“The Lord sees all.

”
“If that is not enough ang magcheat magiging CPA sa 2040”
AUDITING THEORY INTEGRATION
DIAGNOSTIC EXAM
1. The nature of audit procedures refers to the reliance on evidence provided by the client and its
management.
a. True b. False
2. A compliance audit involves gathering evidence to ascertain whether the person or entity
under review has followed the rules, policies, procedures and laws and regulations with which
they must conform.
a. True b. False
3. An operational audit is an example of a compliance audit.
a. True b. False
4. The most common types of assurance engagements are financial report audits, confirmation
audits, performance audits, comprehensive audits and assurance on corporate social
responsibility (CSR) disclosures.
a. True b. False
5. An assurance engagement is performed by an auditor or consultant to enhance the reliability of
the subject matter.
a. True b. False
6. An audit of a financial report by the contracted auditors will give absolute assurance that the
financial reports give a true and fair view of the financial performance of the entity.
a. True b. False
7. An audit engagement is performed by an Auditor to provide a reasonable assurance that the
financial report gives a true and fair view of the business activities for the period.
a. True b. False
8. A no assurance engagement is of little use as no assurance is given to the client.
a. True b. False
9. An auditor can provide a reasonable level of assurance on information other than historical
financial information.
a. True b. False
10. A negative expression of opinion is only given when there is a disagreement with
management and the auditor.
a. True b. False
11. A reasonable level of assurance is the highest level of assurance that an auditor can provide.
a. True b. False
12. All modified audit reports are qualified audit opinions.
a. True b. False
13. It is the auditor’s responsibility to prepare the financial statements.
a. True b. False
14. An example of the three parties in an assurance engagement would be:
a. audit client, supplier, auditor
b. audit client, employee, customer
c. auditor, general public, employees
d. auditor, shareholder, general public

15. An assurance engagement can be defined as

a. an engagement of an expert to direct the entity on subject matter
b. an engagement to enhance the reliability of the subject matter.
c. an audit to determine the validity of the subject matter
d. an engagement to determine a true and fair view of the entities course of actions.

16. Which of the following is NOT true about Corporate Social Responsibility assurance?
a. disclosures include environmental, employee and social reporting
b. includes both financial and non-financial information
c. reporting is voluntary and is becoming more widespread
d. is required to be performed by an auditor

17. A limitation of an audit is caused by

a. the need for the audit to be conducted within a reasonable period of time and at a reasonable
cost.
b. the nature of audit procedures
c. the nature of financial reporting
d. all of the above
18. Which of the following would be an example of a reasonable assurance engagement?
a. the reporting of procedures performed by the auditor as agreed by the client.
b. the audit of annual financial statements
c. the review of annual financial statements
d. all of the above
19. When auditors are engaged in work where no assurance is provided this means;
a. An assurance is not provided as the client determines the nature, timing and extent of the
evidence that is gathered and will determine their own outcome
b. The auditors found anomalies in the financial information and no assurance will be given until
further testing is conducted
c. That the review indicates adverse finding and the auditors are not prepared to give an
assurance that the information gives a true and fair view
d. No assurance is provided as the client will determine the outcome once the auditors have
gathered the correct data.
20. In a review engagement, which of the following is least likely to occur during the
engagement?
a. enquiries with management and other personnel
b. analytical procedures
c. review of the internal controls of the entity
d. substantive audit procedures
21. The wording of a negative expression of opinion generally states that:
a. there is something wrong with the subject matter
b. there is nothing wrong with the subject matter
c. there is something that has come to the auditor’s attention that would lead them to believe that
the information being assured is not true and fair
d. there is nothing that has come to the auditor’s attention that would lead them to believe that
the information being assured is not true and fair.
22. The following can be said about an emphasis of matter:
a. it cannot be used when expressing audit opinion that has pervasive misstatements
b. it is only used in unqualified audit opinions
c. it is included when the auditor’s opinion has changed and the auditor wants to bring the users’
attention to a particular matter
d. it is included when the auditor’s opinion has not changed and the auditor wants to bring the
users’ attention to a particular matter.
23. Which of the following is not a type of opinion?
a. modified opinion
b. qualified opinion
c. disclaimer of opinion
d. adverse opinion
24. An example of an unmodified audit opinion is:
a. unqualified audit opinion with an emphasis of matter
b. adverse audit opinion
c. qualified audit opinion
d. none of the above
25. Which of the following is not true in relation to comparability?
a. able to assess performance of the entity over time and with other entities
b. able to identify trends that may influence their perception of how well the entity is doing
c. able to evaluate
d. all of the above are correct
26. In addition to the preparation of financial statements, it is also the responsibility of those
charged with governance to:
a. selecting and applying appropriate accounting policies and making reasonable accounting
estimates.
b. establish and maintain internal controls that are effective in preventing and detecting material
misstatements
c. identify the financial reporting framework to be used in the preparation and presentation of
their financial report.
d. all of the above.
27. Professional skepticism does not involve:
a. being suspicious when evidence contradicts documents held by their client or enquiries made
of client personnel
b. seeking independent evidence to corroborate information provided by their client.
c. the professional requirement that all management representations be substantiated with
supporting documentation
d. none of the above.

28. Which of the following best describes “high level of assurance”?

A. It refers to the professional accountant having obtained evidence based on procedures agreed
upon between the practitioner and the intended users to be satisfied that findings be reported to
the intended users.

B. It refers to the professional accountant having obtained sufficient external and internal
appropriate evidence to be satisfied that the subject matter is plausible in the circumstances.

C. It refers to the professional accountant having obtained sufficient appropriate evidence to

conclude that the subject matter conforms in all material respects with identified suitable criteria.

D. It refers to the professional accountant having obtained sufficient evidence to conclude that he
has no knowledge of any required modifications to be made in the financial statements in order
for them to conform of prescribed criteria.

 
29. Which statement is incorrect regarding an engagement to perform agreed-upon procedures?

A. An auditor is engaged to carry out those procedures of an audit nature to which the auditor
and the entity and any appropriate third parties have agreed and to report on factual findings.

B. The recipients of the report must form their own conclusions from the report by the auditor.

C. The report is restricted to those parties that have agreed to the procedures to be performed.

D. The report on factual findings is expressed in the form of negative assurance.

 
30.  Which of the following engagements provides third parties the highest level of assurance
about the client’s financial statements?

A. Audit

B. Review

C. Agreed-upon procedures

D. Compilation

 
31. In which of the following situations can third parties assume responsibility of the auditor
regarding association with financial information?

A. When the auditor attaches a report to that information.

B. When the auditor consents to the use of the auditor's name in a professional connection.

C. Either a or b.

D. Neither a nor b.

32. Which statement is incorrect regarding assurance engagement risk?

A. Engagement risk is the risk that the practitioner will express an inappropriate conclusion that
the subject matter conforms in all material respects with suitable criteria.

B. All components of the engagement risk model will be significant for all assurance
engagements.

C.  The extent to which the practitioner considers the relevant components of engagement risk
will be affected by the engagement circumstances.

D. Business risk is not part of engagement risk and does not affect the application of Philippine
Standard on Assurance Engagements.

 
33.  A concept relating to the accumulation of the audit evidence necessary for the auditor to
conclude that there are no material misstatements in the financial statements taken as a whole.

A. Reasonable assurance

B. Positive assurance

C.  Moderate assurance

D.  Negative assurance

34. Which statement is incorrect regarding the external auditor’s consideration of the work of
internal auditing?
A.  The external auditor should consider the activities of internal auditing and their effect, if any,
on external audit procedures.

B. The external auditor should obtain a sufficient understanding of internal audit activities to
assist in planning the audit and developing an effective audit approach.

C. During the course of planning the audit, the external auditor should perform a preliminary
assessment of the internal audit function when it appears that internal auditing is relevant to the
external audit of the financial statements in specific audit areas.

D.  When the external auditor intends to use specific work of internal auditing, the external
auditor need not evaluate and test that work to confirm its adequacy for the external auditor's
purposes.

 
35. The independent auditor lends credibility to client’s financial statements by
A. Maintaining a clear-cut distinction between management’s representations and the auditor’s
representation.

B. Testifying under oath about client’s financial statements.

C. Stating in the auditor’s management letter that the examination was made in accordance with
generally accepted auditing standards.

D. Attaching an auditor’s opinion to the client’s financial statements.

 
36.  Which of the following is responsible for the fairness of representations made in financial
statements?

A. The independent auditor.

B. The internal auditor.

C. The client's management.

D. The audit committee.

 
37.  The exposure period allowed for each exposure draft of PSA to be considered by the
organizations and persons to whom it is sent for comment is generally
A. Four months

B. Three months

C. Two months

D. Six months

38.  Which statement is incorrect regarding the pronouncements of ASPC?

A. The PSAs and Interpretations may also have application, as appropriate, to other related
activities of auditors.

B. PSAs contain basic principles and essential procedures (identified in bold type black lettering)
together with related guidance in the form of explanatory and other material.

C. PSAs need only be applied to material matters.

D. The Interpretations have the same authority as the PAPSs.

 
39.  The following should be occupied only by a duly registered CPA, except

A.  Any position in any business or company in the private sector which requires supervising the
recording of financial transactions.

B. Any position in any business or company in the private sector which requires preparation of
financial statements.

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

D. The position of the dean that supervises the BSA program of an educational institution

40.  Which of the following is not represented in the Auditing and Assurance Standards Council?

A. Board of Accountancy

B. Bangko Sentral ng Pilipinas

C. Bureau of Internal Revenue

D. Securities and Exchange Commission

41. A study, appraisal, or review by the BOA or its duly authorized representatives, of the quality
of audit of financial statements through a review of the quality control measures instituted by an
Individual CPA, Firm or Partnership of CPAs engaged in the practice of public accountancy.

A. Peer review

B. Quality review

C. Analytical review

D. Administrative review

42. Emong, CPA is applying for renewal of his professional license. He is exempted from the
CPE requirements

A. If he is at least 65 years old.

B. If he is working abroad and he has been out of the country for at least two years immediately
prior to the date of renewal.

C. Either a or b.

D. Under no circumstances.

 
43.  The following statements relate to RA 9298. Which statement is true?

A. The Professional Regulation Commission has the authority to remove any member of the
Board of Accountancy for negligence, incompetence, or any other just cause.

B. Insanity is not a ground for proceeding against a CPA.

C. A person shall be considered to be in the professional practice of accounting if, as an officer
in a private enterprise, he makes decisions requiring professional accounting knowledge.

D. After three years, subject to certain conditions, the Board of Accountancy may order the
reinstatement of a CPA whose certificate of registration has been revoked.

 
44.  There is a need for assurance that all services obtained from a professional accountant are
carried out to the highest standards of performance. This statement relates to

A. Credibility

B. Professionalism
C. Quality of Services

D. Confidence

 
45.  Indicate the normal pattern of development for a professional accountant. I. A period of
work experience. II. High standard of general education. III. Specific education, training and
examination in professionally relevant subjects

A. I, II, III

B. II, III, I

C. III, II, I

D. II, I, III

 
46. A partner or employee of the firm serving as an officer or as a director on the board of an
assurance client will most likely create
A. Intimidation threat

B. Self-review threat

C. Advocacy threat

D. Familiarity threat

 
47.  Which of the following least likely create a self-review threat?

A. A former officer, director or employee of the assurance client serve as a member of the
assurance team.

B. A director, an officer or an employee of the assurance client in a position to exert direct and
significant influence over the subject matter of the assurance engagement has been a member of
the assurance team or partner of the firm.

C. Assisting an audit client in matters such as preparing accounting records or financial

statements.

D. A firm, or network firm, provides internal audit services to an audit client.

 
48. This process may include, particularly in the case of large complex audits, requesting
personnel not otherwise involved in the audit to perform certain additional procedures.

A. Direction

B. Supervision

C. Review

D. All of these

 
49. Which of the following is least likely a factor that affects the extent of quality control
procedures?
A. The size of the firm.

B. The type of clients that the firm serves.

C. The number of practice offices.

D. The nature of the practice.

 
50.  Which statement is incorrect regarding the auditor’s responsibility to consider fraud and
error in the audit of financial statements?

A. The auditor is entitled to accept records and documents as genuine.

B. The auditor is may be held responsible for the prevention of fraud and error.

C. The auditor should consider the risk of material misstatements in the financial statements
resulting from fraud or error.

D. The risk of not detecting a material misstatement resulting from error is lower than the risk of
not detecting a material misstatement resulting from fraud.

 
INSTRUCTIONS.
1. ANSWER THE EXAM
2. CHECK YOUR PAPER USING THE ANSWER KEY. (ANSWER IN ASTERISK OR
BOLD LETTER OF CHOICE)
3. SEND THE PICTURE OF YOUR ANSWER SHEET IN OUR GROUP CHAT WITH
THE FOLLOWING CAPTION:
NAME – SCORE – EQUIVALENT (E.G. 1.75)