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02. Auditing Theory

AT.06 Identifying and Assessing ROMM

AT.06 Identifying and Assessing ROMM Drill

Submissions
Here are your latest answers:

Question 1
Auditors begin their assessments of inherent risk during audit planning.  Which of the following would not help in assessing inherent risk during the planning phase?

Response: Obtaining client’s agreement on the engagement letter.

Correct answer: Obtaining client’s agreement on the engagement letter.

Score: 1 out of 1 Yes

Question 2
Which of the following industries is usually considered high risk by audit firms?

Response: High technology companies such as Internet firms.

Correct answer: High technology companies such as Internet firms.

Score: 1 out of 1 Yes

Question 3
An auditor assesses control risk because it

Response: Affects the level of detection risk that the auditor may accept.

Correct answer: Affects the level of detection risk that the auditor may accept.

Score: 1 out of 1 Yes

Question 4
The auditor uses knowledge gained from the understanding of the client's business and industry to assess:

Response: Client business risk

Correct answer: Client business risk

Score: 1 out of 1 Yes

Question 5
Auditors often assess which of the risks for liabilities and expense accounts of the entity?

Response: Both overstatement and understatement.

Correct answer: Understatement.

Score: 0 out of 1 No

Question 6
In the audit risk model, which of the risk components can be assessed by the auditor?

Response: Both inherent risk and control risk.

Correct answer: Both inherent risk and control risk.

Score: 1 out of 1 Yes

Question 7
The following events and conditions indicate the existence of risks of material misstatement, except.

Response: Operations that are subject to a low degree of complex regulation.

Correct answer: Operations that are subject to a low degree of complex regulation.

Score: 1 out of 1 Yes

Question 8
A potential business risk created by industry developments may most likely include

Response: The entity does not have the personnel or expertise to deal with the changes in the industry.

Correct answer: The entity does not have the personnel or expertise to deal with the changes in the industry.

Score: 1 out of 1 Yes

Question 9
Most auditors assess inherent risk as high for related parties and related-party transactions because:

Response: of the lack of independence between the parties.

Correct answer: of the lack of independence between the parties.

Score: 1 out of 1 Yes

Question 10
Which of the following audit risk components may be assessed in quantitative and non-quantitative terms?
I. Control risk
II. Detection risk
III. Inherent risk

Response: Yes, Yes, Yes

Correct answer: Yes, Yes, Yes

Score: 1 out of 1 Yes

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02. Auditing Theory

AT.05 Audit Planning and Materiality

AT.05 Audit Planning and Materiality Drill

Submissions
Here are your latest answers:

Question 1
How can the audit strategy and audit program best be described at the beginning of the audit process?

Response: Tentative.

Feedback: This choice is correct. The audit strategy at the beginning of the audit process is still tentative and my still be changed on the light of new information.

Correct answer: Tentative.

Score: 1 out of 1 Yes

Question 2
Which of the following is not one of the benefits why the auditor should properly plan engagements?

Response: Ensure gathering of sufficient appropriate audit evidence.

Feedback: This choice is correct. Planning helps or assist the gathering of sufficient appropriate audit evidence but not ensure the achievement of it. It will still depend on
the execution of the procedures.

Correct answer: Ensure gathering of sufficient appropriate audit evidence.

Score: 1 out of 1 Yes

Question 3
Which of the following is not a typical analytical review procedure?

Response: Comparisons of recorded amounts of major disbursements with appropriate invoices.

Correct answer: Comparisons of recorded amounts of major disbursements with appropriate invoices.

Score: 1 out of 1 Yes

Question 4

Which of the following is not an information source for developing analytical procedures used in the audit?

Response: Comparison of current year financial data with projections for next year's financial results

Correct answer: Comparison of current year financial data with projections for next year's financial results

Score: 1 out of 1 Yes

Question 5
Which of the following statements is not correct?

Response: Analytical procedures use supporting documentation to determine which account balances need additional detailed procedures.

Correct answer: Analytical procedures use supporting documentation to determine which account balances need additional detailed procedures.

Score: 1 out of 1 Yes

Question 6
Which of the following is not an example of analytical evidence?

Response: Examined invoices for plant asset additions to determine whether the client had erroneously recorded ordinary repairs as plant assets.

Correct answer: Examined invoices for plant asset additions to determine whether the client had erroneously recorded ordinary repairs as plant assets.

Score: 1 out of 1 Yes

Question 7
Which of the following activities would usually be performed by the manager in a public practice firm?

Response: Performing detailed tests of transactions and balances

Feedback: This choice is incorrect. This is performed by the audit staff.

Correct answer: Liaising with the client with respect to the timing of audit work

Score: 0 out of 1 No

Question 8

What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a
nonpublic entity?

Response: Ratio analysis.

Correct answer: Ratio analysis.

Score: 1 out of 1 Yes

Question 9
Which of the following procedures would an auditor least likely perform in planning a financial statement audit?

Response: Selecting a sample of vendor’s invoices for comparison to receiving reports

Feedback: This choice is correct. This is performed during testing phase rather than planning phase.

Correct answer: Selecting a sample of vendor’s invoices for comparison to receiving reports

Score: 1 out of 1 Yes

Question 10
In audit of financial statements, it is considered in terms of the smallest aggregate level of misstatements that could be considered material to any one of the statements that
comprise the financial statements, while in financial reporting, it provides a threshold or cutoff point rather than being a primary qualitative characteristic which information
must have if it is to be useful

Response: Materiality

Feedback: This choice is correct. This pertains to materiality.

Correct answer: Materiality

Score: 1 out of 1 Yes

Question 11
Materiality thresholds for accounting errors should be established for each financial statement element.  However, they

Response: Must be established prior to execution of audit procedures.

Feedback: This choice is correct. The statement is correct about establishing materiality threshold.

Correct answer: Must be established prior to execution of audit procedures.

Score: 1 out of 1 Yes

Question 12
Which of the following tasks is most likely to be performed by a firm partner on an audit team engaged in the examination of the consolidated financial statements of a large
corporate client?

Response: Preparing the client’s consolidated income tax return.

Feedback: This choice is incorrect. This is done by the client.

Correct answer: Advising the client on the choice of accounting policies to be used.

Score: 0 out of 1 No

Question 13
Which of the following procedures would an auditor most likely include in the planning phase of a financial statement audit?
Response: Obtain an understanding of the entity's risk assessment process.

Feedback: This choice is correct. This is performed during the planning phase of the audit.

Correct answer: Obtain an understanding of the entity's risk assessment process.

Score: 1 out of 1 Yes

Question 14
Which of the following statements is not correct?

Response: The most important base used as the criterion for deciding materiality is total assets.

Feedback: This choice is correct. The basis for determining materiality depends on the professional judgment of the auditor and it is not always based on total assets. It
depends on what the auditor believes is most important to the users of the financial statements.

Correct answer: The most important base used as the criterion for deciding materiality is total assets.

Score: 1 out of 1 Yes

Question 15
Which of the following relatively small misstatements most likely could have a material effect on an entity’s financial statements?

Response: An illegal payment to a foreign official that was not recorded.

Feedback: This choice is correct. This is the best answer since this represents non-compliance with rules and regulations.

Correct answer: An illegal payment to a foreign official that was not recorded.

Score: 1 out of 1 Yes

Question 16
Which of the following parties would normally attend a planning meeting held before the beginning of an audit engagement to discuss relevant client information and the
audit approach to be taken in performing the engagement?

Response: Engagement partner, audit manager, senior auditor, and junior audit staff members

Correct answer: Engagement partner, audit manager, senior auditor, and junior audit staff members

Score: 1 out of 1 Yes

Question 17
The auditors are planning an audit engagement for a new client in a business that is unfamiliar to the auditors. Which of the following would be the most useful source of
information for the auditors during the preliminary planning stage when they are trying to obtain a general understanding of audit problems that might be encountered?

Response: Prior-year working papers of the predecessor auditors.

Correct answer: Prior-year working papers of the predecessor auditors.

Score: 1 out of 1 Yes

Question 18
Tolerable misstatement is

Response: Materiality allocated to a specific account

Feedback: This choice is correct. Tolerable misstatement is application of performance materiality to specific accounts.

Correct answer: Materiality allocated to a specific account

Score: 1 out of 1 Yes

Question 19
Which of the following factors would a CPA ordinarily consider in the planning stage of an audit engagement?
I. Financial statement accounts likely to contain a misstatement.
II. Conditions that require extension of audit tests.

Response: Both I and II.

Feedback: This choice is correct. Both factors are considered in the planning stage of the audit.

Correct answer: Both I and II.

Score: 1 out of 1 Yes

Question 20
The audit team gathers information about a new client's business and industry in order to obtain:

Response: an understanding of how economic events and transactions have an effect on the company's financial statements.

Correct answer: an understanding of how economic events and transactions have an effect on the company's financial statements.

Score: 1 out of 1 Yes

Question 21
Inquiries directed towards those charged with governance may most likely

Response: Help the auditor in understanding the environment in which the financial statements are prepared

Correct answer: Help the auditor in understanding the environment in which the financial statements are prepared

Score: 1 out of 1 Yes

Question 22
In performing an audit, which one of the following procedures would be considered an analytical procedure?

Response: Comparing last year’s interest expense with this year’s interest expense.

Correct answer: Comparing last year’s interest expense with this year’s interest expense.

Score: 1 out of 1 Yes

Question 23
Which of the following is not a concern as to whether a misstatement is qualitatively material?

Response: The misstatement is less than 5% of pretax income

Feedback: This choice is correct. This represents a quantitative concern on materiality rather than qualitative.

Correct answer: The misstatement is less than 5% of pretax income

Score: 1 out of 1 Yes

Question 24
Initial audit planning involves four matters. Which of the following is not one of these?

Response: Request that bank balances be confirmed.

Feedback: This choice is correct. This is part of testing phase and not planning phase.

Correct answer: Request that bank balances be confirmed.

Score: 1 out of 1 Yes

Question 25
Analytical procedures are

Response: Required for planning, substantive testing, and overall review of the financial statements

Correct answer: Required for planning and overall review of the financial statements

Score: 0 out of 1 No

Question 26
Which of the following is not typically included in initial audit planning?

Response: Perform analytical procedures as substantive tests.

Feedback: This choice is correct. Analytical procedures as substantive test are not considered part of initial planning activities but they are part of the testing phase.
However, analytical procedures are also used during planning phase but as preliminary analytical review and not as substantive tests.

Correct answer: Perform analytical procedures as substantive tests.

Score: 1 out of 1 Yes

Question 27
Which of the following statements is not correct about materiality?

Response: An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial
statements.

Feedback: This choice is correct.  This is an incorrect statement because the correct statement is an auditor considers materiality for planning purposes in terms of the
"smallest" and not largest aggregate level of misstatements that could be material to any one of the financial statements.

Correct answer: An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the
financial statements.

Score: 1 out of 1 Yes

Question 28
Which of the following tasks is most likely to be performed by an audit partner?

Response: Reviewing the working papers

Feedback: This choice is correct. Reviewing the working papers is performed by more senior member of the audit team such as the Partner.

Correct answer: Reviewing the working papers

Score: 1 out of 1 Yes

Question 29
Analytical procedures used in planning an audit should focus on identifying

Response: areas that may represent specific risks relevant to the audit.

Correct answer: areas that may represent specific risks relevant to the audit.

Score: 1 out of 1 Yes

Question 30
Which one of the following is a valid source of information about the client's processes?

Response: All are valid sources.

Correct answer: All are valid sources.

Score: 1 out of 1 Yes

Notification from Team P.R.T.C.

30

Congratulations, you were awarded 30 points!

This happened because: You completed assessment AT.05 Audit Planning and Materiality Drill.

OK
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02. Auditing Theory

AT.04 Audit Evidence and Documentation

AT.04 Audit Evidence and Documentation Drill

Submissions
Here are your latest answers:

Question 1
An auditor's working papers, the record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached, serve mainly to

Response: Provide the principal support for the auditor's report.

Feedback: This choice is correct. The main purpose of audit documentation is to provide a basis for the auditor's conclusion.

Correct answer: Provide the principal support for the auditor's report.

Score: 1 out of 1 Yes

Question 2
Inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or a physical examination of an asset.
Evaluate whether each of the following statements qualifies as inspection:
I. test performed on 100% of the items within a population
II. selecting items over a certain amount
III. selecting items for the total population on the basis that was expected to be representative

Response: I, II and III qualify

Feedback: This choice is correct. All of these methods qualify as inspection.

Correct answer: I, II and III qualify

Score: 1 out of 1 Yes

Question 3
Theoretically, which of the following would not have an effect on the amount of audit evidence gathered by the auditor?

Response: Whether or not the client reports to the Securities and Exchange Commission.

Feedback: This choice is correct. The client's reporting requirements to SEC would least likely affect the amount of evidence to be used by the auditor.

Correct answer: Whether or not the client reports to the Securities and Exchange Commission.

Score: 1 out of 1 Yes

Question 4
The permanent file section of the working papers that is kept for each audit client most likely contains

Response: Narrative descriptions of the client’s accounting procedures and internal accounting controls

Feedback: This choice is correct. Permanent audit files include those that have continuing audit significance in succeeding audit periods such as corporate and registration
documents, schedules and analyses pertaining to balance sheet accounts, and documentation of auditor's study and evaluation of client's internal controls.

Correct answer: Narrative descriptions of the client’s accounting procedures and internal accounting controls

Score: 1 out of 1 Yes

Question 5
Which of the following is not an information source for developing analytical procedures used in the audit?

Response: Comparison of current year financial data with projections for next year's financial results

Feedback: This choice is correct. Projections are predictions of future performance assuming one or more hypothetical scenarios or assumptions and projections are not
used in developing analytical procedures.

Correct answer: Comparison of current year financial data with projections for next year's financial results

Score: 1 out of 1 Yes

Question 6
10. Which of the following statements is incorrect regarding the reliability of audit evidence?

Response: Oral representation by the client management is not a valid evidence.

Feedback: This choice is correct. Oral representation is generally considered less reliable compared to written documentation; however, it does not necessarily mean that it
is no longer a valid source of evidence.

Correct answer: Oral representation by the client management is not a valid evidence.

Score: 1 out of 1 Yes

Question 7
Which of the following is not a basic procedure used in an audit?

Response: Tests of controls.

Feedback: This choice is incorrect. This is a basic type of audit tests.

Correct answer: Tests of direct evidence.

Score: 0 out of 1 No

Question 8
Which of the following statements about working papers is correct?

Response: The auditor should document the understanding of the client's internal control obtained to plan the audit

Feedback: This choice is correct. Auditors are required to document their understanding of the client's internal controls.

Correct answer: The auditor should document the understanding of the client's internal control obtained to plan the audit

Score: 1 out of 1 Yes

Question 9
Each of the following might by itself, form a valid basis for an auditor to decide to omit a test, except for the

Response: Difficulty and expense involved in testing a particular item.

Feedback: This choice is correct. Difficulty and expense alone cannot be a valid basis for omitting an audit evidence for which there is no alternative.

Correct answer: Difficulty and expense involved in testing a particular item.

Score: 1 out of 1 Yes

Question 10
Evidential matters supporting the financial statements consist of accounting records and other information available to the auditor. Other information can be found in:

Response: Minutes of directors’ meetings

Feedback: This choice is correct. This is an example of other information.

Correct answer: Minutes of directors’ meetings

Score: 1 out of 1 Yes

Question 11
Which of the following does not describe one of the functions of audit workpapers?

Response: Aids in the professional development of the operating staff.

Feedback: This choice is correct. This is not one of the functions of an audit working paper.

Correct answer: Aids in the professional development of the operating staff.

Score: 1 out of 1 Yes

Question 12
The extent of procedures is affected mostly by which of the following factors?

Response: the auditor's judgment that misstatements are probable in certain balances.
Feedback: This choice is correct. The extent of the audit procedures will ultimately determined by the auditor's professional judgment.

Correct answer: the auditor's judgment that misstatements are probable in certain balances.

Score: 1 out of 1 Yes

Question 13
Which one of the following would be considered the most persuasive type of audit evidence?

Response: Confirmations from banks.

Feedback: This choice is correct. This is considered as an independent source of information and obtained directly by the auditor.

Correct answer: Confirmations from banks.

Score: 1 out of 1 Yes

Question 14
Which of the following statements concerning audit evidence is correct?

Response: The measure of the validity of audit evidence lies in the auditor’s judgment.

Feedback: This choice is correct. The measure of the validity of audit evidence ultimately lies in the auditor’s judgment.

Correct answer: The measure of the validity of audit evidence lies in the auditor’s judgment.

Score: 1 out of 1 Yes

Question 15
Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence?

Response: Oral representations of client

Feedback: This choice is correct. Oral representations of client are considered less reliable compared to the types of evidence in other choices.

Correct answer: Oral representations of client

Score: 1 out of 1 Yes

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02. Auditing Theory

AT.01 The Professional Practice of Accountancy

AT.01 The Professional Practice of Accountancy Drill

Submissions
Here are your latest answers:

Question 1
The following statements relate to CPA examinations.  Which of the following is correct?

Response: A person may be admitted in the practice of accountancy without examination.

Feedback:

A person may be admitted in the practice of accountancy without examination. This choice is CORRECT. Applicable to grantees of special or temporary permit
that may be issued by the BOA subject to the approval of the PRC. (See Sec. 35, RA 9298)

To pass the examination, candidates should obtain a general weighted average of at least 75%, with no grade in any subject lower than 60%. This choice
is INCORRECT. To pass the examination, candidates should obtain a general weighted average of at least 75%, with no grade in any subject lower than 65% and not
60%.

Candidates who failed in two complete examinations shall be disqualified from taking another set of examinations unless he/she enrolled in and
completed at least 21 units of subjects given in the licensure examinations. This choice is INCORRECT. The requirement is at least 24 units and not 21 units of
subjects given in the licensure examinations.

Conditioned candidates shall take an examination in the remaining subjects within three years from the preceding examination. This choice is INCORRECT.
The requirement is within two years and not three years from the preceding examination.

Correct answer: A person may be admitted in the practice of accountancy without examination.

Score: 1 out of 1 Yes

Question 2
Philippine Standards on Assurance Engagements (PSAEs) are to be applied in

Response: Compilation engagements and agreements to apply agreed-upon procedures to information.

Correct answer: Assurance engagements dealing with subject matters other than historical financial information.

Score: 0 out of 1 No

Question 3
The BOA is responsible for the preparation of the contents of the CPA Licensure Examination.

The Board of Accountancy is responsible for investigating violations of RA 9298

Response: True, True

Feedback: Sec. 9. Powers and Functions of the Board. (RA 9298)

Correct answer: True, True

Score: 1 out of 1 Yes

Question 4
Which of the following organizations is not represented in the current AASC?

Response: Insurance Commission

Feedback: See BOA Resolution 22-2020.

Correct answer: Bureau of Internal Revenue

Score: 0 out of 1 No

Question 5
The following should be occupied only by a duly registered CPA, except

Response: Any position in any business or company in the private sector which requires coordinating with the internal auditors for the audit of financial statements.

Feedback: Any position in any business or company in the private sector which requires supervising the recording of financial transactions, preparation of financial statements, coordinating with the external auditors
for the audit of such financial statements and other related functions shall be occupied only by a duly registered CPA. (Sec. 4, R.A. 9298)

Correct answer: Any position in any business or company in the private sector which requires coordinating with the internal auditors for the audit of financial statements.

Score: 1 out of 1 Yes

Question 6
The following statements relate to CPA examination ratings.  Which statement is correct?

Response: To pass the examination, candidates should obtain a general weighted average of 75% and above, with no rating in any subject less than 65%.

Feedback:

To pass the examination, candidates should obtain a general weighted average of 75% and above, with no rating in any subject less than 65%. This choice is CORRECT. See Sec. 16 Rating
in the Licensure Examination. (RA 9298)

Candidates who obtain a rating of 75% and above in at least three subjects shall receive a conditional credit for the subjects passed. INCORRECT. The requirement is to obtain a rating of at
least 75% in majority of the subjects or at least four (4) subject.

Conditioned candidates shall take an examination in the remaining subject within three years from the preceding examination. INCORRECT. Conditioned candidates shall take an
examination in the remaining subjects within two years and not three years from the preceding examination.

Candidates who fail in four (4) complete CPA examinations will not be allowed to take examinations a fifth time. INCORRECT. There is no limitation as to no. of examinations to be taken.
However, there is an additional requirement when a candidate fails two (2) complete examinations See Sec. 18 on Refresher Course, RA 9298.
Correct answer: To pass the examination, candidates should obtain a general weighted average of 75% and above, with no rating in any subject less than 65%.

Score: 1 out of 1 Yes

Question 7
The letters “CPA” shall be engraved in what part of the CPA’s seal?

Response: Lower portion of the space between the bigger and smaller circle.

Feedback: The seal of a Certified Public Accountant shall be circular in form with a smaller circle within and in the upper portion of the space between the circles shall be engraved the name of the individual CPA,
firm a partnership as the case maybe, the lower portion thereof shall be engraved the CPA Registration Number of the individual CPA, proprietor of the firm and the signing partner of the partnership and in the middle
of the smaller circle shall be engraved the letters "CPA". Affixing the CPA's seal and signature is an indication of compliance by the CPA of the requisite accounting and auditing standards and rules.

Correct answer: Middle of the smaller circle.

Score: 0 out of 1 No

Question 8
The following statements relate to RA 9298 and its IRRs.  Which statement(s) is (are) true?
I.  A Professional Identification Card bearing the registration number, date of issuance, expiry date, duly signed by the chairperson of the PRC, shall likewise be issued to every registrant renewable every three
years.
II.  Practice in Education shall constitute in a person when he or she is involved in teaching of accounting, auditing, management advisory services, accounting aspect of finance, business law, taxation and other
technically related subjects.

Response: I and II

Correct answer: I and II

Score: 1 out of 1 Yes

Question 9
A CPA certificate is evidence of

Response: Basic competence at the time of certification.

Correct answer: Basic competence at the time of certification.

Score: 1 out of 1 Yes

Question 10
When involved in decision making requiring professional knowledge in the science of accounting, as well as the accounting aspects of finance and taxation or when he/she represents his/her employer before
government agencies on tax and other matters relating to accounting

Response: Practice in Commerce and Industry

Correct answer: Practice in Commerce and Industry

Score: 1 out of 1 Yes

Question 11
Proposed auditing standards or practice notes are exposed for comment to the public for a period _.
Response: Not generally shorter than 30 days.

Correct answer: Not generally shorter than 90 days.

Score: 0 out of 1 No

Question 12
The following statements relate to RA 9298 and its IRRs.  Which statement(s) is (are) true?
I. The PRC-CPD Council shall be composed of a chairperson and three (3) members.
II.  Any candidate who fails in two (2) complete Certified Public Accountant Board Examination shall be disqualified from taking another set of examinations unless he/she submits evidence to the satisfaction of the
Board that he/she enrolled in and completed at least twenty-four (24) units of subject given in the licensure examination.
III. Within ninety (90) days after the effectivity of RA 9298, the Board subject to the approval of PRC and in coordination with APO, shall adopt and promulgate such rules and regulations to carry out the provisions
of RA 9298 and which shall take effect  fifteen (15) days following its publication in the Official Gazette or in any major daily newspapers of general circulation.

Response: II and III

Feedback: Statement I – False. The PRC-CPD Council shall be composed of a chairperson and two members. The first member shall be the president or any officer chosen by the Board of Directors of PICPA. The
second member shall be the president or dean or department head of a school, college or university offering BSA Program. (Annex C, IRR To RA 9298).
Statement II – True.
Statement III – True.

Correct answer: II and III

Score: 1 out of 1 Yes

Question 13
When he/she is appointed in an accounting professional group in government or in a government-owned and/or controlled corporation, including those performing proprietary functions, where decision-making
requires professional knowledge in the science of accounting

Response: Practice in Government

Correct answer: Practice in Government

Score: 1 out of 1 Yes

Question 14
The Accountancy Law provided that a CPA certificate may be suspended or revoked on grounds except

Response: Refusal to accept an audit engagement with a government corporation.

Feedback:

Grounds of non-issuance of CPA Credentials

Criminal offense (moral turpitude)

Guilty of immoral and dishonorable conduct
Unsound mind
Falsely sworn or misrepresented himself/herself in his/her application for examination

Grounds for Revocation, Suspension & Cancellation of CPA Credentials

Same with non-issuance

Malpractice
Violation of RA 9298 & its IRR, Code of Ethics and professional standards
The Board MAY, after the expiration of two (2) years from the date of revocation and for proper sufficient reasons, reinstate the validity of revoked certificate.

Correct answer: Refusal to accept an audit engagement with a government corporation.

Score: 1 out of 1 Yes

Question 15
A and C, CPAs, organized a partnership for the practice of public accounting.  Which of the following is the best name of the firm?

Response: A and C, CPAs

Feedback: Rules on names: Use partnership name as indicated in the Articles of Partnership.

Correct answer: A and C, CPAs

Score: 1 out of 1 Yes

Question 16
A member of the Board of Accountancy should not be connected to any accounting firm.

A member of the Board of Accountancy should not be connected to any CPA Review school or university offering courses leading to admission for the CPA Board Examinations, whether directly or indirectly.

Response: False, True

Feedback: The Board must not have any pecuniary interest, directly or indirectly, in any school, college, university or institution conferring an academic degree necessary for admission to the practice of accountancy
or where review classes in preparation for the licensure examination are being offered or conducted. There is no equivalent restriction, however, for a BOA member to be part of a firm engaged in public practice.
(Sec. 6, RA 9298)

Correct answer: False, True

Score: 1 out of 1 Yes

Question 17
The following statements relate to the Board of Accountancy.  Which statement is incorrect?

Response: The Chairman and members are appointed by the President of the Philippines upon recommendation of PRC

Feedback: This is a correct statement. The incorrect statement is "The Professional Regulation Commission may remove from the Board any member whose certificate to practice has been removed or suspended"
since only the President of the Philippines and not the PRC can remove a member of the Board.

Correct answer: The Professional Regulation Commission may remove from the Board any member whose certificate to practice has been removed or suspended

Score: 0 out of 1 No

Question 18
The auditing standard-setting body in the Philippines is

Response: Auditing and Assurance Standards Council

Correct answer: Auditing and Assurance Standards Council

Score: 1 out of 1 Yes

Question 19
The following statements relate to the Philippine Accountancy Act of 2004 (RA 9298).  Which of the statement is true?

Response: The PRC has no authority to remove any member of the Board of Accountancy for negligence, incompetence or other just cause

Feedback:

The PRC has no authority to remove any member of the Board of Accountancy for negligence, incompetence or other just cause. This choice is correct. The authority belongs only to the President of the
Philippines.
Insanity is not a ground for proceeding against a CPA. This choice is incorrect, because this is one of the grounds for suspension and revocation of CPA credentials. See Sec. 23 and 24 of RA 9298.
An applicant is prohibited from taking the Phil. CPA Board Exam if he (she) is below 21 years of age This choice is incorrect. There is no provision in the RA relating to this.
After one year, subject to certain limitations, the Board of Accountancy may order the reinstatement of a CPA whose certificate of registration has been revoked. This choice is incorrect. The Board may, after
the expiration of two (2) years from the date of revocation and upon application and for reasons proper and sufficient, may reinstate the validity of a revoked certificate. (Sec. 25, RA. 9298)

Correct answer: The PRC has no authority to remove any member of the Board of Accountancy for negligence, incompetence or other just cause

Score: 1 out of 1 Yes

Question 20
Which of the following standards are to be applied to compilation engagements, engagements to apply agreed-upon procedures to information, and other related services engagements as specified by the AASC?

Response: PSRSs

Feedback: Philippine Standards on Related Services (PSRS)

Correct answer: PSRSs

Score: 1 out of 1 Yes

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02. Auditing Theory

AT.02 Introduction to Audit & Other Assurance Services

AT.02 Introduction to Audit and Other Assurance Services Drill

Submissions
Here are your latest answers:

Question 1
Auditing involves both a(an):

Response: Investigative process and a reporting process.

Feedback: This choice is correct. Auditing involves both an investigative (obtaining and evaluating evidence) and a reporting process (communicating the results).

Correct answer: Investigative process and a reporting process.

Score: 1 out of 1 Yes

Question 2
Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of the following factors, except:

Response: The practitioner may not have the required assurance and knowledge and skills to gather an evaluate evidence.

Feedback: This choice is correct. this is not a limitation of an assurance engagement since practitioners are expected to possess the requisite knowledge to perform the
engagement.

Correct answer: The practitioner may not have the required assurance and knowledge and skills to gather an evaluate evidence.

Score: 1 out of 1 Yes

Question 3
The independent auditor’s opinion helps establish the credibility of the financial statements.

The independent auditor’s opinion is an assurance as to the efficiency or effectiveness with which management has conducted the affairs of the entity.

Response: The first statement is true, the second statement is false

Feedback: The independent auditor’s opinion helps establish the credibility of the financial statements. This statement is correct.

The independent auditor’s opinion is an assurance as to the efficiency or effectiveness with which management has conducted the affairs of the entity. This is incorrect, the
auditor's opinion is an assurance as to the fairness of the company's financial statements.

Correct answer: The first statement is true, the second statement is false

Score: 1 out of 1 Yes

Question 4
In a direct reporting engagement, the responsible party is responsible for

Response: Subject matter information and may also be responsible to subject matter.

Feedback: This choice is incorrect. In an assertion-based assurance engagements, the responsible party is responsible for the subject matter information and may be
responsible for the subject matter. On the other hand, in direct engagements, the responsible party is responsible for the subject matter only.

Correct answer: The subject matter only.

Score: 0 out of 1 No

Question 5
Which of the following services would be most likely to be structured as an assurance engagement?

Response: An engagement to issue a report addressing an entity’s compliance with requirements of specified laws.

Feedback: This choice is correct. An assurance service is a service that enhances the quality of information for the use of intended users. 

Correct answer: An engagement to issue a report addressing an entity’s compliance with requirements of specified laws.

Score: 1 out of 1 Yes

Question 6
Which of the following is a cause of information risk?

Response: Biases and motives of the provider of information.

Feedback: This choice is incorrect. Each of these is a cause of information risk.

Correct answer: Each of these is a cause of information risk.

Score: 0 out of 1 No

Question 7
Indicate the level of assurance provided by audit, review and related services

  a. b. c. d.

Audit Reasonable Reasonable Limited Absolute

Review Reasonable Limited Limited Reasonable

Agreed upon procedures None None None Limited

Compilation None None None None

Response: Choice B

Feedback:

This choice is correct. The level of assurance provided by the following engagements are as follows:

Audit - Reasonable
Review - Limited
Agreed-upon procedures - No assurance
Compilation - No assurance

Correct answer: Choice B

Score: 1 out of 1 Yes

Question 8
1. The characteristics for determining whether criteria are suitable include

  a. b. c. d.

Relevance Yes Yes Yes Yes

Reliability Yes Yes Yes Yes

Completeness Yes Yes No Yes

Neutrality Yes No No Yes

Comparability Yes Yes No No

Understandability Yes No No Yes

Response: Choice B

Feedback:

This choice is incorrect. The characteristics of a suitable criteria include:

 1. Relevance
2. Reliability
3. Understandability
4. Neutrality
5. Completeness

Correct answer: Choice D

Score: 0 out of 1 No

Question 9
Government auditing often extends beyond examination leading to the expressions of opinion on the fairness of financial presentation and includes audits of efficiency,
effectiveness and

Response: Compliance

Correct answer: Compliance

Score: 1 out of 1 Yes

Question 10
An audit which is undertaken in order to determine whether the auditee is following specific procedures or rules laid down by some higher authority is classified as a(n)

Response: compliance audit.

Feedback: This choice is correct. The statement pertains to compliance audit.

Correct answer: compliance audit.

Score: 1 out of 1 Yes

Question 11
The conclusion of the practitioner with regard to the fairness of the subject matter or subject matter information in accordance with the criteria is contained in

Response: Written assurance report

Feedback: This choice is correct. The conclusion of the practitioner is included in the written assurance report.

Correct answer: Written assurance report

Score: 1 out of 1 Yes

Question 12
Internal auditing relates to an

Response: Audit which serves the needs of management

Feedback: This choice is correct. Internal audit involves an assurance and consulting services in areas of risk management, control processes, and governance intended to
add value in an organization.

Correct answer: Audit which serves the needs of management

Score: 1 out of 1 Yes

Question 13
What criteria contributes to conclusions that are clear, comprehensive, and not subject to significantly different interpretations.

Response: Understandability

Feedback: This choice is correct. Understandability contributes to conclusions that are clear, comprehensive and not subject to significantly different interpretations.

Correct answer: Understandability

Score: 1 out of 1 Yes

Question 14
What level of assurance is provided by the auditor in an audit engagement?

Response: High, but not absolute

Feedback: This choice is correct. An audit provides reasonable assurance which is a high, but not absolute level of assurance.

Correct answer: High, but not absolute

Score: 1 out of 1 Yes

Question 15
Internal auditors may perform all of the following types of audits except

Response: All of the above may be performed by internal auditors

Feedback: This is correct. all of these may be performed by an internal auditor.

Correct answer: All of the above may be performed by internal auditors

Score: 1 out of 1 Yes

Home

02. Auditing Theory

AT.03 Risk-Based FS Audit Process

AT.03 Risk-based FS Audit Process Drill

Submissions
Here are your latest answers:

Question 1
Which of the following elements of the audit risk model is most likely to be the same across a range of audits performed by a professional accounting firm?

Response: Audit risk

Feedback: This choice is correct. The range of acceptable audit risk may be similar across different audit firms, however, the inherent and control risk will vary depending
on the characteristic of the client, while detection risk will vary depending on the level of assessed inherent and control risk and the audit firm's acceptable audit risk.

Correct answer: Audit risk

Score: 1 out of 1 Yes

Question 2
Users of the audit report can reasonably expect the audited financial statements to

Response: Be presented fairly according to the substance of applicable financial reporting framework.

Feedback: This choice is correct. Auditors express an opinion as to the fairness of financial statements.

Correct answer: Be presented fairly according to the substance of applicable financial reporting framework.

Score: 1 out of 1 Yes

Question 3
Which of the following is not one of the basic assumptions of financial statements audit?

Response: No short-term conflict between the auditor and the management

Feedback: This is correct. Short-term conflicts between the auditor and the management are expected in an audit.

Correct answer: No short-term conflict between the auditor and the management

Score: 1 out of 1 Yes

Question 4
Which of the following criteria is unique to the independent auditor's attest function?

Response: Independence.

Feedback: This choice is correct. Independence is unique to the independent auditor's attest functions. The other choices are applicable even to other engagements by the
practitioner.

Correct answer: Independence.

Score: 1 out of 1 Yes

Question 5
Which of the following is an incorrect statement about audit objectives?

Response: There should be a one-to-one relationship between audit objectives and procedures.

Feedback: This choice is correct. This is the incorrect statement because several procedures can address one or more audit objectives. In addition, certain audit objectives
may need to be addressed by more than one audit procedures. Hence, the relationship is not necessarily one-to-one.

Correct answer: There should be a one-to-one relationship between audit objectives and procedures.

Score: 1 out of 1 Yes

Question 6
Determining whether amounts are in conformity with GAAP addresses the proper measurement of assets, liabilities, revenues, and expenses which includes all of the
following except:

Response: The reasonableness of management’s accounting policies 

Feedback: This choice is correct. We evaluate the appropriateness rather than reasonableness of accounting policies.

Correct answer: The reasonableness of management’s accounting policies 

Score: 1 out of 1 Yes

Question 7
Why does a company choose to have an independent auditor report on its financial statements?

Response: Users of financial statements may not be in a position to directly access the financial records of an entity.

Feedback: This choice is correct. This is one of the reasons why users demand that financial statements are audited by an independent auditor.

Correct answer: Users of financial statements may not be in a position to directly access the financial records of an entity.

Score: 1 out of 1 Yes

Question 8
Which of the following is an incorrect statement?

Response: An example of accuracy, valuation and allocation assertion would be that property, plant, and equipment are recorded at market value.

Feedback: This choice is correct. This is an incorrect assertion, since the correct valuation for property, plant, and equipment is not at market value.

Correct answer: An example of accuracy, valuation and allocation assertion would be that property, plant, and equipment are recorded at market value.

Score: 1 out of 1 Yes

Question 9
The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to:

Response: management.

Feedback: This choice is correct. The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to the management.

Correct answer: management.

Score: 1 out of 1 Yes

Question 10
Which of the following best describes an auditor’s professional skepticism?

Response: Auditors should make a critical assessment, with an inquisitive mind, of the sufficiency and appropriateness of audit evidence obtained.

Feedback: This choice is correct. This statement pertains to professional skepticism.

Correct answer: Auditors should make a critical assessment, with an inquisitive mind, of the sufficiency and appropriateness of audit evidence obtained.

Score: 1 out of 1 Yes

Question 11
An audit process is a well-defined methodology for organizing an audit to ensure that

Response: All of the other responses are correct

Correct answer: All of the other responses are correct

Score: 1 out of 1 Yes

Question 12
For a particular assertion, control risk is the risk that

Response: controls will not detect a material misstatement that occurs.

Feedback: This choice is correct. This statement pertains to control risk.

Correct answer: controls will not detect a material misstatement that occurs.

Score: 1 out of 1 Yes

Question 13
Which of the following statements is true?

Response: The auditor’s objectives follow and are closely related to management assertions.

Feedback: This choice is correct. The auditor’s objectives follow and are closely related to management assertions.

Correct answer: The auditor’s objectives follow and are closely related to management assertions.

Score: 1 out of 1 Yes

Question 14
Which of the following is not one of the broad categories of assertions?

Response: General or specific transaction objectives

Feedback: This choice is correct. This pertains to types of audit objectives rather than management assertions.

Correct answer: General or specific transaction objectives

Score: 1 out of 1 Yes

Question 15
When an auditor encounters a material GAAP departure that is unresolved at the conclusion of the audit, which of the following opinions are possible?

Response: Qualified, disclaimer, or adverse

Feedback: This choice is incorrect. Material misstatements in the financial statements result to either qualified or adverse opinion, depending on the severity of the
misstatements.

Correct answer: Qualified or adverse

Score: 0 out of 1 No

Notification from Team P.R.T.C.

15

Congratulations, you were awarded 15 points!

This happened because: You completed assessment AT.03 Risk-based FS Audit Process Drill.

OK
Question 1
Which of the following would the auditor likely to do when the application of planned audit
procedures indicates the possible existence of fraud or error?
Correct answer: The auditor should consider the potential effect on the financial statements
and other aspects of the audit, particularly, the reliability of management representations.

Question 2
Brainstorming about the manner in which fraud may be committed should include all of the
following except
Correct answer: Consider the materiality of the individual account balances for substantive
testing

Question 3
If an illegal act is discovered during the audit of a publicly held company, the auditor should
Correct answer: Report the act to high-level personnel within the client's organization.

Question 4
PSAs require auditors to document which of the following matters related to the auditor’s
consideration of material misstatements due to fraud?
Correct answer: Procedures performed to obtain information necessary to identify and
assess the risks of material fraud.

Question 5
If the auditor suspects that members of senior management, including members of the board
of directors, are involved in noncompliance to laws as regulations, and he believes his report
may not be acted upon, he would:
Correct answer: Consider seeking legal advice.

Question 6
Which of the following situations represents a risk factor that relates to misstatements arising
from misappropriation of assets?
Correct answer: A lack of independent checks.

Question 7
How will the results of the auditor's assessment of fraud risk factors further affect the planned
audit procedures?
Correct answer: By the assignment of qualified audit staff to risky areas of the engagement.
Question 8
Which of the following is an example of a common type of financial reporting fraud?
Correct answer: Recording sales for inventory sold with the right to return, hence, fraud on
revenue recognition is always presumed to exist.

Question 9
Audits of financial statements are designed to obtain reasonable assurance of detecting
material misstatements due to
a. b. c. d.

Errors Yes Yes Yes No

Fraudulent financial reporting Yes Yes No Yes

Misappropriation of assets Yes No Yes No

Direct-effect illegal acts Yes No Yes No

Correct answer: Choice A

Question 10
In evaluating the effect of fraud upon the audit procedures the auditor should consider
Correct answer: All of the above.

Question 11
If an auditor believes a client may have committed illegal acts, which of the following actions
should the auditor take?
Correct answer: Make inquiries of the client’s management and obtain an understanding of
the circumstances underlying the acts and of other evidence to determine the effects of the
acts on the financial statements.

Question 12
An auditor who discovers that a client's employees paid small bribes to municipal officials
most likely would withdraw from the engagement if
Correct answer: Management fails to take the appropriate remedial action and reliance on
management’s representation becomes doubtful.

Question 13
Which of the following is not an example of a type of defalcation?
Correct answer: The chief financial officer of the company falsely adds P20 million to the
accounts receivable and revenue accounts.

Question 14
Relative to internal controls, what is a primary risk of fraud in the client company?
Correct answer: The risk that management overrides controls.

Question 15
The following are examples of circumstances that may indicate the possibility that the
financial statements may contain a material misstatement resulting from fraud, except
Correct answer: Accounting policies that appear to be consistent with industry norms.

Question 1
Which of the following would an auditor least likely perform when obtaining understanding
of the entity’s internal control?
Correct answer: Re-performance of internal control

Question 2
When evaluating a client's system of internal control to determine whether the necessary
procedures are prescribed and have been implemented satisfactorily, an auditor must
Correct answer: Obtain an understanding of internal control.

Question 3
Internal control procedures are not designed to provide reasonable assurance that
Correct answer: Irregularities (frauds) will be eliminated.

Question 4
Which of the following is a detective control designed to detect the occurrence of a
misstatement?
Correct answer: Reconciliations.

Question 5
The essence of an effectively controlled organization (i.e., control environment) lies in
the:
Correct answer: attitude of its management.

Question 6
Why will the external auditor typically interview the internal audit department as it relates
to its risk-based approach?
Correct answer: To understand and assess management risk processes.

Question 7
The control environment includes all of the following except
Correct answer: control activities.

Question 8
A component of COSO’s internal control system concerns the process of identifying,
capturing, and exchanging information in a timely fashion to enable accomplishment of
the organization’s objective. This component is called
Correct answer: information and communication.

Question 9
In an auditor's consideration of internal control, the completion of a questionnaire is most
closely associated with which of the following?
Correct answer: Understanding the system.

Question 10
What is management’s primary purpose of effective internal control in an organization?
Correct answer: Obtaining high-quality data for making good business decisions
providing reasonable assurance that the entity’s objectives are achieved.

Question 11
When auditing a company, the auditor should obtain an understanding of internal control
sufficient to:
Correct answer: assess control risk.

Question 12
Which of the following statements about internal control is correct?
Correct answer: The cost benefit relationship should be considered in designing internal
controls.

Question 13
An effective system of internal control
Correct answer: Can reduce the cost of an external audit

Question 14
Which of the following best describes the inherent limitations that should be recognized
by an auditor when considering the potential effectiveness of internal control?
Correct answer: Procedures that depend on segregation of duties can be circumvented
by collusion.

Question 15
The auditor observes client employees during the review of the client's system of internal
control in order to
Correct answer: Assist in obtaining an understanding of the client's internal control
policies and procedures.