Select the best answer for each of the following

questions. 8. An auditor's working papers will generally be least

likely to include documentation showing how the
1. Broadly defined, the subject matter of any audit a) Client's schedules were prepared
consists of b) Engagement had been planned
a) Financial statements c) Client's system of internal control had been
b) Economic data reviewed and evaluated
c) Assertions d) Unusual matters were resolved
d) Operating data
9. Which of the following sampling methods would be
2. The third standard of field work states that sufficient most appropriate in performing tests of controls over
competent evidential matter may in part be obtained authorization of cash disbursements
through the following methods except a) Attributes
a) Inspection b) Variables
b) Observation c) Ratio
c) Confirmation d) Stratified
d) Reconciliation
10. Analytical procedures used in the overall review
3. If an auditor believes that material error or fraud stage of an audit generally include
exist, the auditor should a) Considering unusual or unexpected account
a) Consider the implications and discuss the matter balances that were not previously identified
with appropriate levels of management b) Performing test of transactions to corroborate
b) Make the investigation necessary to determine management's financial statement assertions
whether errors or fraud have in fact occurred c) Gathering evidence concerning account balances
c) Request that management investigate whether that have not changed from the prior year
errors or fraud have in fact occurred d) Re-testing control procedures that appeared to be
d) Consider whether errors or fraud where the result of ineffective during the assessment of control risk
employee's failure to comply with specific controls
11. Results of the financial statement audit are
4. Which of the following is not normally performed in communicated to users through
the pre-planning or pre-engagement phase? a) Financial statement
a) Deciding whether to accept or reject an audit b) Written management assertion
engagement c) Audit report
b) Inquiring from predecessor auditor d) None of the above
c) Preparing an engagement letter
d) Making a preliminary estimate of materiality 12. What is the primary difference between financial
reporting risk and audit risk?
5. On the basis of the audit evidence gathered and a) The application of accounting principles
evaluated, an auditor decides to increase the assessed b) Responsibilities of the respective parties involved
level of control risk from that originally planned. To c) Demands of users of financial statements
achieve an overall audit risk level that is substantially d) Risks of being sued by third parties
the same as the planned audit risk level, the auditor
would 13. Relationship between control risk and detection
risk is ordinarily
a) Decrease substantive testing a) Parallel
b) Increase inherent risk b) Inverse
c) Decrease detection risk c) Direct
d) Increase materiality levels d) Equal
14. A representation letter issued by a client
6. An effective internal control a) Is essential for the preparation of the audit program
a) Cannot be circumvented by management b) Is a substitute for testing
b) Can reduce the cost of an external audit c) Does not reduce the auditor's responsibility
c) Can prevent collusion among employees d) Reduces the auditor's responsibility only to the
d) Eliminates risks and potential loss to the extent that it is relied upon
organization
15. The recruitment of senior management for an
7. In auditing through a computer, the test data assurance client, such as those in a position to affect
method is used by auditors to test the the subject of the assurance engagement may least
a) Accuracy of input data likely create
b) Validity of the output a) Self-interest threat
c) Procedures contained within the program b) Advocacy threat
d) Normalcy of distribution of test data c) Intimidation threat
d) Familiarity threat
16. In reviewing the audit work performed, the a) Net liability or net current liability position
engagement partner b) Change from credit to cash-on-delivery transactions
a) Must review all audit documentation with suppliers
b) Need not review all audit documentation, but may c) Labor difficulties or shortages of important supplies
do so d) Compliance with capital or other statutory
c) Need not review all audit documentation requirements
d) Must ask the staff performing the audit work to sign
the audit report 23. Which of the following procedures is not included in
a review engagement on a nonpublic entity
17. The independent auditor lends credibility to client’s a) Inquiries of management
financial statements by b) Inquiries regarding events subsequent to the
a) Maintaining a clear-cut distinction between balance sheet date
management’s representations and the auditor’s c) Any procedures designed to identify relationships
representation among data that appear to be unusual
b) Testifying under oath about client’s financial d) A study and evaluation of internal control structure
statements
c) Stating in the auditor’s management letter that the 24. In planning the audit engagement, the auditor
examination was made in accordance with generally should consider each of the following except
accepted auditing standards a) The kind of opinion that will likely be given
d) Attaching an auditor’s opinion to the client’s b) Matters relating to the entity’s business and the
financial statements industry in which it operates
c) The entity’s accounting policies and procedures
18. The most difficult type of misstatement to detect is d) Anticipated levels of control risk and materiality
fraud based on
a) The over-recording of transactions 25. What assurance is provided by the practitioner in
b) The non-recording of transactions an agreed-upon procedures engagement?
c) Recorded transactions in subsidiaries a) Reasonable
d) Related party receivables b) Absolute
c) Moderate
19. Assuming a recurring audit, in which of the d) No assurance
following situations would the auditor be unlikely to
send a new engagement letter to the client? 26. To test for unsupported entries in the journal, the
a) A recent change in partner and/or staff involved in direction of audit testing should be from the
the audit engagement a) Journal entries
b) A change in the terms of engagement b) Ledger entries
c) A recent change of client management c) Original source documents
d) A significant change in the nature or size of the d) Externally generated documents
client's business
27. For good internal control, the purchasing
20. When an auditor expresses an adverse opinion department should not be responsible for
he/sheshould disclose the substantive reasons for such a) Authorizing the acquisition of goods
anopinion in an explanatory paragraph b) Finding the lowest cost vendor
a) Within the notes to the financial statements c) Reviewing the vendors catalog descriptions and
b) Preceding the opinion paragraph prices for standardized items
c) Following the opinion paragraph d) Designing the purchase order form
d) Preceding the introductory paragraph
28. Involves tracing a few transactions through the
21. Tolerable error means accounting system
a) An error that arises from an isolated event that has a) Test of controls
not recurred other than on specifically identifiable b) Walk-through test
occasions and is therefore not representative of errors c) Analytical procedures
in the population d) Substantive procedures
b) An error that the auditor expects to be present in
the population 29. This exists, when other information, not related to
c) The maximum error in a population that the auditor matters appearing in the financial statements, is
is willing to accept incorrectly stated or presented
d) The possibility that the auditor's conclusion, based a) Material inconsistency
on a sample may be different from the conclusion b) Material misstatement
reached if the entire population were subjected to the c) Material misstatement of fact
same audit procedure d) Material error affecting the other information

22. Examples of events or conditions, which 30. Who appoints the members of the Board of
individually or collectively, may cast significant doubt Accountancy
about the going concern assumption include the a) The chairman of BOA
following except b) The president of the Philippines
c) The chairman of the PRC b) Special purpose framework
d) The president of PICPA c) General purpose financial statements
d) Specific purpose financial statements
31. An auditor is required to obtain an understanding
of the entity's business, including business cycles and 38. An auditor plans to apply substantive tests to the
reasons for business fluctuations. What is the audit details of asset and liability accounts as of an interim
purpose most directly served by obtaining this date rather than as of the balance sheet date. The
understanding? auditor should be aware that this practice
a) To enable the auditor to accurately identify a) Eliminates the use of certain statistical sampling
significant deficiencies in internal control methods that would otherwise be available
b) To assist the auditor in accurately interpreting b) Presumes that the auditor will reperform the tests of
information obtained during an audit the balance sheet date
c) To allow the auditor to more accurately perform c) Should be especially considered when there are
tests of controls rapidly changing economic conditions
d) To decide whether it will be necessary to perform d) Potentially increases the risk that errors that exist
analytical procedures at the balance sheet date will not be detected

32. Which of the following is not true about the report 39. Close family include the following, except
release date? a) Parent
a) It is defined as the date after which existing b) Sibling
documentation must not be deleted, and additions to c) Non-dependent child
the documentation file must be documented as such d) Spouse
b) It is often the date on which the report is delivered
to the client 40. A computer-assisted audit technique that is most
c) It is the date on which the auditor grants the client likely to be effective in a continuous auditing
permission to use the report environment is
d) It is used to define the beginning of the retention a) Parallel simulation
period b) Controlled reprocessing
c) Embedded audit modules
33. An auditor should not issue a report on d) Transaction tripping
a) Quarterly financial information
b) Internal control 41. Which of the following is not prohibited by the
c) Management performance Code of Professional Ethics for CPAs?
d) The achievability of forecasts a) Advertising and solicitation of clients
b) Payment of commissions to obtain a client
34. Which of the following procedures would an auditor c) Receiving a contingent fee on a tax case before the
most likely perform to obtain evidence about the Bureau of Internal Revenue
occurrence of subsequent events? d) Offering employment to a staff member of another
a) Confirming a sample of material accounts receivable CPA without first informing the CPA
established after year-end
b) Comparing the financial statements being reported 42. The management's assessment of the entity's
on with those of the prior period ability to continue as a going concern covers a period
c) Investigating personnel changes in the accounting of
department occurring after year-end a) Not longer than 12 months from balance sheet date
d) Inquiring as to whether any unusual adjustments b) At least 12 months from the balance sheet date
were made after year-end c) Not longer than 12 months from the date of audit
report
35. To which of the following matters would materiality d) At least 12 months from the date of audit report
limits not apply when obtaining written client
representations? 43. To obtain evidential matter about control risk, an
a) Violations of state labor regulations auditor selects tests from a variety of techniques
b) Disclosure of line-of-credit arrangements including
c) Information about related party transactions a) Inquiry
d) Instances of fraud involving management b) Analytical procedures
36. Who ultimately determines the scope of the audit? c) Calculation
a) The auditor d) Confirmation
b) The client
c) Both a and b 44. The need for independent audits of financial
d) Neither a nor b statements can be attributed to all of the following
conditions except
37. Financial statements prepared in accordance with a a) Remoteness
financial reporting framework designed to meet the b) Consequence
financial information needs of specific users are c) Complexity of subject matter
referred to as d) Validity
a) Special purpose financial statements
 50. The auditor should determine overall responses to
45. After issuing a report an auditor includes that an address the risks of material misstatement at the
auditing procedure considered necessary at the time of financial statement level. Such responses most likely
the examination was omitted from the examination. include
The auditor should first a) Assigning less experienced staff
a) Undertake to apply the omitted procedure or b) Performing predictable further audit procedures
alternative procedures that would provide a c) Performing substantive procedures at an interim
satisfactory basis for the auditor's opinion date instead of at period end
b) Assess the importance of the omitted procedure to d) Emphasizing to the audit team the need to maintain
the auditor's ability to support the opinion expressed professional skepticism in gathering and evaluating
on the financial statements taken as a whole audit evidence
c) Notify the audit committee or the board of directors 51. The need for assurance services arises for all of the
that the auditor's opinion can no longer be relied upon following reason except
d) Review the results of other procedures that were a) Potential bias in providing information
applied to compensate for the one omitted or to make b) Closeness between a user and the organization
its omission less important c) Complexity of the processing systems
d) Remoteness between a user and the organization
46. This quality control element requires a CPA firm to
establish policies and procedures to provide it with 52. Which one of the following is not a key attribute
reasonable assurance that engagements are performed needed to perform assurance?
a) Subject matter knowledge
in accordance with professional standards and
b) Independence
regulatory and legal requirements, and that the firm or c) Established criteria or standards
the engagement partner issue reports that are d) Accounting skills
appropriate in the circumstances
a) Ethical requirements 53. Which one of the following is not part of the attest
b) Engagement performance process?
c) Monitoring a) Providing the accuracy of the books and records
b) Gathering evidence about assertions
d) Human resources
c) Evaluating evidence against objective criteria
d) Communicating the conclusions reached

47. Communication with a predecessor auditor is 54. Users of the audit report can reasonably expect the
initiated by audited financial statements to be
a) Management a) Complete and contain many of the important
b) The successor auditor financial disclosures
c) The audit committee of the board of directors b) Presented fairly according to the substance of GAAP
c) Free from all errors
d) The chair of the board of directors
d) All of the above

55. Which of the following services is the broadest and

48. In which of the following may confidential most inclusive
information not be disclosed? a) Audit
a) To comply with the quality review of a member b) Attestation
body or professional body c) Assurance
b) To submit evidence in the course of legal d) Compliance
proceedings
56. One reason why an auditor makes an analytical
c) Acquiring information in the course performing
review of the client’s operations is to identify
professional services and use that information for a) Improper separation of accounting and other
personal advantages financial duties
d) When consent to disclose information is given by b) Weakness of a material nature in the system of
the client internal accounting control
c) Unusual transactions
49. The auditor should perform the following risk d) Non-compliance with prescribed control procedures
assessment procedures to obtain an understanding of
the entity and its environment, including its internal 57. Analytical procedures used in planning an audit
control, except should focus on identifying
a) Inquiries of management and others within the a) Material weaknesses in the internal control structure
entity b) The predictability of financial data from individual
b) Reperformance transactions
c) Analytical procedures c) The various assertions that are embodied in the
d) Observation and inspection financial statements
d) Areas that may represent specific risk relevant to
audit
 65. Control risk should be assessed in terms of
58. An integrated test facility (ITF) would be a) Specific controls
appropriate when the auditor needs to b) Types of potential fraud
a) Trace a complex logic path through an application c) Financial statement assertions
system d) Control environment factors
b) Verify processing accuracy concurrently with
processing 66. Which of the following is not a step in an auditor's
c) Monitor transactions in an application system assessment of control risk?
continuously a) Evaluate the effectiveness of internal control with
d) Verify load module integrity for production tests of controls
programs b) Obtain an understanding of the entity's information
system and control environment
59. The rotation of senior accounting personnel can be c) Perform tests of details of transactions to detect
regarded as a safeguard material misstatements in the financial statements
a) Created by the profession d) Consider whether controls can have a pervasive
b) Within the client’s systems and procedures effect on financial statement assertions
c) In the work environment
d) Created within the business community 67. Which of the following procedures would an auditor
ordinarily perform first in evaluating management's
60. If certain forms are not consecutively numbered accounting estimates for reasonableness?
a) Systematic sampling may be appropriate a) Develop independent expectations of management's
b) Selection of a random sample probably is not estimates
possible b) Consider the appropriateness of the key factors or
c) Stratified sampling should be used assumptions used in preparing the estimates
d) Random number tables cannot be used c) Test the calculations used by management in
developing the estimates
61. A cash shortage may be concealed by transporting d) Obtain an understanding of how management
funds from one location to another or by converting developed its estimates
negotiable assets to cash. Because of this, which of the
following is vital? 68. An entity's income statements were misstated due
a) Simultaneous confirmations to the recording of journal entries that involved debits
b) Simultaneous bank reconciliations and credits to an unusual combination of expense and
c) Simultaneous verification revenue accounts. The auditor most likely could have
d) Simultaneous surprise cash count detected this fraudulent financial reporting by
a) Tracing a sample of journal entries to the general
62. Which of the following is most likely to indicate a ledger
significant deficiency relating to a client's anti-fraud b) Evaluating the effectiveness of internal control
programs? c) Investigating the reconciliations between controlling
a) A broad scope of internal audit activities accounts and subsidiary records
b) A "whistle-blower" program that encourages d) Performing analytical procedures designed to
anonymous submissions disclose differences from expectations
c) Audit committee passivity when conducting
oversight functions 69. Which of the following is most likely to be unique
d) Lack of performance of criminal background to the audit work of CPAs as compared to work
investigations for likely customers performed by practitioners of other professions?
a) Due professional care
63. Which of the following is not an attestation b) Competence
standard? c) Independence
a) Sufficient evidence shall be obtained to provide a d) Complex body of knowledge
reasonable basis for the conclusion that is expressed in
the report 70. Which of the following would an auditor most likely
b) The report shall identify the subject matter on the use in determining the auditor's preliminary judgment
assertion being reported on and state the character of about materiality?
the engagement a) The anticipated sample size of the planned
c) The work shall be adequately planned and substantive tests
assistants, if any, shall be properly supervised b) The entity's annualized interim financial statements
d) A sufficient understanding of internal control shall c) The results of the internal control questionnaire
be obtained to plan the engagement d) The contents of the management representation
64. Proper segregation of functional responsibilities letter
calls for separation of the functions of
a) Authorization, execution, and payment 71. Which of the following conditions identified during
b) Authorization, recording, and custody fieldwork of an audit is most likely to affect the
c) Custody, execution, and reporting auditor's assessment of the risk of misstatement due
d) Authorization, payment, and recording to fraud?
a) Checks for significant amounts outstanding at year-
end entity's compliance with requirements of specified
b) Computer generated documents laws.
c) Missing documents d) The compilation of a client's forecast information.
d) Year-end adjusting journal entries.
78. Which of the following is ordinarily considered to
72. An auditor ordinarily uses a working trial balance be a fraud risk factor?
resembling the financial statements without footnotes, a) The company's financial statements include a
but containing columns for number of last minute material adjustments.
a) Cash flow increases and decreases b) Management regularly informs investors of forecast
b) Audit objectives and assertions information.
c) Reclassifications and adjustments c) The company has experienced increasing earnings
d) Reconciliations and tick marks over the previous five years.
d) The company's president is included as a member of
the board of directors.
73. The risk that an auditor will conclude, based on
substantive tests, that a material misstatement does 79. Which is least likely to be a question asked of
not exist in an account balance when in fact such client personnel during a walk-through in an audit of
misstatement does exist is referred to as the internal control of an issuer (public) company?
a) Detection risk a) What do you do when you find an error'?
b) Sampling risk b) Who is most likely to commit fraud among your
c) Non-sampling risk coworkers?
d) Inherent risk c) What kind of errors have you found?
d) Have you ever been asked to override the process
74. The usefulness of the standard bank confirmation or controls?
request may be limited because the bank employee
who completes the form may 80. An auditor who uses the work of a specialist may
a) Be unaware of all the financial relationships that the refer to and identify the specialist ill the auditor's
bank has with the client report if the
b) Not believe that the bank is obligated to verify a) Specialist is also considered to be a related party.
confidential information to a third party b) Auditor indicates a division of responsibility related
c) Sign and return the form without inspecting the to the work of the specialist.
accuracy of the client's bank reconciliation c) Specialist's work provides the auditor greater
d) Not have access to the client's cutoff bank assurance of reliability.
statement d) Auditor expresses an "except for" qualified opinion
or an adverse opinion related to the work of the
75. A material weakness is a significant deficiency (or specialist.
combination of significant deficiencies) that results in a
reasonable possibility that a misstatement of at least 81. Which of the following statements concerning
'what amount will not be prevented or detected? evidential matter is correct?
a) An amount greater than zero a) Appropriate evidence supporting management's
b) An amount greater than zero, but at least assertions should be convincing rather than merely
inconsequential persuasive.
c) An amount greater than inconsequential b) Effective internal control contributes little to the
d) A material amount reliability of the evidence created within the entity.
c) The cost of obtaining evidence is not an important
76. The existence of audit risk is recognized by the consideration to an auditor in deciding what evidence
statement in the auditor's standard report that the should be obtained.
auditor d) A client's accounting data cannot be considered
a) Obtains reasonable assurance about whether the sufficient audit evidence to support the financial
financial statements are free of material misstatement. statements.
b) Assesses the accounting principles used and also
evaluates the overall financial statement presentation. 82. Confirmations of accounts receivable address
c) Realizes some matters either individually or in the which assertion most directly?
aggregate, are important while other matters are not a) Completeness
important. b) Existence
d) Is responsible for expressing an opinion on the c) Valuation
financial statements, which arc the responsibility of d) Classification
management.
83. When performing a review of an issuer company,
77. Which of the following services would be most which is least likely to be included in the CPA's inquires
likely to be structured as an attest engagement? of management members with responsibility for
a) Advocating a client's position in tax matter. financial and accounting matters?
b) A consulting engagement to develop a new a) Subsequent events
database system for the revenue cycle. b) Significant journal entries and other adjustments
c) An engagement to issue a report addressing an c) Communications with related parties
d) Unusual or complex situations affecting the financial d) Perform inventory observations on an unannounced
statements basis.

84. The adverse effects of events causing an auditor to 90. The independent auditor selects several
believe there is substantial doubt about an entity's transactions in each functional area and traces them
ability to continue as a going concern would most likely through the entire system, paying special attention to
be mitigated by evidence relating to the evidence about whether or not the controls are in
a) Ability to expand operations into new product lines operation. This is an example of a(n)
in the future. a) Application test
b) Feasibility of plans to purchase leased equipment at b) Test of controls
Jess than market value. c) Substantive test
c) Marketability of assets that management plans to d) Test of a function
sell.
d) Committed arrangements to convert preferred stock 91. Accounting control procedures within computer
to long-term debt. processing may leave no visible evidence indicating
that the procedures were performed. In such
85. One reason that an auditor only obtains instances, the auditor should test these controls by
reasonable, and not absolute, assurance that financial a) Making corroborative inquiries.
statements are free from material misstatement is b) Observing the separation of duties of personnel.
a) Comprehensive basis reporting c) Reviewing transactions submitted for processing and
b) Employee collusion comparing them to related output.
c) Material misstatements d) Reviewing the run manual.
d) Professional skepticism

86. When an auditor concludes there is substantial 92. If information is for management's use only, which
doubt about a continuing audit client's ability to of the following forms of CPA association with financial
continue as a going concern for a reasonable period of information is most likely to result in no report being
time, the auditor's responsibility is to issued?
a) Issue a qualified or adverse opinion, depending a) An agreed-upon procedures engagement
upon materiality, due to the possible effects on the b) An audit
financial statements. c) A compilation
b) Consider the adequacy of disclosure about the d) A review
client's possible inability to continue as a going
concern. 93. In obtaining an understanding of a manufacturing
c) Report to the client's audit committee that entity's internal control over inventory balances, an
management's accounting estimates may need to be auditor most likely would
adjusted. a) Review the entity's descriptions of inventory policies
d) Reissue the prior year's auditors report and add an and procedures.
explanatory paragraph that specifically refers to b) Perform test counts of inventory during the entity's
"substantial doubt" and "going concern." physical count.
c) Analyze inventory turnover statistics-to identify
87. The accountant who is not independent may slow-moving and obsolete items.
perform which of the following types of engagements? d) Analyze monthly production reports to identify
a) Audit variances and unusual transactions.
b) Agreed-upon procedures
c) Compilation 94. When auditing merchandise inventory at year-end,
d) Review the auditor performs a purchase cutoff test to obtain
evidence that
88. Which of the following should an auditor obtain a) All goods owned at year-end are included in the
from the predecessor auditor prior to accepting an inventory balance.
audit engagement? b) All goods purchased before year-end are received
a) Analysis of balance sheet accounts before the physical inventory count.
b) Analysis of income statement accounts c) No goods held on consignment for customers are
c) All matters of continuing accounting significance included in the inventory balance.
d) Facts that might bear on the integrity of d) No goods observed during the physical count are
management pledged or sold.

89. Which is least likely to be a response when an 95. A company has changed its method of inventory
auditor has obtained evidence indicating a risk of valuation from an unacceptable one toone in
material misstatement in the area of inventory? conformity with generally accepted accounting
a) Request inventory counts at the end of each month. principles. The auditor's report on the financial
b) Discuss questions of inventory valuation with any statements of the year of the change should include
other auditors involved with the audit. a) No reference to consistency.
c) Make oral inquiries of major suppliers in addition to b) A reference to a prior period adjustment in the
written confirmations. opinion paragraph.
c) An explanatory paragraph explaining the change.
d) A justification for making the change and the impact
of the change on reported net income.

96. An abnormal fluctuation in gross profit that might

suggest the need for extended audit procedures for
sales and inventories would most likely be identified in
the planning phase of the audit by the use of
a) Tests of transactions and balances
b) A preliminary review of internal control
c) Specialized audit programs
d) Analytical procedures

97. Which of the following statements best describes

the ethical standard of the profession pertaining to
advertising and solicitation?
a) All forms of advertising and solicitation are
prohibited.
b) There are no prohibitions regarding the manner in
which CPAs may solicit new business.
c) A CPA may advertise in any manner that is not
false, misleading, or deceptive.
d) A CPA may only solicit new clients through mass
mailings.

98. A note to the financial statements of a bank

indicates that all of the records relating to its business
operations are stored on magnetic disks; and that
there are no emergency back-up systems or duplicate
disks stored since the bank and their auditors consider
the occurrence of a catastrophe to be remote. Based
upon this, one would expect the auditor's report to
express
a) An adverse opinion
b) An "except for" opinion
c) An unqualified opinion
d) A qualified opinion

99. Which of the following is not typically performed

when accountants are performing a review of the
financial statements of a nonissuer?
a) Analytical procedures applied to financial data
b) Inquiries about significant subsequent events
c) Inquiries of the client's attorney about legal matters
d) Obtaining an understanding of the accounting
principles followed by the client's industry

100. Which of the following is least likely to be a

restricted use report?
a) A report on financial statements prepared following
a comprehensive basis of accounting other than
generally accepted accounting principles.
b) A report on internal control significant deficiencies
noted in an audit.
c) A required communication with the audit committee.
d) A report on compliance with aspects of contractual
agreements.