Audit Compilation

PAA Questions
Auditing and Assurance Principles
1. An examination designed to provide an opinion that is the CPA’s highest level of

assurance that the financial statements follow Philippine Financial Reporting
Standards, or another acceptable basis of accounting.
a. Audit of financial statements
b. Agreed-upon engagement
c. Compliance audit
d. Operational audit
2. Evidence as an element of assurance engagements considers the following

( multiple answers allowed ):
a. Materiality
b. Assurance engagements
c. Quantity of evidence
d. Engagement risk
e. Quality of evidence
3. These are the representations by management, explicit or otherwise, that

embodied in the financial statements
a. Audit evidence
b. Audit risk
c. Materiality
d. Assertions
e. Material misstatements
4. Many of those users rely on the financial statements as their major source of
information because they do not have the power to obtain additional information
to meet their specific information needs. True
5. Financial statements need to be prepared in accordance with one, or a

combination of: (multiple answers allowed)
a. International Accounting Standards
b. Financial statements are ordinarily prepared and presented annually
c. Another authoritative and comprehensive financial reporting
framework which has been designed for use in financial reporting
and is identified in the financial statements
d. Accounting standards generally accepted in the Philippines
e. Financial statements are directed toward the common information
needs of a wide range of users
6. The objective of an audit of financial statements is to enable the auditor to
express an opinion whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting
framework.
7. Management and tax consulting are examples of advisory engagements. True
8. Suitable criteria as an element of assurance engagements includes the

following, except:
a. Understandability
b. Completeness
c. Objectivity
d. Neutrality
e. Relevance
f. Reliability
9. An engagement designed to express limited assurance relating to subject

matter or an assertion.
a. Review
b. Examination
c. Compliance audit
d. Assurance services
10. Sufficient appropriate evidence under limited assurance engagements is

obtained as part of a systematic engagement process that includes the
following: ( multiple answers allowed)
a. Not given
b. Obtaining an understanding of other engagement
circumstances
c. Obtaining an understanding of the subject matter
d. Assessing and identifying the risk of material misstatements
e. Procedures are deliberately limited
11. A three party relationship as an element of assurance engagements includes

the following, except:
a. Governance
b. Intended users
c. None of the above
d. Responsible party
e. Practitioner

the following: (multiple answers allowed)
a. Intended users
b. Practitioner
c. Governance
d. Responsible Party
e. None of the above
13. The overall objectives of the auditor are to obtain reasonable assurance
about whether the financial statements as a whole are free from material
misstatement whether due to fraud or error, thereby enabling the auditor to
express an opinion on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting
framework.
14. It means an engagement in which a practitioner expresses a conclusion

designed to enhance the degree of confidence of the intended users other than
the responsible party about the outcome of the evaluation or measurement of a
subject matter against criteria.
a. Auditing
b. Assurance engagements
c. Assurance services
d. Not given
e. Attestation services
15. Subject matter as an element of assurance engagements includes the

following:
( multiple answers allowed )
a. Behavior
b. Physical characteristics
c. Non-financial
d. Financial statements
e. Governance
f. Systems and processes
16. Audit assertions applied in transaction level following: (multiple answers

allowed)
a. Cut-off
b. Materiality
c. Occurrence
d. Classification
e. Completeness
f. Accuracy
17. General standards according to GAAS consist of technical training and

proficiency, independence, and professional care.
General Standards consider Technical training & proficiency, Independence

and Professional care
18. Professional services that enhance the quality of information, or its context,
for decision makers.
a. Compliance audit
b. Review
d. Attest engagement
19. In an engagement to perform agreed-upon procedures, 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.
20. Evidence as an element of assurance engagements considers the following,

except:
a. Quality of evidence
b. Materiality
c. Assurance engagements
d. Quantity of evidence
e. Engagement risk
21. Reports on non-assurance engagements clearly distinguishes that reports so

as not to confuse the users True
22. All engagements are assurance engagements False
23. Reports on non-assurance engagements appropriately include the words

“assurance, audit, review”.
False
24. The practitioner’s report does not include a statement restricting the use of
the report to the responsible party. False
25. It is a subset of assurance services

a. Management services
b. Cost accounting
c. Financial reporting
d. Attest services
e. Not given
26. Audit risk is influenced by (multiple answers allowed)

a. Detection risk
b. Control risk
c. Inherent risk
d. Information risk
27. It is the risk that the auditor mistakenly give a ‘clean’ or unqualified opinion on
financial statements that are materially misstated
a. Detection risk
b. Information risk
c. Internal risk
d. Control risk
e. Audit risk
28. Subject matter as an element of assurance engagements includes the

following, except:
a. Physical characteristics
b. Financial statements
c. Governance
d. Behavior
e. Non-financial
f. Systems and processes
29. Causes of information risk (multiple answers allowed )

a. Biases and motives of the provider
b. Remoteness of information
c. Complex exchange transactions
d. Size and variability
e. Information overload
f. Voluminous data
30. Engagements to testify in legal proceedings regarding taxation are not

performed using assurance engagement. True
31. This type of decisions such as review performance, make operational

decisions and report results to capital markets.
a. Management
b. Court system
c. Shareholders
d. Financial institutions
32. Which of the following statements is true considering assurance reports as an
element of assurance engagement?
a. It provides a conclusion regarding the assurance engagement b.
Not given
c. It contains both the quantitative and qualitative evidence intended to
address the users needs
d. It provides a written report containing a conclusion that conveys the
assurance obtained about the subject matter information
e. It provides sufficient and appropriate evidence that is incorporated in the
engagement letter.
33. An auditor is associated with financial information when the auditor attaches a
report to that information or consents to the use of the auditor's name in a
professional connection. True
34. Standards of fieldwork under GAAS consist of planning, internal control

consideration, and evidential matter
35. PSA 100 refers to

a. Philippine Framework of Audit of Historical Financial Statements
b. Philippine Framework for Assurance Services
c. Philippine Framework for Assurance Engagements
d. Philippine Framework of Attestation Services
36. An attest engagement in which the CPAs agree to perform procedures for a
specified party and issue a report that is restricted to use by that party
a. Operational audit
c. Review
d. Integrated Audit
37. An engagement in which the CPAs issue an examination, a review, or an

agreed-upon procedures report on subject matter or an assertion about subject
matter that is the responsibility of another party (e.g., management)
a. Compliance audit
b. Attest engagement
c. Examination
d. Review
38. The major types of audits (multiple answers allowed)

a. Financial Audit
b. Internal Audit
c. Management Audit
d. Compliance AuditTheoretical
e. Performance or Operational Audit
39. Theoretical framework of auditing (arrange in proper order)
a. Audit function operate on the assumption that all financial data
are verifiable.
b. The auditor should always maintain independence with respect to
the financial statements under audit.
c. There should be no long-term conflict between the auditor and the
management.
d. Effective internal control system reduces the possibility of
material misstatements of the financial statements.
e. Consistent application of the applicable financial reporting
framework such as the PFRS results in fair presentation of FS
f. What was held true in the past will continue to hold true in the
future in the absence of unknown conditions to the contrary
g. An audit benefits the public.
40. Which of the following statement is true?

a. Not given
b. Negative Assurance is always the result of absolute reasonable test
such as done in audit of financial statements
c. Reasonable assurance gives a negative form of assurance such as in
audit.
d. Negative assurance gives a negative form of assurance such as in
review of historical financial statements
e. Reasonable assurance means that the auditor is giving an absolute
assurance
42. Engagement to testify in legal proceedings regarding auditing and other matters
are performed using assurance engagement. False
43. Under AASC Pronouncements it has two parts: (a) Framework for Assurance
engagements composed of Audit, Review, and Other Assurance
Engagements and (b) Related Services composed of Agreed Upon
Procedures Engagements and Compilation Engagement
44. What is the basis of PSAs?
a. International Standards Assurance Engagements

b. International Auditing Standards
c. Generally Acceptable Auditing Standards
d. International Standards on Auditing
45. Audit assertions applied in account balance level following: (multiple answers
allowed)
a. Valuation
b. Rights and Obligations
c. Occurrence
d. Existence
e. Classification
f. Completeness
46. It occurred when it could reasonably be expected to influence the economic

decisions of users made on the basis of the financial statements.
a. Audit risk
b. Material misstatement
c. Materiality
d. Detection Risk
e. Assertions
48. An attest engagement designed to provide the highest level of assurance that
CPAs provide on an assertion.
a. Examination
c. Compliance audit
d. Assurance services
49. Types of auditors (multiple answers allowed)

a. Independent auditor
b. Internal Auditor
c. Compliance Auditor
d. Government Auditor
e. Financial Auditor
50. PSA 100.8 states that the outcome of the evaluation or measurement of a
subject matter is the information that results from applying the criteria to the
subject matter.
a. The statement is neutral
b. The statement is true
c. The statement is neither true nor false
d. The statement is false
e. Not given
51. An audit that includes providing assurance on both the financial statements and
internal control.
a. Operational Audit
b. Integrated audit
d. Review
52. In connection with the element of professional development, a CPA firm’s
system of quality control should ordinarily provide that all personnel
a. Possess judgment, motivation, and adequate experience
b. Have the knowledge required to enable them to fulfill
responsibilities assigned
c. Demonstrate compliance with peer review directives
d. Seek assistance whom persons having appropriate levels of
knowledge, judgment, and authority
53. Risk of material misstatements are influenced by (multiple answers allowed )

a. Control risk
b. Detection risk
c. Information risk
d. Internal risk
54. Generally, the basic parts of the PSAs are the following, except:
a. Objectives
b. Introduction
c. Score and Nature of PSA
d. Requirements
e. Definitions
55. An audit performed in accordance with Philippine Standards on Auditing should:

a. Not be relied upon to provide absolute assurance that all
noncompliance with laws will be detected
b. Be relied upon to disclose violations of truth in lending laws
c. Encompass a plan to actively search for all illegalities which relate to
operating aspects
d. Be expected to provide absolute assurance that noncompliance with all
laws will be detected where internal control is effective.
56. Which of the following best describes the operational audit?

a. It attempts and is designed to verify the fair presentation of a company’s
results of operations
b. It concentrates on seeking aspects of operations in which waste
could be reduced by the introduction of controls
c. It concentrates on implementing financial and accounting control in a
newly organized company
d. It requires the constant review by internal auditors of the administrative
controls as they relate to the operations of the company.
57. Cruz & Santos CPAs has one office. Which of the following is least likely to
impair independence with respect to an audit client?
a. A partner in the CPA firm is the son of the president of the client
b. The client owes the firm for two prior years’ audit fees
c. A partner in the firm has an investment in a mutual fund that has a
direct interest in the client
d. The husband of a partner in the firm has a small direct financial interest
in the client
58. Auditor’s opinion deals with the financial statements as a whole, and
therefore, the auditor is not responsible for the detection of misstatements
that are not material to the financial statements as a whole
59. The repealed Act Regulating the Practice of Accountancy in the Philippines
was ____________.
a. Accountancy Act, RA 9298
b. Revised Act No. 692
c. Republic Act 9298
d. Philippine Decree No. 692
60. Operational auditing is primarily oriented toward :

a. Past protection provided by existing internal control
b. The verification that a company’s financial statements are fairly
presented
c. Future improvements to accomplish the goals of management
d. The accuracy of data reflected in management’s financial records
61. Auditors are periodically punished for holding an investment in a client. This
violates which ethical rule?
a. Integrity
b. Independence
c. Confidentiality
d. Non compliance with PFRS
62. Auditing is a structured process that… (arrange in proper order)

i. Involves in the application of analytical skills, professional judgment
and professional skepticism;
ii. Is usually performed by a team of professionals, directed with
managerial skills;
iii.Uses appropriate form of technology; iv. Complies with relevant
technical standards;
v. Complies with required standards or professional ethics
63. A structured representation of historical financial information, including

related notes, intended to communicate an entity's economic resources or
obligations at a point in time or the changes therein for a period of time in
accordance with a financial reporting framework.
a. Financial reports
b. Audited financial reports
c. Audited financial statements
64. 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
objective would this be most likely to satisfy?
a. Relevant ethical requirements
b. Engagement performance
c. Personnel management
d. Acceptance and continuance of clients and engagements
65. Section 2. Declaration of Policy. The State recognizes the importance of

accountants in nation building and development. Hence, it shall develop
and nurture competent, virtuous, productive and well rounded
professional accountants whose standards of practice and service shall be
excellent, qualitative, world class and globally competitive through
inviolable, honest, effective, and credible licensure examinations and through
regulatory measures, programs and activities that their professional growth
and development.
66. In pursuing its quality control objectives with respect to independence, a CPA
firm may use policies and procedures such as the following except
a. Suggesting that employees conduct their banking transactions with
banks that do not maintain accountants with client firms
b. Emphasizing independence in mental attitude in firm training
programs and in supervision and review of work
c. Assigning employees who may lack independence to research
positions that do not require participation in field audit work
d. Prohibiting employees from owning shares of the stock of
publicly traded companies
67. Inquiries and analytical procedures ordinarily form the basis for which type of
engagement?
a. Audit
b. Review
c. Agreed-upon procedures
d. Examination
68. It refers to the difference between the amount, classification, presentation, or

disclosure of a reported financial statement item and the amount,
classification, presentation or disclosure that is required for the item to be in
accordance with the applicable financial reporting framework.
a. Misstatement
b. Risk of material misstatements
c. Not given
d. Materiality
69. The Government Accountability Office (GAO):
a. Is primarily concerned with rapid processing of all accounts payable
incurred by the federal government
b. Is primarily concerned with budgets and forecasts approved by the
SEC
c. Responsibilities include conducting operational audits to
ensure spending meets Congress’s requirements
d. Is a multinational organization of professional accountants
70. In pursuing its quality control objectives with respect to assigning personnel
to engagements, a CPA firm may use policies and procedures such as the
following
a. Assigning a number of employees to each engagement in excess of
the number required so as not to overburden the staff and interfere
with the quality of the audit work performed
b. Requiring timely identification of the staff requirements of
specific engagements so that enough qualified personnel can
be made available
c. Rotating employees from assignment to assignment on a random
basis to aid in the staff training effort
d. Allowing staff to select the assignments of their choice to promote
better client relationships
71. The important concepts of assurance services are the following, except
a. Decision making
b. Independence
c. Quality information
d. Not given
e. Objectivity
72. The standard of due care to which the auditor is expected to be held is
referred to as the
a. Common law doctrine
b. Prudent person concept
c. Reckless regard doctrine
d. Due care concept
73. The existence of extreme or unusual negligence, even though there was no
intent to deceive or do harm, is
a. Gross fraud
b. Fraud
c. Constructive fraud
d. Ordinary fraud
74. What are the elements used in judging materiality in the audit of financial
statements? (multiple answers allowed)
a. Combination of both size and nature of misstatement
b. Surrounding circumstances
c. Size, amount, and nature of the amount
d. Auditor’s perception of the financial information needs of the
users of the financial statements
e. Size or nature of misstatement
75. The risk associated with survivability and profitability is referred to as

a. Information risk
b. Business risk
c. Inherent risk
d. Relative risk
76. How many members composed the AASC and the term of office?
a. Not given
b. 18 members, 3 years
c. 18 members, 3 years and renewable for another term
d. 17 members and 2 years term
77. RA 9298 Sec 4. Scope of Practice. The practice of accountancy shall

include, but not limited to, the following: (in proper order)
i. Practice of Public Accountancy ii.
Practice in Commerce and Industry iii.
Practice in Education iv. Practice in
Government
78. If the Code of Ethics does not specifically address a threat to auditor
independence, the auditor should:
a. Conclude that the threat results in a lack of independence unless it
can be shown that no impairment of independence occurs
b. Conclude that the threat is not significant unless proven so
c. Consider the threat from the perspective of a reasonable and
informed third party who has knowledge of all the relevant
information
d. Consult the Statements on Auditing Standards for guidance
79. In pursuing its quality control objectives with respect to acceptance of a

client, a CPA firm is not likely to
a. Make inquiries of the proposed client’s legal counsel
b. Review the personnel practices of the proposed client
c. Make inquiries of previous auditors
d. Review financial statements of the proposed client
80. In forming the report, the auditor obtains sufficient appropriate audit evidence
to be able to draw conclusions on which to base that opinion. False
81. The attest function:

a. Requires a complete review of all transactions during the period
under examination
b. Includes the preparation of a report of the CPA’s findings
c. Requires a consideration of internal control
d. Is an essential part of every engagement by the CPA, whether
performing auditing, tax work, or other services
82. Audit assertions applied in presentation and disclosure level following:

a. Classification
b. Rights and obligations
c. Completeness
d. Accuracy
e. Occurrence
f. Valuation
83. A process comprising an ongoing consideration and evaluation of the firm’s

system of quality control including a periodic inspection of a selection of
completed engagements designed to provide the firm with reasonable
assurance that its system of quality control is operating effectively.
a. Quality assurance review
b. Auditing
c. Documenting
d. Monitoring
84. The primary reason why a CPA firm establishes quality control policies and
procedures for human resources is to
a. Comply with the continuing educational requirements imposed for all
staff accountants in CPA firms
b. provide reasonable assurance that staff personnel will have the
capability, competence and commitment to ethical principles
required to enable them to fulfill their responsibilities in
accordance with professional standards and regulatory and
legal requirements.
c. establish in fact as well as in appearance that staff accountants are
increasing their knowledge of accounting and auditing matters.
d. provide a forum for staff accountants to exchange their experiences
and views concerning firm policies and procedures.
85. When a threat to independence arises, an auditor should consider :

a. Alternative threats to a lack of independence.
b. Global independence rules
c. Required lack of independence approaches
d. Available safeguards to independence
86. Subject to audit are those prepared and presented by management of the
entity with oversight of the TCWG. True
87. RA 9298 Sec 3. Objectives. This Act shall provide for and govern: (in proper
order)
i. The standardization and regulation of accounting education ii.
The examination for registration of CPA
iii.The supervision, control and regulation of the practice of
accountancy in the Philippines
88. It refers to the risk that a misstatement that could occur in an assertion about
a class of transaction, account balance or disclosure and that could be
material, either individually or when aggregated with other misstatements,
will not be prevented, or detected and corrected, on a timely basis by the
entity's internal control.
a. Control risk
b. Risk of material misstatement
c. Engagement risk
d. Inherent risk
89. The accounting firm should establish policies and procedures assigned to
promote an internal culture based on the recognition that quality is essential
in performing engagements. This may be communicated through the
following means except
a. Mission statements
b. Publication in PICPA newsletter
c. Formal and informal dialogue
d. Training seminars
90. Attestation risk is limited to a low level in which of the following

engagement(s)?
a. Reviews, but not examinations
b. Neither examinations nor reviews
c. Examinations, but not reviews
d. Both examinations and reviews
91. The important concepts of assurance services are the following: ( multiple
answers allowed)
a. Objectivity
b. Independence
c. Not given
d. Quality information
e. Decision making
92. Independent auditing can best be described as

a. A branch of accounting
b. A discipline that attests to the results of accounting and other
functional operations and data
c. A professional activity that measures and communicates
financial and business data
d. A regulatory function that prevents that issuance of improper
financial information
94. Which of the following is most likely to be included in a public company

financial statement audit report?
a. The year the auditor began serving the company
b. The audit was performed in accordance with generally accepted
auditing standards
c. The name of the engagement partner
d. Adverse opinion
95. The emphasis and order of certain activities may vary depending upon a
particular audit, but this process would basically include the following:
( arrange in proper order)
i. Accepting an engagement ii.
Audit planning iii. Considering
internal control iv. Performing
substantive testing v. Completing
the audit vi. Issuing a report
96. These are representations by management, explicit or otherwise, that

embodied in the financial statements
a. Material misstatements
b. Audit risk
c. Audit evidence
d. Assertions
e. Materiality
97. CPAs are considered professional persons because they:

a. serve the interests of the public in general and clients in particular.
b. pass the CPA examination and have qualifying practical experience.
c. are members of the PICPA.
d. hold a license from a government agency.
98. In pursuing its quality control objectives, a CPA firm may maintain records
indicating which of its partners or employees were previously employed by its
clients. Which quality control element would this be most likely to satisfy?
a. Leadership responsibilities for quality within the firm
b. Engagement performance
c. Human resources
d. Ethical requirements
99. GAAS sets the minimum standards of auditor's performance. What are these
standards?
a. Standards of Planning and Performing audits
b. Standards of Reporting
c. General standards
d. Standards of Fieldwork
e. Standards of assurance engagements
100. Independence requirements suggest that a CPA should evaluate whether a
particular threat to independence would lead a reasonable person, aware of all
the relevant facts, to conclude that:
a. There is substantial cause for a legal finding of non-independence.
b. A questioning mind reveals doubt as to independence.
c. The accountant is definitely not independent.
d. An unacceptable risk of non-independence exists.
101. Misstatements can arise from error or fraud.

True
102. A summary of findings rather than assurance is most likely to be included in a:

a. Compilation report.
b. Agreed-upon procedures report.
c. Review report.
d. Examination report.
103. A nonpublic company auditors' report is most likely to be addressed to the

company whose financial statements are being examined or to that
company's:
a. Chief operating officer.
b. President.
c. Audit Committee.
d. Chief financial officer.
104. Which of the following attributes is more closely associated with attestation
services performed by a CPA firm than with other lines of professional work?
a. Keeping informed on current professional developments.
b. Integrity.
c. Competence.
d. Independence.
105. Which of the following terms best describes the audit of a taxpayer's tax return
by a BIR auditor?
a. Operational audit.
b. Compliance audit.
c. Internal audit.
d. Government audit.
106. When it comes to being independent, auditors must not only be: ( I )
independent in fact, (II) independent in appearance, (III) independent
judgement, (IV) independent professional.
a. I and II only
b. I, II, III and IV
c. I, II and III only
d. I only
107. To succeed in an action against the auditor, the client must be able to show
that
a. the auditor was fraudulent
b. there was a written contract.
c. the auditor was grossly negligent
d. there is a close causal connection between the auditor’s breach of
the standard of due care and the damages suffered by the client.
108. The concept of materiality is applied to the following, except:

a. In performing an audit
b. In planning an audit
c. In the expected influence in making economic decisions
d. In evaluating the effect of identified misstatements
e. Not given
109. It refers to the risk that the procedures performed by the auditor to reduce
audit risk to an acceptably low level will not detect a misstatement that exists
and that could be material, either individually or when aggregated with other
misstatements.
a. Detection risk
b. Information risk
c. Audit risk
d. Risk of material misstatement
110. When the auditors express an opinion on financial statements, their

responsibilities extend to:
a. Active participation in the implementation of the advice given to their
client.
b. The underlying wisdom of their client's management decisions.
c. An ongoing responsibility for their client's solvency.
d. Whether the results of their client's operating decisions are fairly
presented in the financial statements.
111. In the auditing environment, failure to meet auditing standards is often
a. Tantamount to criminal behavior
b. Conclusion evidence of negligence
c. An accepted practice
d. A suggestion of negligence
112. A requirement that working papers be reviewed by the supervisor, and any
deficiencies be discussed with the preparer is an example of a quality control
procedure in the area of:
a. Engagement performance.
b. Human resources.
c. Acceptanceand continuance of client relationships and
specific engagements.
d. Relevant ethical requirements.
113. Which of the following is not an element of quality control that should be
considered by a firm of independent auditors?
a. Consultation with appropriate persons
b. Supervision
c. Keeping records of quality control policies and procedures
d. Assigning personnel to engagements
114. When the auditor expresses an opinion on whether the financial statements
are presented fairly, in all material respects, misstatements also include those
adjustments of amounts, classifications, presentation, or disclosures that, in
the auditor's judgment, are necessary for the financial statements to be
presented fairly, in all material respects.
True
115. Which of the following attributes is more essential for an auditor than of
management?
a. Keeping informed on current professional developments.
b. Integrity.
c. Competence.
d. Independence.
116. A basic objective of a CPA firm is to provide professional services that conform
with professional standards. Reasonable assurance of achieving this basic
objective is provided through
a. continuing professional education.
b. a system of peer review.
c. a system of quality control.
d. compliance with generally accepted accounting standards.
117. Which of the following does a firm need not establish and maintain a system of
quality control for?
a. Engagement performance
b. Maximizing revenue
c. Relevant ethical requirements
d. Leadership responsibilities for quality within the firm
118. Operational audits generally have been conducted by internal auditors and
government audit agencies but may be performed by certified public
accountants. A primary purpose of an operational audit is to provide
a. A means of assurance that internal accounting controls are functioning
as planned.
b. The results of internal examinations of financial and accounting matters
to a company’s top-level management.
c. Aid to the independent auditor, who is conducting the audit of the
financial statements.
d. A measure of management performance in meeting organizational
goals.
119. A typical objective of an operational audit is for the auditor to:

a. Evaluate the feasibility of attaining the entity's operational objectives.
b. Determine whether the financial statements fairly present the entity's
operations.
c. Report on the entity's relative success in attaining profit maximization.
d. Make recommendations for improving performance.
120. The least important element in the evaluation of a CPA firm’s system of quality
controls would concern its policies and procedures with respect to
a. confidentiality of audit engagements.
b. assigning personnel to audit engagements.
c. determination of audit fees.
d. employment (hiring).
121. It refers to the risk that the financial statements are materially misstated prior
to audit. It consists of two components: inherent and control risk.
a. Inherent risk
b. Engagement risk
c. Risk of material misstatement
d. Control risk
122. A CPA should maintain objectivity and be free of conflicts of interest when
performing:
a. All professional services.
b. All attestation and tax services, but not other professional services.
c. Audits, but not any other professional services.
d. All attestation services, but not other professional services.
123. It is a function of the risks of material misstatement and detection risk.

a. Detection risk
b. Audit risk
c. Audit evidence
d. Information risk
124. Which of the following types of employees must be independent of an audit

client?
a. Senior auditors assigned to the office that performs the audit.
b. A partner in the office that performs the engagement.
c. All firm professionals, regardless of their position.
d. Managers assigned to an office that does not participate in the
engagement.
125. Suitable criteria as an element of assurance engagements includes the

following: (multiple answers allowed)
a. Reliability
b. Objectivity
c. Relevance
d. Understandability
e. Neutrality
f. Completeness
126. Try to pair the ‘nature of service’ and the level of assurance provided by the
auditor. Audit High, but not absolute, assurance, Review Moderate
assurance and Compilation No assurance
127. The purpose of this type of audit is to detect a deter fraudulent activities
a. Compliance audit
b. Forensic Audit
c. Internal audit
d. Operational audit
128. Sufficient appropriate evidence under the reasonable assurance engagements

is obtained as part of a systematic engagement process that includes the
following, except:
a. Describing the engagement circumstances and the form
of conclusion
b. Evaluating the evidence obtained
c. Responding to the assessed risk
d. Obtaining understanding of the engagement circumstances
e. Assessing risks
129. The Act Regulating the Practice of Accountancy in the Philippines is known as
a. Philippine Accountancy Act of 2004
b. Philippine Accountancy Act for CPAs
c. New Philippines Accountancy Act of 2004
d. Revised Philippine Accountancy Act of 2004
130. Which of the following professional services would be considered an

attestation engagement?
a. The compilation of financial statements from a client’s financial records
b. An engagement to report on statutory requirements
c. An income tax engagement to prepare federal and state tax returns
d. A consulting service engagement to provide computer processing advices
to a client
131. Which of the following forms of advertising would most likely be considered a
violation of the Code of Ethics?
a. Advertising including the types of services offered and the standard fees
for the services
b. Advertising including the experience of the firm’s professional staff
c. Advertising including the percentage of the firm’s staff that have CPA
certificates
d. Advertising including an indication that the firm has a close
relationship with several tax court judges
132. Reasonable assurance is limited level of assurance, because there are

inherent limitations of an audit which results of the audit evidence on which the
auditor draws conclusion and bases the auditor’s opinion being persuasive
rather than conclusive False
133. In the audit of financial statements, the purpose of the audit is to enhance the
degree of confidence of intended users in the financial statements True
134. Misstatements including omissions, are considered to be material, if

individually or in aggregate, they could reasonably be expected to influence
the economic decisions of the users taken on the basis of the financial
statements True
135. Which of the following is a possible safeguard implemented by the client that
might mitigate an audit independence threat?
a. CPA firm leaderships stress the importance of complying with professional
standards
b. Top management selects the auditing firm
c. Management maintains substantial common stock investments in the
company
d. Management has suitable skills to make managerial decisions
136. PSA 100.8 states that the outcome of the evaluation or measurement of a
subject matter is the information that results from applying the criteria to the
subject matter. With reference to the outcome, it deals with___ (multiple
answers allowed)
a. Recognition
b. Not give
c. Disclosure
d. Measurement
e. Presentation
137. Risk is a concept used to express uncertainty or what can go wrong about
events and/or their outcomes that could have a material effect on the entity.
138. A primary purpose for establishing a code of conduct within a professional

organization is to:
a. Reduce the likelihood that members of the profession will be sued for
substandard work.
b. Demonstrate acceptance of responsibility to the interests of those
served by the profession.
c. Require members of the profession to exhibit loyalty in all matters
pertaining to the affairs of their organization.
d. Ensure that all members of the profession perform at approximately the
same level of competence.
139. Which of the following is not an assurance engagement?
a. Financial statements audit
b. Compilation
c. Information reliability services
d. Reviews of prospective financial statements
140. The Revised Corporation Code does not provide a perpetual existence.
a. Somewhat True or False
b. True
c. False
d. Neither True nor False
141. Directors shall not participate in the determination of their own per diems or
compensation. Submission of annual report on the total compensation of
directors or trustee for corporation vested with public interest.
b. True
c. False
142. The audit of financial statements requires the auditor to exercise

professional judgment and maintain professional skepticism throughout
the planning and performance of the audit and among other things to
identify and assess risk of material misstatements, whether due to fraud
or error, based on an understanding of the entity and its environment
including the entity’s internal control.
143. Society has attached a special meaning to the term “professional”. A

professional is
a. a person who is expected to conduct himself or herself at a higher
level than the requirements of society’s laws or regulations.
b. Any person who receives pay for the services performed.
c. someone who has passed a qualifying exam to enter the job market.
d. Someone who has both an education in the trade and on-the-job
experience received under an experienced supervisor.
144. This refers to an approximation of the amount of an item in the absence of a

precise means of measurement.
a. Probable amount
b. Projection
c. Accounting estimate
d. Forecast
145. Audits of financial statements are designed to obtain reasonable assurance of

detecting misstatement due to:
a. Fraudulent Financial Reporting YES Misappropriation of Assets YES
b. Fraudulent Financial Reporting YES Misappropriation of Assets NO
c. Fraudulent Financial Reporting NO Misappropriation of Assets YES
d. Fraudulent Financial Reporting NO Misappropriation of Assets NO
146. In the audit of financial statement, the purpose of the audit is to enhance the
degree of confidence of intended users in the financial statements. True
147. It refers to the measure of the quality of audit evidence; that is, its relevance
and its reliability in providing support for the conclusions on which the auditor's
opinion is based.
a. Appropriateness of audit evidence
b. Audit evidence
c. Sufficiency of audit evidence
d. Financial information
148. ______ may be formed or organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific, social, civic service, or
similar purposes, like trade, industry, agricultural and like chambers, or any
combination.
a. Foundation
b. Stock corporation
c. Cooperatives
d. Nonstock corporation
149. The audit of financial statement in accordance with PSAs is conducted on the
premise that management and where appropriate, TCWG have responsibilities
that are fundamental in the conduct of the audit. True
150. These are representations by management, explicit or otherwise, that

embodied in the financial statements.
a. Assertions
b. Materiality
c. Audit evidence
d. Material misstatements
e. Audit risk
151. Which of the following activities is not part of the activities within the audit
opinion formulation process?
a. The auditor determines the appropriate nonaudit consulting
services to provide to the client.
b. The auditor determines the appropriate audit opinion(s) to issue.
c. The auditor identifies and assess risks of material misstatements and

then responds to those identified risks.
d. The auditor develops a common understanding of the audit engagement
with the client.
152. Which of the following forms may the subject matter of an assurance
engagement take?
a. All of the above
b. Systems-and processes
c. Historical financial information
d. Behavior
153. It deals with framework of Philippine Standards on Auditing.

a. PSA 220
b. PSA 100
c. PSA 120
d. PSA 200
154. Audit risk and engagement risk are affected by financial reporting risk and
business risk. These risks of financial reporting risk and business risk
originate with client and its environment.
155. The Act providing the Revised Corporation Code of the Philippines took effect
on ___
a. July 23, 2018
b. May 12, 2017
c. June 12, 2018
d. July 23, 2017
156. Factors that affect or influence business risk.

a. Competition
b. Business volatility
c. Internal control
d. Geographic location
e.
f. Economic climate
g. Complex transactions
h. Technological change
157. Under the risk-based audit (RBA) approach, the auditor performs the following:
( arranged in proper order )
i. Identification of the client’s strategy and the processes for
developing the strategy
ii. Examinationof the core business process and
resource management
iii. Identification for each of the key processes (as
well as sub-processes), the objectives, inputs, activities,
outputs, systems and transactions
iv. Assessment of the risks that the processes will not meet the goals
and controls related to those risks.
v. Identification of significant related party transactions vi.
Examination of unusual volume of routine transactions
158. Which management assertion addresses whether the components of the

financial statements are properly classified, described, and disclosed?
a. Presentation and Disclosure
b. Completeness
c. Rights and obligations
d. Existence
159. Which of the following are elements of a CPA firm’s quality control that should
be considered in establishing its quality control policies and procedures?
a. Advancement Yes Inspection Yes Consultation No
b. Advancement Yes Inspection Yes Consultation Yes
c. Advancement No Inspection Yes Consultation Yes
d. Advancement Yes Inspection No Consultation Yes
160. The Revised Corporation Code dictates that only natural persons can be
incorporators.
b. True
c. False
161. The articles of incorporation of a nonstock corporation may be amended by

the vote or written assent of majority of the trustees and at ________of the
members.
a. One-fourth
b. One-half
c. Two-thirds
d. One-thirds
162. Which of the following items should be included in audit documentation?
a. Procedures performed
b. Conclusions reached with respect to relevant
financial statement assertions
c. Audit evidence examined
d. All of the above should be included
163. What are the factors affecting the likelihood of risk? (multiple answers allowed)
a. Control processes effectiveness
b. Recovery cost
c. Materiality
d. Control environment
e. Probability of estimates based on history or cycles
f. Change or stability
g. Complexity of activities
164. It refers to the person or persons conducting the audit, usually the
engagement partner or other members of the engagement team, or as
applicable, the firm.
a. Those Charged with Governance
b. Management
c. Auditor
d. Engagement partner
165. When an accountant is not independent, the accountant is precluded from

issuing a:
a. Tax planning report.
b. Management advisory report.
c. Review report
d. Compilation report.
166. Which of the following statements is correct?

a. Working papers prepared by the auditor solely for the engagement
need not be returned to the client.
b. CPA working papers that include copies of client's records are not
available to third parties under any circumstances.
c. CPA working papers are the joint property of the CPA and the client.
d. Client prepared records (e.g., the general ledger) may be retained by the
CPA until fees due to the CPA are received.
167. Non-assurance engagements include all of the following except

a. preparation of tax returns where no conclusion is expressed.
b. agreed-upon procedures.
c. compliance audit.
d. management consulting.
168. The audit of financial statement relieves the management or TCWG with the
governance responsibilities. False
169. The primary purpose of establishing quality control policies and procedures for
deciding whether to accept a new client is to process designed
a. enable the CPA firm to attest to the reliability of the client.
b. minimize the likelihood of association with clients
whose management lacks integrity.
c. anticipate before performing any field work whether an unqualified
opinion can be expressed.
d. satisfy the CPA firm’s duty to the public concerning the acceptance of
new clients.
170. Which of the following factors does not create a demand for external audit
services?
a. Complexity of the accounting processing systems.
b. Requirement of PICPA.
c. Remoteness between a user and the organization.
d. Potential bias by management in providing information.
171. It refers to person(s) or organization(s) (e.g., a corporate trustee) with

responsibility for overseeing the strategic direction of the entity and obligations
related to the accountability of the entity.
a. Management consultant
b. Management
c. Those charged with governance
d. Accounting firm
172. Competence as a certified public accountant includes all of the following

except:
a. Possessing the ability to supervise and to evaluate the quality of staff
work.
b. Having the technical qualifications to perform an engagement.
c. Consulting others if additional technical information is needed.
d. Guaranteeing the accuracy of the work performed.
173. Below are factors affecting impact of risk (multiple answers allowed)
a. Importance of the related objective to entity's mission
b. Duration and/or pervasiveness of the event
c. Materiality
d. Control processes effectiveness
e. Potential reputation or brand damage
f. Control environment
g. Recovery cost
h. Complexity of activities
174. The auditor considers the exercise of professional judgment in planning and
performing an audit of financial statements. False
175. Examples of non-assurance services (multiple answers allowed )

a. Data processing
b. Agreed-upon procedures services
c. CPA Web Trust Service
d. Advisory services
e. Tax services
176. It is a process to identify, assess, manage and control potential events or

situations to provide reasonable assurance regarding the achievement of the
entity's objectives.
a. Risk management
b. Engagement risk
c. Risk governance
d. Risk acceptance
177. The Revised Corporation Code does not impose a minimum number of
incorporators.
b. True
c. False
178. Factors that may affect or influence financial reporting risk.

a. Competence and integrity of management
b. Economic climate
c. Competition
d. Complexity of transactions
e. Incentive to management to misstated F/S
f. Internal control
179. Each incorporator of a stock corporation must own or be a subscriber to at

least _____ share of the capital stock.
a. 5
b. 2
c. 3
d. 1
180. Which of the following is accurate, as indicated in the principles underlying an

audit?
a. Management is responsible for preparing accurate financial statement
amounts, while auditors are responsible for auditing those amounts and
for preparing note disclosures related to those amounts.
b. Auditors are responsible for having appropriate competence to perform
the audit without the assistance of outside specialists.
c. Management is expected to provide the auditors with all needed evidence
prior to the beginning of audit work.
d. An auditor is unable to obtain absolute assurance that the financial
statements are free from material misstatement.
181. Which of the following forms may the subject matter of an assurance
engagement take?
a. Behavior
b. Systems-and processes
c. All of the above
d. Historical financial information
182. Reasonable assurance is high level assurance.

Select one:
True
False

the following: (multiple answers allowed)
a. Intended Users
b. Practitioner
c. Governance
d. Responsible party
e. None of the above
184. 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 are more subjective and often involve evaluating
efficiency and effectiveness of operations.
c. Operational audits do not ordinarily result in the preparation of a report.
d. The operational audit deals with pre-tax income.
185. A primary purpose for establishing a code of conduct within a professional

organization is to:
a. Reduce the likelihood that members of the profession will be sued for
substandard work.
b. Require members of the profession to exhibit loyalty in all matters
pertaining to the affairs of their organization.
c. Ensure that all members of the profession perform at approximately the
same level of competence.
d. Demonstrate acceptance of responsibility to the interests of those
served by the profession.
186. A client company has not paid its 20X6 audit fees. According to the Code of
Ethics, in order for the auditor to be considered independent with respect to
the 20X7 audit, the 20 X6 audit fees must be paid before the :
a. 20 X6 report is issued.
b. 20 X7 fieldwork is started.
c. 20 X7 report is issued.
d. 20 X8 fieldwork is started.
Which of the following parties are involved in preparing and auditing financial
statements?
a. External auditor
b. Internal audit function
c. Audit committee
d. Management
187. The purpose of this type of audit is to detect a deter fraudulent activities. a.
Internal audit
b. Operational audit
c. Compliance audit
d. Forensic audit
188. The public expects auditors to

a. Require accounting principles the best portray the spirit of the concepts
adopted by accounting standard setters
b. Be independent of management
c. Find fraud
d. All of the above
189. It refers to the amount of risk that an entity is prepared to accept, tolerate or be
exposed to at any point in time.
a. Risk response
b. Risk appetite
c. Business risk
d. Risk of material misstatements
e. Risk tolerance
190. They are those stockholders or members mentioned in the articles of
incorporation as originally forming and composing the corporation and who are
signatories thereof. a. Corporators
b. Incorporators
c. Stockholders
d. Shareholders
191. Which of the following statements is true about the audit opinion formulation
process?
a. The audit opinion formulation process is based on the premise that
management has responsibility to prepare the financial statements
and maintain internal control over financial reporting.
b. The audit opinion formulation process is significantly different for the
financial statement only audit and the integrated audit.
c. The audit opinion formulation process is comprised of seven phases.
d. All of the above are true statements regarding the audit opinion
formulation process.
192. The Republic Act 11232 is otherwise called.

a. Revised Corporation Act
b. New Corporation Code of 2018
c. New Corporation Code of the Philippines
d. Revised Corporation Code of the Philippines
193. Which of the following statement is true?

a. Negative assurance is always the result of absolute reasonable test such
as done in audit of financial statements.
b. Reasonable assurance gives a negative form of assurance such as in
audit. c. Not given
d. Reasonable assurance means that the auditor is giving an absolute assurance.
e. Negative assurance gives a negative form of assurance such as in review
of historical financial statements.
194. It refers to the risk that the auditor expresses an inappropriate audit opinion
when the financial statements are materially misstated.
a. Information risk
b. Audit evidence
c. Audit risk
d. Detection risk
195. In comparison to the external auditor, an internal auditor is more likely to be
concerned with
a. Cost accounting procedures
b. Operational auditing
c. Internal administrative control
d. Internal control
196. Compliance auditing often extends beyond audits leading to the expression of
opinion on the fairness of financial presentation and includes audits of
efficiency, economy effectiveness, as well as
a. Adherence to specific rules of procedures
b. Evaluation
c. Internal control
d. Accuracy
199. A requirement to design recruitment processes and procedures to help the firm
select individuals meeting minimum academic requirements established by the firm is
an example of a quality control procedure in the area of:
a. Engagement performance.
b. Human resources.
c. Acceptance & continuance of client relationships & specific
engagements.
d. Relevant ethical requirements.
200. It is a function of the risks of material misstatement and detection risk.

a. Audit risk
b. Audit evidence
c. Information risk
d. Detection risk
201. Risk is a concept used to express [uncertainty] or [what can go wrong] about
[events] and/or their [outcomes] that could have [a material effect] on the entity.
204. In the audit of financial statement, the purpose of the audit is to enhance the
degree of confidence of intended users in the financial statements. Select one:
True
False
205. Reports on non-assurance engagements clearly distinguishes that reports so as

not to confuse the users. True
208. It refers to an attitude that includes a questioning mind, being alert to conditions
which may indicate possible misstatement due to error or fraud, and a critical
assessment of audit evidence.
a. Professional judgment
b. Materiality
c. not given
d. Professional skepticism
209. Subject matter as an element of assurance engagements includes the following:

Financial statements,
Non-financial,
Physical characteristics,
Systems and processes,
Behavior
212. A corporation whose term has expired may apply for a revival of its corporate
existence, together with all the rights and privileges under its certificate of incorporation
and subject to all of its duties, debts and liabilities existing prior to its revival.
a. Somewhat correct
b. Neither A nor B
c. True
d. False
215. Audits of financial statements are designed to obtain reasonable assurance of

detecting misstatement due to:
a. Fraudulent Financial Reporting NO Misappropriation of Assets YES
b. Fraudulent Financial Reporting YES Misappropriation of Assets NO
c. Fraudulent Financial Reporting YES Misappropriation of Assets YES
d. Fraudulent Financial Reporting NO Misappropriation of Assets NO
216. A process comprising-an ongoing consideration and evaluation of the firm’s
system of quality control including a periodic inspection of a
selection of completed engagements designed to provide the firm with reasonable
assurance that its system of quality control is operating effectively.
a. Quality assurance review
b. Auditing
c. Monitoring
d. Documenting
217. A CPA's retention of client records as a means of enforcing payment of an
overdue audit fee is an action that is:
a. Considered discreditable to the profession.
b. Ill advised since it would impair the CPA's independence with respect to the
client.
c. Considered acceptable by the Code of Ethics.
d. A violation of generally accepted auditing standards.
218. An attestation services are assurance services in which the public accounting
firm issues a written communication that expresses conclusion about the reality of a
written assertion of another party.
a. The Statement does not make sense.
b. The statement is True
c. The statement is neither true nor false.
d. The Statement is False
219. [risk] refers to the possibility of [event occurring] that will have [impact] on the
[ achievement of the entity's objectives] .
The voting rights of the shareholders or trustees cannot be exercised through remote
communications or in absentia is allowed when authorized bylaws or by majority of the
board.
a. Neither True nor False
B. False
C. True
D. Somewhat True or False
220. An independent, objective assurance & consulting activity designed to add value
and improve an organization’s operations.
a. Operational audit
b. Review
c. Compliance audit
d. Internal audit
221. Auditing is a systematic process by which a competent, independent person

objectively obtains and evaluates evidence regarding assertions about
economic actions and events to ascertain the degree of assertions between
those assertions and established criteria and communicating the results to
interested users.
The voting rights of the shareholders or trustees can be exercised through remote
communications or in absentia is allowed when authorized bylaws or by majority of the
board.
b. True
c. False
222. It refers to the person/s with executive responsibility for the conduct of the entity's
operations.
a. Management
b. Management
c. Officers
d. Those charged with governance
223. The Act providing the Revised Corporation Code of the Philippines was enacted
by___
a. Senate
b. President of the Philippines
c. House of Representatives
d. Both the Senate and House of Representatives
224. The SEC may impose sanctions on the board who with knowledge of
disqualification, failed to remove the director or trustee.
a. True
b. False
c. Neither True nor False
d. Somewhat True or False
225. Professional judgment is essential to the proper conduct of an audit.

True
226. Every corporation shall keep and carefully preserve at its principal office a record
of all business transactions and minutes of all meetings of stockholders or
members, or the board of directors or trustees True
227. In the context of an audit of financial statements, it refers to a high, but not
absolute, level of assurance.
a. Engagement Assurance
b. Reasonable Assurance
c. Assurance Services
d. Not given
228. It refers to information expressed in financial terms in relation to a particular entity,

derived primarily from that entity's accounting system, about economic events
occurring in past time periods or about economic conditions or circumstances at
points in time in the past.
a. Historical financial information
b. Financial reports
c. Audited financial statements
229. It refers to the decision made by the entity whether to accept, avoid or reduce or
share a risk.
a. Risk appetite
b. Business risk
c. Risk tolerance
d. Risk response
230. Assurance engagements should exhibit the following elements except

a. Suitable criteria
b. Subject matter
c. An engagement process
d. Appropriate professional fees
231. Professional skepticism includes being alert to ___ (multiple answers allowed )
a. Conditions that indicates that governance is not performing its oversight function.
b. Audit evidence that contradicts other audit evidence obtained.
c. Information that brings into question the reliability of documents and
responses to inquiries to be used in audit evidence.
d. Explains the nature & scope of the audit designed to enable the independent
auditor to meet the objectives.
e. Conditions that may indicate possible fraud.
f. Circumstances that suggest the need for audit procedures in addition to
those required by the PSAs.
232. It refers to the Corporation’s rules that govern how it is run and one of the first
items to be established by the board of directors at the time a company is started.
a. Articles of incorporation
b. Administrative manual
c. By laws
d. Corporation policy
233. Which of the following is not a broad category of safeguards that mitigate or
eliminate threats to independence?
a. Safeguards created to assure proper training within both the client and
attest environment
b. Safeguards implemented by the attest client
c. Safeguard implemented by the firm, including policies and procedures to
implement professional and regulatory requirements
d. Safeguards created by the profession, legislation, or regulation
234. It refers to the acceptable variation relative to performance to the achievement of

the entity's objectives.
a. Risk response
b. Risk tolerance
c. Risk appetite
d. Risk reduction
235. Reasonable assurance is greater level assurance.

False ( it is a high level of assurance )
236. Which of the following procedures is least likely to be performed during the final
phase of the audit opinion formulation process?
a. Performance of an engagement quality review
b. Determination of the appropriate audit opinion(s) to issue
c. Assessment of misstatements detected during the performance of substantive
procedures and tests of controls
d. Performance of preliminary analytical review procedures
237. Stock corporations shall not be required to have a minimum capital stock, except
as otherwise specifically provided by special law.
a. False
b. Somewhat correct
c. True
d. Neither A nor B
238. Most lawsuits against CPAs are filed by
a. Third party beneficiaries
b. Client
c. Government agencies, such as SEC
d. Third parties
239. Subject to audit are those prepared and presented by management of the entity
with oversight of TCWG. To provide the auditor with:
-All information, such as records & documentation, and other matters that
are relevant to the preparation and presentation of the financial statements.
-Any additional information that the auditor may request from management
and, where appropriate TCWG.
-Unrestricted access to those within the entity from whom the auditor
determines it necessary to obtain audit evidence.
240. Which of the following expectations can users of the audit report reasonably
expect with regards to the audited financial statements?
a. The financial statements include all financial disclosures desired by users
b. The financial statements are presented fairly according to the substance of
PFRS
c. The financial statements are free from all errors
d. All of the above are reasonable expectations
241. What are the ethical requirements to an audit of financial statements that a CPA
must observed? (in proper order)
Integrity
Objectivity
Professional competence
Confidentiality
Professional behavior
242. The Revised Corporation Code provides a perpetual existence.

a. Neither true nor false
b. False
c. True
243. The practice of accounting includes the following except
a. Practice in public accountancy
b. Practice in the government
c. Practice in education/academe
d. Practice in commerce and industry, when the CPA is appointed as
marketing manager of the enterprise.
244. Independence is required of a CPA performing:

a. All professional services
b. Audits, but not any other professional services
c. Attestation and tax services, but not other professional services
d. Attestation services, but not other professional services
245. Which of the following is not an assurance engagement?

a. Information system reliability service
b. Risk assessment service
c. Management consulting service
d. Business performance measurement
246. Audit working papers should be:

a. Designed to meet the circumstances and the auditors’ needs on each
engagement
b. The primary support for the financial statements being examined
c. Kept of the client\s premises to allow client access to them for reference
purposes
d. Considered as part of the client’s accounting records that is retained by the
auditors
247. Which of the following is not a factor that affects the independent auditors’
judgment as to the quality, type, and content of working papers? a.The need for
supervision of the engagement.
b.The nature of the financial statements, schedules, or other information upon which the
auditor is reporting.
c.The timing and the number of personnel to be assigned to the engagement.
d.The nature of the auditors’ report.
248. The Act providing the Revised Corporation Code of the Philippines. a.RA 11231
b.RA 9298
c.RA 11232
d.RA 9268
249. The existence of an adequately documented audit plan demonstrates that the
auditor has planned the audit.
Select one:
True
250. Which of the following is a principle underlying an audit conducted in accordance

with generally accepted auditing standards?
a.An auditor's opinion enhances the degree of confidence that intended users
can place in the financial statements.
b.The audit report expresses an opinion on whether the financial statements are free of
material and immaterial misstatement.
c.Auditors are responsible for, among other things, maintaining professional objectivism,
exercising professional engagement, and obtaining appropriate documentation.
d.The audit provides reasonable assurance the client will remain in business for at least
one year.
251. The working papers prepared during the engagement are the property of
a.the auditor, but do not include the working papers prepared by client for the auditor.
b.the auditor and client jointly.
c.the auditor, even including those prepared by client for auditor.
d.the client.
252. PSA 210 defined the firm as a sole practitioner, partnership, or other entity of
professional accountants.
Select one:
True
False
253. The audit working paper that reflects the major components of an amount
reported in the financial statements is the a.carryforward schedule.
b.supporting schedule.
c.lead schedule.
d.interbank transfer schedule.
254. Which of the following are the responsibilities of the external auditor in auditing
financial statements?
a.Providing internal oversight of the reporting process
b.Maintaining internal controls and preparing financial reports
c.Providing internal assurance on internal control and financial reports
d.None of the above.
255. The permanent tile section of the working papers that is kept for each audit client
most likely contains
a.correspondence with the client’s legal counsel concerning pending litigation.
b.a schedule of time spent on the engagement by each individual auditor.
c.review notes pertaining to questions and comments regarding the audit work
performed.
d.narrative description of the client’s internal control structure.
256. This Philippine Standard on Auditing (PSA) deals with the specific responsibilities
of the auditor regarding quality control procedures for an audit of financial
statements. a.PSA 210
b.PSA 200
c.PSA 220
d.PSA 230
257. An individual outside the firm with the competence and capabilities to act as an
engagement partner, for example a partner of another firm, or an employee ( with
appropriate experience) of either a professional accountancy body whose
members may perform audits of historical financial information or of an
organization that provides relevant quality control services.
a.Suitably qualified external person
b.Expert auditor
c.Engagement partner
d.Engagement quality control expert
258. Establishing whether the preconditions for an audit is present is one of the
objectives of PSA 210. True
259. If management or those charged with governance impose a limitation on the
scope of the auditor’s work in the terms of a proposed audit engagement such that
the auditor believes the limitation will result in the auditor disclaiming an opinion
on the financial statements, the auditor shall not accept such a limited
engagement as an audit engagement, unless required by law or regulation to do
so.
Select one:
True
False
260. The classification of shares, their corresponding rights, privileges, or restrictions,

and their stated par value, if any, must be indicated in the _________ a.By-Laws
b.Board Manuals
c.Administrative manual
d.Articles of Incorporation
261. The engagement quality control review process is only for audits of financial
statements of listed entities and those other audit engagements, if any, for which
the firm has determined an engagement quality control review is required. True
262. Quality control for a CPA firm, as referred to in auditing standards, applies to
a.auditing and management advisory services.
b.auditing services only.
c.auditing and accounting and review services.
d.auditing and tax services.
263. The form, content and extent of audit documentation depend on factors ___.
( multiple responses )
A. The nature of the audit procedures to be performed.

B. The size and complexity of the entity.
C. The nature and extent of exceptions identified.
D. The need to document a conclusion or the basis for a conclusion not readily
determinable from the documentation of the work performed or audit evidence
obtained.
E. The significance of the audit evidence obtained.
F. The identified risks of material misstatement.
G. The audit methodology and tools used.
264. An appropriate time limit within which to complete the assembly of the final audit
file is ordinarily not more than _____ after the date of the auditor’s report
a.60 days
b.30 days
c.90 days
d.40 days
265. Engagement risk is influenced by the risks associated with the following except
a.unreasonably low professional fee.
b.nature and extent of the process used to collect and evaluate evidence.
c.nature and form of the subject matter.
d.nature and form of the criteria applied to the subject matter.
266. Many users of financial statements are in a position to demand financial

statements tailored to meet their specific information needs. False
267. In terms of technical knowledge and expertise, which of the following should
external auditors do?
a.Understand accounting and auditing authoritative literature.
b.Develop and apply computer skills.
c.All of the above.
d.Develop industry and client-specific knowledge.
268. It deals with the framework of assurance engagements. a.PSA 200

b.PSA 120
c.PSA 100
d.PSA 220
269. Confirming that there is a common understanding between the auditor and the
management or where appropriate, those charged with governance is one of the
270. The existence of a signed engagement letter in the audit file demonstrates that the
auditor has agreed the terms of the audit engagement with management or, where
appropriate, those charged with governance.
Select one:
True
False
271. Which of the following is not an underlying premise of an audit?
a.Management and the auditors have responsibility for the preparation of
financial statements in accordance with the applicable financial reporting
framework.
b.Where appropriate, the auditor may obtain information from those charged with
governance.
c.The auditors should be provided unrestricted access to those within the entity from
whom the auditor determines it necessary to obtain audit evidence.
d.Management must provide the auditor with all information relevant to the preparation
and fair presentation of the financial statements.
272. It is a larger structure that is aimed at cooperation, and is clearly aimed at profit or
cost-sharing or shares common ownership, control or management, common
quality control policies and procedures, common business strategy, the use of a
common brand name, or a significant part of professional resources.
a.Engagement Network
b.Firm
c.Network firm
d.Network
273. The auditor shall comply with relevant ethical requirements, including those
pertaining to independence, relating to financial statement audit engagements.
True
274. The completion of the assembly of the final audit file after the date of the auditor’s
report is an administrative process that does not involve the performance of new
audit procedures or the drawing of new conclusions. True
275. Which of the following would not be included in the auditor’s working papers?
a. A time budget for the various audit areas.
b. Descriptive information about the internal control structure.
c. The accounting manual.
d. The results of the preceding year’s audit.
276. An audit provides reasonable assurance of detecting which of the following types
of material illegal acts?
a. Direct Effect YES Without a Direct Effect YES
b. Direct Effect NO Without a Direct Effect YES
c. Direct Effect YES Without a Direct Effect NO
d. Direct Effect NO Without a Direct Effect NO
277. PSAs require that auditor to obtain a reasonable assurance about whether the
financial statements as a whole are free from material misstatement, whether due
to fraud or error. True
278. Oral explanations made by the auditor, on their own, represent adequate support
for the work the auditor performed or conclusions the auditor reached, but may be
used to explain or clarify information contained in the audit documentation. False
(PSA 230 par A5 ‘do not represent’)
279. Within the context of quality control, the primary purpose of continuing professional
education and training activities is to enable a CPA firm to provide personnel
within the firm with:
a.Professional education that is required in order to perform with due professional care.
b.Technical training that assures proficiency as an auditor.
C. Knowledge required to fulfill assigned responsibilities and to progress within
the firm.
d. Knowledge required in order to perform a peer review.
280. The current file of the auditor’s working papers generally should include
a. A flowchart of the internal controls
b. A copy of the financial statements
c. Copies of the bond and note indentures.
d. Organization charts
281. Within the context of the firm’s system of quality control, engagement teams have
a responsibility to implement quality control procedures that are applicable to the
audit engagement and provide the firm with relevant information to enable the
functioning of that part of the firm’s system of quality control relating to integrity.
False - should be independence PSA 220 par 3
282. A partner, other person in the firm, suitable qualified external person, or a team
made up of such individuals, none of whom is part of the engagement team, with
sufficient and appropriate experience and authority to objectively evaluate the
significant judgements the engagement team made and the conclusions it reached
in formulating the auditor’s report.
a. Engagement partner
b. Engagement quality control reviewer
c. Engagement team
d. Engagement quality control partner
Should be, B (?) acc. To PSA 220, refer to the picture below…
283. A different opinion concerning accounting and auditing matters relative to a

particular phase of the audit arises between an assistant auditor and the auditor
responsible for the engagement. After appropriate consultation, the assistant
auditor asks to be disassociated from the resolution of the matter. The working
papers would probably:
a. Document the additional work required, since all disagreements of this type will
require expanded substantive testing.
b. Remain silent on the matter since it is an internal matter of the auditing firm.
c. Document the assistant auditor’s position and how the difference of
opinion was resolved.
d. Note that the assistant auditor completely dissociated from responsibility for the
auditor’s opinion.
284. Examples of matters that may be documented together in the audit of a smaller
entity include the understanding of the entity and its internal control, the overall
audit strategy and audit plan, materiality, assessed risks, significant matters noted
during the audit, and conclusions reached. True
285. If the terms of the audit engagement are changed, the auditor and management
shall agree on and record the new terms of the engagement in _____.
a. Other suitable form of written agreement.

b. An engagement letter
c. Audit Engagement agreement
d. An engagement letter or other suitable form of written agreement
286. A firm of CPAs may use policies and procedures such as notifying professional
personnel as to the names of audit clients having publicly held securities and
confirming
periodically with such personnel that prohibited relations do not exist. This is done to
achieve effective quality control in which of the following areas?
a. Acceptance and continuance of clients

b. Ethical requirements
c. Human resources
d. Leadership responsibilities for quality within the firm
287. The agreed terms of the audit engagement of the audit engagement are recorded
in an audit engagement letter or other suitable form of agreement… Arrange the
following in an orderly manner as stated in PSA 210.
a. Objective and scope of the audit of the financial statements

b. Responsibilities of the auditor
c. Responsibilities of the management
d. Identification of applicable financial reporting framework
e. Reference to the expected form and content of any reports
288. When the professional accountant has obtained sufficient appropriate evidence to
conclude that the subject matter conforms in all material respects with identified
suitable criteria, he/she can provide
a. Limited level of assurance

b. No assurance
c. Absolute assurance
d. Reasonable level of assurance
289. If financial reporting standards established by an authorized or recognized

standards setting organization are supplemented by law or regulation, the auditor
shall determine whether there are any conflicts between the financial reporting
standards and the additional requirements.
True (PSA 210 par 18)

False
290. Which of the following is considered a type of threat to compliance with the Rules
of the Code of Ethics?
a.Lack of management participation.
b.Irrevocability.
c.Illegitimate skepticism.
d.Self interest.
291. A practitioner should plan and conduct the assurance engagement in an effective
manner to meet the objective of the engagement. Which of the following matters
need not be a concern of the practitioner in planning the work?
a. Personnel and expertise requirements

b. Engagement objective
c. Specific format of the assurance report
d. Criteria to be used
292. Quality control systems, policies and procedures are the responsibility of the
client's management and where appropriate, those charged with governance.
False - should be responsibility of audit firm PSA 220 par 2
293. An audit should be designed to obtain reasonable assurance of detecting material

misstatements due to:
a.Errors, fraud and noncompliance with all laws.
b.Errors, fraud, and noncompliance with laws with a direct effect on
financial statement amounts and others. c.Errors and fraud.
d.Errors.
294. Documentation prepared after the audit work has been performed is likely to be
more accurate than documentation prepared at the time such work is performed.
True
False - should be less likely PSA 230 par A1
295. An example of a reclassification of entry would be an entry

a.to change material credit balances in accounts receivable accounts to
accounts payable accounts.
b.to increase the allowance for doubtful accounts when it was discovered that a
customer had filed for bankruptcy protection
c.to reduce inventory when client failed to write down its obsolete, raw materials.
d.to increase the income tax liability account when it was discovered that client
would be in a higher tax bracket than originally estimated.
296. Without an acceptable financial reporting framework, management does not have
an appropriate basis for the preparation of the financial statements and the auditor
does not have suitable criteria for auditing the financial statements. In many cases
the auditor may presume that the applicable financial reporting framework is
acceptable.
True (PSA 210 par A3)
False
297.Which of the following is false? Philippine Framework for Assurance Engagements?

A.describes the objective and elements of assurance engagements intended to
provide either a reasonable assurance or limited assurance.
B.establishes standards or provides procedural requirements for the
performance of assurance engagements.
c.identifies engagements to which Philippine Standards on Auditing, Philippine
Standards on Review Engagements, and Philippine Standards on Assurance
Engagements apply.
D. provides a frame of reference for the Auditing and Assurance Standards
Council in its adoption of International Standards on Auditing, International
Standards on Review Engagements and International Standards on Assurance
Engagements for application in the Philippines.
298. Working papers that record the procedures used by the auditor to gather evidence
should be
a.destroyed when the audited entity ceases to be a client.
B. designed to meet the circumstances of the particular engagement.
C. viewed as the connecting link between the books of account and the financial
statements.
D. considered the primary support for the financial statements being examined.
299. Which statement is false?

a. No misunderstanding with the client as to the terms of engagement.
b. Auditors maintain independence & ability to perform the engagement.
c. To decide whether to accept or continue the audit engagement is part of
the risk assessment procedures.
d. No issue with management integrity that may affect the auditor’s willingness to
continue the engagement
300. The documentation is limited to records prepared by the auditor but may include
other appropriate records such as minutes of meetings prepared by the entity’s
personnel and agreed by the auditor.
False - should be not limited (PSA 230 par A14)
301. Deficiencies in the applicable financial reporting framework that indicate that the
framework is not acceptable may be encountered after the audit engagement has
been accepted. True
302.A primary purpose of the audit working papers is to:

a. support the underlying concepts included in the preparation of the basic financial
statements.
b. aid the auditors in adequately planning their work.
c. provide a point of reference for future audit engagements.
d. support the auditors’ opinion.
302. The important concepts of assurance services are the following, except
a. Decision making
b. Not given
c. Objectivity
d. Independence
e. Quality information
303. When reviewing working papers, an audit supervisor will be concerned primarily
with determining whether the
a. auditing department’s standard formats and tick marks have been used
consistently.
b. audit programs have been carried out without deviation.
c. working papers reflect adherence to budget constraints.
d. working papers adequately support the audit findings, conclusions, and
reports.
304. There may be no single way in which the auditor’s professional skepticism is
documented. But the audit documentation may nevertheless provide evidence of
the auditor’s exercise of professional skepticism in accordance with the PSAs.
True
305. The permanent section of the auditor’s working papers generally should include
a. A copy of key customer confirmations
b. Time and expensive reports
c. Names and addresses of all audit staff personnel on the engagement
d. A copy of the engagement letter
306. If, in exceptional circumstances, the auditor judges it necessary to depart from a
relevant requirement in a PSA, the auditor shall document how the alternative audit
procedures performed achieve the aim of that requirement, and the reasons for the
departure.
True
307. The prudent person concept establishes in law that

a. the courts do not require that the auditor become the insurer or guarantor of the
accuracy of the statements.
b. all three of the above are true.
c. an audit in accordance with Standards on Auditing is subject to limitations and
cannot be relied upon for complete assurance that all errors and irregularities will
be found.
d. the CPA firm is not expected to be infallible.
308.The auditor need to include in audit documentation superseded drafts of working

papers and financial statements, notes that reflect incomplete or preliminary thinking,
previous copies of documents corrected for typographical or other errors, and
duplicates of documents.
False - should be need not (PSA 230 par A4)
309.The auditor shall plan and perform an audit with professional skepticism
recognizing that circumstances may exist that cause the financial statements to be
materially misstated. True
310. A process designed to provide an objective evaluation, on or before the date of the
auditor’s report, of the significant judgments the engagement team made and the
conclusions it reached in formulating the auditor’s report.
a. Engagement quality control
b. Engagement partner
c. Engagement quality control review
d. Monitoring
311. In determining the scope and nature of services to be performed in public practice,
a CPA firm should:
a. Require independence for all services performed
b. Determine that the performance of all services is consistent with the firm’s
members’ role as professionals
c. Only perform accounting related services
d. Have in place internal control procedures
312. This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities
in agreeing the terms of the audit engagement with management and, where
appropriate, those charged with governance.
a. Psa 220
b. Psa 210
c. Psa 200
d. Psa 120P
313. An entity whose shares, stock or debt are quoted or listed on a recognized stock
exchange, or are marketed under the regulations of a recognized stock exchange
or other equivalent body.*
a. Firm
b. Stock corporation
c. Public listed companies
d. Listed entity
314. Audit documentation serves a number of additional purposes. (multiple answers)

a. Enabling the conduct of quality control reviews and inspections in
accordance with PSQC 1
b. Assisting the engagement team to plan and perform the audit.
c. Enabling the conduct of external inspections in accordance with applicable
legal, regulatory or other requirements.
d. Retaining a record of matters of continuing significance to future audits.
e. Assisting members of the engagement team responsible for supervision to
direct and supervise the audit work, and to discharge their review
responsibilities in accordance with PSA 220.
f. Enabling the engagement team to be accountable for its work.
315. A CPA establishes quality control policies and procedures for deciding whether to
accept a new client or to continue to perform services for a current client. The
primary purpose for establishing such policies and procedures is to
a. comply with financial reporting standards.
b. comply with standards of auditing.
c. minimize the likelihood of association with clients whose management,
lacks integrity.
d. comply with the quality control standards established by the regulatory bodies
316 .The primary reason auditors cross-index their working papers is to
a. provide a trail for the auditor and the reviewer.
b. provide an explanation of the audit steps performed.
c. give the working papers of a professional appearance.
d. explain the use of tick marks.
317. If the auditor is unable to agree to a change of the terms of the audit engagement
and is not permitted by management to continue the original audit engagement, the
auditor shall.... (multiple answers)
a. Not accept the engagement and report it to proper regulatory authority.
b. Determine whether there is any obligation, either contractual or otherwise,
to report the circumstances to other parties, such as those charged with
governance, owners or regulators.
c. Discuss matters with those charged with governance or appointing committee
d. Withdraw from the audit engagement where possible under applicable law
or regulation.
318. PSA ___ deals with those aspects of engagement acceptance that are within the
control of the auditor.
a. Psa 220
b. Psa 200
c. Psa 210
d. Psa 120
320. No-par value shares must be issued for a consideration of at least ___ per share.
a. P1.00
b. P5.00
c. P10.00
d. P25.00
321. By definition, proper professional skepticism on an audit requires:

a. Questioning mind NO Subjective assessment of audit evidence YES
b. Questioning mind YES Subjective assessment of audit evidence NO
c. Questioning mind NO Subjective assessment of audit evidence NO
d. Questioning mind YES Subjective assessment of audit evidence YES
322. The agreed terms of the audit engagement must be recorded in an audit report or
other suitable form of agreement.
False - should be audit engagement letter (PSA 210, par 10)
323. The auditor shall document only the discussions of significant matters with
management, those charged with governance, and others, including the nature of
the significant matters discussed and when and with whom the discussions took
place. False ( delete “only” )
324. All partners and staff performing the engagement, and any individuals engaged by
the firm or a network firm who perform audit procedures on the engagement
a. Engagement Team
b. Engagement quality control partner
c. Engagement partner
d. Engagement quality control reviewer
325. Assurance engagements, which include audit engagements, may only be

accepted when the practitioner considers that relevant ethical requirements such
as ____ and professional competence will be satisfied, and when the engagement
exhibits certain characteristics.
.... ( multiple answers )
a. Professional competence
b. Independence
c. Integrity
d. Objectivity
326. The nature and extent of a CPA firm’s quality control policies and procedures
depend on: (I) The CPA Firm’s Size; (II) The Nature of the CPA Firm’s Practice;
and ( III )
Cost-Benefit Considerations
a. I, II and III
b. II and III only

c. I and III only
d. I and II only
327. Which of the following is not a component of engagement risk?

a. Detection risk
b. Business risk
c. Inherent risk
d. Control risk
328. Which of the following is a true statement regarding audit evidence and audit
procedures?
a. The auditor has a responsibility to design and perform audit procedures to
obtain sufficient appropriate audit evidence.
b. Reperformance involves checking the mathematical accuracy of a document or
record, such as an inventory count sheet.
c. The audit procedures that are performed during an audit are summarized in a
document referred to as an audit engagement letter.
d. Inquiry is a type of audit procedure that typically does not require corroborating
evidence.
329. The audit documentation for the audit of a smaller entity is generally more
extensive than that for the audit of a larger entity False
330. Experienced auditor is an individual (whether internal or external to the firm) who
has practical audit experience, and a reasonable understanding of the following,
except:
a. Auditing and financial reporting issues relevant to the entity’s industry
b. Audit programming
c. Business environment where the entity operates
d. Audit processes
e. PSAs and applicable regulatory requirements
331. The auditor shall assemble the _____ in an audit file and complete the
administrative process of assembling the final audit file on a timely basis after the
date of the auditor’s report.
a. Audit processes
b. Audit evidence
c. Audit file
d. Written representation
e. Audit documentation
332. Which is not a consideration in planning an audit engagement of small entities?
a. Is it possible to develop an overall response and further audit procedures that
would respond appropriately to the assessed risk factors?
b. The entity's control environment.
c. The auditor is not required to exercise professional judgment in
determining whether the engagement should be declined or modified.
d. Is the owner trustworthy, competent and does good attitude towards internal
control?
333. An auditor’s external expert engaged by the firm or a network firm is excluded in
the engagement team. True
An auditor’s external expert engaged by the firm or a network firm is excluded in the
engagement team. (Tama ang question ani?)
a. auditing and tax services.

b. auditing and accounting and review services.
c. auditing and management advisory services.
d. auditing services only.
334. Philippine Standard on Auditing (PSA) 230, “Audit Documentation,” should be read
in conjunction with PSA____
a. PSA 120
b. PSA 220
c. PSA 200
d. PSA 210
335. Relevant ethical requirements to which the engagement team and engagement
quality control reviewer are subject, which ordinarily comprise of _______ and
________ related to an audit of financial statements together with national
requirements that are more restrictive.
a. Part C of the Code of Ethics for Professional Accountants
b. Part A of the Code of Ethics for Professional Accountants
c. Part D of the Code of Ethics for Professional Accountants
d. Part B of the Code of Ethics for Professional Accountants
336. The working papers are

a. used primarily as a basis for the partners to review and reward the work of the
managers seniors, and staff.
b. the property of client.
c. the primary means of documenting that an adequate audit was conducted
in accordance with Standards on Auditing.
d. property of the auditor although prepared by client.
337. Preconditions for an audit must be established first before the auditor will accept or
continue an audit engagement.
True
338. The auditor shall not agree to a change in the terms of the audit engagement
where there is reasonable justification for doing so.
False - should be “no reasonable justification” (PSA 210 par 14)
339. In relation to completed audit engagements, procedures designed to provide

evidence of compliance by engagement teams with the firm’s quality control
policies and procedures are acts of supervision.
False - should be inspection not supervision (PSA 220 par 7 f. )
340. Which of the following statements most accurately summarizes the auditor’s
responsibility for reviewing the client’s correspondence files?
a. The auditor should not review any correspondence; to do so would waste time
more productively spent on gathering other evidence.
b. The auditor should review all correspondence for items relevant to the audit.
c. The auditor should apply statistical selection techniques to draw a random
sample of correspondence for review.
d. The auditor should review correspondence with banks, other lending
institutions, attorneys, and governmental agencies.
341. Which of the following is included as part of the principles governing an audit?
a. An audit has inherent limitations such that auditor cannot provide absolute
assurance about whether the financial statements are free of misstatement.
b. Auditors need to obtain a high level of assurance that the financial statements
are free of all misstatements.
c. All of the above are included as part of the principles governing an audit.
d. Auditors need to maintain professional skepticism only on audits where there is a
high risk of material misstatement.
342. A set of criteria used to determine measurement, recognition, representation, and

disclosure of all material items appearing in the financial statements is referred to
as a
a. Quality control presentation standard.
b. Public Company Accounting Oversight Board Criteria.
c. Financial reporting framework.
d. Special purpose audit standard.
343. The requirement to document how the auditor addressed inconsistencies in
information does imply that the auditor needs to retain documentation that is
incorrect or superseded.
False (PSA 230 par A15 - ‘does not imply’)
344. A written understanding between the auditor and the client concerning the
auditor’s
responsibility for the discovery of illegal acts is usually set forth in a(an)
a. management letter.
b. engagement letter.
c. client representation letter.
d. letter of audit inquiry.
345. Which of the following need not be documented in the working papers as required
by PSA 230?
a. A sufficient understanding of the internal control structure had been obtained to
plan the audit and to determine the nature, timing and extent of tests to be
performed.
b. The work has been adequately planned and supervised.
c. Audit evidence obtained, the audit procedures applied and the testing performed
have provided sufficient competent evidential matter to afford a reasonable basis
for an opinion.
d. Basis in choosing the members of the audit engagement team.
346. A small CPA firm provides audit services to a large local company. Almost eighty
percent of the CPA firm's revenues come from this client. Which statement is most
likely to be true?
a. Appearance of independence may be lacking.
b. The auditor should provide an "emphasis of a matter paragraph" to his/her audit
report adequately disclosing this information and then it may issue an unqualified
opinion.
c. The small CPA firm does not have the proficiency to perform a larger audit.
d. The situation is satisfactory if the auditor exercises due skeptical negative
assurance care in the audit.
347. If the preconditions for an audit are not present, the auditor shall
a. Discuss the matter with management
b. Decline the engagement
c. Discuss with regulatory agencies
d. Withdraw from the engagement
348. On recurring audits, the auditor shall assess whether circumstances require the
terms of the audit engagement to be revised and whether there is a need to
remind the entity of the existing terms of the audit engagement.
True
349. Reclassification entries are recorded in the
a. sales journal.
b. financial statements but not in the general ledger.
c. general journal.
d. cash receipts journal.
351. This PSA deals with those matters (or preconditions) that are within the control of
the entity and upon which it is necessary for the auditor and the entity’s management to
agree.
a. PSA 120
b. PSA 200
c. PSA 210
d. PSA 220
353. Engagement teams are entitled to rely always on the firm’s system of quality
control, unless information provided by the firm or other parties suggests otherwise
False - delete “always” PSA 220 par 4)
354. The auditor shall prepare audit documentation on a timely basis.

True (PSA 230 par7)
356. A corporation shall have perpetual existence unless its articles of incorporation
provides otherwise.
a. Somewhat correct
b. Neither A nor B
c. True
d. False
357. An assurance engagement that provides a high level of assurance that the
financial statements are free of material misstatement is known as
a. Independent financial statements audit
b. Review
c. Compilation
d. agreed -upon procedures
358. The objective of the auditor under PSA 220 is to implement quality control
procedures at the engagement level that provide the auditor with reasonable
assurance that:the audit complies with professional standards and regulatory and
legal requirements; and the auditor’s report issued is appropriate in the
circumstances.
True
359. The partner or other person in the firm who is responsible for the audit
engagement and its performance, and for the auditor’s report that is issued on
behalf of the firm, and who, where required, has the appropriate authority from a
professional, legal or regulatory body.
a. Public sector partner
b. Partner firm
c. Partner
d. Engagement partner
360. It refers to the financial reporting framework adopted by management and where
appropriate, TCWG in the preparation and presentation of the financial statements
that is acceptable in view of the nature of the entity and the objective of the
financial statements, or that is required by law or regulation.
a. Philippine financial reporting framework
b. Applicable financial reporting framework
c. Fair presentation framework
d. Compliance framework
371. Examples of audit documentation may be recorded on paper or on electronic or

other media. (multiple responses)
a. Audit programs
b. Summaries of significant matters
c. Analyses
d. Correspondence concerning significant matters
e. Checklists
f. Issues memoranda
g. Letters of confirmation and representations
372. Below presents the scope of PSA 200: 'The overall responsibilities of the
independent auditor's when conducting an audit of financial statements, except:
a. Sets out the overall objectives.
b. Explains the nature & scope of the audit designed to enable the independent
auditor to meet the objectives.
c. Includes requirements establishing the general responsibilities of the
independent auditor applicable in all audits and obligation to comply the PSAs.
d. Explains the responsibilities required to be accomplished by an
independent auditor when conducting an audit of financial statements.
e. Explains the scope, authority and structure of PSA 200.
373. When planning an audit, which of the following is not a factor that affects auditors’
decisions about the quantity, type, and content of audit working papers?
a. The auditors’ judgments about materiality.
b. The existence of new sales contracts important for the client’s business.
c. The auditors’ need to document compliance with financial reporting standards.
d. The auditors’ judgment about their independence with regard to the client.
374. These are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through purchase, redemption,
donation, or some other lawful means.
a. Redeemable shares
b. Founder’s share
c. Capital stock
d. Treasury shares
375. If the management and those charged with governance identified information that
is inconsistent with the auditor’s final conclusion regarding a significant matter, the
auditor shall document how the auditor addressed the inconsistency False -
should be auditor (PSA 230 par 11)
376. This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibility
to prepare audit documentation for an audit of financial statements. It is to be
adapted as necessary in the circumstances when applied to audits of other
historical financial information.
a. PSA 200
b. PSA 230
c. PSA 210
d. PSA 220
377. An audit independence issue might be raised by the auditor's participation in

consulting services engagements. Which of the following statements is most
consistent with the profession's attitude toward this issue?
a. The auditor who is asked to review management decisions, is also competent to
make these decisions and can do so without loss of independence.
b. The decision as to loss of independence must be made by the client based on
the facts of the particular case.
c. The auditor should not make management decisions for an audit client.
d. Information obtained as a result of a consulting services engagement is
confidential to that specific engagement and should not influence performance of
the attest function
378. The largest portion of the auditor’s working papers are the
a. Lead schedules
b. Adjusting and reclassification entries
c. Supporting schedules
d. Working trial balance
379. It deals with the overall objectives of the Independent Auditor and the conduct of
an Audit in accordance with PSA.
a. PSA 100
b. PSA 220
c. PSA 120
d. PSA 200
380. It refers to the susceptibility of an assertion about a class of transaction, account

balance or disclosure to a misstatement that could be material, either individually
or when aggregated with other misstatements, before consideration of any related
controls.
a. Control risk
b. Risk of material misstatement
c. Engagement Risk
d. Inherent risk
381. Which of the following is not one of the management assertions?

a. Completeness
b. Existence
c. They are all management assertions.
d. Rights and obligation
382. The audit procedure that may be helpful in identifying the existence of unusual
transactions or events, and amounts, ratios and trends that may indicate matters
that have financial statement and audit implications is Analytical Procedures
383. Stock corporations shall be required to have a minimum capital stock, except as
otherwise specifically provided by special law.
a. True
b. False - shall not be required (RA 11232)
c. Somewhat correct
d. Neither A nor B
384. The Revised Corporation Code does impose that incorporators must be residents
of the Philippines.
b. Somewhat True or False
c. True
d. False
385. An auditor should examine the minutes of board of directors’ meetings:

a. through the date of the audit report.
b. on a test basis.
c. through the date of the financial statements.
d. only at the beginning of the audit.
386. It refers to the application of relevant training, knowledge and experience, within
the context provided by auditing, accounting and ethical standards, in making
informed decisions about courses of action that are appropriate in the
circumstances of the audit engagement.
a. not given
b. Professional judgment
c. Professional skepticism
d. Materiality
387. Which of the following is not an element of quality control?

a. Monitoring.
b. Engagement performance.
c. Relevant ethical requirements.
d. Documentation.
388. An auditor’s report containing an appropriately qualified opinion demonstrates that

the auditor has complied with the requirement to express a qualified opinion under
the circumstances specified in the PSAs.
TRUE
389. Which of the following family relationships is most likely to impair a CPA's
independence with respect to a particular audit client on which the CPA works as
a?
a. The CPA's sister is controller of the audit client.
b. A close relative has a material investment in that client of which the CPA is not
aware.
c. A cousin has an immaterial investment in the client of which the CPA is aware.
d. The CPA's spouse participates in a savings plan sponsored by the client
390. PSA 210 dictates that an engagement letter is required to be revised when the
circumstances change. Multiple answers.
a. Change in legal and regulatory requirements
b. Recent change in senior management.
c. Change in financial reporting framework
d. Any revised or special terms of the engagement.
391. The SEC has no authority or power to remove the director or trustee. a. False
b. True
c. Neither True nor False
392. An audit working paper that shows the detailed evidence and procedures
regarding the balance in the accumulated depreciation account for the year under
audit will be found in the:
a. Current file evidence working papers.
b. Administrative working papers in the current file.
c. Permanent file working papers.
d. Planning memorandum in the current file.
393. Which of the following is required documentation in an audit in accordance with

Standards on Auditing?
a. An audit program setting forth in detail the procedures necessary to
accomplish the engagement’s objectives.
b. A planning memorandum establishing the timing of the audit procedures
and coordinating the assistance of entity personnel.
c. A flowchart or narrative of the accounting system describing the recording
and classification of transactions for financial reporting.
d. An internal control questionnaire identifying policies and procedures that
ensure the achievement of specific objectives.
394. Which of the statement below is not considered as preconditions for an audit.
a. To obtain the agreement of management that it acknowledges & understands
its responsibility.
b. To provide the auditors with additional documentations, testamentary
informations, board resolutions and policies and procedures that the
auditor exclusively may request from management for the purpose of
the audit.
c. To provide the auditors with access to information of which management is
aware that is relevant in the preparation of the financial statements such as
records, docs & other matters.
d. To determine whether the financial reporting framework to be applied in the
preparation of the financial statements if it is Applicable
395. PSA 220 is effective for audits of financial statements for periods beginning on or
after December 15, 2009.
a. After December 15, 2009
b. Beginning and after December 15, 2009
c. Beginning and after December 15, 2010
d. Beginning of December 15, 2009
396. Permanent files contain all the data

a. of a historical or continuing nature pertinent to the current audit.
b. about the current audit and financial statements
c. about the most recent audits
d. of a historical or continuing nature about the client.
397. In performing an attestation engagement, a CPA typically

a. Provides management consulting advice
b. Expresses a conclusion about an assertion
c. Supplies litigation support services
d. Assesses control risk at a low level
398. Which of the following statements is a false statement

regarding audit documentation?
a. An audit program is an example of audit documentation.
b. The only purpose of audit documentation is to provide evidence that the
audit was planned and performed in accordance with auditing standards.
c. Audit documentation helps facilitate internal and external inspections of
completed audits.
d. All of the above statements are true.
399. An auditor uses the knowledge provided by the understanding of the internal
control system and the assessed level of control risk primarily to
a. determine the nature, timing, and extent of substantive tests for financial
statement assertions.
b. determine whether procedures and records concerning the safeguarding of
assets are reliable.
c. modify the initial assessments of inherent risk and preliminary judgments about
materiality levels.
d. ascertain-whether the opportunities to allow any person to both perpetrate and
conceal irregularities are minimized.
400. For those entities that have an internal audit function, the auditor shall make
inquiries of internal audit to determine whether it has knowledge of any actual,
suspected or alleged fraud affecting the entity, and to obtain its views about the
risks of fraud.
401. When there are numerous property and equipment transactions during the year,
an auditor who plans to assess control risk at a low level usually performs
a. analytical procedures for the current year property and equipment transactions.
b. analytical procedures for property and equipment balances at the end of the
year.
c. tests of controls and extensive tests of property and equipment balances at the
end of the year.
d. tests of controls and limited tests of current year property and equipment
transactions.
402. The auditor shall make inquiries of management, and others within the entity as
appropriate, to determine whether they have knowledge of any actual, suspected
or alleged fraud affecting the entity. True
403. Events or conditions that indicate an incentive or pressure to commit fraud or

provide an opportunity to commit fraud.
a. Risk factors
b. Error
c. Fraud
d. Fraud risk factors
403. PSA 240.par 10. The objectives of the auditor are: (order is necessary)
1. To identify and assess the risks of material misstatement of the financial
statements due to fraud.
2. To obtain sufficient appropriate audit evidence about the assessed risks of
material misstatement due to fraud, through designing and implementing
appropriate responses.
3. To respond appropriately to identified or suspected fraud.
404. Under the risk-based audit (RBA) approach, the auditor performs the following :
( arranged in proper order )
1. Identification of the client's strategy and the processes for developing the
strategy.
2. Examination of the core business process and resource management.
3. Identification for each of the key processes (as well as sub-processes), the
objectives, inputs, activities, outputs, systems and transactions.
4. Assessment of the risks that the processes will not meet the goals and
controls related to those risks.
5. Identification of significant related party transactions.
6. Examination of unusual volume of routine transactions.
405. Which one of the following statements is correct concerning the concept of
materiality?
a. Materiality depends on the nature of an item rather than on the peso amount of
the item.
b. Materiality is a matter of professional judgment.
c. Materiality is determined by reference to guidelines established by the PICPA.
d. Materiality depends only on the peso amount of an item relative to other items in
the financial statements.
406. Which of the following best describes what is meant by the term “fraud risk factor”?
a. Factors that, when present, indicate that risk exists.
b. Factors often observed in circumstances where funds have occurred.
c. Factors that, when present, require modification of planned audit procedures.
d. Weakness in internal control identified during an audit.
407. Which of the following circumstances most likely would cause an auditor to believe
that material misstatements might exist in an entity's financial statements?
a. Accounts receivable confirmation requests yield significantly fewer
responses than expected.
b. Management consults with other accountants about significant accounting
matters.
c. The chief financial officer does not sign the management representation letter
until the last day of the auditor's field work.
d. Audit trails of computer-generated transactions exist for only a short time.
408. This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities
relating to fraud in an audit of financial statements.
a. 240
b. 220
c. 230
d. 210
409. PSA 265 establishes specific requirements regarding the communication of

significant deficiencies in internal control the auditor has identified during the audit
to those charged with governance.
a. PSA 260
b. PSA 315
c. PSA 230
d. PSA 265
411. In accordance with PSA 200, the auditor shall maintain an attitude of _____
throughout the audit, recognizing the possibility that a material misstatement due to
fraud could exist, notwithstanding the auditor’s past experience of the _____ and _____
of the entity’s management and those charged with governance. Which of the choice
should be excluded? Professional judgment
In accordance with ISA 2005, the auditor shall maintain professional skepticism
throughout the audit, recognizing the possibility that a material misstatement due
to fraud could exist, notwithstanding the auditor’s past experience of the honesty
and integrity of the entity’s management and those charged with governance.
412. Where responses to inquiries of management or those charged with governance

are inconsistent, the auditor shall investigate the inconsistencies. True
413. Three conditions generally are present when fraud occurs. Select the one below
that is not one of those conditions.
a. Supervisory Position
b. Attitude
c. Incentive or Pressure
d. Opportunity
414. PSA 315(Clarified) requires that the auditor should obtain an understanding of
relevant industry, regulatory and other external factors including the applicable financial
reporting framework. Which of the following is not an example of matters relating to
regulatory environment that the auditor would usually consider?
a. Taxation
b. Product Technology relating to the entity’s product
c. Legislation and regulation significantly affecting the entity’s operation
d. Regulatory framework for a regulated industry
415. Below presents the scope of PSA 200: 'The overall responsibilities of the
independent auditor's when conducting an audit of financial statements, except:
a. Explains the responsibilities required to be accomplished by an
independent auditor when conducting an audit of financial statements
b. Explains the scope, authority and structure of PSA 200
c. Includes requirements establishing the general responsibilities of the
independent auditor applicable in all audits and obligation to comply the PSAs
d. Explains the nature & scope of the audit designed to enable the independent
auditor to meet the objectives
e. Set out the overall objectives
416. Maxie Corporation has a few large accounts receivable that total P1,000,000.
Nadie Corporation has a large number of small accounts receivable that also total P
1,000,000. The importance of an error in any one account is, therefore, greater for
Maxie than for Nadie. This is an example of the auditor's concept of
a. Materiality
b. Comparative analysis
c. Reasonable assurance
d. Relative risk
417. The _____ shall determine the appropriate person(s) within the entity’s
governance structure with whom to communicate.
a. Those charged with governance
b. Management
c. Officers and managers
d. Auditors
418. The auditor’s understanding of the entity and its environment consists of an
understanding of the following aspects except
a. Measurement and review of the entity’s financial performance
b. Indisutry, regulatory, and other external factors, including the applicable financial
reporting framework
c. Nature of the entity, including the entity’s selection and application of accounting
policies
d. Entity’s selection and screening process of marketing and producing
personnel
419. Unless all of those charged with governance are involved in managing the entity,
the auditor shall obtain an understanding of how those charged with governance
exercise oversight of management’s processes for identifying and responding to the
risks of fraud in the entity and the internal control that management has established to
mitigate these risks. True
420. Which of the following is most likely to be an overall response to fraud risks
identified in an audit?
a. Use less predictable audit procedures.

b. Place increased emphasis on the audit of objective transactions rather than
subjective transactions.
c. Supervise members of the team less closely and rely more upon judgment.
d. Use only certified public accountants on the engagement.
421 . Which of the following is not among the risk assessment procedures that the
auditor should perform in obtaining an understanding of the entity and its environment,
including its internal control?
a. Observation and inspection.

b. Analytical procedures.
c. Continuation.
d. Inquiries of management and others within the entity.
422. The persons involved overseeing the financial reporting process.

a.Those charged with governance
b. Officers and managers
c. Executives
d. Management
423. Two types of intentional misstatements are relevant to the auditor – misstatements
resulting from.... (multiple responses)
a. fraudulent financial reporting PSA 240 par 3
b.Fictitious revenues
c. Malversation of funds
d. Misappropriation of assets
424. The control objective designed to reduce the probability that fictitious
transactions get recorded in the accounts is: Validity.
425. Observation and inspection procedures that may support inquiries of
management and others and also provide information about the entity and its
environment will involve the following except
a. Visits to entity’s premises and plant facilities.

b. Reading minutes of board of directors’ meetings.
c. Confirmation of account balances.
d. Walk-throughs.
426. The auditor shall evaluate the implications of non-compliance in relation to other
aspects of the audit, including the auditor’s risk assessment and the reliability of
written representations, and take appropriate action. True
427. Management is often in the best position to perpetrate fraud. True
428. An intentional act by one or more individuals among management, those charged
with governance, employees, or third parties, involving the use of deception to
obtain an unjust or illegal advantage. Fraud
429. Assurance engagements, which include audit engagements, may only be accepted
when the practitioner considers that relevant ethical requirements such as
Independence and professional competence will be satisfied, and when the
engagement exhibits certain characteristics.
430. For which of the following judgments may an independent auditor share
responsibility with an entity's internal auditor, who is assessed to be both
competent and objective? (I) Materiality of misstatements, and (II) Evaluation of
accounting estimates. a. II only
b. I only
c. I and II are considered
d. I and II are never considered
431. If the auditor has identified or suspects non-compliance with laws and
regulations, the auditor shall determine whether the auditor has a responsibility to report
the identified or suspected non-compliance to parties outside the entity. True
432. Although the auditor may suspect or, in rare cases, identify the occurrence of
fraud, the auditor does not make legal determinations of whether fraud has actually
occurred. True
433. The provisions of some laws or regulations have a direct effect on the financial
statements in that they determine the reported amounts and disclosures in an entity’s
financial statements. True
434. Which of the following audit risk components may be assessed in nonquantitative
terms? (I) Inherent risk, (II) Control risk, and (III) Detection risk. a. (I) Yes, (II) Yes, (III)
Yes
b. (I) Yes, (II) No, (III) Yes
c. (I) Yes, (II) Yes, (III) No
d. (I) No, (II) Yes, (III) Yes
435 . Proper segregation of duties reduces the opportunities in which a person could
both
a. establish internal control and authorize transactions.

b. perpetuate errors and irregularities and conceal them.
c. journalize entries and prepare financial statements.
d. record cash receipts and record cash disbursements.
436. As part of obtaining an understanding of the entity and its environment in

accordance with PSA 315, the auditor shall obtain a general understanding of: (multiple
responses)
a. To perform the audit procedures to help identify instances of non-compliance with

other laws and regulations that may have a material effect on the financial
statements.
b. The legal and regulatory framework applicable to the entity and the industry or
sector in which the entity operates.
c. To remain alert to the possibility that other audit procedures applied may bring
instances of non-compliance or suspected non- compliance with laws and regulations
to the auditor’s attention.
d. How the entity is complying with that framework..
438 . It is the responsibility of _____, with the oversight of ___________, to ensure that
the entity’s operations are conducted in accordance with the provisions of laws and
regulations, including compliance with the provisions of laws and regulations that
determine the reported amounts and disclosures in an entity’s financial statements.
( multiple responses ) a. Management
b. Auditor
c. Regulatory bodies
d. Those charged with governance
439 . Which of the following should the auditor obtain from the predecessor auditors
before accepting an audit engagement?
a. Facts that might bear on the integrity of management.

b. All matters of continuing accounting significance.
c. Analysis of income statement accounts.
d. Analysis of balance sheet accounts.
440. The person(s) with executive responsibility for the conduct of the entity’s
operations.
b. Management
d. Executives
434. If the auditor identifies a misstatement, whether material or not, and the auditor
has reason to believe that it is or may be the result of fraud and that management
is involved, the auditor shall reevaluate the assessment of the risks of material
misstatement due to fraud and its resulting impact on the nature, timing and
extent of audit procedures to respond to the assessed risks. True
435. An auditor uses the assessed level of control risk to

a. Identify transactions and account balances where inherent risk is at maximum
b. Determine the acceptable level of detection risk for financial statement
assertions
c. Evaluate the effectiveness of the entity’s control activities
d. Indicate whether materiality thresholds for planning and evaluation purposes are
sufficiently high
436. One or more folders or other storage media, in physical or electronic form,
containing the records that comprise the audit documentation for a specific
engagement.
a. Audit documentation
b. Audit file
c. Written representation
d. Working paper
437. A weakness in internal control over recording retirements of equipment may

cause an auditor to
a. trace additions to the “other assets” account to search of equipment that is still on
hand but no longer being used s
b. review the subsidiary ledger to ascertain whether depreciation was taken on each
item of equipment during the year.
c. Elect certain items of equipment from the accounting records and locate
them in the plant
d. inspect certain items of equipment in the plant and trace those items to the
accounting records.
438. Fraud may be most properly defined as

a. outright theft of company assets without falsification of records to conceal the act
b. extortion in which the threat of physical violence is used to coerce someone to
part with something of value.
c. False representation or concealment of a material fact to the benefit or
detriment of an individual or organization
d. the use of company assets for one's own personal purposes.
439. A client’s control procedure is:

a. the functioning of the board of directors in support of its audit committee.
b. a method for recording, summarizing and reporting financial information
c. an action taken by auditors to obtain evidence.
d. An action taken by client personnel for the purpose of preventing,
detecting, and correcting errors and irregularities in transactions
440. It involves the theft of an entity’s assets and is often perpetrated by employees in
relatively small and immaterial amounts.
a. Fraud
b. Material misstatements
c. Fraudulent reporting
d. Misappropriation of assets
e. Complex transactions
441. PSA 315 (Clarified) requires that the auditor should obtain an understanding of
relevant industry, regulatory and other external factors including the applicable
financial reporting framework. Which of the following is not among the items that
relate to industry conditions?
a. Cyclical or seasonal activity
b. Energy, supply and cost
c. Market and competition
d. Inflation and currency revaluation
442. Due to the characteristics of fraud, the auditor’s attitude of professional

skepticism is particularly important when considering the risks of material
misstatement due to fraud.
True
443. Non-compliance with laws and regulations may result in fines, litigation or other
consequences for the entity that may have a material effect on the financial
statements True
444. he distinguishing factor between fraud and error is whether the underlying action
that results in the misstatement of the financial statements is intentional or
unintentional. True
445. The primary responsibility for the prevention and detection of fraud rests with ....
b. Management
c. Audit partner
d. Audit committee
446. Nothing in PSA 260 precludes the auditor from communicating any other matters
to those charged with governance. True
447. If sufficient information about suspected non-compliance cannot be obtained, the

auditor shall evaluate the effect of the lack of sufficient appropriate audit evidence
on the auditor’s opinion.
448. The auditor shall investigate and conduct an examination whether unusual or
unexpected relationships that have been identified in performing analytical
procedures, including those related to revenue accounts, may indicate risks of
material misstatement due to fraud.
False (PSA 240 par 22… it must be EVALUATED and not investigate and
conduct an examination)
449. PSA 240 requires a discussion among the engagement team members and a
determination by the engagement partner of which matters are to be
communicated to those team members not involved in the discussion. False (PSA
315)
450. Acts of omission or commission by the entity, either intentional or unintentional,

which are contrary to the prevailing laws or regulations.
a. Policies and procedures
b. Compliance
c. Laws and regulations
d. Non-compliance
451. The requirements in this PSA ______ are designed to assist the auditor in
identifying material misstatement of the financial statements due to non-
compliance with laws and regulations.
a. PSA 250
b. PSA 220
c. PSA 230
d. PSA 210
452. Fraud may be perpetrated with the intent to benefit a company. Which of the
following is an example of such a fraud?
a. Acceptance of bribes or kickbacks by a purchasing agent.
b. Claims submitted for services or goods not actually provided to the company.
c. Diversion by an employee or outsider of a transaction that would normally
generate profits for the company.
d. Sale or assignment of fictitious or misrepresented assets
453. A process comprising an ongoing consideration and evaluation of the firm’s system
of quality control, including a periodic inspection of a selection of completed
engagements, designed to provide the firm with reasonable assurance that its
system of quality control is operating effectively.
a. Monitoring
b. Inspection
c. Supervision
d. leadership
454. PSA 260 is effective for audits of financial statements for periods …
a. Ending on or after December 15, 2012
b. Ending and after December 15, 2019
c. Ending and after December 15, 2016
d. Ending and after December 15, 2009
455. Which of the following should not normally be included in the engagement letter for
an audit?
a. A listing of the client’s branch offices selected for testing.
b. A description of the limitations of an audit.
c. An indication of the amount of an audit.
d. A description of the responsibilities of client personnel to provide assistance.
457. When control risk is assessed at the maximum level for all financial statement
assertions, an auditor should document the following:
a. Basis for concluding that control risk is at the maximum level

b. Understanding of the entity’s internal control elements
c. Understanding of the entity’s internal control elements, Conclusion that control
risk is at the maximum level, and Basis for concluding that control risk is at the
maximum level
d. Understanding of the entity’s internal control elements and Conclusion that
control risk is at the maximum level
458. Which of the following is net among the risk assessment procedures that the
auditor should perform in obtaining an understanding of the entity and its
environment, including its internal control?
a. Analytical procedures.
b. Inquiries of management and others within the entity.
c. Continuation
d. Observation and inspection
459. An auditor conducting an audit in accordance with PSAs is responsible for

obtaining reasonable assurance that the financial statements taken as a whole are
free from material misstatement, whether caused by fraud or error. This is
according to PSA
______
a. 220
b. 210
c. 240
d. 200
460. The risk that the auditors' own work will lead to the decision that material
misstatements do not exist in the financial statements, when in fact such
misstatements do exist is:
a. inherent risk.
b. detection risk.
c. control risk.
d. audit risk.
461. PSA 315 (Clarified) requires that the auditor should obtain an understanding of the
entity’s selection and application of accounting policies and consider whether they
are appropriate for its business and consistent with the applicable financial
reporting framework and accounting polices used in the relevant industry. The
understanding does not encompass
a. Changes in the entity’s accounting policies.
b. The effect of significant accounting policies in contractual or emerging areas for
which there is lack of authoritative guidance or consensus.
c. Criteria in the selection of the company’s chief accounting executive.
d. The methods the entity uses to account for significant and unusual transactions.
462. The auditor shall request management and, where appropriate, those charged with
governance to provide written representations that all known instances of
noncompliance or suspected non-compliance with laws and regulations whose
effects should be considered when preparing financial statements have been
disclosed to the auditor.
True
463. When an accountant is not independent, the accountant is precluded from issuing
a:
a. Review report
b. Management advisory report
c. Compilation report.
d. Tax planning report.
464. Which portion of an audit is least likely to be completed before the balance sheet
date?
a. Substantive procedures.
b. Test of controls.
c. Issuance of an engagement letter.
d. Assessment of control risk.
465. The major types of audits (multiple answers allowed)

a. Internal audit
b. Compliance audit
c. Management audit
d. Financial audit
e. Performance or operational audit
466. In the case of an audit where the engagement partner performs all the audit work,
the documentation will not include matters that might have to be documented
solely to inform or instruct members of an engagement team, or to provide
evidence of review by other members of the team (for example, there will be no
matters to document relating to team discussions or supervision). True
467. PSAs impose responsibilities on management or TCWG and do not override laws
and regulations that govern their responsibilities. False
468. PSA 260 is written in the context of an audit of financial statements, exclusively
and not applicable, adapted as necessary in the circumstances, to audits of other
historical financial information when those charged with governance have a
responsibility to oversee the preparation of the other historical financial information.
False
469. Fraudulent financial reporting may be accomplished by the following, except

a. Embezzling receipts (for example, misappropriating collections
on accounts receivable or diverting receipts in respect of written-off
accounts to personal bank accounts).
b. Intentional misapplication of accounting principles relating
to amounts, classification, manner of presentation, or disclosure.
c. Manipulation, falsification (including forgery), or alteration of accounting records
or supporting documentation from which the financial statements are prepared.
d. Misrepresentation in, or intentional omission from, the financial statements of
events, transactions or other significant information.
470. The primary purpose for obtaining an understanding of an audit client’s internal
control structure is to:
a. obtain sufficient competent evidential matter to afford a reasonable basis for an
Opinion on the financial statements under examination.
b. provide a basis for making constructive suggestions in a management letter.
c. provide information for a communication of internal control structure-related
matters to management.
d. determine the nature, timing, and extent of tests to be performed in the
audit.
471. The Role of Communication: PSA 260 focuses primarily on communications from
the auditor to those charged with governance. Nevertheless, effective two-way
communication is important in assisting: (arrange properly)
i. The auditor and those charged with governance in
understanding matters related to the audit in context, and in developing
a constructive working relationship. This relationship is developed
while maintaining the auditor’s independence and objectivity.
ii. The auditor in obtaining from those charged with governance
information relevant to the audit. For example, those charged with
governance may assist the auditor in understanding the entity and its
environment, in identifying appropriate sources of audit evidence, and
in providing information about specific transactions or events.
iii. Those charged with governance in fulfilling their responsibility
to oversee the financial reporting process, thereby reducing the risks of
material misstatement of the financial statements.
472. What are the reasons why the risk of not detecting a material misstatement
resulting from fraud is higher than the risk of not detecting one resulting from error.
a. Fraud may involve sophisticated and carefully organized
schemes designed to conceal it
b. Collusion
c. Deliberate failure to record transactions,
d. Forgery
473. In accordance with PSA ____, the auditor shall design and perform further audit
procedures whose nature, timing and extent are responsive to the assessed risks
of material misstatement due to fraud at the assertion level.
a. 210
b. 240
c. 330
d. 220
474. Misappropriation of assets can be accomplished in a variety of ways, except :
a. Causing an entity to pay for goods and services not received (for example,
payments to fictitious vendors, kickbacks paid by vendors to the entity’s
purchasing agents in return for inflating prices, payments to fictitious employees).
b. Stealing physical assets or intellectual property (for example, stealing inventory
for personal use or for sale, stealing scrap for resale, colluding with a competitor
by disclosing technological data in return for payment).
c. Embezzling receipts (for example, misappropriating collections on accounts
receivable or diverting receipts in respect of written-off accounts to personal bank
accounts).
d. Altering records and terms related to significant and unusual transactions.
e. Using an entity’s assets for personal use (for example, using the entity’s assets
as collateral for a personal loan or a loan to a related party).
475. Unless the auditor has reason to believe the contrary, the auditor shall always
accept records and documents as genuine. False
476. This Philippine Standard on Auditing PSA deals with the auditor’s responsibility to
consider laws and regulations when performing an audit of financial statements.
a. PSA 230
b. PSA 210
c. PSA 250
d. PSA 220
477. PSA 315 requires that the auditor should obtain an understanding of the entity’s
objectives and strategies, and the related business risks that may result in material
misstatement of the financial statements. Which of the following is not an example
of business risks that may have financial consequences and may affect the
financial statements?
a. Contracting economy.
b. Use of new IT.
c. A contracting customer base due to industry consolidation that may increase the
risk of misstatement associated with the valuation of receivables.
d. New accounting requirements.
478. The primary objective of tests of details of transactions performed as substantive

procedures is to:
a. Detect material misstatements in the in the financial statements.
b. Comply with generally accepted auditing standards.
c. Evaluate whether management’s policies and procedures are opening effectively.
d. Attain assurance about the reliability of the accounting system.
479. Which of the following ordinarily is designed to detect possible material peso errors
on the financial statements?
a. Analytical procedures.
b. Post-audit working paper review.
c. Computer controls.
d. Control testing.
480. Directors shall determine of their own per diems or compensation. Submission of
annual report on the total compensation of directors or trustee for corporation
vested with public interest.
b. True
c. False
481. Which of the following audit techniques most likely would provide an auditor with
the greatest assurance about the effectiveness, of the operation of an internal
control procedure?
a. Confirmation with outside parties.
b. Recomputation of account balance amounts.
c. Observation of client personnel.
d. Inquiry of client personnel.
482. If the auditor is unable to determine whether non-compliance has occurred

because of limitations imposed by the circumstances rather than by management
or those charged with governance, the auditor shall evaluate the effect on the
auditor’s opinion in accordance with PSA 705. True (PSA 250 par 27)
483. The risk of management fraud increases in the presence of

a. management incentive systems based on operating income.
b. frequent changes in suppliers.
c. improved internal control.
d. substantial increases in sales.
484. The auditor shall prepare audit documentation that is sufficient to enable an
experienced auditor, having no previous connection with the audit, to understand:
( proper arrangement )
i. The nature, timing, and extent of the audit procedures performed to
comply with the PSAs and applicable legal and regulatory requirements.
ii. The results of the audit procedures performed, and the audit evidence
obtained.
iii. Significant matters arising during the audit, the conclusions reached
thereon, and significant professional judgments made in reaching those
conclusions.
485. Contingency fee based pricing of accounting services is:

a. Always strictly prohibited in public accounting practice.
b. Prohibited for clients for whom attestation services are provided.
c. Never restricted in public accounting practice.
d. Considered an act discreditable to the profession.
486. The Revised Corporation Code provides a corporate term of 50 years and renewal
earlier than 5 years prior to the expiration.
b. True
c. False
487. When an auditor assesses control risk below the maximum level, the auditor is
required to document his or her (I) Basis for understanding that control risk is
below the maximum level, and (II) Understanding of the entity’s internal control
system elements. a. I and II are both true
b. I and II are both false
c. II is true
d. I is true
488. It is an artificial being created by operation of law, having the right of succession
and the powers, attributes, and properties expressly authorized by law or
incidental to its existence.
a. Corporation
b. Cooperative
c. Partnership
d. Incorporation
489. The auditor shall communicate with those charged with governance significant
findings from the audit. (arrange properly)
i. The auditor’s views about significant qualitative aspects of the entity’s
accounting practices, including accounting policies, accounting estimates and
financial statement disclosures. When applicable, the auditor shall explain to
those charged with governance why the auditor considers a significant
accounting practice, that is acceptable under the applicable financial reporting
framework, not to be most appropriate to the particular circumstances of the
entity. ii. Significant difficulties, if any, encountered during the audit.
iii. Unless all of those charged with governance are involved in managing the
entity:
(i) Significant matters arising during the audit that were discussed, or
subject to correspondence, with management; and (Ref: Para. A22)
FDIVI(ii) Written representations the auditor is requesting.
iv. Circumstances that affect the form and content of the auditor’s report, if
any.
v. Any other significant matters arising during the audit that, in the auditor’s
professional judgment, are relevant to the oversight of the financial reporting
process.
490. The risk that the auditor will conclude, based on substantive procedures, that a
material misstatement does not exist in an account balance when, in fact, such
misstatement does exist is referred to as
a. Engagement risk
b. Control risk
c. Detection risk
d. Business risk
491. If conditions identified during the audit cause the auditor to believe that a
document may not be authentic or that terms in a document have been modified
but not disclosed to the auditor, the auditor shall investigate further. True (PSA
240 par. 13)
492. The risk of not detecting a material misstatement resulting from fraud is lower than
the risk of not detecting one resulting from error. False (PSA 240 par 6…higher)
493. Laws or regulations may specifically prohibit a communication, or other action,

that might prejudice an investigation by an appropriate authority into an actual, or
suspected, illegal act. In some circumstances, potential conflicts between the
auditor’s obligations of confidentiality and obligations to communicate may be
complex. True (PSA 260 par 7)
494. If the auditor suspects that management or those charged with governance are
involved in non-compliance, the auditor shall communicate the matter to the
______ at the entity
a. Regulatory agencies
b. Next higher authority in the entity
c. Compliance committee
d. President of the entity
495. In planning and performing an audit, auditors are concerned about risk factors for
two distinct types of fraud: fraudulent financial reporting and misappropriation of
assets.
Which of the following is a risk factor for misappropriation of assets?
a. Management preoccupation with increased financial performance.
b. Strained relationships between management and the auditors.
c. An unreliable accounting system.
d. Generous performance-based compensation systems.
496. Which of the following statements describes why a properly designed and
executed audit may not detect a material irregularity?
a. Audit procedures that are effective for detecting an unintentional
misstatement may be ineffective for an intentional misstatement that IS
concealed through collusion.
b. An audit is designed to provide reasonable assurance of detecting material
errors, but there is no similar responsibility concerning material irregularities.
c. The auditor did not consider the factors influencing audit risk for account
balances that have effects pervasive to the financial statements taken as a
whole.
d. The factors considered in assessing control risk indicated an increased risk of
intentional misstatements, but only a low risk of unintentional errors in the
497. The objectives of the auditor under PSA 260 are: (arrange properly)
i. To communicate clearly with those charged with governance the
responsibilities of the auditor in relation to the financial statement audit, and
an overview of the planned scope and timing of the audit.
ii. To obtain from those charged with governance information relevant to the
audit.
iii. To provide those charged with governance with timely observations arising
from the audit that are significant and relevant to their responsibility to
oversee the financial reporting process.
iv. To promote effective two-way communication between the auditor and
those charged with governance.
498. In larger entities, these policies and procedures may be supplemented by

assigning appropriate responsibilities to the following, except:
a. Audit committee
b. Compliance function
c. Nomination committee
d. Internal audit function
499. The auditor shall make inquiries of management regarding: (order is necessary)
i. Management’s assessment of the risk that the financial statements may be
materially misstated due to fraud, including the nature, extent and
frequency of such assessments.
ii. Management’s process for identifying and responding to the risks of fraud
in the entity, including any specific risks of fraud that management has
identified or that have been brought to its attention, or classes of
transactions, account balances, or disclosures for which a risk of fraud is
likely to exist;
iii.Management’s communication, if any, to those charged with governance
regarding its processes for identifying and responding to the risks of fraud
in the entity.
iv.Management’s communication, if any, to employees regarding its views on
business practices and ethical behavior.
500. Which of the following is not a reason an auditor should obtain an understanding
of the elements of an entity’s internal control system in planning an audit?
a. To consider factors that affect the risk of material misstatements.
b. To design substantive tests.
c. To identify types of potential misstatements that can occur.
d. To consider the operating effectiveness of the internal controls.
501. In principle, compliance with the requirements of this PSA ____will result in the
audit documentation being sufficient and appropriate in the circumstances.
a. PSA 220
b. PSA 230
c. PSA 210
d. PSA 200
502. The auditor is required by PSA 230 to remain alert to the possibility that other
audit procedures applied for the purpose of forming an opinion on financial
statements may bring instances of identified or suspected non-compliance to the
auditor’s attention. False (PSA 250 par 8…not PSA 230)
503. Jones, CPA, is auditing the financial statements of ABC Retailing, Inc. What
assurance does Jones provide that the audit will detect either direct effect illegal
acts that are material to ABC's financial statements or illegal acts that have a
material but indirect effect on the financial statements? (I) Direct-Effect Illegal
Acts, and ( II )
Indirect-Effect Illegal Acts
a. ( I) Limited, (II) Reasonable
b. ( I) Reasonable, (II) Reasonable
c. ( I) Reasonable, (II) None
d. ( I) Limited, (II) None
504. The practice of accounting includes the following expect

a. Practice in the government.
b. Practice in commerce and industry, when the CPA is appointed as
marketing manager of the enterprise.
c. Practice in education / academe.
d. Practice in public accountancy.
505. Examples of obtaining a general understanding of the legal and regulatory

framework, and how the entity complies with that framework, the auditor may,
a. Use the auditor’s existing understanding of the entity’s industry, regulatory
and other external factors.
b. Inquire of management concerning the entity’s policies and procedures
regarding compliance with laws and regulations.
c. Update the understanding of those laws and regulations that directly
determine the reported amounts and disclosures in the financial
statements
d. Inquire of management as to other laws or regulations that may be
expected to have a fundamental effect on the operations of the entity
e. Inquire of management regarding the policies or procedures adopted for
identifying, evaluating and accounting for litigation claims.
f. Maintaining a register of significant laws and regulations with which the entity has
to comply within its particular industry and a record of complaints.
506. Philippine Standard on Auditing 240`. “The Auditor’s Responsibilities Relating to

Fraud in an Audit of Financial Statements” should be read in the context of the
“Preface to ___, ___, ___ and ____ ,” which sets out the authority of PSAs.
(multiple responses)
a. Other assurance and related services
b. PSA 220
c. Review
d. Other assurance
e. Auditing
507. Inherent risk and control risk differ from detection risk in that they
a. may be assessed in either quantitative or nonquantitative terms.
b. arise from the misapplication of auditing procedures.
c. can be changed at the auditor's discretion.
d. exist independently of the financial statement audit.
508. The auditor shall make inquiries of those charged with governance to determine
whether they have been involved of any actual, suspected or alleged fraud
affecting the entity.
False
509. An advantage of using internal control flowcharts instead of internal control

questionnaires to document information about internal control is that flowcharts
a. reduce the need to observe clients employees performing routine; tasks.

b. indicate whether control procedures are operating effectively.
c. identify internal control weaknesses more prominently.
d. provide a visual depiction of clients’ activities.
510. Reportable conditions are matters that come to an auditor’s attention that should
be communicated to an entity’s audit committee because they represent
a. flagrant violations of the entity’ s documented conflict-of-interest policies.
b. significant deficiencies in the design or operation of the internal control
system.
c. intentional attempts by client personnel to limit the scope of the auditor’s field
work.
d. material irregularities or illegal acts perpetrated by high-level management.
511. In documenting the nature, timing and extent of audit procedures performed, the
auditor shall record: (proper arrangement)
I. The identifying characteristics of the specific items or matters tested.
II. Who performed the audit work and the date such work was completed.
III. Who reviewed the audit work performed and the date and extent of such
review.
512. If the auditor concludes that the non-compliance has a material effect on the
financial statements, and has not been adequately reflected in the financial
statements, the auditor shall, in accordance with PSA ____, express a qualified or
adverse opinion on the financial statements.
a. PSA 705
b. PSA 250
c. PSA 210
d. PSA 220
513. The objective of tests of details of transactions performed as tests of controls is to
a. evaluate whether internal controls are operating effectively.

b.determine whether internal controls have been placed in operation.
c. monitor the design and use of entity documents, such as prenumbered shipping
forms. d.detect material misstatements in the account balances of the financial
statements.
514. Misappropriation of assets can be caused by the efforts of management to

manage earnings in order to deceive financial statement users by influencing their
perceptions as to the entity’s performance and profitability. False
516. The ultimate risk against which an auditor requires reasonable protection is a
combination of two separate risks. The first of these is that material errors will occur in
the accounting process by which the financial statements are developed, and the
second is that
A. management may possess an attitude that lacks integrity.

B. those errors that occur will not be detected in the auditor's examination.
C. a company's internal control will not be adequate to detect errors and irregularities.
D. evidential matter is not competent enough for the auditor to form an opinion
based on reasonable assurance.
517. It refers to information used by the auditor in arriving at the conclusions on which
the auditor's opinion is based. a. Financial information
b. Audit evidence
d. Appropriateness of audit evidence
519. The control objective designed to reduce the probability that a credit
sale transaction will get debited to cash instead of accounts receivable is: a.
classification.
b. completeness.
c. validity.
d. accuracy
520. Although the auditor may suspect or, in rare cases, identify the occurrence
of fraud, the auditor does not make legal determinations of whether fraud has
actually occurred. True
521. Management and tax consulting are examples of advisory engagements.

True
522. The Role of Communication: PSA 260 focuses primarily on

communications from the auditor to those charged with governance. Nevertheless,
effective two- way communication is important in assisting: (arrange properly)
I. The auditor and those charged with governance in understanding matters
related to the audit in context, and in developing a constructive working
relationship. This relationship is developed while maintaining the auditor’s
independence and objectivity.
II. The auditor in obtaining from those charged with governance information
relevant to the audit. For example, those charged with governance may
assist the auditor in understanding the entity and its environment, in
identifying appropriate sources of audit evidence, and in providing
information about specific transactions or events.
III. Those charged with governance in fulfilling their responsibility to oversee

the financial reporting process, thereby reducing the risks of material
misstatement of the financial statements.
524. An auditor conducting an audit in accordance with PSAs is responsible for
obtaining reasonable assurance that the financial statements taken as a whole are free
from material misstatement, whether caused by fraud or error. This is according to PSA
______
A. 200
B. 210
C. 220
D. 240
526. PSA 250 does not establish requirements regarding the auditor’s communication
with an entity’s management or owners unless they are also charged with a
governance role.
False (should be PSA 260)
527. Confirming that there is a common understanding between the auditor and the
management or where appropriate, those charged with governance is one of the
528. Which of the following statements is not correct about materiality?
a.An auditor's consideration of materiality is influenced by the auditor's perception of

the needs of a reasonable person who will rely on the financial statements.
b.An auditor considers materiality for planning purposes in terms of the largest
aggregate level of misstatements that could be material to any one of the
psa 315
c.Materiality judgments are made in light of surrounding circumstances and necessarily
involve both quantitative and qualitative judgments.
d.The concept of materiality recognizes that some matters are important for fair
presentation of financial statements in conformity with PFRS, while other matters are
not important.
529. As part of obtaining an understanding of the entity and its environment in

accordance with PSA 315, the auditor shall obtain a general understanding of: (multiple
responses)
a. To perform the audit procedures to help identify instances of non-compliance with

other laws and regulations that may have a material effect on the financial statements
b.To remain alert to the possibility that other audit procedures applied may bring
instances of non-compliance or suspected non- compliance with laws and regulations
to the auditor’s attention.
c.The legal and regulatory framework applicable to the entity and the industry or
sector in which the entity operates.
d.How the entity is complying with that framework.
528. If management or, as appropriate, those charged with governance do not

provide sufficient information that supports that the entity is in compliance with
law and regulations and, in the auditor’s judgment, the effect of the suspected
non- compliance may be material to the financial statements, the auditor shall
consider the need to obtain legal advice. True
529. In determining others within the entity to whom inquiries may be directed and the
extent of those inquiries, the auditor considers what information may be obtained
that would help him/her in identifying risks of material misstatement. The term
“others” does not include the
a. In-house legal counsel
b. Controller
c. Major supplier of raw materials
d. Internal auditor
530. Which of the following is a step in an auditor's decision to assess control risk at
below maximum?
a. Document that the additional audit effort to perform tests of controls exceeds the
potential reduction in substantive testing.
b. Perform tests of details of transactions and account balances to identify potential
errors and irregularities.
c. Identify specific control activities that are likely to detect or prevent
material misstatements.
d. Apply analytical procedures to both financial data and nonfinancial information to
detect conditions that may indicate weak control.
531. Examples of the types of policies and procedures an entity may implement to
assist in the prevention and detection of non-compliance with laws and
regulations:
a. Monitoring legal requirements and ensuring that operating procedures are
designed to meet these requirements.
b. Instituting and operating appropriate systems of internal control.
c. Maintaining a register of significant laws and regulations with which the
entity has to comply within its particular industry and a record of
complaints.
d. Engaging legal advisors to assist in monitoring legal requirements.
e. Ensuring employees are properly trained and understand the code of
conduct
f. Developing, publicizing and following a code of conduct.
g. Monitoring compliance with the code of conduct and acting appropriately
to discipline employees who fail to comply with it.
532. Miles Retailing, Inc., maintains a staff of three full-time internal auditors who
report directly to the controller. In planning to use the internal auditors to provide
assistance in performing the audit, the independent auditor most likely will
a. avoid using the work performed by the internal auditors.
b. place limited reliance on the work performed by the internal
auditors.
c. increase the extent of the procedures needed to reduce control risk to an
acceptable level.
d. decrease the extent of the tests of controls needed to support the
assessed level of detection risk.
533. The revenue cycle of a company generally includes these accounts:

a. Cash, notes payable, and capital stock.
b. Inventory, accounts payable, and general expenses.
c. Cash, accounts receivable, and sales.
d. Inventory, general expenses, and payroll.
534. When performing risk assessment procedures and related activities to

obtain__________, ______ an understanding of the entity and its environment,
including the entity’s _____ internal control, required by ISA 315, the auditor
shall perform the procedures to obtain information for use in identifying the risks
of material misstatement due to fraud. Which of the choice is incorrect?
a. Fraud and error
b. Understanding of the entity
c. Understanding its environment
d. Internal control
535. The ______ is responsible for obtaining reasonable assurance that the financial
statements, taken as a whole, are free from material misstatement, whether
caused by fraud or error.
b. Management
c. Auditor expert
d. Auditor
536. It refers to the measure of the quantity of audit evidence.
a. Appropriateness of audit evidence
b. Audit evidence
d. Financial information
537. The objective of the auditor is to prepare documentation that provides: (multiple
answers)
a. Evidence that the audit was planned and performed in accordance

with PSAs and applicable legal and regulatory requirements.
b. Retaining a record of matters of continuing significance to future audits.
c. Enabling the conduct of quality control reviews and inspections in
accordance with PSQC 1
d. Assisting members of the engagement team responsible for supervision
to direct and supervise the audit work, and to discharge their review
responsibilities in accordance with PSA 220.
e. Enabling the conduct of external inspections in accordance with
applicable legal, regulatory or other requirements.
f. A sufficient and appropriate record of the basis for the auditor’s
report.
538. After obtaining an understanding of an entity’s internal control system and

assessing control risk, an auditor next may
a. evaluate whether the internal control system policies and procedures
detected, material misstatements in the financial statements.
b. consider whether evidential matter is available to support a further
reduction in the assessed level of control risk.
c. perform tests of controls to verify management’s assertions that are
embodied 1n the financial statements.
d. apply analytical procedures as substantive tests to validate the assessed
level of control risk.
539. If the auditor communicates with a subgroup of those charged with governance,
for example, an audit committee, or an individual, the _____ shall determine
whether the auditor also needs to communicate with the governing body.
b. Auditor
d. Management
540. The risk that an auditor's procedures will lead to the conclusion that a material
error does exist in an account balance when, in fact, such error does exist is
referred to as
a. audit risk.
b. inherent risk.
c. control risk.
d. detection risk.
541. Fraudulent financial reporting involves intentional misstatements including

omissions of amounts or disclosures in financial statements to deceive financial
statement users.
a. Material misstatements
b. Misappropriation of Assets
c. Fraud
d. Fraudulent financial reporting
542. When the auditor confirms that, or is unable to conclude whether, the financial
statements are materially misstated as a result of fraud the auditor shall evaluate
the implications for the audit. True
543. Examples of others within the entity to whom the auditor may direct inquiries
about the existence or suspicion of fraud, except:
a. In-house legal counsel.
b. Altering records and terms related to significant and unusual
transactions.
c. Operating personnel not directly involved in the financial reporting
process.
d. Employees involved in initiating, processing or recording complex or
unusual transactions and those who supervise or monitor such
employees.
e. Employees with different levels of authority.
544. Owing to the inherent limitations of an audit, there is an unavoidable risk that
some material misstatements in the financial statements may not be detected,
even though the audit is properly planned and performed in accordance with the
PSAs.
True
to communicate with those charged with governance in an audit of financial
statements.
a. PSA 250
b. PSA 210
c. PSA 230
d. PSA 260
e. PSA 230
546. Philippine Standard on Auditing PSA____, “Consideration of Laws and

Regulations in an Audit of Financial Statements” should be read in conjunction
with PSA 200. “Overall Objectives of the Independent Auditor and the Conduct
of an Audit in Accordance with Philippine Standards on Auditing.
a. PSA 230
b. PSA 220
c. PSA 210
d. PSA 250
547. If the auditor suspects there may be non-compliance, the auditor shall discuss
the matter with management and the appropriate regulatory bodies or agencies.
False (PSA 250 par 19 ... those charged with governance and not to the
regulatory bodies…)
548. Which of the following is a device designed to help the audit team obtain
evidence about the control environment and about the accounting and control
procedures of an audit client?
a. An internal control questionnaire
b. A flowchart of the documents and procedures used by the company
c. A well- indexed file of working papers
d. A narrative memorandum describing the control system
549. Which of the following is not a benefit claimed for the practice of determining
materiality in the initial planning stage of starting an audit?
a. Being able to fine tune the audit work for effectiveness and efficiency.
b. Being able to decide early what kind of audit opinion to give.
c. Avoiding the problem of doing too little work (underauditing).
d. Avoiding the problem of doing more work than necessary (overauditing).
550. Which of the following statements best describes an auditor's responsibility to
detect errors and irregularities?
a. The auditor should assess the risk that errors and irregularities may cause the
financial statements to contain material misstatements, and determine whether
the necessary internal control procedures have been prescribed and are being
followed satisfactorily.
b. The auditor should consider the types of errors and irregularities that could
occur, and determine whether the necessary internal control procedures have
been prescribed and are being followed.
c. The auditor should assess the risk that errors and irregularities may cause
the financial statements to contain material misstatements, and design the
audit to provide reasonable assurance of detecting material errors and
irregularities.
d. The auditor should study and evaluate the client's internal control system, and
design the audit to provide reasonable assurance of detecting all errors and
irregularities.
551. The auditor shall perform the following audit procedures to help identify
instances of non-compliance with other laws and regulations that may have a
material effect on the financial statements:
a. Performing the audit procedures to help identify instances of non-compliance
with other laws and regulations that may have a material effect on the financial
statements.
b. Inquiring of management and, where appropriate, those charged with
governance, as to whether the entity is in compliance with such laws and
regulations.
c. Remaining alert to the possibility that other audit procedures applied may bring
instances of non-compliance or suspected non- compliance with laws and
regulations to the auditor’s attention.
d. Inspecting correspondence, if any, with the relevant licensing or regulatory
authorities.
552. Which of the following circumstances is most likely to cause an auditor to consider
whether a material misstatement exists?
a. Management places little emphasis on meeting earnings projections.
b. Transactions selected for testing are not supported by proper
documentation.
c. The turnover of senior accounting personnel is exceptionally low.
d. Operating and financing decisions are dominated by several persons.
553. An auditor’s analytical procedures most likely will be facilitated if the entity.
a. segregates obsolete inventory before the physical inventory count.
b. uses a standard cost system that produces variance reports.
c. corrects material weaknesses in internal control before the beginning of the
audit.
d. develops its data from sources solely within the entity.
554. The auditor will most likely perform extensive tests for possible understatement of
a. revenues.
b. capital.
c. liabilities.
d. Assets.
555. It is important that ________ place a strong emphasis on fraud prevention, which
may reduce opportunities for fraud to take place, and fraud deterrence, which
could persuade individuals not to commit fraud because of the likelihood of
detection and punishment.
b. Finance Executive
c. Management
d. President
556. They are those who compose a corporation, whether as stockholders or
shareholders in a stock corporation or as members in a nonstock corporation.
a. Ordinary shareholders
b. Incorporators
c. Shareholders
d. Corporators
557. Communication by the auditor does relieve management of this responsibility.

False (PSA 260 par5… ‘does not relieve’)
558. Clear communication of specific matters required to be communicated by PSAs is

an integral part of every audit.
True
559. Fraudulent financial reporting often involves management override of controls that
otherwise may appear to be operating effectively. What are the techniques?
( multiple answers )
a. Engaging in complex transactions that are structured to
misrepresent the financial position or financial performance of the entity.
b. Concealing, or not disclosing, facts that could affect the amounts
recorded in the financial statements.
c. Recording fictitious journal entries, particularly close to the end of
an accounting period, to manipulate operating results or achieve other
objectives.
d. Omitting, advancing or delaying recognition in the financial
statements of events and transactions that have occurred during the
reporting period.
e. Inappropriately adjusting assumptions and changing judgments
used to estimate account balances.
560. The risk of material financial statement misstatement may be greater when the
following conditions exist except
a. Complex calculations or accounting principles is involved.
b. When there is greater management intervention to specify the accounting
treatment.
c. When there is greater manual intervention for data collection and processing.
d. When there is a sufficient personnel with appropriate accounting and
financial reporting skills.
561. The objectives of the auditor under PSA 250 are: (arrange in proper order)
To obtain sufficient appropriate audit evidence regarding compliance with
the provisions of those laws and regulations generally recognized to have a
direct effect on the determination of material amounts and disclosures in the
To perform specified audit procedures to help identify instances of
noncompliance with other laws and regulations that may have a material effect
on the financial statements.
To respond appropriately to non-compliance or suspected non-compliance
with laws and regulations identified during the audit.
562. The objective of PSA 265 the auditor is to communicate appropriately to ------
deficiencies in internal control that the auditor has identified during the audit and
that, in the auditor’s professional judgment, are of sufficient importance to merit
their respective attentions.
a. Regulatory agency
b. Management
c. Those charged with governance
d. Those charged with governance and management
563. In most audits of large companies, internal control risk assessment contributes to
audit efficiency, which means:
a. auditors will be able to reduce the cost of year-end audit work by an
amount more than the control evaluation costs.
b. the cost of year-end audit work will exceed the cost of control evaluation work.
c. auditors will be able to reduce the cost of year-end audit work by an amount
less than the control evaluation costs.
D. the cost of control evaluation work will exceed the cost of year-end audit work.
564. Auditors are periodically punished for holding an investment in a client. This
violates which ethical rule?
a. Independence.
b. Confidentiality.
c. Non compliance with PFRS.
d. Integrity
565. The auditor shall document identified or suspected non-compliance with laws and
regulations and the results of discussion with management and, where applicable,
those charged with governance and other parties outside the entity. True
566. What are the fraud characteristics in the fraud triangle? (multiple answers ) a.
Incentive
b. Rationalization
c. Opportunity
d. Capability
567. When the auditor assesses inherent risk, he considers among others the following
factors except
a. nature of the entity's business.
b. unusual pressures on management.
c. results of the interim tests.
d. integrity of management.
568. Under PSA 315, the auditor shall obtain an understanding of the information
system, including the related business processes, relevant to financial reporting,
including the following areas:
( proper arrangement is required )
a. The classes of transactions in the entity's operations that are significant to
the financial statements.
b. The procedures within both IT and manual systems by which those
transactions are initiated, authorized, recorded, processed, corrected as
necessary, transferred to the general ledger, and reported in the financial
statements.
c. The related accounting records supporting information and specific accounts
in the financial statements that are used to initiate, authorize, record, process,
and report transactions. This includes the correction of incorrect information and
how information is transferred to the general ledger. The records may be in either
manual or electronic form.
d. How the information system captures events and conditions, other than
transactions, that are significant to the financial statements.
e. The financial reporting process used to prepare the entity's financial
statements, including significant accounting estimates and disclosures.
f. Controls surrounding journal entries, including nonstandard journal entries
used to record nonrecurring, unusual transactions, or adjustments.
569. Which of the following terms best describes the audit of a taxpayer’s tax return
by a BIR auditor?
a. Internal audit
c. Compliance audit
d. Government audit
570. An engagement designed to express limited assurance relating to subject matter

or an assertion.
a. Review
b. Assurance services
c. Compliance audit
d. Examination
571. Society has attached a special meaning to the term “professional”. A

professional is
B. a person who is expected to conduct himself or herself at a higher level than
the requirements of society’s laws or regulations.
572. After obtaining an understanding of an entity’s internal control system, an auditor
may assess control risk at the maximum level for some assertions because the auditor
a. identities internal control policies and procedures that are likely to prevent
material misstatements.
b. determines that the pertinent internal control system elements are not well
documented.
c. believes the internal control policies and. procedures are unlikely to be
effective.
d. performs tests of controls to restrict detection risk to an acceptable level.
578. An auditor’s primary consideration regarding an entity’s internal control system

policies and procedures is whether the policies and procedures
a. affect the financial statement assertions.
b. prevent management override.
c. relate to the control environment.
d. reflect management’s philosophy and operating style.
579. Engagement to testify in legal proceedings regarding accounting is not

performed using assurance engagement. True
580. The auditor shall communicate with those charged with governance the ___,
____ and _____ of communication, except: a. Form
b. Timing
c. Expected general content
d. Nature
582. An examination designed to provide an opinion that is the CPA’s highest level of
assurance that the financial statements follow Philippine Financial Reporting
Standards, or another acceptable basis of accounting.
a. Compliance audit
c. Audit of financial statements
d. Agreed-upon engagement
583. Which of the following best describes the primary purpose of audit procedures?
a. To verify the accuracy of account balances.
b. To detect errors or irregularities.
c. To comply with financial reporting standards.
d. To gather corroborative evidence
585. This PSA specifies which identified deficiencies the auditor is required to
communicate to those charged with governance and management.
a. PSA 260
b. PSA 250
c. PSA 200
d. PSA 265
586. Deficiency in internal control exists when a control necessary to prevent, or detect
and correct, misstatements in the financial statements on a timely basis is missing.
True (PSA 265 par. 6 a (ii))
587. The division of internal control into the following five components, for purposes of
the PSAs, provides a useful framework for auditors to consider how different
aspects of an entity’s internal control may affect the audit: ( arrange orderly )
1. Control Environment
2. Entity’s risk assessment process
3. Information System
4. Control Activities
5. Monitoring of Controls
588. The auditor assesses the likelihood and magnitude of misstatement for identified
risks of material misstatement because the significance of the combination of the
likelihood of a misstatement occurring and the magnitude of the potential
misstatement were the misstatement to occur determines where on the spectrum
of inherent risk the identified risk is assessed, which informs the auditor s design
of further audit procedures to address the risk. True (ISA A205)
589. When the auditor has determined that a significant risk exists, the auditor shall
obtain an understanding of the entity’s controls, including control activities,
relevant to that risk.
590. Weaknesses in the control environment may undermine the effectiveness of

controls, in particular in relation to fraud.
True (PSA 315 A70)
591. If that process is appropriate to the circumstances, including the nature, size and
complexity of the entity, it assists the auditor in identifying risks of material
misstatement.
True (PSA 315 A74)
592. All transactions and events that should have been recorded have been recorded.
a. Completeness
b. Existence
c. Occurence
d. Accuracy
593. The amounts and other data relating to recorded transactions and events have
been recorded appropriately.
a. Completeness
b. Existence
c. Classification
d. Accuracy
to apply the concept of materiality in planning and performing an audit of financial
statements.
a. PSA 325
b. PSA 340
c. PSA 300
d. PSA 310
595. PSA 320: The auditor’s determination of materiality is a matter of professional

judgment, and is affected by the auditor’s perception of the financial information
needs of users of the financial statements. In this context, it is reasonable for the
auditor to assume that users: ( arrange orderly )
1. Have a reasonable knowledge of business and economic activities and
accounting and a willingness to study the information in the financial
statements with reasonable diligence.
2. Understand that financial statements are prepared, presented and audited
to levels of materiality.
3. Recognize the uncertainties inherent in the measurement of amounts
based on the use of estimates, judgment and the consideration of future
events.
4. Make reasonable economic decisions on the basis of the information in the
596. An attitude that includes a questioning mind, being alert to conditions that may
indicate possible misstatements, and a critical assessment of audit evidence is
referred to as:
a. Audit neutralism.
b. Professional skepticism.
c. Reasonable assurance.
d. Auditing mindset.
597. Which of the following statement is true considering assurance report as an

element of assurance engagement?
a. It contains both the quantitative and qualitative evidence intended to address the
users needs.
b. It provides sufficient and appropriate evidence that are incorporated in the
engagement letter.
c. It provides a conclusion regarding the assurance engagement.
d. It provides a written report containing a conclusion that conveys the
assurance obtained about the subject matter information
e. Not given
598. Reasonable assurance is limited level of assurance, because there are inherent
limitations of an audit which result in most of the audit evidence on which the
auditor draws conclusions and bases the auditor's opinion being persuasive rather
than conclusive.
False ( It is not an absolute level of assurance )
599. Oral explanations made by the auditor, on their own, represent adequate support
for the work the auditor performed or conclusions the auditor reached, but may be
used to explain or clarify information contained in the audit documentation. False
(PSA 230 par A5 “do not represent”)
600. The auditor shall perform the following audit procedures to help identify instances
of non-compliance with other laws and regulations that may have a material effect
on the financial statements: ( multiple responses )
a. Remaining alert to the possibility that other audit procedures applied may bring
instances of non-compliance or suspected non- compliance with laws and
regulations to the auditor’s attention.
b. Inquiring of management and, where appropriate, those charged with
governance, as to whether the entity is in compliance with such laws and
regulations.
c. Inspecting correspondence, if any, with the relevant licensing or regulatory
authorities.
d. Performing the audit procedures to help identify instances of non-compliance
with other laws and regulations that may have a material effect on the financial
statements.
601. The auditor may identify deficiencies in internal control not only during this risk
assessment process but also at any other stage of the audit. True
602. Controls over compliance with laws and regulations may be relevant to financial
reporting when such controls are relevant to the entities preparation of disclosures
of contingencies in the financial statements. True (ISA 315 Appendix 3)
603. Representations by management, explicit or otherwise, that are embodied in the
financial statements, as used by the auditor to consider the different types of
potential misstatements that may occur.
a. Assertions
b. Significant Risks
c. Relevant assertions
d. Controls
604. The auditor shall evaluate whether the absence of a documented risk assessment
process is appropriate in the circumstances, or represents a material weakness in
the entity’s internal control.
True
605. Risk assessment procedures to obtain audit evidence about the design and
implementation of relevant controls may include:
a. Observing the application of specific controls
b. Tracing transactions through the information system relevant to financial
reporting
c. Inspecting documents and reports
d. Inquiring of entity personnel
606. Assertions about account balances at the entity holds or controls the rights to
assets, and liabilities are the obligations of the entity.
a. Rights and obligations
b. Completeness
c. Existence
d. Accuracy
607. It means the amount or amounts set by the auditor at less than materiality for the
financial statements as a whole to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the financial statements as a whole.
a. Performance materiality
b. Material misstatement
c. Significant risk
d. Materiality level

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PAA Questions

Auditing and Assurance Principles

1. An examination designed to provide an opinion that is the CPA’s highest level of

2. Evidence as an element of assurance engagements considers the following

3. These are the representations by management, explicit or otherwise, that

5. Financial statements need to be prepared in accordance with one, or a

7. Management and tax consulting are examples of advisory engagements. True

8. Suitable criteria as an element of assurance engagements includes the

9. An engagement designed to express limited assurance relating to subject

10. Sufficient appropriate evidence under limited assurance engagements is

11. A three party relationship as an element of assurance engagements includes

12. A three party relationship as an element of assurance engagements includes

14. It means an engagement in which a practitioner expresses a conclusion

15. Subject matter as an element of assurance engagements includes the

16. Audit assertions applied in transaction level following: (multiple answers

17. General standards according to GAAS consist of technical training and

General Standards consider Technical training & proficiency, Independence

19. In an engagement to perform agreed-upon procedures, an auditor is

20. Evidence as an element of assurance engagements considers the following,

21. Reports on non-assurance engagements clearly distinguishes that reports so

22. All engagements are assurance engagements False

23. Reports on non-assurance engagements appropriately include the words

25. It is a subset of assurance services

26. Audit risk is influenced by (multiple answers allowed)

28. Subject matter as an element of assurance engagements includes the

29. Causes of information risk (multiple answers allowed )

30. Engagements to testify in legal proceedings regarding taxation are not

31. This type of decisions such as review performance, make operational

34. Standards of fieldwork under GAAS consist of planning, internal control

35. PSA 100 refers to

37. An engagement in which the CPAs issue an examination, a review, or an

38. The major types of audits (multiple answers allowed)

40. Which of the following statement is true?

44. What is the basis of PSAs?

a. International Standards Assurance Engagements

46. It occurred when it could reasonably be expected to influence the economic

49. Types of auditors (multiple answers allowed)

53. Risk of material misstatements are influenced by (multiple answers allowed )

55. An audit performed in accordance with Philippine Standards on Auditing should:

56. Which of the following best describes the operational audit?

60. Operational auditing is primarily oriented toward :

62. Auditing is a structured process that… (arrange in proper order)

63. A structured representation of historical financial information, including

65. Section 2. Declaration of Policy. The State recognizes the importance of

68. It refers to the difference between the amount, classification, presentation, or

75. The risk associated with survivability and profitability is referred to as

77. RA 9298 Sec 4. Scope of Practice. The practice of accountancy shall

79. In pursuing its quality control objectives with respect to acceptance of a

81. The attest function:

82. Audit assertions applied in presentation and disclosure level following:

83. A process comprising an ongoing consideration and evaluation of the firm’s

85. When a threat to independence arises, an auditor should consider :

90. Attestation risk is limited to a low level in which of the following

92. Independent auditing can best be described as

94. Which of the following is most likely to be included in a public company

96. These are representations by management, explicit or otherwise, that

97. CPAs are considered professional persons because they:

101. Misstatements can arise from error or fraud.

102. A summary of findings rather than assurance is most likely to be included in a: