1.

Recording, classifying, and summarizing economic events in a logical manner for

the purpose of providing financial information for decision making is commonly
called:
A. finance
B. auditing
C. accounting
D. economics
ANSWER: C

2. An audit involves ascertaining the degree of correspondence between assertions

and established criteria. In the case of financial statement audit, which of the
following is not a valid criterion?
A. Philippine Standards on Auditing
B. International Accounting Standards
C. Authoritative financial reporting framework
D. Accounting standards generally accepted in the Philippines
ANSWER: A

3. The subject matter of the financial audit is the

A. Financial statements
B. Economic data
C. Assertions
D. Operating data
ANSWER: A

4. Whenever a CPA professional is engaged to perform an audit of financial

statements according to Philippine Standard on Auditing, he is required to comply
with those standards in order to:
A. Eliminate audit risk
B. Meet the minimum requirement when providing audit services
C. To reduce the auditor's responsibility
D. Eliminate the professional judgment in resolving audit issues
ANSWER: B

5. The criteria for evaluating quantitative information vary. For example, in

the case of an independent audit of financial statements by CPA firms, the criteria
are usually the:
A. Philippine Standards on Auditing
B. Philippine Financial Reporting Standards
C. National Internal Revenue Code
D. Regulations of the Securities and Exchange Commission
ANSWER: B

6. In "auditing" financial accounting data, the primary concern is with:

A. Determining whether recorded information properly reflects the economic
events that occurred during the accounting period.
B. Determining if fraud has occurred.
C. Determining if taxable income has been calculated correctly.
D. Analyzing the financial information to be sure that it complies with
government requirements.
ANSWER: A

7. An audit of financial statements is conducted to determine if the

A. Organization is operating efficiently and effectively
B. Auditee is following specific procedures or rules set down by some higher
authority
C. Overall financial statements are stated in accordance with the applicable
financial reporting framework.
D. Client's internal control is functioning as intended.
ANSWER: C

8. In determining the primary responsibility of the external auditor for an audit

of a company's financial statements, the auditor owes primary allegiance to:
A. Stockholders, creditors and the investing public.
B. The management of the audit client because the auditor is hired and paid by
management.
C. The Auditing and Assurance Standards Council, because it determines auditing
standards and auditor's d responsibility.
D. The audit committee of the audit client because that committee is responsible
for coordinating and reviewing all audit activities within the company.
ANSWER: A

9. An audit involves ascertaining the degree of correspondence between assertions

and established criteria, In the case of an audit of financial statements, which of
the following would be a valid criterion?
A. International Standards on Auditing
B. Philippine Standards on Auditing.
C. Generally accepted accounting principles
D. Quality Control Standards
ANSWER: C

10. Most of the independent auditor's work in formulating an opinion on financial

statements consists of
A. Obtaining and examining evidence
B. Examining cash transactions
C. Comparing recorded accountability with assets
D. Studying and evaluating internal control
ANSWER: A

11. In the auditing environment, failure to meet auditing standards as often:

A. an accepted practice
B. a suggestion of negligence
C. conclusive evidence of negligence
D. tantamount to criminal behavior
ANSWER: C

12. Audit standard requires an auditor to:

A. Perform procedures that are designed to detect all instances of fraud.
B. Provide reasonable assurance that the financial statements are not materially
misstated.
C. Issue an unmodified opinion only when the auditor is satisfied that no instances
of fraud have occurred.
D. Design the audit program to meet financial statement user’s exceptions
concerning fraud
ANSWER: B

13. Which of the following underlies the application of generally accepted auditing
standards, particularly the standards of field work and reporting?
A. Element of internal control
B. Elements of materiality and risk.
C. Element of reasonable assurance.
D. Element of corroborating evidence.
ANSWER: B

14. Which of the following best describes what is meant by generally accepted
auditing standards?
A. Audit objectives generally determined on audit engagements
B. Acts to be performed by the auditor
C. Measures of the quality of the auditor's performance.
D. Procedures to be used to gather evidence to support financial statements.
ANSWER: C

15. Requirements for training, independence and due professional care are included
in which group of the generally accepted auditing standards?
A. Fieldwork.
B. General.
C. Reporting.
D. Quality control.
ANSWER: B

16. The general standards of the generally accepted auditing standards include a
requirement that
A. The fieldwork to be adequately planned.
B. The auditor's report to state whether the financial statements are presented in
conformity with PFRS.
C. Due professional care be exercised by the auditor.
D. The auditor to obtain sufficient, competent evidential matter
ANSWER: C

17. Under GAAS, which of the following reflects a concept from the general group?
A. The confirmation of accounts receivable.
B. Completing an internal control questionnaire.
C. The initial planning of the audit with the audit partner, manager, senior, staff
and client personnel.
D. The assignment of audit personnel to an engagement where they have no financial
interest.
ANSWER: D

18. What is the general character of the three generally accepted auditing
standards classified as general standards?
A. Criteria for competence, independence, and professional care of individuals
performing the audit.
B. Criteria of evidence gathering.
C. Criteria for the content of the auditors' report on financial statements and
related footnote disclosures
D. The requirements for the planning of the audit and supervision of assistants, if
any.
ANSWER: A

19. What is the general character of the three generally accepted auditing
standards classified as standards of field work?
A. The competence of persons performing the audit.
B. Criteria for the content of the auditor's report on financial statements and
related footnote disclosures.
C. The criteria of audit planning and evidence-gathering
D. The need to maintain an independence in mental attitude in all matters relating
to the audit
ANSWER: C

20. Which of the following does not pertain to the standards of fieldwork?
A. Adequate planning and supervision.
B. Obtaining sufficient competent evidential matter.
C. Proper study and evaluation of internal control as a basis for reliance thereon.

D. Technical training and proficiency.

ANSWER: D
21. Material misstatements may emanate from all of the following except;
A. fraud
B. error
C. noncompliance with laws and regulations
D. inadequacy of accounting records.
ANSWER: D

22. Which of the following factors is most important concerning an auditor's

responsibility to detect errors and fraud?
A. The susceptibility of the accounting records to intentional manipulations,
alterations, and the misapplication of accounting principles
B. The probability that unreasonable accounting estimates result from unintentional
bias or intentional attempts to misstate the financial statements
C. The possibility that management fraud, defalcations, and the misappropriation of
assets may indicate the existence of illegal acts.
D. The risk that mistakes, falsifications, and omissions may cause the financial
statements to contain material misstatements.
ANSWER: D

23. The auditor gives an audit opinion on the fair presentation of the financial
statements and associates his or her name with it when, on the basis of adequate
evidence, the auditor concludes that the financial statements are unlikely to
mislead
A. Investors
B. Management
C. A prudent user
D. The reader
ANSWER: C

24. The level of assurance provided by an audit of detecting a material

misstatement is referred to as:
A. Reasonable assurance.
B. Moderate assurance.
C. Absolute assurance
D. Negative assurance.
ANSWER: A

25. The responsibility for the detection and prevention of errors, fraud and
noncompliance with laws and regulations rests with
A. auditor
B. client's legal counsel
C. client management
D. internal auditor
ANSWER: C

26. The responsibility for adopting sound accounting policies, maintaining adequate
internal control, and making fair representation in the financial statement rests
A. With the management.
B. With the independent auditor.
C. Equally with management and the auditor.
D. With the internal audit department.
ANSWER: A

27. The management responsibility to detect and prevent fraud and error is
accomplished by
A. Implementing adequate quality control system.
B. Having an annual audit of financial statements.
C. Implementing adequate accounting and internal control system.
D. Issuing a representation letter to the auditor.
ANSWER: C

28. Which of the following statements best describes the auditor's responsibility
regarding the detection of material errors and frauds?
A. The auditor is responsible for the failure to detect material errors and frauds
only when such failure results from the misapplication of PSA.
B. The audit should be designed to provide reasonable assurance that material
errors and frauds will be detected.
C. The auditor is responsible for the failure to detect material errors and fraud
only when the auditor fails to confirm receivables or observe inventories
D. Extended auditing procedures are required to detect unrecorded transactions even
if there is no evidence that material errors and frauds may exist.
ANSWER: B

29. The auditor's best defense when material misstatements in the financial
statements are not uncovered in the audit is that
A. the audit was conducted in accordance with generally accepted accounting
principles.
B. client is guilty of contributory negligence
C. the audit was conducted in accordance with PSA.
D. the financial statements are client's responsibility.
ANSWER: C

30. The following statements relate to the auditor's responsibility for the
detection of errors and fraud. Identify the correct statements. I. Due to the
inherent limitations of the audit, there is a possibility that material
misstatements in the financial statements may not be detected. II. The subsequent
discovery of material misstatement of the financial information resulting from
fraud or error does not, in itself, indicate that the auditor failed to follow the
basic principles and essential procedures of an audit.
A. I only
B. Il only
C. Both statements are correct
D. Both statements are incorrect
ANSWER: C

31. The objective of the ordinary audit of financial statements is the expression
of an opinion on:
A. the fairness of the financial statements in all material respects.
B. the accuracy of the financial statements.
C. the accuracy of the annual report
D. the accuracy of the balance sheet and income statement
ANSWER: A

32. The responsibility for the preparation of the financial statements and the
accompanying footnotes belongs to:
A. the auditor.
B. management.
C. both management and the auditor equally.
D. management for the statements and the auditor for the notes.
ANSWER: B

33. Auditors accumulate evidence to:

A. defends themselves in the event of a lawsuit.
B. justifies the conclusions they have otherwise reached.
C. satisfies the requirements of the Securities and Exchange Commission.
D. enables them to reach conclusions about the fairness of the financial
statements.
ANSWER: D
34. Management assertions are:
A. directly related to the financial reporting framework used by the company.
B. stated in the footnotes to the financial statements.
C. explicitly expressed representations about the company's financial condition.
D. provided to the auditor in the assertions letter, but are not disclosed on the
financial statements.
ANSWER: A

35. Which of the following is not one of the five broad categories, of management
assertions?
A. General o specific transaction objectives
B. Existence or Occurrence
C. Valuation or allocation
D. Presentation and disclosure
ANSWER: A

36. This assertion addresses whether all transactions that should be included in
the financial statements are in fact included.
A. occurrence
B. completeness
C. rights and obligations
D. existence
ANSWER: B

37. Which of the following statements is not correct?

A. It would be a violation of the completeness assertion if management would record
a sale that did not take place.
B. The completeness assertion deals with matters opposite from those of the
existence assertion.
C. The completeness assertion is concerned with the possibility of omitting items
from the financial statements that should have been included.
D. The existence assertion is concerned with inclusion of amount that should not
have been.
ANSWER: A

38. Which of the following assertions does not relate to balances at period end?
A. Existence
B. Occurrence
C. Valuation or Allocation
D. Rights and Obligation
ANSWER: B

39. Which of the following statements is correct?

A. Existence relates to whether the amounts in accounts are understated.
B. Completeness relates to whether balances exist.
C. Existence relates to whether the balances are valid.
D. Occurrence relates to whether the amounts in accounts occurred in the proper
year. You sent
ANSWER: C

40. Which of the following management assertions is not associated with

transaction-related audit objectives?
A. Occurrence
B. Classification and understandability
C. Accuracy
D. Completeness
ANSWER: B
41. This involves developing an overall strategy for the expected conduct and scope
of the examination; the nature, extent, and timing of which vary with the size and
complexity, and experience with and knowledge of the entity
A. Audit planning
B. Audit procedure
C. Audit program
D. Audit working papers
ANSWER: A

42. Audit plans should precede actions, be flexible and be cost beneficial
respectively
A. NO YES YES
B. YES NO YES
C. YES YES YES
D. NO YES NO
ANSWER: C

43. Adequate planning of the audit work helps ensure that I. Appropriate attention
is devoted to important areas II. All misstatements will be detected III.Potential
problems are Identified IV. The work is completed will be detected expeditiously
A. YES YES YES YES
B. NO YES YES YES
C. YES NO YES YES
D. YES NO YES NO
ANSWER: C

44. Which of the following is not normally performed in the planning stage of the
audit?
A. Develop an overall audit strategy.
B. Request that bank balances be confirmed.
C. Schedule engagement staff and audit specialists.
D. Identify the client's reason for the audit
ANSWER: B

45. Which of the following procedures would a CPA ordinarily perform during audit
planning?
A. Obtain understanding of the client's business and industry
B. Review the client's bank reconciliation
C. Obtain client's representation letter
D. Review and evaluate client's internal control
ANSWER: A

46. Early appointment of the independent auditor will enable

A. a more thorough examination to be performed.
B. proper study and evaluation of internal control to be performed.
C. sufficient competent evidential matter to be obtained
D. a more efficient examination to be planned.
ANSWER: D

47. In developing the overall audit plan for a new client, factor not to be
considered is
A. Materiality levels.
B. The client's business, including the structure of the organization and
accounting system used
C. The amount of estimated audit fee
D. The audit risks and procedures to be performed to achieve audit objectives
ANSWER: C

48. In planning the audit engagement, the auditor should consider each of the
following except
A. matters relating to the entity's business and the industries in which it
operates
B. the entity's accounting policies and procedures
C. anticipated levels of control risk and materiality
D. the kind of opinion that is likely to be expressed
ANSWER: D

49. A CPA is conducting the first examination of a client's financial statements.

The CPA hopes to reduce the audit work by consulting with the predecessor auditor
and reviewing the predecessor's working papers. This procedure is
A. Acceptable if the client and the predecessor auditor agree to it.
B. Acceptable if the CPA refers in the audit report to reliance upon the
predecessor auditor's work.
C. Required if the CPA is to render an unmodified opinion.
D. Unacceptable because the CPA should bring an independent viewpoint to a new
engagement.
ANSWER: A

50. Which of the following is not one of the three main reasons why the auditor
should properly plan engagements?
A. To enable proper on-the-job training of employees
B. To enable the auditor to obtain sufficient competent evidence
C. To avoid misunderstandings with the client
D. To help keep audit costs reasonable
ANSWER: A

51. The primary responsibility for establishing and maintaining an internal control
rests with
A. The external auditors
B. The internal auditors
C. Management and those charged with governance
D. The controller or the treasurer
ANSWER: C

52. The fundamental purpose of an internal control is to

A. Safeguard the resources of the organization
B. Provide reasonable assurance that the objectives of the organization are
achieved
C. Encourage compliance with organization objectives.
D. Ensure the accuracy, reliability, and timeliness of information.
ANSWER: B

53. Which of the following is not one of the three primary objectives of effective
internal control
A. Reliability of financial reporting
B. Efficiency and effectiveness of operations
C. Compliance with laws and regulations
D. Each of the above is a primary objective of effective internal control
ANSWER: D

54. Which of the following is not typically one of management's concerns in

designing effective internal controls?
A. To generate profits from operations
B. To generate fairly stated financial statements
C. To comply with applicable laws and regulations
D. To design the most effective internal control possible no matter how much it
will cost
ANSWER: D
55.Which of the following is not one of the three primary objectives of effective
internal control?
A. reliability of financial reporting
B. efficiency and effectiveness of operations
C. compliance with laws and regulations
D. assurance of elimination of business risk
ANSWER: D

56. Which of the following internal control objectives would be most relevant to
the audit?
A. Operational objective
B. Compliance objective
C. Financial reporting objective
D. Administrative control objective
ANSWER: C

57. An act of two or more employees to steal assets or misstate records is

frequently referred to as
A. Collusion
B. A material weakness
C. A control deficiency
D. Any of the above
ANSWER: A

58. Which statement is correct concerning the relevance of various types of

controls to a financial audit?
A. An auditor may ordinarily ignore a consideration of controls when a substantive
audit approach is taken.
B. Controls over the reliability of financial reporting are ordinarily most
directly relevant to an audit but other controls may also be relevant.
C. Controls over safeguarding of assets and liabilities are of primary importance,
while controls over the reliability of financial reporting may also be relevant.
D. All controls are ordinarily relevant to an audit.
ANSWER: B

59. An auditor would most likely be coneerned with internal control policies and
procedures that provide reasonable assurance about the
A. Efficiency of management's decision-making process
B. Appropriate prices the entity should charge for its products
C. Methods of assigning production tasks to employees
D. Entity's ability to process and summarize financial data
ANSWER: D

60. In an audit of financial statements, an auditor's primary consideration

regarding an internal control activity is whether the control
A. Reflects management's philosophy and operating style
B. Affects management's financial statement assertions
C. Provides adequate safeguards over access to assets
D. Enhances management's decision-making processes
ANSWER: B

61. CIS has several significant effects of an organization. which of the following
would not be important from an auditing perspective?
A. organizational changes
B. the visibility of information
C. the potential for material misstatement
D. None of the above; i.e., they are all important.
ANSWER: D
62. Which statement is incorrect when auditing in a CIS environment?
A. A CIS environment exists when a computer of any type or size is involved in the
processing by the entity of financial information of significance to the audit,
whether that computer is operated by the entity or by a third party.
B. The auditor should consider how a CIS environment affects the audit.
C. The use of a computer changes the processing, storage and communication of
financial information and may affect the accounting and internal control systems
employed by the entity.
D. A CIS environment changes overall objective and scope of an adult
ANSWER: D

63.An important characteristic of CIS is uniformity of processing. Therefore, a

risk exists that:
A. Auditors will not be able to access data quickly.
B. Auditors will not be able to determine if data is processed consistently.
C. Erroneous processing can result in the accumulation of a great number of
misstatements in a short period of time.
C. All of the above.
ANSWER: C

64. Which of the following is not a benefit of using IT based controls?

A. Ability to process large volumes of transactions
B. Ability to replace manual controls with computer-based controls.
C. Reduction in misstatements due to consistent processing of transactions.
D. Over-reliance on computer generated reports.
ANSWER: D

65. The characteristics that distinguish computer processing from manual

processing include the following: 1) Computer processing uniformly subjects like
transactions to the same instructions. 2) Computer systems always ensure that
complete transaction trails useful for audit purposes are preserved for indefinite
periods. 3) Computer processing virtually eliminates the occurrence of clerical
errors normally associated with manual processing 4) Control procedures as to
segregation of functions may no longer be necessary in computer environment.
A. All of the above statements are true.
B. Only statements (2) and (4) are true.
C. Only statements (1) and (3) are true
D. All of the above statements are false
ANSWER: C

66. Which of the following is not a risk specific to CIS environments?

A. reliance on the functioning capabilities of hardware and software
B. increased human involvement
C. loss of data due to insufficient backup
D. unauthorized access
ANSWER: B

67. Which of the following is not a risk in a computerized information system

(CIS)?
A. need for CIS experienced staff
B. separation of CIS duties from accounting functions
C. improved audit trail
D. hardware and data vulnerability
ANSWER: C

68. Which of the following statements is not correct?

A. the overall objective and scope of an audit do not change in CIS environment.
B. When computers or CIS are introduced, the basic concept of evidence accumulation
remains the same.
C. Most CIS rely extensively on the same type of procedures for control that are
used in manual processing system.
D. The specific methods appropriate for implementing the basic auditing concepts do
not change, as systems become more complex.
ANSWER: D

69. The use ot CIS will least likely affect the

A. The procedures followed by the auditor in obtaining a sufficient understanding
of the accounting and internal control systems.
B. The auditor's specific audit objectives.
C. The consideration of inherent risk and control risk through which the auditor
arrives at the risk assessment.
D. The auditor's design and performance of tests of control and substantive
procedures appropriate to meet the audit objective.
ANSWER: B

70. Which of the following is unique to CIS?

A. Error listing
B. Flowchart
C. Questionnaires
D. Pre-numbered documents
ANSWER: A

71. Which of the following statements is most correct regarding the primary purpose
of audit procedures?
A. to detect all errors or fraudulent activities as well as illegal activities
B. to comply with the SEC
C. to gather corroborative audit evidence about management's assertions regarding
the client's financial statements
D. to determine the amount of errors in the balance sheet accounts in order to
adjust the accounts to actual
ANSWER: C

72. In the context of an audit of financial statements, substantive tests are audit
procedures that
A. May be eliminated under certain conditions
B. Are designed to discover significant subsequent events
C. May be either tests of transactions, direct tests of financial balances, or
analytical procedures
D. Will increase proportionately with the auditor's reliance on internal control
ANSWER: C

73. The primary emphasis in most tests of details of balances is on the

A. Balance sheet accounts
B. Income statement accounts
C. Cash flow statement account
D. All of the above
ANSWER: A

74. A procedure designed to test for monetary misstatements directly affecting the
validity of the financial statement balances is a:
A. test of controls.
B. substantive test.
C. test of attributes.
D. monetary-unit sampling test.
ANSWER: B

75. Which of the following is ordinarily designed to detect possible material peso
errors?
A. Tests of controls
B. Analytical review
C. Computer controls
D. None of the above
ANSWER: B

76. More types of evidence are obtained by using what type of test than any other?
A. Substantive tests of transactions
B. Tests of controls
C. Analytical procedures
D. Tests of details of balances
ANSWER: D

77. The primary difference between an audit of the balance sheet and an audit of
the income statement lies in the fact that the audit of the income statement deals
with the verification of
A. Transactions
B. Authorizations
C. Costs
D. Cutoffs
ANSWER: A

78. Which of the following tests commonly occur together?

A. Substantive tests of transactions and tests of controls
B. Substantive test of transactions and obtaining an understanding of internal
controls
C. Analytical procedures and tests of controls
D. all of the above commonly occur together
ANSWER: A

79. As audit evidence, physical examination and confirmation, may only be obtained
using which of the following types of tests?
A. Tests of controls
B. Tests of transactions
C. Analytical procedures
D. Tests of details of balances
ANSWER: D

80. Below are the five types of tests which auditors use to determine whether
financial statements are fairly stated. Which three are substantive tests? 1 risk
assessment procedures 2 tests of controls 3. tests of transactions 4. analytical
procedures 5.tests of details of balances
A. 1, 2, and 3.
B. 3, 4, and 5.
C. 2, 3, and 5.
D. 2, 3, and 4.
ANSWER: B

81. Which of the following constitutes audit sampling?

A. Selecting and examining specific items to determine whether or not a particular
procedure is being performed.
B. Examining items to obtain information about matters such as the client's
business, the nature of transactions, accounting and internal control systems.
C. Examining items whose values exceed a certain amount so as to verify a large
proportion of the total amount of an account balance or class of transactions.
D. Applying audit procedures to less than 100% of items within an account balance
or class of transactions such that all sampling units have a chance of selection.
ANSWER: D
82. When designing audit procedures, the auditor should determine the appropriate
means of selecting items for testing. The means available to the auditor would
include: 100% examination Audit Sampling and selecting specific items
A. YES YES YES
B. NO YES NO
C. NO YES YES
D. NO NO YES
ANSWER: A

83. This involves the application of the procedures to less than 100% of the items
within an account balance or class of transactions. This enables the auditor to
obtain and evaluate audit evidence about some characteristics of the selected items
in order to form an opinion about the characteristics of all the items supporting
an account balance or transaction class.
A. Audit techniques
B. Audit sampling
C. Selective testing
D. Specific identification
ANSWER: B

84. The auditor’s principal objective when using a sample of tests of details of
balances is whether the
A. account balance being audited is fairly stated.
B. transactions being audited are free of misstatements.
C. controls being tested are operating effectively.
D. transactions and account balances being audited are fairly stated.
ANSWER: A

85. Audit sampling for substantive tests is appropriate when

A. Analytical procedures are used
B. The auditor wants to eliminate sampling risks
C. A population contains small number of large value items
D. Tests of details are performed
ANSWER: D

86. Audit sampling for test of control is generally appropriate when

A. control leaves evidence of performance
B. control leaves no evidence of performance
C. 100 % of the transactions is tested
D. examining specific high value items in the population
ANSWER: A

87. In a sampling application, the group of items about which the auditor wants to
estimate some characteristic is called the
A. Population
B. Sample
C. Attribute of interest
D. Sampling unit
ANSWER: A

88. An error that arises from an isolated event that has not recurred other than on
specifically identifiable occasions and is therefore not representative of errors
in the population.
A. tolerable error
B. non-sampling error
C. sampling error
D. anomalous error
ANSWER: D
89. The possibility that the auditor's conclusion based on a, sample may be
different from the conclusion reached if the entire population were subjected to
the same procedure is called
A. Audit risk
B. Non-sampling risk
C. Sampling risk
D. Detection risk
ANSWER: C

90. Which of the following best illustrates the concept of sampling risk
A. A randomly chosen sample may not be representative of the population as a whole
on the characteristics of interest
B. An auditor may select audit procedure that are not appropriate to achieve the
specific objective
C. An auditor may fail to recognize errors in the documents examined for chosen
sample
D. The documents related to the chosen sample may not be available for inspection
ANSWER: A

91. Which of the following is not among the characteristics of the procedures
performed in completing the audit?
A. They are optional since they have only an indirect impact on the opinion to be
expressed.
B. They involve many subjective judgments by the auditor.
C. They are performed after the balance sheet date.
D. They are usually performed by audit managers or other senior members of the
audit team who have extensive audit experience with the client.
ANSWER: A

92. An auditor has the responsibility to actively search for subsequent events that
occur subsequent to the:
A. balance sheet date.
B. date of the auditor's report.
C. balance sheet date, but prior to the audit report.
D. date of the management representation letter.
ANSWER: C

93. "Subsequent events" for reporting purposes are events which occur subsequent to
the
A. Financial statement date.
B. Date of the auditor's report.
C. Financial statement date but prior to the date of the auditor's report.
D. Date of the auditor's report and concern contingencies which are not reflected
in the financial statements.
ANSWER: C

94. When completing the audit, the auditor performs procedure designed to identify
subsequent events that may require adjustment. of, or disclosure in, the financial
statements. Accordingly, I.Those that provide evidence about conditions that
existed at period end and II. Those that are indicative of conditions that arose
subsequent to period end , respectively.
A. Will require adjustment Will require adjustment
B. Will require adjustment Will require disclosure
C. Will require disclosure Will require disclosure
D. Will require disclosure Will require adjustment
ANSWER: B

95. The auditor has completed his assessment of subsequent events. The proper
accounting for subsequent events that have a direct effect on the financial
statements is to:
A. adjusts the financial statements for the year under audit.
B. discloses in the notes to financial statement the amount of the adjustment.
C. duly notes in the audit workpapers that next year's financial statements need to
be adjusted.
D. makes no adjustment of the financial statements for the year under audit.
ANSWER: A

96. Which of the following procedures should an auditor generally perform regarding
subsequent events?
A. Compare the latest available interim financial statements with the financial
statements being audited.
B. Send second requests to the client's customers who failed to respond to initial
accounts receivable confirmation requests.
C. Communicate material weaknesses in the internal control structure to the
client's audit committee.
D. Review the cut-off bank statements for several months after the year-end.
ANSWER: A

97. Which of the following procedures would an auditor most likely perform to
obtain evidence about the occurrence of subsequent events?
A. Recomputing a sample of large-peso transactions occurring after year-end for
arithmetic accuracy.
B. Investigating changes in stockholders' equity occurring after year-end.
C. Inquiring of the entity's legal counsel concerning litigation, claims, and
assessments arising after year-end.
D. Confirming bank accounts established after year-end.
ANSWER: C

98. Which of the following procedures would an auditor most likely perform to
obtain evidence about an entity's subsequent events?
A. Reconcile bank activity for the month after the balance sheet date with cash
activity reflected in the accounting records.
B. Examine on a test basis the purchase invoices and receiving reports for several
days after the inventory date.
C. Review the treasurer's monthly reports on temporary investments owned, purchase,
and sold.
D. Reading minutes of directors and stockholders' meetings.
ANSWER: D

99. Phil, CPA, is preparing an audit program for the purpose of ascertaining the
occurrence of subsequent events that may require adjustment or disclosure essential
to a fair presentation of the financial statements in conformity with financial
reporting standards. Which one of the following procedures would be least
appropriate for this purpose?
A. Confirm as of the completion of field work accounts receivable which have
increased significantly froth the year-end date.
B. Read the minutes of the board of directors,
C. Inquire of management concerning events which may have occurred.
D. Obtain a lawyer's letter as of the completion of field work
ANSWER: A

100. The procedures to identify events that may require adjustment of, or
disclosure in, the financial statements would be performed as near as practicable
to the date of the auditor’s report. These procedures would ordinarily include the
following except
A. Reviewing procedures management has established to ensure that subsequent events
are identified.
B. Reading minutes of the meetings of shareholders, the board of directors and
audit and executive committee held after period end and inquiring about matters
discussed at meetings for which minutes are not yet available.
C. Testing the effectiveness of those internal control policies and procedures that
may have significantly changed in the subsequent period.
D. Inquiring or extending previous oral or written inquiries, of the entity's
lawyers concerning litigation and claims
ANSWER: C