MULTIPLE

1. When planning the audit, the auditor should make inquiries of management. Such inquiries
should address: I. Management's assessment of the risk that the statements may be misstated
due to fraud. II. Management's process for identifying and responding the risks of fraud in the
entity. III. Management's consideration of how an element of predictability will be incorporated
into the nature, timing and extent of the audit procedures to be performed. IV. Management's
communication, if any, to those charged with governance regarding its processes for
identifying and responding to the risks of fraud in the entity. I,II,III, AND IV ONLY
2. Which of the following underlies the application of generally accepted auditing standards,
particularly the standards of fieldwork and reporting elements of materiality and relative risk.
3. PSA 230 (Audit Documentation) requires the auditor to document matters which are important
in providing evidence to support the audit opinion, and states that the working papers include
the auditor's reasoning on all significant matters which require the auditor's judgment, together
with the auditor's conclusion thereon. Which of the following should be documented by the
auditor? Both fraud risk factors identified as being present during the auditor’s risk
assessment process and the auditor’s response to any such factors
4. What is the general character of the three generally accepted auditing standards classified as
general standards? Criteria for competence, independence, and professional care of
individuals performing the audit.
5. Opportunities to misappropriate assets increase when there are inventory items that are
small in size, of high value, or in high demand
6. Stealing a master list of customers and selling it to a competitor is an example of what
classification of fraud? DATA THEFT
7. When performing a financial statement audit, auditors are required to explicitly assess the risk
of material misstatements due to FRAUD
8. Examples of fraud risk factors relating to misstatements arising from misappropriation of
assets includes I. Recurring negative cash flows from operating activities while reporting
earnings and earnings growth. II. Inadequate physical safeguards over cash, investments,
inventory, or fixed assets. III. Inadequate segregation of duties or independent checks. IV.
Adverse relationship between the entity and employees with access to cash or other assets
susceptible to theft created by recent changes made to employee compensation or benefit
plans. II, III, AND IV ONLY
9. If the auditor believes that the fraud or error has a material effect on the financial statement but
the client is not willing to correct the misstatement, the auditor would most likely issue a(n)
unmodified opinion with emphasis of matter paragraph
10. The objective of the quality control policies to be adopted by an audit firm will ordinarily
incorporate all of the following except: RISK ASSESSMENT
11. Examples of misappropriation of assets includes I. The treasurer diverts customer payments to
his personal due, concealing his actions by debiting an expense account, thus overstating
expenses. II. An employee steals inventory and the "shrinkage" is recorded in cost of goods
sold. III. An employee steals small tools from the company and neglects to return them; the
cost is reported as a miscellaneous operating expense. IV. Company management changes
inventory count tags and overstates ending inventory, while understating cost of goods sold.
I, II, AND III ONLY
12. An audit involves ascertaining the degree of correspondence between assertions and
established criteria. In the case of audit of financial statements, which of the following would
not be a valid criterion? Generally accepted auditing standards
13. When performing an operational audit, the internal audit team must first determine that: a
financial audit has been performed by an internal auditor
14. The third generally accepted standard of reporting in auditing refers to whether an
accounting principles have been consistently observed
15. The primary factor that should be considered in determining the extent of supervision needed
by an assistant is the assistant’s? competence
16. PSA 260 requires the auditor to determine the relevant persons who are charged with
governance and with whom audit matters of governance interest are communicated. For
corporations covered by the SEC Code of Corporate Governance, which of the following is
primarily responsible for corporate governance? Board of Directors
17. The Philippine Standards on Auditing can be described as providing very specific guidance
about the specific activities must perform on each engagement
18. An audit that involves obtaining and evaluating evidence about the efficiency and effectiveness
of an entity’s operating activities in relation to specified objectives is a(n): operational audit
19. Most noncompliance affect the financial statements only indirectly
20. Which of the following statements concerning the auditor's responsibility to detect conditions
relating to financial stress of employees or adverse relationships between a company and its
employees is correct? These conditions related to fraudulent financial reporting, and an
auditor is required to plan the audit to detect these conditions when the client is exposed to a
risk of misappropriation
21. An audit of the financial statements of JMV Corporation is being conducted by an external
auditor. The external auditor is expected to EXPESS AN OPINION AS TO THE FAIRNESS
22. If specific information comes to an auditor’s attention that implies an existence of
noncompliance with laws that could result in a material, but indirect effect on the financial
statements, the auditor should next apply audit procedures specifically directed to
ascertaining whether noncompliance has occured
23. Fraudulent financial reporting involves intentional misstatements including omissions of
amounts or disclosures in financial statements to deceive financial statement users. It may be
accomplished in a number of ways, including MANIPIULATION, FALSIFICATION …
24. Independent external auditing can best be described as a PROFESSIONAL ACTIVITY
THAT ATTESTS TO THE FAIR PRESENTATION OF FINANCIAL STATEMENTS
25. A quality control policy that requires personnel in the firm to adhere to independence, integrity,
objectivity, confidentiality and professional behavior, relates to Ethical requirements
26. The risk of not detecting a material misstatement resulting from fraud is higher than the risk of
not detecting a material misstatement resulting from error because fraud is ordinarily
accompanied by acts specifically designed to conceal its existence
27. The assumption underlying an audit of financial statements is that they will be used by
different groups for different purposes
28. . Which of the following is a category risk factors that should be considered when assessing
risk of misstatements arising from misappropriation of assets? Condition of internal
control
29. It refers to the level of auditor’s satisfaction as to the reliability of an assertion being made by
one party for use by another party. Assurance level
30. Which of the following is correct about Philippine Auditing Practices Statements (PAPS)?
A. THESE STATEMENTS ARE ISSUED TO PROVIDE…
31. . Because an examination in accordance with generally accepted auditing standards is
influenced by the possibility of material errors, the auditor should conduct the examination with
an attitude of professional skeptism
32. Which of the following statements describes why an audit that is properly planned and
performed in accordance with PSAs may not detect a material misstatement resulting from
fraud? Fraud may involve carefully laid out plans of concealment
33. Which of the following is one of the elements of a CPA firms’ quality control system
leadership responsibilities
34. It involves a study or appraisal by the Board or its duly authorized representatives, of the
quality of audit of financial statements through an evaluation of the quality control measures
instituted by the CPA firm to ascertain compliance with ethical and technical standards of the
public practice. Compliance audit
35. What is one common way to conceal a theft? BY CHARGING THE STOLEN ITEM TO AN
EXPENSE ACCOUNT
36. When the auditor encounters a material misstatement circumstances that may indicate that
there is a material misstatement resulting from fraud or error, the auditor should perform
procedures to determine whether the financial statements are materially misstated. The nature,
timing, and extent of the procedures to be performed depend on the auditor's judgment as to
the I. Type of fraud or error indicated II. Likelihood of occurrence III. Likelihood that a particular
type of fraud or error could have a material effect on the financial statements I,II AND III
37. In payroll fraud, funds can be stolen by I. Paying a fictitious or ghost employee. II. Increasing
pay rates without permission. III. Keeping a real but terminated employee on the payroll
I and III only
38. These are acts of omission or commission by the entity being audited, either intentional or
unintentional, which are contrary to the prevailing laws and regulations. fraud
39. Theoretically, it is possible to provide an infinite range of assurance from a very low level of
assurance to an absolute level of assurance. In practice, the professional accountants cannot
provide absolute assurance because of the following except, a. The internal control has its
inherent limitations b. The professional accountants employ testing process c. The lack of
expertise of the professional accountant in doing a systematic engagement process d. The use
of judgment in gathering evidence and drawing conclusions based on that evidence e. No
exceptions, all of the choices are inherent limitations of audit Theoretically, it is possible to
provide an infinite range of assurance from a very low level of assurance to an absolute level
of assurance. In practice, the professional accountants cannot provide absolute assurance
because of the following except, THE PROFESSIONAL ACCOUNTANTS EMPLOY
TESTING PROCESS
40. When planning and performing audit procedures and evaluating and reporting the results
thereof, the auditor should Consider the risk of material misstatements in the financial statements
resulting from fraud or error
41. The best statement of the responsibility of the auditor with respect to financial statement is:
THE AUDITOR’S RESPONSIBILITY IS CONFINED TO THE EXPRESSION OF
OPINION ON THE FINANCIAL STATEMENT AUDITED
42. Misstatements in the financial statements can arise fraud or error. The distinguishing factor
between fraud and error is whether the underlying action that results in the misstatements of
the financial statements is INTENTIONAL OR UNINTENTIONAL
43. The auditor’s evaluation of the likelihood of material employee fraud is normally done initially
as part of TESTS OF CONTROL
44. Individuals may have an incentive or be under pressure to commit fraud, or circumstances may
provide an opportunity Also, certain individuals may have an attitude, character, or set of
values that allow them to rationalize fraud. The auditor's concern about the risk of material
misstatement is least likely to be increased if management. Has an excessive interest in
increasing the entity’s share…
45. An auditor should recognize that the application of auditing procedures may produce evidence
indicating the possibility of errors or fraud and therefore should: plan and perform the
engagement with an attitude of professional skeptism
46. In “auditing” financial accounting data, the primary concern is with: determining whether
recorded information properly reflects the economic events…
47. If the auditor concludes that the noncompliance has a material effect on the financial
statements, and has not been properly reflected in the financial statements, the auditor should
express AN UNMODIFIED OPINION
48. The single feature that most clearly distinguishes auditing, attestation, and assurance is scope
of services
49. Fraud involving one or more members of management or those charged with governance is
referred to as “employee fraud”
50. Under GAAS, which of the following reflects a concept from the general group? The initial
planning of the audit partner, manager, senior…
51. As used in the Philippine Framework for Assurance Engagements, the term “practitioner”
refers to CPA in public practice. true
52. While performing audit services for their clients, professional accountants have a duty to
provide a level of care which is REASONABLE
53. The objective of the consistency standards is to provide assurance that the comparability of
financial statements between periods is not materially affected by changes…
54. The auditor is not liable to his client for ERRORS IN THE APPLICATION OF JUDGEMENT
55. Which of the following statements does not properly describe a limitation of an audit MANY
FINANCIAL STATEMENTS ASSERTION CANNOT BE AUDITED
56. According to PSA 260, matters that arise from the audit of financial statements and, in the
opinion of the auditor are both important and relevant to those charged with governance in
overseeing the financial reporting and disclosure process are called MATERIAL
MISTATEMENTS IN THE FINANCIAL STATEMENBT
57. Which of the following procedures would assist the auditor in identifying noncompliance with
laws and regulations? Discuss with the client management the policies and procedures…
58. A firm of independent auditors must establish and follow quality control policies and
procedures because standards give a reasonable assurance…
59. In the auditing environment, failure to meet auditing standards is often conclusive evidence
of negligence
60. Which of the following objectives are generally a component of a firm’s quality control? A.
Professional requirements B. Skills and competence C. Assignment D. Inspection E.
Consultation F. Due professional care G. Monitoring H. Delegation A, B, C, E, G, H
61. The risk that an auditor will fail to uncover a material misstatement is eliminated when the
accountant complies with an identified financial reporting framework
62. Material misstatements may emanate from: I. Fraud II. Errors III. Limitations of the audit IV.
Non – compliance with Laws and Regulations I, II and IV ONLY
63. The third standard of field work states that sufficient competent evidential matter may in part
be obtained through the following methods except RECONCILIATION
64. Why is computer fraud often much more difficult to detect than other types of fraud?
Perpetrators can commit a fraud and leave little or no evidence
65. . Which of the following conditions identified during fieldwork of an audit is most likely to affect
the auditor’s assessment of the risk of misstatement due to fraud? MISSING DOCUMENT
66. By providing high level assurance on audit reports on financial statements, the auditor
CONFIRMS THE ACCURACY OF THE FINANCIAL STATEMENTS
67. Auditing is based on the assumption that financial data are verifiable. Data are verifiable when
two or more qualified individuals WORKING INDEPENDENTLY, CAN APPROVE THE
ACCURACY OF THE DATA
68. Broadly defined, the subject matter of any audit consists of FINANCIAL STATEMENTS
69. Under PSA 260, this term is used to describe the role of persons entrusted with the
supervision, control, and direction of an entity. GOVERNANCE
70. Requirements for training, independence and due professional care are included in which
group of the generally accepted auditing standards? GENERAL
71. Which of the following statements best describes an auditor's responsibility regarding
misstatements? AN AUDITOR SHOULD OBTAIN REASONABLE ASSURANCE THAT
FINANCIAL STATEMENTS TAKEN AS A WHOLE ARE FREE FROM MATERIAL
MISTATEMENTS, WHETHER CAUSED BY FRAUD OR ERROR
72. A body created to conduct an oversight of the quality of audit of financial statements reviewing
the firms quality control is known as: BOA
73. If an auditor conducted an audit in accordance with auditing standards, which of the following
would an auditor likely to detect? ERRORS POSTING OF RECORDED
TRANSACTION
74. Because of the nature of fraud and the difficulties encountered by auditors in detecting material
misstatements in the financial statements resulting from fraud, the auditor should obtain written
representations from management. The following should be confirmed by management in its
written representations I. It is not responsible for the implementation and operations of internal
control that is designed to prevent and detect fraud. II. It has disclosed to the auditor its
knowledge of any allegations of fraud or suspected fraud, affecting the entity’s financial
statements communicated by employees, former employees, analysts, regulators, or others.
III. It has disclosed to the auditor its knowledge of fraud or suspected fraud affecting the entity.
IV. It has disclosed to the auditor the results of its assessment of the risk that the financial
statements may be materially misstated as a result of fraud. I, II AND IV ONLY
75. Which of the following circumstances most likely would cause an auditor to consider whether
material misstatements exist in an entity's financial statements? SIGNIFICANT, UNUSUAL/
ORT HIGHLY COMPLEX
76. In connection with the element of monitoring, a CPA firm’s system of quality control should
provide the maintenance of DOCUMENTATION TO DEMONSTRATE COMPLIANCE WITH
ITS POLICIES AND PROCEDURES
77. Which of the following best describes an operational audit? IT CONCENTRATES ON
SEEKING OUT ASPECTS OF OPERATION IN WHICH WASTE WOULD BE REDUCED…
78. Because an external auditor is paid a fee by a client company, he or she MAY BE
SUFFICIENTLY INDEPENDENT TO CONDUCT AN AUDIT
79. Which of the following statements does not properly describe an element of theoretical
framework of auditing? AUDITORS CAN ACT ON BEHALF OF THE MANAGEMENT
80. Which statement is correct regarding the relationship between internal auditing and the
external auditor? CERTAIN ASPECTS OF INTERNAL AUDITIONG MAY BE USEFUL IN
DETERMINING THE NATURE , TIMING AND EXTENT OF EXCTERNAL AUDIT
PROCEDURES
81. Which of the following is a required audit planning procedure concerning potential fraud?
CONDUCT DISCUSSIONS AMPONG THE MEMBERS OF THE AUDIT TEAM
REGARDING RISK OF MATERIAL MISSTATEMENT DUE TO FRAUD OR ERROR

TRUE OR FALSE
82. For agreed-upon procedures and compilation engagements, no assurance is expressed.
true
83. In a review engagement, the auditor provides a high, but not absolute level of assurance
(expressed in the form of negative assurance) that the information subject to review is free of
material misstatement. FALSE
84. The responsible party can be one of those for whom the practitioner prepares the assurance
report. true
85. Common examples of assurance engagements are engagements to apply agreed-upon
procedures and consulting. TRUE
86. The practitioner's conclusion in an assertion-based engagement can be worded in terms of the
intended users' assertion. TRUE
87. An appropriate subject matter is one that is capable of consistent evaluation or measurement
against the identified criteria. TRUE
88. With regard to detecting fraud, auditing standards require auditors to issue an unmodified
opinion only when the auditor is satisfied that no instances of fraud have occurred. TRUE
89. When determining whether independence is impaired because of an ownership interest in a
client company, materiality will affect ownership only for direct ownership. FALSE
90. In a financial statement audit, reasonable assurance is obtained when the auditor has
gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
TRUE
91. When an assurance engagement is a part of a larger engagement (for example, a business
acquisition consulting engagement which includes a requirement to provide assurance on
historical financial information), the Philippine Framework for Assurance Engagements shall be
applied only to the assurance portion of the engagement. TRUE
92. In an engagement to provide assurance about the effectiveness of an entity's internal control,
the subject matter is the assertion of management about its effectiveness. FALSE
93. Because most of the evidence available to the auditor is conclusive, rather than persuasive, in
nature, absolute assurance in auditing is not attainable. FALSE
94. Under all situations, the responsible party is the party who engages the practitioner (i.e., the
engaging party). TRUE
95. PSA 120 (Framework of Philippine Standards on Auditing) applies to audits and related
services such as taxation and consultancy. FALSE
96. Assurance engagement risk is the possibility that the practitioner will express an inappropriate
conclusion on a subject matter information that is materially misstated. TRUE
97. Fraud is either an intentional or unintentional misstatement of the financial statements,
depending on materiality and consistency. TRUE
98. A review of financial statements normally involves an assessment of an entity's accounting and
internal control systems. TRUE
99. In some cases, the ethical requirement on professional competence can be satisfied by using
the work of individuals from other disciplines referred to in the standards as experts. TRUE
100. A factor that relates to incentives or pressure to commit fraudulent financial reporting is
excessive pressure for management to meet debt repayment requirements. FALSE