination.
b. Confirm in writing management’s approval of
limitations on the scope of audit.
c. Serve as an introduction to company’s personnel
and authorization to examine the records.
d. Remind management for its primary responsibility
for financial statements.
89. Which of the following matters would an auditor most
likely include in a management representation letter?
a. Communications with the audit committee con-
cerning weaknesses in internal control.
b. The completeness and availability of minutes of
stockholders' and directors' meetings.
c. Plans to acquire or merge with other entities in the
subsequent year.
d. Management's acknowledgment of its responsibility
for the detection of employee fraud.
Forming the Auditor's Opinion and Report Contents
90. PSAs require the auditor to communicate all
management frauds and illegal acts to the audit
committee:
a. only if the act is immaterial.
b. only if the act is material.
c. only if the act is highly material.
d. regardless of materiality.
91. If the audit team encounters difficulties in performing
an audit, such matters must be communicated to
which party?
a. the SEC
b. the audit committee
c. management
d. the PCAOB
92. Which of the following statements is incorrect?
a. Because of inadequate disclosures of material
information, an auditor most likely would issue a
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disclaimer of opinion.
b. A material departure from PFRS results in either a
qualified or adverse opinion.
c. A client’s refusal to furnish written representations
generally results in a disclaimer of opinion.
d. The omission of a statement of cash flows may
result in a qualified opinion.
93. An auditor includes a separate paragraph in an
otherwise unmodified report to emphasize that the
entity being reported on had significant transactions
with related parties. The inclusion of this separate
paragraph
a. Is considered an “except for” qualification of the
opinion.
b. Violates PSAs if this information is already
disclosed in notes to the financial statements.
c. Necessitates a revision of the opinion paragraph to
include the phrase “with the foregoing
explanation”.
d. Is appropriate and would not negate the
unqualified opinion.
94. Which of the following statements with respect to
comparative financial statements is true?
a. The auditor’s report must always refer to each
period for which financial statements are
presented.
b. The auditor’s report must refer to each period for
which financial statements are presented and on
which an audit opinion is expressed.
c. The auditor’s report must refer to each period for
which financial statements are presented only
when the comparative period was audited by
another auditor.
d. The auditor’s report must refer to both the current
and comparative figures for non-listed entities, but
refers only to the current year figures for listed
entities.
95. The expression of a qualified opinion means that the
financial statements, taken as a whole, in all material
respects, are
a. materially misstated.
b. materially misleading.
c. present fairly.
d. do not present fairly.
Performing and Reporting on Specialized Audit
Engagements
96. CPAs issue several types of “special audit reports.”
Which of the following circumstances would not require
the issuance of a special audit report?
a. The client’s financial statements are prepared
using the cash basis.
b. The client’s financial statements are prepared
using the accrual basis.
c. The CPA has been retained to audit only the
current assets.
d. The CPA has been retained to review the internal
control system, not the financial statements.
97. An auditor's special report on financial statements
prepared in conformity with the cash basis of
accounting should include a separate explanatory
paragraph that
a. Justifies the reasons for departing from generally
accepted accounting principles.
b. States whether the financial statements are fairly
presented in conformity with another
comprehensive basis of accounting.
c. Refers to the note to the financial statements that
describes the basis of accounting.
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EXCEL PROFESSIONAL SERVICES, INC.

d. Explains how the results of operations differ from Code of Ethics for Professional Accountants
financial statements prepared in conformity with 106. The underlying reason for a code of professional
generally accepted accounting principles. conduct for any profession is:
a. the need for public confidence in the quality of
Performing Review and Other Assurance service of the profession.
Engagements b. that it provides a safeguard to keep unscrupulous
98. Which of the following procedures is not included in a people out.
review engagement on a nonpublic entity? c. that it is required by federal legislation.
a. Inquiries of management. d. that it allows licensing agencies to have a yardstick
b. Inquiries regarding events subsequent to the to measure deficient behavior.
balance sheet date.
c. Any procedures designed to identify relationships 107. Society has attached a special meaning to the term
among data that appear to be unusual. “professional.” A professional is:
d. A study and evaluation of internal control a. someone who has passed a qualifying exam to
structure. enter the job market.
b. a person who is expected to conduct himself or
99. Which of the following would be associated with a herself at a higher level than the requirements of
review engagement? society’s laws or regulations.
a. Substantive and compliance testing c. any person who receives pay for the services
b. Notice to reader report performed.
c. Conformity with GAAP and GAAS d. someone who has both an education in the trade
d. Negative assurance and on-the-job experience received under an
experienced supervisor.
100. Which of the following is a prospective financial
statement for general use upon which an accountant 108. A challenge associated with the Ethical Principles
may appropriately report? stated in the Code of Professional Conduct is:
a. Financial projection c. Pro forma FSs a. the emphasis on positive activities.
b. Partial presentation d. Financial forecasts b. that they identify ideal conduct.
c. the difficulty of enforcing principles, or general
Performing Related Services Engagements ideals.
101. An accountant’s report of factual findings is a form d. that there are too many to remember.
of report that is most likely to be issued in conjunction
with which of the following engagements a CPA may 109. In order to achieve the objectives of the
perform for a client? accountancy profession, professional accountants have
a. Engagement to perform agreed-upon procedures to observe a number of prerequisites or fundamental
b. Attest engagement principles. The fundamental principles include the
c. Assurance engagement following, except
d. Compilation engagement a. Professional behavior c. Independence
b. Confidentiality d. Objectivity
102. An accountant who is not independent may issue a
a. Compilation report. c. Comfort letter. 110. The principle of integrity imposes an obligation on
b. Review report. d. Qualified opinion. professional accountants to
a. Comply with relevant laws and regulations
Professional Standards, Quality Control, and b. Avoid any action that may bring discredit to the
Professional Liabilities profession
103. The least important evidence of a public accounting c. Both a and b
firm's evaluation of its system of quality controls would d. Neither a nor b
concern the firm's policies and procedures with respect
to 111. The principle of objectivity imposes which of the
a. Employment (hiring). following obligations on professional accountants?
b. Confidentiality of audit engagements. a. To maintain professional knowledge and skill at the
c. Assigning personnel to audit engagements. level required to ensure that clients or employers
d. Determination of audit fees. receive competent professional advice
b. To refrain from disclosing confidential information
104. Reviewing and coaching the work of less obtained as a result of professional and business
experienced team members should be performed by relationships
______ experienced engagement team members. c. To comply with relevant laws and regulations and
a. Less avoid any situation that may bring discredit to the
b. More profession
c. Equally d. Not to compromise professional or business
d. None of the above judgment because of bias, conflict of interest or
undue influence of others
105. An engagement quality control review is normally
done by the: 112. Confidential client information may be disclosed in
a. The engagement partner thefollowing circumstances, except
b. The chief technical partner of the office conducting a. When disclosure is authorized.
the audit b. When disclosure is required by law.
c. A partner not otherwise assigned to the c. When the relationship between the client and the
engagement auditor ceases.
d. The engagement manager d. When there is a professional duty or right to
disclose.

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EXCEL PROFESSIONAL SERVICES, INC.

113. Based on the Code of Ethics for Professional 120. When performing a review engagement, the
Accountants, threats to compliance with fundamental following should be independent of the client
principles arise from all of the following except: a. b. c. d.
a. Self interest. c. Advocacy. The members of the Yes Yes Yes Yes
b. The audit relationship. d. Intimidation. assurance team
The firm Yes Yes No No
114. Which of the following is an example of a Network firms Yes No No Yes
safeguard implemented by the client that might
mitigate a threat to compliance with fundamental 121. Which of the following is a “self review” threat to
principles? engagement team member’s compliance with
a. Required continuing education for all attest fundamental principles?
engagement team members. a. An engagement team member has a spouse that
b. An effective corporate governance structure. serves as CFO of the attest client.
c. Required second partner review of an attest b. A second partner review is required on all attest
engagement. engagements.
d. Management selection of the CPA firm. c. An engagement team member prepares invoices
for the attest client.
115. Using the same lead engagement partner on an d. An engagement team member has a direct
audit over a prolonged period may most likely create financial interest in the attest client.
a. Self-interest threat c. Intimidation threat
b. Self-review threat d. Familiarity threat 122. Which of the following is a misunderstanding
created by the use of the word “independence?”
116. Examples of circumstances that may create a. A person exercising professional judgment should
familiarity threat include be free from all economic, financial and other
I. A member of the assurance team having an relationships.
immediate family member or close family member b. Possessing the ability to act with integrity and
who is a director or officer of the assurance client. objectivity.
II. Dealing in, or being a promoter of, share or other c. Independence precludes relationships that may
securities in an assurance client. appear to impair objectivity in rendering assurance
III. Threat of replacement over a disagreement with services.
the application of an accounting principle. d. Possessing the ability to express a conclusion
IV. Potential employment with an assurance client. without being affected by influences that
V. Long association of a senior member of the compromise professional judgment.
assurance team with the assurance client.
a. I, IV and V only 123. When CPAs are able to maintain their actual
b. II and V only independence, it is referred to as independence in:
c. II, III and IV only a. conduct. c. fact.
d. I and V only b. appearance. d. total.

117. Occurs when a professional accountant promotes a 124. CPAs are required to act with integrity and
position or opinion to the point that subsequent objectivity for which of the following engagements?
objectivity may be compromised a. tax preparation
a. Self-interest threat c. Advocacy threat b. financial statement review services
b. Self-review threat d. Familiarity threat c. financial statement audits
d. all engagements
118. There are fundamental principles that the
professional accountant has to observe when 125. For which of the following professional services
performing assurance engagements. The requirement must CPAs be independent?
of which principle is of particular importance in an a. Management advisory services.
assurance engagement in ensuring that the conclusion b. Audits of financial statements.
of the professional accountant has value to the c. Preparation of tax returns.
intended user? d. All three of the above.
a. Integrity c. Confidentiality
b. Professional competence d. Objectivity Setting-Up a Public Accounting Practice
126. The Accountancy Law provided that a CPA
119. In which of the following may confidential certificate may be suspended or revoked on grounds
information not be disclosed? except
a. To comply with the quality review of a member a. Immoral or dishonorable conduct.
body or professional body b. Gross negligence or incompetence in the practice of
b. To submit evidence in the course of legal profession.
proceedings c. Refusal to accept an audit engagement with a
c. Acquiring information in the course performing government corporation.
professional services and use that information for d. Conduct discreditable to the accounting profession
personal advantages
d. When consent to disclose information is given by 127. Which of the following is not included in the seal
the client used by a CPA?
a. Professional tax receipt number
b. Name of the CPA
c. Registration number
d. The title “CPA”

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EXCEL PROFESSIONAL SERVICES, INC.

128. Who has the power to suspend or remove any 133. The following statements relate to CPA
member of the Board of Accountancy? examination ratings. Which of the following is
a. The President of the Philippines incorrect?
b. The Chairman of the PRC a. To pass the examination, candidates should obtain
c. The Chairman of the FRSC a general weighted average of 75% and above,
d. The Chairman of the AASC with no rating in any subject less than 65%.
b. Candidates who obtain a rating of 75% and above
129. An applicant for the CPA licensure examination in at least four subjects shall receive a conditional
should meet the following requisites, except credit for the subjects passed.
a. A Filipino citizen c. Candidates who failed in four complete
b. Of good moral character examinations shall no longer be allowed to take
c. A holder of the degree of Bachelor of Science in the examinations the fifth time.
Accountancy d. Conditioned candidates shall take an examination
d. Has not been convicted of any crime. in the remaining subjects within two years from
the preceding examination.
130. A CPA shall not practice under a firm name that
includes or indicates the following except 134. The Board, subject to the approval of the
a. Fictitious name Commission, may revise or exclude any of the subjects
b. Specialization and their syllabi, and add new ones as the need arises.
c. Misleading as to the type of the organization Provided that the change shall not be more often than
d. Name(s) of past partner(s) in the firm name of every
successor partnership a. 2 years c. 4 years
b. 3 years d. 5 years
131. Are the following CPAs required to comply with the
requirements on continuing professional education? 135. The following statements relate to RA 9298 and its
a b c d IRRs. Which statement(s) is (are) true?
CPAs in Public Accountancy Yes Yes Yes Yes I. A meaningful experience shall be considered as
CPAs in Commerce and Yes Yes No No satisfactory compliance if it is earned in Public
Industry Practice and shall include at least one year as audit
CPAs in Education/Academe Yes Yes Yes No assistant and at least two years as auditor in
CPAs in Government Yes No Yes No charge of the audit engagement covering full audit
functions of significant clients.
132. A person whose CPA certificate has been revoked II. Individual CPAs, Firms or Partnerships of CPAs,
a. can no longer be reinstated as a CPA. including partners and staff members thereof shall
b. is automatically reinstated as a CPA by the PRC register with the BOA and the PRC. If the
after two years if he has acted in an exemplary application for registration of AB and Co., CPAs
manner. was approved on August 30, 2018, its registration
c. may be reinstated as a CPA by the PRC after two will expire on September 30, 2020.
years if he has acted in an exemplary manner a. I and II c. II only
d. may be reinstated as a CPA by the Board of b. I only d. Neither I nor II
Accountancy after two years if he has acted in an
exemplary manner. J - done - J

Answers:
1. C 2. D 3. C 4. A 5. D 6. D 7. B 8. B 9. D 10. D
11. C 12. D 13. B 14. C 15. A 16. C 17. D 18. A 19. B 20. B
21. C 22. C 23. D 24. B 25. B 26. A 27. B 28. B 29. D 30. D
31. B 32. C 33. A 34. A 35. D 36. D 37. A 38. A 39. D 40. D
41. D 42. D 43. B 44. C 45. A 46. A 47. D 48. A 49. A 50. C
51. C 52. D 53. A 54. C 55. D 56. A 57. D 58. B 59. D 60. D
61. B 62. C 63. B 64. D 65. A 66. A 67. A 68. B 69. D 70. A
71. D 72. C 73. B 74. B 75. D 76. C 77. A 78. B 79. B 80. C
81. A 82. D 83. C 84. B 85. C 86. C 87. C 88. D 89. B 90. D
91. B 92. A 93. D 94. B 95. C 96. B 97. C 98. D 99. D 100. D
101. A 102. A 103. D 104. B 105. C 106. A 107. B 108. C 109. C 110. D
111. D 112. C 113. B 114. B 115. D 116. D 117. C 118. D 119. C 120. B
121. C 122. A 123. C 124. D 125. B 126. C 127. A 128. A 129. D 130. D
131. A 132. D 133. C 134. B 135. B

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