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1. Broadly defined, the subject matter of any audit
consist of
a. Financial statements
b. Economic data
c. Assertions
d. Operating data
2. An audit of financial statements is conducted to
determine if the
a. Organization is operating efficiency and
effectively
b. Auditee is following specific procedures or
rules set down by some higher authority
c. Overall financial statement statements are
stated in accordance with the applicable
financial reporting framework
d. Client’s internal control is functioning as
intended
3. Most of the independent auditor’s work in
formulating an opinion on financial statement
consist of
a. Studying and evaluating internal control
b. Obtaining and examining evidential matter
c. Examining cash transaction
d. Comparing recorded accountability with
assets
4. In financial statement audits, the audit process
should be conducted in accordance with
a. The audit program
b. Philippine standard on auditing
c. Philippine accounting standards
d. Philippine Financial Reporting Standards
5. Which of the following best describe the
operational audit?
a. It requires the constant review by internal
auditors of the administrative controls as
they relate to operations of the company.
b. It concentrates on implementing financial
and accounting control in a newly organized
company.
c. In attempts and is designed to verify the fair
presentation of a company’s results of
operations.
d. It concentrates on seeking out aspects of
operations in which waste would be
reduced by the introduction of controls.
6. The auditor communicates the results of his or her
work through the medium if the
a. Engagement letter
b. Audit report
c. Management letter
d. Financial statement
7. Which of the following types of auditing is
performed most commonly by CPA’s on a
contractual basis?
a. Internal Auditing
b. Income tax auditing
c. Government auditing
d. External auditing
8. Independent auditing can best be describe as a
a. Professional activity that measures and
communicates financial accounting data
b. subset accounting
c. Professional activity that attest to the fair
presentation of financial statement
d. Regulatory activity that prevents the
issuance of improper financial information
9. Which of the following statements is not a
distinction between independent auditors and
internal auditors?
a. Independent auditors represent third party
users external to the auditee entity,
whereas internal auditors report directly to
management.
b. Although independent auditors strive for
both validity and relevance of evidence,
internal auditors are concerned almost
exclusively with validity.
c. Internal auditors are employees of the
auditee, whereas independent auditors are
independent contractors.
d. The internal auditor’s span of coverage goes
beyond financial auditing to encompass
operational and performance auditing.
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10. Which of the following has the primary

responsibility for the fairness of the representations
made in the financial statements?
a. Client’s management
b. Audit Committee
c. Independent auditor
d. Board of Accountancy

11. An audit of the financial statements of KIA

Corporation is being conducted by an external
auditor. The external auditor is expected to
a. express an opinion as to the fairness of
KIA’s financial statements.
b. express an opinion as to the attractiveness
of KIA for investment purposes.
c. certify the correctness of KIA’s Financial
Statements.
d. examine all evidence supporting KIA’s
financial statements.

12. Which of the following statements about

independent financial statements audit is correct?
a. The audit of financial statements relieves
management of its responsibilities for the
financial statement
b. An audit is designed to provide limited
assurance that the financial statements
taken as a whole are free from material
misstatement
c. The procedures required to conduct an
audit in accordance with PSAs should be
determined by the client who engaged the
services of the auditor.
d. The auditor’s opinion is not an assurance as
to the future viability of the entity as well as
the effectiveness and efficiency with which
management has conducted the affairs of
the entity.

13. The reason an independent auditor gathers

evidence is to
a. Form an opinion on the financial statements
b. Detect fraud
c. Evaluate management
d. Evaluate internal controls
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1. An intentional act by one more individuals among
management, employees, or third parties which
results in misrepresentation of financial statement
refers to
a. Error
b. Noncompliance
c. Fraud
d. Illegal acts
2. The responsibility for the detection and prevention
of errors, fraud and noncompliance with laws and
regulations rests with
a. Auditor
b. Client’s legal counsel
c. Fraud
d. Illegal acts
3. The auditor’s best defense when material
misstatements in the financial statements are not
uncovered in the audit is that
a. The audit was conducted in accordance
with generally accepted accounting
principles
b. Client is guilty of contributory negligence
c. The audit was conducted in accordance
with PSAs
d. Issuing a representation letter to the
auditor
4. The following statements relate to the auditor’s
responsibility for the detection of errors and fraud.
Identify the correct statements.
I. Due to the inherent limitation
of the audit, there is a
possibility that material
misstatements in the financial
statements may not be
detected.
II. The subsequent discovery of
material misstatement of the
financial information resulting
from fraud or error does not,
in itself, indicate that the
auditor failed to follow the
basic principles and essential
procedures of an audit.
a. I only
b. Both Statements are true
c. II only
d. Both statements are false
5. What primarily differentiates fraud from an error
a. Materiality
b. Effect on misstatements
c. Intent
d. Frequency of occurrence
6. The term “error” refers to unintentional
misrepresentation of financial information.
Examples of errors are when
I. Assets have been
misappropriated
II. Transactions without substance
have been recorded
III. Records and documents have
been manipulated and falsified
IV. The effects of the transaction
have been omitted from the
records
a. all of the above statements are true
b. only statements I and III are true
c. all of the above statements are
false
d. only statement II and IV are true
7. Which of the following best identifies the two
types of fraud?
a. Theft of assets and employee fraud.
b. Misappropriation of asset and
defalcation.
c. Management fraud and employee
fraud.
d. Fraudulent financial reporting and
management fraud.
8. Which of the following statements best
describe an auditor’s responsibility to detect
errors and fraud?
a. An auditor should assess the risk
that errors and fraud may cause the
financial statements to contain
material misstatements and should
design the audit to provide
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reasonable assurance of detecting
errors and fraud that are material
to the financial statements.
b. An auditor is responsible to detect
material errors, but has no
responsibility to detect material
fraud that are concealed through
employee collusion or management
override of the internal control
structure.
c. An auditor has no responsibility to
detect errors and fraud unless
analytical procedures or tests of
transactions identify conditions
causing a reasonably prudent
auditor to suspect that the financial
statements were materially
misstated.
d. An auditor has no responsibility to
detect errors and fraud because an
auditor is not an insurer and an
audit does not constitute a
guarantee.
9. “The auditor would ordinarily expect to find
evidence to support management
representations and not assume that they
necessarily correct”. This is an example of
a. Unprofessional behavior
b. An attitude of professional
skepticism
c. Due diligence
d. A rule in code of professional
conduct.
10. Which of the following statement is true?
a. It is usually easier for the auditor to
uncover fraud than errors.
b. It is usually easier for the auditor to
uncover errors than fraud.
c. It is usually equally difficult for the
auditor to uncover errors or fraud.
d. Usually, the auditor does not design
procedures to uncover fraud or errors.
11. The most difficult type of misstatement to
detect is fraud based on
a. The over recording of transaction
b. The non-recording of transactions
c. Recorded transactions in subsidiaries
d. Related party receivable
12. If an auditor was engaged to discover errors
or fraud and the auditor performed extensive
detail work, which of the following could the
auditor be expected to detect?
a. Misposting if recorded transactions
b. Unrecorded transaction
c. Counterfeit signatures on paid checks
d. Collusive fraud
13. Which of the following statements is
incorrect?
a. The responsibility for the
prevention and detection of fraud
and error rests with management.
b. The auditor is not and cannot be
held responsible for the detection
of fraud or error.
c. In planning an audit, the auditor
should assess the risk that fraud or
error may cause the financial
statements to contain material
misstatement.
d. The risk of not detecting material
fraud is higher than the risk of not
detecting a material misstatement
arising from error.
5
1. The primary responsibility for establishing and
maintaining an internal control rests with
a. The external auditors
b. The internal auditors
c. Management and those charged with
governance
d. The controller or the treasurer
2. The fundamental purpose of an internal control is to
a. Safeguard the resources of the organization
b. Provide reasonable assurance that the
objectives of the organization are achieved
c. Encourage compliance with organization
objectives
d. Ensure the accuracy, reliability and
timeliness of information
3. Which of the following is not one of the three
primary objectives of effective internal control?
a. Reliability of financial reporting
b. Efficiency and effectiveness of operations
c. Compliance with laws and regulations
d. Assurance of elimination of business risk.
4. Which of the following internal control objectives
would be most relevant to the audit?
a. Operational objective
b. Compliance objective
c. Financial reporting objective
d. Administrative control objective
5. An act of two or more employee to steal assets and
cover their theft by misstating the accounting
records would be referred to as:
a. Collusion
b. A material weakness
c. A control deficiency
d. A significant deficiency
6. Which of the following is not one of the
components of an entity’s internal control?
a. Control risk
b. Control activities
c. Information and communication
d. The control environment
7. The overall attitude and awareness of an entity’s
board of director concerning the importance of the
internal control usually is reflected in its
a. Computer-based controls
b. System of segregation of duties
c. Control environment
d. Safeguard over access of assets
8. In evaluating the design of the entity’s internal
control environment, the auditor considers the
certain subcomponents of control environment and
how they have been incorporated into the entity’s
processes. Subcomponents of control environment
would include
a. Integrity and ethical values
b. Commitment to competence
c. Organizational structure
d. Information and communications systems
9. Which of the following components of an entity’s
internal control structure includes the development
of employee promotion and training policies?
a. Control activities
b. Control environment
c. Information and communication
d. Quality control system
10. Which of the following subcomponents of the
control environment define the existing lines of
responsibility and authority?
a. Organizational structure
b. Management philosophy & operating style
c. Human resource policies and practices
d. Management integrity and ethical values
11. Which of the following is not one of the
subcomponents of the control environment?
a. Management philosophy and operating
style
b. Organizational structure
c. Adequate separation of duties
d. Commitment to competence
12. Which of the following deal with ongoing or
periodic assessment of quality of internal control by
management?
a. Quality control activities
b. Monitoring activities
c. Oversight activities
d. Management activities
6
1. 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.
a. Fraud
b. Misappropriation
c. Noncompliance
d. Defalcation
2. In order to achieve the objectives of the
accountancy profession, professional accountants
have to observe a number of prerequisites or
fundamental principles. The fundamental principles
include the following except
a. Objectivity
b. Professional competence and due care
c. Technical standards
d. Confidence
3. The principle of professional competence and due
care imposes certain obligations on professional
accountants. Which of the following is not one of
those obligations required by this principle?
a. To act diligently in accordance with
applicable technical and professional
standards
b. To be fair, intellectually honest and free of
conflict of interest
c. To become aware and understand relevant
technical, professional and business
developments
d. To obtain professional knowledge and
experience to enable them to fulfil their
responsibilities
4. The phase of professional competence that requires
a professional accountant to adopt a program
designed to ensure quality control in the
performance of professional services consistent
with technical and professional standards is:
a. Attainment of professional competence
b. Maintenance of professional competence
c. Application of professional competence
d. Review of professional competence
5. The essence of the due care principle is that the
auditor should not be guilty of:
a. Bias
b. Errors in judgement
c. Fraud
d. Negligence
6. The principle of confidentiality applies to:
a. Professional accountants in public practice
b. Professional accountants in commerce and
industry
c. Professional accountants in government
d. All professional accountants
7. The principle of confidentiality imposes an
obligation on professional accountants to refrain
from:
a. Disclosing confidential information to
another party even if client authorizes the
disclosure
b. Using confidential information acquired as a
result of professional and business
relationships to their personal advantage or
the advantage of the third parties
c. Disclosing information to defend
themselves in case of litigation
d. Responding to an inquiry or investigation
conducted by the Professional Regulatory
Board of Accountancy
8. A CPA should not disclose confidential information
obtained during an audit engagement in which one
of the following situations?
a. When the security of the state requires
b. With the consent of the client
c. In defense of himself when sued by his
client
d. To a successor auditor without the client’s
permission
9. Which of the following is considered a violation of
rules on confidentiality?
a. The CPA discloses information to protect his
own interest in the course of legal
proceedings
b. The CPA discloses information to a
successor auditor after obtaining the
client’s permission
c. The CPA discloses information to another
CPA in compliance with a quality control
review conducted by the BOA
d. The CPA divulges information disclosed to
him by a prospective client.
10. In which of the following circumstances would a
CPA be bound by the ethics to refrain from
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disclosing any confidential information obtained

during course of a professional engagement?
a. The CPA is issued summon enforceable by
the court order which orders the CPA to
present confidential information
b. A major stockholder of a client company
seeks accounting information from CPA
after the management declined to disclose
the requested information
c. Confidential client information is made
available with the client’s permission
d. An inquiry by the PRC and the CPA needs
the disclosure to defend himself

11. The principle of professional behaviour requires a

professional accountant to
a. Be straightforward and honest in
performing professional services
b. Be fair and should not allow prejudice or
bias, conflict of interest or influence of
others to override objectivity
c. Perform professional services with due
care, competence and diligence
d. Act in a manner consistent with the good
reputation of the profession and refrain
from any conduct which might bring
discredit to profession

12. Which of the following most accurately states how

objectivity has been defined by the Code of Ethics?
a. Being honest and straight forward in all
professional and business relationships.
b. A state of mind that permits the provision
of an opinion without being affected by
influences that compromise professional
judgement
c. A combination of impartiality, intellectual
honesty and a freedom from conflict of
interest
d. Avoiding facts and circumstances that could
reduce the public confidence in the
professional accountant’s report

13. Which fundamental principle is seriously threatened

by an engagement that is compensated based on
the net proceeds on loans received by the client
from a commercials bank?
a. Integrity
b. Objectivity
c. Confidentiality
d. Professional behaviour