UNIT 1 TEST- APrE 1

Name ________________________ Yr & Sec _______________ Date ______________

INSTRUCTIONS : CHOOSE THE CORRECT LETTER OF YOUR ANSWER

1. Persons who hold valid certificates as CPAs , whether as individuals, or representatives of an entity,
responsible for the subject matter.
A. Professional accountant
B. Senior accounting
C. Auditor
D. Personnel in CPA firms

2. Regulation of the accounting profession include

A. Public Regulation as provided for in the Philippine Accountancy Act of 2004
B. Regulation within the profession, through the implementation of the Code of Ethics
C. Regulation within the firm, through the implementation of a system of quality control.
D. All of these

3. The fundamental principles include the following, except:

A. Objectivity
B. Professional Competence and Due Care
C. Independence
D. Confidentiality

4. CPAs may practice under the following forms of organization, except:

A. Sole proprietorships
B. General partnerships
C. LLPs
D. Corporations

5. The CPA shall be required to indicate which of the following numbers on the documents he/she signs,
uses or issues in connection with the practice of the profession:
A. CPA Certificate of Registration number
B. Professional Identification Card
C. Professional Tax receipt
D. All of these are required to be indicated

6. The auditor communicates the results of his or her work through the medium of the
A. Engagement letter
B. Audit report
C. Management letter
D. Financial statements

7. Independent auditing can best be described as a

A. Professional activity that attests to the fair presentation to the fair presentation of financial
statements
B. Professional activity that measures and communicates financial accounting data
C. Regulatory activity that prevents the issuance of improper financial information
D. Subset of accounting.

8. The overall objective of internal auditing is to

A. Attest to the efficiency with which resources are employed
B. Ascertain that controls are costs justified
C. Provide assurance that financial data have been accurately recorded.
D. Assist members of the organization in the effective discharge of their responsibilities.

9. An audit that involves obtaining and evaluating evidence about the efficiency and effectiveness of an
entity ‘s operating activities in relation to specified objectives is a (n):
A. External audit
B. Compliance audit
C. Operational audit
D. Financial statement audit

10. In financial statement audits, the audit process should be conducted in accordance with
 A. The audit program
B. Philippine Standards on Auditing
C. Philippine Accounting Standards
D. Philippine Financial Reporting Standards

11. The primary purpose of an operational audit is to provide

A. A means of assurance that internal accounting controls are functioning as planned
B. A measure of management performance in meeting organizational goals
C. The results of internal examination of financial and accounting matters to a company’s top level
management.
D. Aid to the independent auditor, who is conducting the examination of the financial statements.

12. A type of audit the purpose of which is to determine whether the client is following specific procedures
or rules set down by some higher authority.
A. Financial audit
B. Detailed audit
C. Operational audit
D. Compliance audit

13. This type of audits is performed to determine whether an entity’s financial statements are fairly stated in
conformity with generally accepted accounting principles:
A. Compliance audit
B. Internal audit
C. Financial statements audit
D. Operational audit

14. For what reason does an independent auditor gather evidence?

A. To detect fraud
B. To appraise the internal control system
C. To assess management performance
D. To form an opinion on the financial statements.

15. An operational audit differs in many ways from an audit of financial statements. Which of the following is
the best example of one of these differences?
A. The usual audit of financial statements covers the four basic statements, whereas the
operational audit is usually limited to either the balance sheet or the income statement.
B. Operational audits do not ordinarily result in the preparation of a report.
C. Operational audits are more subjective and often involve evaluating efficiency and effectiveness
of operations. :
D. The operational audit deals with pre- tax income.

16. The primary reason for an audit by an external audit firm is

A. To satisfy governmental regulatory requirements
B. To guarantee that there are no misstatements in the financial statements
C. To provide increased assurance to users as to the fairness of the financial statements
D. To ensure that any fraud will be discovered.

17. Which of the following statements does not properly describe an element of theoretical framework of
auditing?
A. The data to be audited can be verified
B. Short-term conflicts may exist between managers who prepare the data and auditors who
examine the data.
C. Auditors act on behalf of the management
D. An audit benefits the public

18. The Commission on Audit ( COA )

A. Is primarily concerned with budgets and forecasts approved by the SEC
B. Is primarily concerned with rapid processing of all accounts payable incurred by the national
government.
C. Is a multinational organization of professional accountants
D. Responsibilities include conducting operational audits to ensure spending meets Congress’s
requirements.

19. In the auditing environment , failure to meet auditing standards is often

 A. Tantamount to criminal behavior
B. An accepted practice
C. A suggestion of negligence
D. Conclusive evidence of negligence

20. In pursuing its quality control objectives with respect to acceptance of a client, a CPA firm is not likely to
A. Review the personnel practices of the proposed client.
B. Make inquiries of the proposed client’s legal counsel .
C. Make inquiries of previous auditors.
D. Review financial statements of the proposed client.

21. The Philippine Standards on Auditing issued by AASC

A. Are applicable only when an independent audit involving an expression of an opinion on financial
statement is carried out.
B. Are the only authoritative source of standards for members of the accountancy profession in the
Philippines.
C. Are general guidelines to help auditors.
D. Require that in no circumstances would an auditor may judge it necessary to depart from PSA,
even though such a departure may result to more effective achievement of the objective of an
audit.

22. A firm of independent auditors must establish and follow quality control policies and procedures because
these standards.
A. Are necessary to meet increasing requirements of auditor’s liability as insurers.
B. Are required by the SEC for auditors of all firms.
C. Include formal filing of records of such policies and procedures to a regulatory agency.
D. Give reasonable assurance that the firm as a whole will comply with professional standards.

23. The main purpose of implementing a system of quality control is to provide the firm with reasonable
assurance that
A. The firm and its personnel will comply with PSA and legal requirements to enable the firm to
issue an appropriate report.
B. The audit will be performed in accordance with PSA.
C. The firm will issue a report that is appropriate in the circumstances.
D. All of the above.

24. The objective of the quality of the quality control policies to be adopted by an audit firm will ordinarily
incorporate all of the following except:
A. Risk assessment
B. Leadership responsibilities
C. Engagement performance
D. Human resources

25. The person responsible for the audit engagement and its performance , and for the auditor’s report that
is issued in behalf of the firm is the
A. Quality control reviewer
B. Engagement Partner
C. Client’s management
D. Those charged with governance

26. A quality control policy that requires personnel in the firm to adhere to independence, integrity,
objectivity, confidentiality and professional behavior, relates to
A. Ethical Requirements
B. Assignment
C. Human resources
D. Consultation

27. Which of the following quality control policies and procedures does not relate to human resources and
assignment?
A. Emphasize independence of mental attitude in training programs and in supervision and review
of the audits
B. Monitor the effectiveness of recruiting programs
C. Identity criteria which will be considered in evaluating individual performance and expected
proficiency.
 D. Identify on a timely basis the staffing requirements of specific audits.

28. In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which
partners or employees of the CPA firm were previously employed by the CPA firm’s clients. Which quality
control element would this be most likely to satisfy?
A. Monitoring
B. Assignment
C. Independence
D. Skills and competence

29. In pursuing the firm’s quality control objectives with respect to assigning personnel to engagements, the
auditors may use policies and procedures such as
A. Designing senior qualified personnel to provide advice on accounting or auditing questions
throughout the engagement.
B. Requiring timely identification of the staffing requirements of specific engagements so that
enough qualified personnel can be made available.
C. Establishing at entry levels a policy for recruiting that includes minimum standards of academic
preparation and accomplishments.
D. Evaluate clients upon occurrence of specified events to determine whether the relationships
ought to be continued.

30. A CPA firm’s quality control procedures pertaining to the acceptance of a prospective audit client would
most likely include
A. Inquiry of management as to whether disagreements between the predecessor auditor and the
prospective client were resolved satisfactorily.
B. Consideration of whether sufficient competent evidential matter may be obtained to afford a
reasonable basis for an opinion.
C. Inquiry of third parties, such as the prospective client’s bankers and attorney’s about information
regarding the prospective client and its management.
D. Consideration of whether the internal control structure is sufficiently effective to permit a
reduction in the required substantive tests.

31. Which of the following Professionals has primary responsibility for the performance of an audit?
A. The managing partner of the firm
B. The senior assigned to the engagement
C. The manager assigned to the engagement
D. The partner in charge of the engagement

32. A professional accountant has been the partner- in- charge of a particular audit client for the past eight
years. This situation could result to the following threat to professional independence.
A. Self- review
B. Advocacy
C. Intimidation
D. Familiarity

33. The following services are considered to be a normal part of the audit process and do not under
circumstances, threaten independence, except
A. Analyzing and accumulating information for regulatory reporting
B. Assisting in the preparation of consolidated financial statements
C. Drafting disclosure items
D. Having custody of an assurance client’s assets

34. The Code of Professional Ethics for CPAs promulgated by the Board of Accountancy applies to
A. All CPAs in public Practice
B. All CPAs in government
C. All CPAs in public Practice, employed in private business.
D. All CPAs in public Practice, employed in private business and industry, in the government, and in
education.

35. The underlying reason for a code of professional ethics is

A. This is required by legislation.
B. To provide the licensing agencies with a basis for measuring the performance of the
practitioners.
C. The need for public confidence in the quality of service of the profession
 D. That it provides a safeguard against unscrupulous people.

36. Competence as a CPA includes all of the following except

A. Having the technical qualifications to perform an engagement
B. Possessing the ability to supervise and evaluate the quality of staff work
C. Warranting the infallibility of the work performed
D. Consulting others if additional technical information is needed.

37. The rotation of senior accounting personnel can be regarded as a safeguard

A. Created by the profession
B. Within the client’s system and procedures
C. In the work environment
D. Created within the business community

38. In determining estimates of fees, an auditor may take into account each of the following, except the
A. Value of the service to the client
B. Degree of Responsibility assumed by undertaking the engagement
C. Skills required to perform the service
D. Attainment of specific findings

39. The CPA should not undertake an engagement if his fee is to be based upon
A. A percentage of audited net income
B. Per diem rates plus expenses
C. The findings of a tax authority
D. The complexity of the service rendered

40. In which of the following situations would a public accounting firm have violated the Code of Ethics in
determining its fee?
A. A fee which is based upon the nature of the engagement rather than upon the actual time
spent on the engagement.
B. A fee based on the degree of responsibility that the service entails
C. A fee based on whether or not the audit report leads to the approval of client’s application for
bank loan
D. A fee that will be established as a result of a bankruptcy proceedings

41. Acting for an audit client in the resolution of a dispute or litigation would most likely create
A. Self- interest threat
B. Intimidation threat
C. Advocacy threat
D. Familiarity threat

42. Which of the following circumstances would least likely familiarity threat?
A. A member of the assurance team having an immediate family member or close family
member who is a director or officer of the assurance team
B. A member of the assurance team having an immediate family member of close family
member who, as an employee of the assurance client, is in apposition to extent direct and
significant influence over the subject matter of the assurance engagement.
C. A former partner of the firm being the director, officer of the significant influence over the
subject matter of the assurance engagement.
D. A former director or officer of he assurance client joins the assurance team.

43. A professional accountant in public practice to whom the existing accountant or the client of existing
accountant has referred audit, accounting, taxation, consulting or similar appointments, or who is
consulted in order to meet the needs of the client is called
A. A management consultant
B. A receiving accountant
C. An expert
D. A successor auditor

44. May a non- CPA has a law practice, Mike, CPA has agreed to pay May 10% of the fee for services
rendered by Mike to May’s client. Who, if anyone, is in violation of the code of ethics?
A. Mike C. both Mike and May
B. May D. Neither Mike and May
 45. The following statement relate to the 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 CPA
C. No person shall be appointed as a member of the Board of Accountancy unless he has been
in the practice of accountancy for at least 10years, among others.
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.

ANSWERS:

1 B 11 B 21 C 31 D 41 C
2 D 12 D 22 D 32 D 42 D
3 C 13 C 23 D 33 D 43 B
4 D 14 D 24 A 34 D 44 A
5 D 15 C 25 B 35 C 45 C
6 B 16 C 26 A 36 C
7 A 17 C 27 A 37 C
8 D 18 D 28 C 38 D
9 C 19 D 29 B 39 A
10 B 20 A 30 C 40 C