IMUS INSTITUTE

OF SCIENCE AND TECHNOLOGY

COLLEGE OF ACCOUNTANCY
Final Examinations
Assurance Principles
nd
2 Semester S.Y. 2021-2022
Dr. Catherine O. Aquino, CPA

Name: ____________________________ Score: _________________

Permit No.: ______________________

PART 1

1. _____________ if one party has the ability to control the other party or exercise
significant influence over the other party in making financial and operating decisions.

2. _________________—PSA 560 used to refer to both events (a) Those that provide
further evidence of conditions that existed at period end; and (b) Those that are indicative
of conditions that arose subsequent to period end.

3. __________________—documents and confirms the auditor’s acceptance of the

appointment, the objective and scope of the audit, the extent of the auditor’s
responsibilities to the client and the form of any reports.

4. _________________is a person or firm possessing special skill, knowledge and

experience in a particular field other than accounting and auditing.

5. A __________________ is expressed when the auditor concludes that an unqualified

opinion cannot be expressed but that the effect of any disagreement with management, or
limitation on scope is not so material and pervasive as to require an adverse opinion or a
disclaimer of opinion.

6. __________________________A transfer of resources or obligations between related

parties, regardless of whether a price is charged.

7. __________________comprises officers and others who also perform senior managerial

functions. Management includes directors and the audit committee only in those instances
when they perform such functions.

8. _____________________ an entity is ordinarily viewed as continuing in business for the

foreseeable future with neither the intention nor the necessity of liquidation, ceasing
trading or seeking protection from creditors pursuant to laws or regulations. Accordingly,
assets and liabilities are recorded on the basis that the entity will be able to realize its
assets and discharge its liabilities in the normal course of business.

9. _______________________ Representations made by management to the auditor

during the course of an audit, either unsolicited or in response to specific inquiries.

10. _________________ consists of seeking information of knowledgeable persons inside or

outside the entity.
11. ______________________ consist of the analysis of significant ratios and trends
including the resulting investigation of fluctuations and relationships that are inconsistent
with other relevant information or deviate from predictable amounts.

12. ___________________is a division, branch, subsidiary, joint venture, associated

company or other entity whose financial information is included in financial statements
audited by the principal auditor.

13. _____________________________ is the process of obtaining and evaluating audit

evidence through a direct communication from a third party in response to a request for
information about a particular item affecting assertions made by management in the
financial statements.

14. ________________ The event is covered in the audit report by including a new date
applicable only to the subsequent event.

15. _____________________ (a) a possible obligation that arises from past events and
whose existence will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of the entity; or (b) a present
obligation that arises from
16. __________________________ is expressed when the effect of a disagreement is so
material and pervasive to the financial statements that the auditor concludes that a
qualification of the report is not adequate to disclose the misleading or incomplete nature
of the financial statements.

17. ________________________ - A possible obligation that arises forn past events and
whose existence will be confirmed only by the occurrence on non occurrence of one or
more uncertain future events not wholly within the control of the enterprise , or present
obligation that arises from past events but is not recognised because: (i) it is not
probable that an outflow of resources embodying economic benefits will be required to
settle the obligation; or (ii) the amount of the obligation cannot be measured with
sufficient reliability.
18. ______________________ deals with the auditor’s responsibility from management and
where appropriate those charged with governance, it is a better audit evidence than an
oral representation. PSA 580.

19. ____________________are a record of the auditor’s planning; nature, timing and extent
of the auditing procedures performed; and results of such procedures and the conclusions
drawn from the evidence obtained. Working papers may be in the form of data stored on
paper, film, electronic media or other media.

20. ___________________sets out the nature, timing and extent of planned audit procedures
required to implement the overall audit plan. The audit program serves as a set of
instructions to assistants involved in the audit and as a means to control the proper
execution of the work.

21. _______________________ is the risk that the auditor gives an inappropriate audit
opinion when the financial statements are materially misstated.

22. An auditor’s report is considered to be ____________if either an emphasis of matter

paragraph(s) is added to the report or if the opinion is other than unqualified
 23. _____________________is expressed when the possible effect of a limitation on scope is
so material and pervasive that the auditor has not been able to obtain sufficient
appropriate audit evidence and accordingly is unable to express an opinion on the
financial statements.

24. ________________________________ are situations in which a claimant has stated that

it has suffered a loss and plans to seek remuneration, as well as situations in which a
claimant has filed a lawsuit.

25. An _________________ is a potential legal claim that has not yet been made by a
claimant.

PART II

1. The auditor’s report should be dated as of the date the:

a. Report is delivered to the client.
b. Auditors have accumulated sufficient evidence.
c. Fiscal period under audit ends.
d. Review of the working papers is completed.

2. The existence of audit risk recognized by the statement in the auditor’s standard report that
the auditor
a. obtains reasonable assurance about whether the financial statements are free of material
misstatement.
b. assesses the accounting principle used and also evaluates the overall financial statement
presentation.
c. realizes that some important matters, either individually or in the aggregate, are
important, while other matters are not important.
d. is responsible for expressing an opinion on the financial statements, which are the
responsibility of management.

3. For an entity’s financial statements to be presented fairly in conformity with the

requirements of the applicable financial reporting framework, which of the following need
not be completed with?
a. The financial statements adequately disclose the significant accounting policies
selected and applied.
b. The financial statements should present information that is relevant, reliable,
comparable, and understandable.
c. The financial statements should use appropriate terminology.
d. The financial statements should use principles approved by the Auditing and Assurance
Standards Council.
4. The introductory paragraph of the standard audit report states that the financial statements
and the opinion expressed about those statements are
a. the responsibility of the auditor.
b. the responsibility of management.
c. the joint responsibility of management and the auditor.
d. none of the above.
5. The scope paragraph of the standard unqualified report states that the audit is designed to
a. discover all errors and/or irregularities.
b. discover material errors and/or irregularities.
c. obtain reasonable assurance whether the statements are free of material misstatement.
d. conform to financial reporting standards.
6. In the scope paragraph of the audit report, the use of the term “reasonable assurance” is
intended to indicate that
a. no misstatements exist in the financial statements.
b. no material misstatements exist in the statements.
c. there is possibility that material misstatements still exist in the financial statements.
d. there is possibility that immaterial misstatements still exist in the financial statements.

7. In the scope paragraph of the audit report, the use of the term “material misstatements”
conveys that auditors are responsible to search for
a. minor misstatements. c. fraudulent misstatements.
b. significant statements. d. all misstatements.

8. The audit report date is important to users because it indicates

a. the last day of the fiscal period.
b. the date on which the financial statements were filed with the Securities and Exchange
Commission.
c. the last date on which users may institute a lawsuit against either client or auditor.
d. the last date of the auditor’s responsibility for the review of significant events that
occurred after the date of the financial statements.
9. Most auditors believe that financial statements are “presented fairly” when the statements
are in accordance with financial reporting standards, but that is also necessary to
a. determine that they are not in violation of PASs.
b. examine the substance of transactions and balances for possible misinformation.
c. review the statements using the accounting principles promulgated by the Securities
and Exchange Commission.
d. assure investors that the net income reported this year will be equaled or exceeded in
the future.
10. A CPA developed a system for clients to enter transaction data by remote terminal in to
the CPA’s computer. The CPA’s system processes the data and prints monthly financial
statements. When delivered to clients, these financial statements should include:
a. A standard unqualified audit report.
b. An adverse audit report.
c. A report containing a description of the character of the auditor’s examination and the
degree of responsibility he or she is taking.
d. A description of the remote terminal system and the controls for ensuring accurate data
processing.
11. Under which of the following conditions can a disclaimer of opinion never be given?
a. Going-concern problems are overwhelming the company
b. The client does not let the auditor have access to evidence about important accounts
c. The auditor owns stock in the client corporation
d. The audit has found out that the client has used the NIFO (next in, first out) inventory
costing method

12. An auditor may reasonably issue an “except for” qualified opinion for a (an)
Scope limitation Unjustified accounting change
a. Yes No
b. No Yes
c. Yes Yes
d. No No
13. As a result of management’s refusal to permit the auditor to physically examine
inventory, the auditor has not accumulated sufficient evidence to conclude whether
financial statements are stated in accordance with FRS. The auditor must depart from the
unqualified audit report because
a. The financial statements have not been prepared in accordance with FRS
b. The scope of the audit has been restricted by circumstances beyond either the client’s or
auditor’s control
c. The auditor has lost independence
d. The scope of the audit has been restricted

14. Three of the following conditions would, by themselves, require the auditor to issue a
report other than an unqualified report. Which one would not require such a departure?

a. Client company’s financial statements show a significant net loss for each of the last
three years, including the current fiscal period.
b. The financial statements have not been prepared in accordance with financial reporting
standards.
c. The auditor is not independent during the fiscal period under audit.
d. The scope of the auditor’s examination has been restricted, although the cause of the
restriction was not the client’s fault.

15. A report other than an unqualified report must be issued whenever any of the three
conditions requiring a departure from an unqualified report
a. Exists
b. Exists and is material
c. Exists, is material, and is within management’s control
d. Exists, is material, and is within either management’s or the auditor’s control

16. The necessity to issue a disclaimer of opinion may arise because of

a. A severe limitation on the scope of the audit examination

b. A nonindependent relationship between auditor and client
c. Either a or b above
d. None of the above

17. An adverse opinion is issued when the auditor believes

a. Some parts of the financial statements are materially misstated or misleading.

b. The financial statements will be found to be misleading or misstated, if an adequate
investigation is performed.
c. The overall financial statements are so materially misstated or misleading as a whole that
they do not present fairly the financial position or results of operations and cash flows in
conformity with FRS.
d. The audit firm is not independent.
18. The adverse opinion report will be issued by the independent auditor when he/she
a. Suspects that client has not followed financial reporting standards (FRS).
b. Suspects that client’s financial statements are not in conformity with financial reporting
standards (FRS).
c. Has knowledge that the financial statements are not in conformity with financial
reporting standards (FRS).
d. Has knowledge that Philippine Standards on Auditing (PSAs) were not followed.
19. A disclaimer is issued whenever the auditor
a. Has been unable to satisfy him/herself that the overall financial statements are presented
fairly.
b. Believes that the overall financial statements are not presented fairly.
c. Believes that some material part(s) of the financial statements are not presented fairly.
d. Has determined that the financial statements are presented fairly.
20. Which of the following statements is true?
a. The auditor is required to issue a disclaimer of opinion in the event of a material
uncertainty.
b. The auditor is required to issue a disclaimer of opinion in the event of a going concern
problem.
c. The auditor is required to issue a disclaimer of opinion for a material uncertainty and for
a going concern problem.
d. The auditor has the option, but is not required, to issue a disclaimer of opinion for a
material uncertainty or for a going concern problem.
21. Whenever an auditor issues a qualified report, he or she
a. Must use the term “subject to” in the opinion paragraph.
b. May use either the terms “subject to” or “except for” in the opinion paragraph, depending
on the nature of the qualification.
c. Must use the term “except for” in the opinion paragraph.
d. Must not use the terms “subject to” or “except for” in the opinion paragraph.
22. Both disclaimers and adverse opinions are used
a. Only when the condition is highly material.
b. Whether the condition is material or not.
c. Regardless of the auditor’s independence.
d. Regardless of the client’s choice of a non-FRS accounting method.
23. A qualified opinion report can be used only when the auditor believes that the overall
financial statements are
a. Fairly stated.
b. Not fairly stated.
c. Materially misstated.
d. Materially misleading.
24. The least severe type of report for disclosing departures from an unqualified report is the
a. Adverse opinion.
b. Disclaimer of opinion.
c. Qualified opinion.
d. Report on unaudited financial statements.
25. A qualified report can not take the form of a qualification of
a. The opinion alone.
b. The scope alone.
c. Both the scope and opinion.
d. All of the above.
26. A scope and opinion qualification can be issued only when the auditor
a. Is not independent.
b. Has not been able to accumulate all the evidence required by Philippine Standards on
Auditing.
c. Has accumulated all the evidence required by Philippine Standards on Auditing.
d. Has been restricted by client from gathering the needed information to form an opinion.
27. In which of the following situations would an auditor ordinarily express an opinion
without an explanatory paragraph?
a. The auditor wishes to emphasize that the entity had significant related-party transactions.
b. The auditor decides to refer to the report of another auditor as a basis, in part, for the
auditor’s opinion.
c. The entity issues financial statements that present financial position and results of
operations, but it omits the statement of cash flows.
d. The auditor has substantial doubt about the entity’s ability to continue as a going
concern, but the circumstances are fully disclosed in the financial statements.
28. Although expressing an unqualified opinion, an auditor includes a separate paragraph in
the report to emphasize that the auditee had significant transactions with related parties.
This inclusion
a. Violates PSAs if this information is already disclosed in the footnotes.
b. Necessitates a revision of the opinion paragraph to include the phrase “with forgoing
explanation.”
c. Is appropriate and would not negate the unqualified opinion.
d. Is considered a qualification of the opinion.
29. In which of the following circumstances would an auditor most likely add an explanatory
paragraph to the standard report while expressing an unqualified opinion?
a. The auditor is asked to report on the statement of financial position but not on the other
basic financial statements.
b. There is a substantial doubt about the entity’s ability to continue as a going concern.
c. Management’s estimates of the effects of future events are unreasonable.
d. Certain transactions cannot be tested because of management’s records retention policy.
30. The management of a client company believes that the statement of cash flows is not a
useful document and refuses to include one in the annual report to stockholders. As a
result of this circumstance, the auditor’s opinion should be
a. Adverse.
b. Unqualified.
c. Qualified due to inadequate disclosure.
d. Qualified due to a scope limitation.
31. An auditor may not issue a qualified opinion when
a. A scope limitation prevents the auditor from completing an important audit procedure
b. The auditor’s report refers to the work of a specialist.
c. An accounting principle at variance with financial reporting standards is used.
d. The auditor lacks independence with respect to the audited entity.
32. An auditor was unable to obtain sufficient competent evidential matter concerning certain
transactions due to an inadequacy in the entity’s accounting records. The auditor would
choose between issuing a (an)
a. Qualified opinion and an unqualified opinion with an explanatory paragraph.
b. Unqualified opinion with an explanatory paragraph and the adverse opinion.
c. Adverse opinion and a disclaimer of opinion.
d. Disclaimer of opinion and a qualified opinion.
33. In which of the following situations would a principal auditor be least likely to make
reference to another auditor who audited a subsidiary of the entity.
a. The other auditor was retained by the principal auditor and the work was performed
under the principal auditor’s guidance and control.
b. The principal auditor finds it impractible to review the other auditor’s work or otherwise
be satisfied as to the other auditor’s work.
c. The financial statements audited by the other auditor are material to the consolidated
financial statements covered by the principal auditor’s opinion.
d. The principal auditor is unable to be satisfied as to the independence and professional
reputation of the other auditor.
 34. Which of the following phrases should be included in the opinion paragraph when an
auditor expresses a qualified opinion?
When read in conjunction With the foregoing
with Note X explanation
a. Yes No
b. No Yes
c. Yes Yes
d. No No
35. When an auditor expresses an adverse opinion, the opinion paragraph should include
a. The principal effects of the departure from financial reporting standards.
b. A direct reference to a separate paragraph disclosing the basis for the opinion.
c. The substantive reasons for the financial statements being misleading.
d. A description of the uncertainty or scope limitation that prevents an unqualified opinion.

35. The objective of a review of financial statements is

a. To enable the auditor to express an opinion whether the financial statements are prepared, in all
material respects, in accordance with generally accepted accounting principles in the Philippines.
b. For the auditor to carry out 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.
c. For the accountant to use accounting expertise, as opposed to auditing expertise, to collect,
classify and summarize financial information.
d. To enable an auditor to state whether, on the basis of procedures which do not provide all the
evidence that would be required in an audit, anything has come to the auditor's attention that causes
the auditor to believe that the financial statements are not prepared, in all material respects, in
accordance with generally accepted accounting principles in the Philippines

36. Which statement is incorrect regarding the general principles of a review engagement?
a. The auditor is not required to comply with the “Code of Professional Ethics for Certified
Public Accountants” promulgated by the Board of Accountancy.
b. The auditor should conduct a review in accordance with PSA 910.
c. The auditor should plan and perform the review with an attitude of professional skepticism
recognizing that circumstances may exist which cause the financial statements to be materially
misstated.
d. For the purpose of expressing negative assurance in the review report, the auditor should obtain
sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to
draw conclusions.

37. Which of the following is required to be performed in an audit but not in review engagement?
a. Complying with the “Code of Professional Ethics for Certified Public Accountants”
promulgated by the Board of Accountancy.
b. Planning the engagement.
c. Agreeing on the terms of engagement.
d. Studying and evaluating internal control structure.

38. Engagement letter for a review of financial statements least likely includes
a. The objective of the service being performed.
b. The fact that the engagement cannot be relied upon to disclose errors, illegal acts or other
irregularities, for example, fraud or defalcations that may exist.
c. A statement that an audit is not being performed and that an audit opinion will not be
expressed.
d. The fact that because of the test nature and other inherent limitations of an audit, together
with the inherent limitations of any accounting and internal control system, there is an
unavoidable risk that even some material misstatement may remain undiscovered.
39. Which statement is incorrect regarding procedures and evidence obtained in a review
engagement?
a. The auditor should apply judgment in determining the specific nature, timing and extent of
review procedures.
b. The auditor should apply the same materiality considerations as would be applied if an
audit opinion on the financial statements were being given.
c. There is a greater risk that misstatements will not be detected in an audit than in a review.
d. The judgment as to what is material is made by reference to the information on which the
auditor is reporting and the needs of those relying on that information, not to the level of
assurance provided.

40. Which of the following procedures is not included in a review engagement on a nonpublic
entity?
a. Inquiries of management.
b. Inquiries regarding events subsequent to the balance sheet date.
c. Any procedures designed to identify relationships among data that appear to be unusual.
d. Communicating any material weaknesses discovered during the study and evaluation of
internal accounting control.

41. In a review engagement, the independent accountant’s procedures include:

a. Examining bank reconciliation.
b. Confirming accounts receivable with debtors.
c. Reading the financial statements to consider whether they appear to conform with GAAP.
d. Obtaining a letter of audit inquiry from all attorneys of record.

42. An auditor’s standard report on a review of the financial statements of a nonpublic entity should
state that
a. The auditor does not express an opinion or any form of limited assurance on the financial
statements
b. Nothing has come to the auditor's attention based on the review that causes the auditor to believe
the financial statements are not presented fairly, in all material respects in accordance with
generally accepted accounting principles in the Philippines.
c. The auditor obtained reasonable assurance about whether the financial statements are free of
material misstatement
d. The auditor examined evidence, on a test basis, supporting the amounts and disclosures in the
financial statements

43. Which of the following is not a basic element of a review report?

a. Title of the report c. Introductory paragraph
b. Client’s address d. Auditor’s address

44. The scope paragraph of the review report least likely includes
a. A reference to Philippine Standard on Auditing applicable to review engagements.
b. A statement that a review is limited primarily to inquiries and analytical procedures.
c. A statement that an audit has not been performed, that the procedures undertaken provide
less assurance than an audit and that an audit opinion is not expressed.
d. A statement of the responsibility of the entity's management and the responsibility of the auditor.

45. If matters have come to the auditor's attention, the auditor should describe those matters that
impair a fair presentation, in all material respects in accordance with GAAP in the Philippines,
including, unless impracticable, a quantification of the possible effect(s) on the financial
statements, and
a. Express a qualification of the negative assurance provided.
b. When the effect of the matter is so material and pervasive to the financial statements that the
auditor concludes that a qualification is not adequate to disclose the misleading or incomplete
nature of the financial statements, give an adverse statement.
c. Not provide any assurance.
d. Either a or b.
46. A review report should be dated as of the
a. Date the report is delivered to the entity reviewed.
b. Date the review is completed.
c. Balance sheet date of the latest period reported on.
d. Date a letter of audit inquiry is received from the entity’s attorney of record.

47. The statement that “nothing came to our attention which would indicate that these statements
are not fairly presented” expresses which if the following?
a. Disclaimer of opinion c. Negative assurance
b. Negative confirmation d. Piecemeal opinion

48. Which statement is incorrect regarding agreed-upon procedures?

a. Users of the report assess for themselves the procedures and findings reported by the
auditor and draw their own conclusions from the auditor’s work.
b. The report is restricted to those parties that have agreed to the procedures to be performed
since others, unaware of the reasons for the procedures, may misinterpret the results.
c. The auditor should conduct an agreed-upon procedures engagement in accordance with
PSA 920 and the terms of the engagement.
d. Where the auditor is not independent, a statement to that effect need not be made in the
report of factual findings.

49. Which of the following would not be appropriate to a report on an engagement to apply
agreedupon procedures to specified financial statement items?
a. Indicate the intended distribution of the report.
b. Provide an opinion on the specified elements, accounts, or items.
c. Enumerate the procedures performed.
d. State that the report relates only to the elements, accounts, or items specified.

50. The report on an agreed-upon procedures engagement needs to describe the purpose and the
agreed-upon procedures of the engagement in sufficient detail to enable the reader to
understand the nature and the extent of the work performed. The report of factual findings
should not contain:
a. Addressee (ordinarily the client who engaged the auditor to perform the agreed-upon
procedures).
b. Identification of the purpose for which the agreed-upon procedures were performed.
c. A description of the auditor’s factual findings including sufficient details of errors and
exceptions found.
d. Statement that the procedures performed constitute an audit and, as such, an opinion is
expressed.

51. Which statement is incorrect regarding compilation engagement?

a. This ordinarily entails reducing detailed data to a manageable and understandable form without
a requirement to test the assertions underlying that information.
b. The procedures employed are designed to enable the accountant to express limited assurance on
the financial information.
c. Users of the compiled financial information derive some benefit as a result of the accountant's
involvement because the service has been performed with professional competence and due care.
d. In all circumstances when an accountant's name is associated with financial information
compiled by the accountant, the accountant should issue a report.

52. A CPA is not required to comply with the “Code of Professional Ethics for Certified Public
Accountants” promulgated by the Board of Accountancy when performing
a. Review. c. Compilation.
b. Agreed-upon procedures. d. None of the above.

53. An accountant who is not independent may issue a

a. Compilation report c. Comfort letter
b. Review report d. Qualified opinion
54. Indicate whether the following procedures performed in an audit engagement are also required
when performing related services.
a b c d
• Agreeing on the terms of engagement Yes Yes Yes No
• Engagement planning Yes Yes Yes No
• Documentation Yes Yes No No
• Issuance of report Yes No No No

55. When compiling financial information, the accountant ordinarily is required to

a. Obtain a general knowledge of the business and operations of the entity.
b. Make any inquiries of management to assess the reliability and completeness of the
information provided.
c. Verify any matters.
d. Verify any explanations.

56. Which statement is incorrect regarding the procedures performed in a compilation

engagement?
a. If the accountant becomes aware that information supplied by management is incorrect,
incomplete, or otherwise unsatisfactory, the accountant should consider performing appropriate
procedures and request management to provide additional information.
b. The accountant should read the compiled information and consider whether it appears to be
appropriate in form and free from obvious material misstatements.
c. The generally accepted accounting principles in the Philippines and any known departures
therefrom should be disclosed within the financial information, and their effects should be
quantified.
d. The accountant should obtain an acknowledgment from management of its responsibility for the
appropriate presentation of the financial information and of its approval of the financial
information.

57. If the accountant becomes aware of material misstatements, the accountant should try to agree
appropriate amendments with the entity. If such amendments are not made and the financial
information is considered to be misleading, the accountant should
a. Do nothing.
b. Withdraw from the engagement.
c. Issue a qualified or adverse opinion.
d. Issue a negative assurance.

58. Reports on compilation engagements should contain the following, except:

a. A statement that the engagement was performed in accordance with the PSA applicable to
compilation engagements.
b. Identification of the financial information noting that it is based on information provided by
management.
c. A statement that management is responsible for the financial information compiled by the
accountant.
d. A statement that the accountant does not express an opinion but expresses only limited assurance
on the financial statements.

59. On each page of the financial information or on the front of the complete set of financial
statements, the financial information compiled by the accountant should contain a reference such
as
a. "Unaudited"
b. "Compiled without Audit or Review"
c. "Refer to Compilation Report"
d. Any of the above.

60. An accountant’s compilation report should be dated as of the date of

a. Completion of fieldwork.
b. Completion of the engagement.
c. Transmittal of the compilation report.
d. The latest subsequent event referred to in the notes to the financial statements.
61. The following are special purpose audit engagements, except
a. Financial statements prepared in accordance with a comprehensive basis of accounting
other than generally accepted accounting principles in the Philippines.
b. Specified accounts, elements of accounts, or items in a financial statement.
c. Compliance with contractual agreements.
d. Compiled financial statements.

62. Which statement is incorrect regarding special purpose audit engagements?

a. Before undertaking a special purpose audit engagement, the auditor should ensure there is
agreement with the client as to the exact nature of the engagement and the form and
content of the report to be issued.
b. To avoid the possibility of the auditor’s report being used for purposes for which it was not
intended, the auditor may wish to indicate in the report the purpose for which the report is
prepared and any restrictions on its distribution and use.
c. When requested to report in a prescribed format, the auditor should consider the substance
and wording of the prescribed report.
d. The auditor need not consider whether any significant interpretations of an agreement on
which the financial information is based are clearly disclosed in the financial information.

63. A comprehensive basis of accounting comprises a set of criteria used in preparing financial
statements which applies to all material items and which has substantial support. Other
comprehensive financial reporting frameworks may include the following, except
a. A conglomeration of accounting conventions devised to suit individual preference.
b. That used by an entity to prepare its income tax return.
c. The cash receipts and disbursements basis of accounting.
d. The financial reporting provisions of a government regulatory agency.

64. The CPA is asked to audit financial statements prepared on a modified cash basis. This is
acceptable provided the CPA
a. Converts the financial statement to an accrual basis before rendering an audit report.
b. Qualifies the audit opinion for a departure from GAAP.
c. Issues an adverse opinion.
d. States clearly in the audit report that fairness was evaluated within the framework of the
other basis rather than GAAP.

65. Which statement is correct regarding report on a component of financial statements?

a. This type of engagement may be undertaken as a separate engagement or in conjunction
with an audit of the entity’s financial statements.
b. In determining the scope of the engagement, the auditor need not consider those financial
statement items that are interrelated and which could materially affect the information on which
the audit opinion is to be expressed.
c. The auditor’s examination will ordinarily be less extensive than if the same component were
to be audited in connection with a report on the entire financial statements.
d. When an adverse opinion or disclaimer of opinion on the entire financial statements has been
expressed, the auditor may report on components of the financial statements even if those
components are so extensive as to constitute a major portion of the financial statements.

66. Which statement is incorrect regarding report on compliance with contractual agreements?
a. The auditor cannot be requested to report on an entity’s compliance with certain aspects of
contractual agreements, such as bond indentures or loan agreements.
b. Engagements to express an opinion as to an entity’s compliance with contractual
agreements should be undertaken only when the overall aspects of compliance relate to
accounting and financial matters within the scope of the auditor’s professional competence.
c. When there are particular matters forming part of the engagement that are outside the
auditor’s expertise, the auditor would consider using the work of an expert.
d. The report should state whether, in the auditor’s opinion, the entity has complied with the
particular provisions of the agreement.
67. Which statement is incorrect regarding report on summarized financial statements?
a. Unless the auditor has expressed an audit opinion on the financial statements from which the
summarized financial statements were derived, the auditor should not report on summarized
financial statements.
b. Summarized financial statements are presented in considerably less detail than annual audited
financial statements.
c. Summarized financial statements need to be appropriately titled to identify the audited financial
statements from which they have been derived.
d. Summarized financial statements contain all the information required by the financial reporting
framework used for the annual audited financial statements.

68. The auditor’s report on summarized financial statements least likely include
a. An identification of the audited financial statements from which the summarized financial
statements were derived.
b. A reference to the date of the audit report on the unabridged financial statements and the type
of opinion given in that report.
c. An opinion as to whether the information in the summarized financial statements is presented
fairly, in all material respects.
d. A statement which indicates that for a better understanding of an entity’s financial performance
and position and of the scope of the audit performed, the summarized financial statements should
be read in conjunction with the unabridged financial statements and the audit report thereon.

69. In an engagement to examine prospective financial information, the auditor should obtain
sufficient appropriate evidence as to whether:
I. Management’s best-estimate assumptions on which the prospective financial information is
based are not unreasonable and, in the case of hypothetical assumptions, such assumptions are
consistent with the purpose of the information.
II. The prospective financial information is properly prepared on the basis of the assumptions.
III. The prospective financial information is properly presented and all material assumptions are
adequately disclosed, including a clear indication as to whether they are best-estimate assumptions
or hypothetical assumptions.
IV. The prospective financial information is prepared on a consistent basis with historical financial
statements, using appropriate accounting principles.
a. I, II, III and IV
b. I, II and III
c. I and II
d. I, II and IV

70. Forecast means

a. Financial information based on assumptions about events that may occur in the future and
possible actions by an entity.
b. Prospective financial information prepared on the basis of assumptions as to future events
which management expects to take place and the actions management expects to take as
of the date the information is prepared (best-estimate assumptions).
c. Prospective financial information prepared on the basis of hypothetical assumptions about
future events and management actions which are not necessarily expected to take place.
d. Prospective financial information prepared on the basis of a mixture of best-estimate and
hypothetical assumptions.

71. Prospective financial information can include financial statements or one or more elements of
financial statements and may be prepared for distribution to third parties in
a. A prospectus to provide potential investors with information about future expectations.
b. An annual report to provide information to shareholders, regulatory bodies and other
interested parties.
c. A document for the information of lenders which may include, for example, cash flow
forecasts.
d. Any of the above.
72. An auditor should not issue a report on
a. The achievability of forecasts c. Management performance
b. Internal control d. Quarterly financial information

73. Which of the following statements concerning the Internet is incorrect?

A. The Internet is a shared public network that enables communication with other entities and
individuals around the world.
B. The Internet is a private network that only allows access to authorized persons or entities
C. The. Internet is interoperable, which means that any computer connected to the Internet can
communicate with any other computer connected to the Internet.
D. The Internet is a worldwide network that allows entities to enqaqe in e-commerce/ e-
business activities..

74. In planning the portions of the audit which may be affected by the client's CIS
environment, the auditor should obtain an understanding of the significance and complexity of
the CIS activities and the, availability of data for use in the audit. The following relate to
the complexity ty of CIS activities except when.
A. Transactions are exchanged electronically with organizations (for example, in electronic
data inter change systems [EDI])
B. Complicated computations of financial information are performed by the computer and/or
material transactions or entries are generated automatically without independent validation.
C. Material financial statement assertions are affected by the computer processing.
D. The volume of transactions is such that users would find it difficult to identify and correct
errors in processing.
.
75. The auditor shall consider the entity's CIS environment in designing audit procedures to
reduce risk to an a c c e p t a b l y low level. Which of the following statements is Incorrect
A. The auditor's specific audit objectives do not change whether financial information is
processed manually or by computer.
B. The methods of applying audit procedures to gather audit evidence are not influenced by the
methods of computer processing.
C. The auditor may use either manual audit procedures, computer-assisted audit techniques
(CAATS), or a combination of both to obtain sufficient appropriate audit evidence.
D. In some CIS environments, it may be difficult or impossible for the auditor to obtain certain
data for
inspection, inquiry, or confirmation without the aid of a computer

76. Regardless of the nature of an entity's information system, the auditor must consider internal
control. In a CIS environment, the auditor must, at a minimum, have
A. A background in programming procedures.
B. An expertise in computer systems analysis.
C. A sufficient knowledge of the computer's operating system.
D. A sufficient knowledge.’ of the computer information system.

77. an affordable yet powerful self-contained general purpose computer which consist typically
of a central processing unit ( CPU ), monitor, keyboard, disk drives, printer cables, and modems
is a/ an
A. Personal computer
B. Mainframe
C. On-line computer
D.Terminal

78. A CIS where two or more personal computers an together through the use of special software
and communication lines and allows the sharing of application software, data files, and computer
peripherals such as printers and optical scanners ls a/an
A. Local area network (LAN).
B. On-line system.
C. Batch processing system.
D. Wide area network (WAN).
79. A file server in a local area network (LAN) is
A. A workstation that is dedicated to a single user on the LAN.
B. A computer that stores programs and data files for users of the LAN.
C. The cabling that physically interconnects the nodes of the LAN.
D. A device that connects the LAN to other networks.
80. Audit team members can use the same database and programs when their PCs share a hard
disk and printer on a LAN. Which of the following communication device enables a PC to
connect to a LAN?
A. A network interface card (NIC) that plugs into the motherboard.
B. A fax modem that sends signals through telephone lines.
C. An internal modem that plugs into the motherboard.
D. An external modern with a cable connection to a serial port.
81. A computer information system that allows individual users to develop and execute
application programs, enter and process data, and generate reports in a decentrallze manner is
called a/an
A. Online system.
B. Batch processing system.
C. End-user computing.
D. Networking.
82. Which of the following statements most likely represents a disadvantage for an entity that
maintains data files on personal computers (PCs) rather than manually prepared files?
A. It ‘is usually more difficult to compare recorded accountability with the physical count of
assets.
B. Random error associated with processing similar transactions in different ways is usually
greater.
C. Attention is focused on the accuracy of the programming process rather than errors in
individual transactions.
D. It is usually easier for unauthorized persons to access and alter the files.
83. Most personal computers have both a CD-Rom drive and a hard disk drive. The major
difference between the two types of storage is that a hard disk.

A. Is suitable for an online system, whereas a CD-R0M is not.

B . Provides an automatic audit trail, whereas a CD-ROM does not.
C. Has a much larger storage capacity than a CD-ROM.
D. Is a direct-access storage medium, whereas a CD-ROM is a sequential-access storage
medium.
84. What type of online computer system is characterized data that are assembled from more
than one location a records that are updated immediately?
A. Online, batch processing system
B. Online, real-time processing system
C. Online, inquiry system
D. Online, downloading/uploading system
85. Misstatements in a batch computer system caused by correct programs or data may not be
detected immediately because
A. The processing of transactions in a batch system is not uniform.
B. There are time delays in processing transactions in a batch system.
C. The identification of errors in input data typically is not part of the program.
D. Errors in some transactions may cause rejection of other transactions in the batch.
86. Which of the following features is least likely to be found in an online,real-time
processing system?
A. Turnaround document
B. User manual
C. Preformatted screens
D. Automatic error correction
87. Which of the following is usually not a factor to consider in designing and implementing
an online, real-time system?
A. Priority allocation
B. Queues
C. Interrupt
D. Hardware diagnostics
88. Workstations or terminals are an integral :component of online .computer systems.
Which of the following statements concerning workstations is incorrect ?

A. Workstations may be located either locally or at remote sites.

B. Both local and remote workstations require the use of telecommunications to link them to
the main computer.
C. Local workstations are connected directly to the main computer through cables.
D. Workstations may be used by different users, different purposes, in different locations, at the
same time.

89. Online computer systems use workstations or terminals that are

located either locally or at remote sites. There are two types of workstations: general purpose
following, except

A. Basic keyboard and monitor

B. Point of sale devices
C. Intelligent terminal.
D. Personal computers.

90. A collection of data that is shared and used by a number of different users for different
users for different purposes is a :
A. Database
B. Memory
C. File
D. Record

91.Which of the following computer software is used to create, maintain, and operate a
database?
A. Application software
B. Systems software
C. Database management system (DBMS)
D. Database administrator

92. The two important characteristics of a database system are

A. The database and the DBMS
B. Data sharing and data independence.
C. The DBMS and data sharing
D. The DBMS and data independence.

93. To protect the integrity of the database, data sharing’different users requires organization,
coordination, rules and guidelines. The individual responsible for managing the database
resource is the
A. Programmer.
B. Database administrator.
C. User.
D. CIS manager.

94. An auditor who wishes to trace data through several application programs should know what
programs use the data, which files contain the data, and which printed reports display the data. In
a database system, the information could be found in a
A. Decision table.
B. Data dictionary.
C. Database schema.
D. Data encryptor.

95. Which of the following is the greatest advantage of a database system?

A. Data redundancy can be reduced.
B. Backup and recovery procedures are minimized.
C. Multiple occurrences of data items are useful for consistency checking.
D. Conversion to a database system is inexpensive and can be accomplished quickly.
96. The following statements relate to a data management system (DBMS) application
environent which is false?
A. Data definition is independent of any one program
B. The physical structure of the data is independent user needs.
C. Data are used concurrently by different users.
D. Data are shared by passing files between programs systems.
97. Which of the following is an advantage of a database management system (DBMS)?
A. A decreased vulnerability as the DBMS has numerous security controls to prevent
disasters.
B. Each organizational unit takes responsibility and control for its own data.
C. Data independence from application programs.
D: The cost of the their own data handling techniques.
98. Which of the following is usually a benefit of transmitting transactions in an electronic
data interchange .(EDI) environment ?
A .A reduced need to test computer controls related to sales and collections transactions.
B. A compressed business cycle with lower year-end receivables balances.
C. No need to rely on third-party service providers to ensure security.
D. An increased opportunity to apply statistical sampling techniques to account balances.

99.The internal controls over computer processing included both manual procedures and
procedures designed into computer programs (programmed control procedures) These
manual and programmed control procedue c o m p r i s e t h e g e n e r a l C I S c o n t r o l
and CIS application controls.The purpose of general CIS control is
to
A. Establish specific control procedures over the accounting applications in order to provide
reasonable assurance that all transactions are authorized. and record and are processed
completely, accurately, and on timely basis
B. Establish a framework of overall controls over control and the CIS activities and to provide a
reasonable level of assurance that the overall objectives of internal control are‘.achieved.
C. Provide reasonable assurance that systems are developed and maintained in an authorized and
efficient manner.
D. Provide reasonable assurance that access to data and computer programs is restricted to
authorized personnel

100. CIS application controls include the following, except

A. Controls over input.
B. Controls over processing and computer data files.
C. Controls over output.
D. Controls over access to systems software and documentation.