1.

The development of a general strategy and a detailed approach for the expected nature, timing, and
extent of audit refers to:
a. Supervision b. Audit procedures c. Directing d. Planning

2. The auditor should consider the nature, extent, and timing of the work to be performed and should
prepare a written audit program for every audit. Which audit standard is most closely related to this
requirement?
a. The audit is to be performed by a person or persons having adequate technical training and
proficiency as an auditor.
b. In all matters relating to the assignment, an independent mental attitude is to be maintained by the
auditor(s).
c. Due professional care is to be exercised in the planning and performance of the audit and preparation
of the report.
d. The work is to be adequately planned and assistants, if any, are to be properly supervised.

3. Which of the following would a successor auditor normally perform after acceptance of an audit
client?
a. Inquiry of predecessor auditor regarding the client.
b. Review the SEC filings of the client.
c. Inquiry of bankers regarding the client.
d. Review of predecessor auditor working papers.

4. To obtain an understanding of a continuing client's business in planning an audit, an auditor most

likely would
a. Perform tests of details of transactions and balances.
b. Review prior-year working papers and the permanent file for the client.
c. Read specialized industry journals.
d. Reevaluate client's internal control environment.

5. Which of the following is required documentation in an audit in accordance with generally accepted
auditing standards?
a. A flowchart or narrative of the information system describing the recording and classification of
transactions for financial reporting.
b. An audit program setting forth in detail the procedures necessary to accomplish the engagement's
objectives.
c. A planning memorandum establishing the timing of the audit procedures and coordinating the
assistance of entity personnel.
d. An internal control questionnaire identifying policies and procedures that assure specific objectives
will be achieved.

6. Which of the following procedures would an auditor most likely perform in planning a financial
statement audit?
a. Inquiring of the client's legal counsel concerning pending litigation.
b. Comparing the financial statements to anticipated results.
c. Examining computer generated exception reports to verify the effectiveness of internal controls.
d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.

7. Analytical procedures used in planning an audit should focus on

a. Reducing the scope of tests of controls and substantive tests.
b. Providing assurance that potential material misstatements will be identified.
c. Enhancing the auditor's understanding of the client's business.
d. Assessing the adequacy of the available evidential matter.

8. Analytical procedures, which means the analysis of significant ratios and trends including the resulting
investigation of fluctuations and relationships that are inconsistent with other relevant information or
which deviate from predicted amounts, are not required to be applied

a. At the planning stage of the audit c. As substantive procedures

b. Overall review stage of the audit d. None of the above

9. Which of the following statements is correct concerning analytical procedures?

a. Analytical procedures usually involve comparisons of ratios developed from recorded amounts to
assertions developed by management.
b. Analytical procedures used in planning an audit generally use data aggregated at a high level.
c. Analytical procedures can replace tests of controls in gathering evidence to support the assessed level
of control risk.
d. Analytical procedures are more efficient, but not more effective, than tests of details and
transactions.

10. Which of the following is an effective audit planning and control procedures that helps prevent
misunderstandings and inefficient use of audit personnel?
a. Make copies, for inclusion in the working papers, of those client supporting documents examined by
the auditor.
b. Provide the client with copies of the audit programs to be used during the audit.
c. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other
information.
d. Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior
to final closing.

11. Which of the following is an aspect of scheduling and controlling the audit engagement?
a. Including in the audit program a column for estimated and actual time.
b. Performing audit work only after the client's books of account have been closed for the period under
examination.
c. Writing a conclusion in individual working papers indicating how the results of the audit will affect the
auditor's report.
d. Including in the engagement letter an estimate of the minimum and maximum audit fee.

12. Which of the following is an engagement attribute for an audit of an entity that processes most of its
financial data in electronic form without any paper documentation?

a. Discrete phases of planning, interim, and year-end field work.

b. Increased effort to search for evidence of management fraud.
c. Performance of audit tests on a continuous basis.
d. Increased emphasis on the completeness assertion.

13. Which of the following statements is not correct about materiality?

a. The concept of materiality recognizes that some matters are important for fair presentation of
financial statements in conformity with GAAP, while other matters are not important.
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 financial statements.
c. Materiality judgments are made in light of surrounding circumstances and necessarily involve both
quantitative and qualitative judgments.
d. 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
14. The risk that the assertion contains material misstatements that, when aggregated with
misstatements in other assertions, could make the entire financial statements materially misstated is:
a. Individual audit risk b. Inherent risk c. Control risk d. Detection risk

15. Incremental risk is the increased risk that errors may not be detected at the balance sheet date
because:
a. Audit procedures were performed at an interim date
b. Inherent risk was assessed too low.
c. Analytical procedures were not performed.
d. Detection risk was set too high a level.

1. Adequate planning of the audit work helps the auditor of accomplishing the following objectives,
except:
a. Gathering of all corroborating audit evidence.
b. Ensuring that appropriate attention is devoted to important areas of the audit.
c. Identifying the areas that need a service of an expert.
d. The audit work is completed efficiently.

2. The extent of planning will vary according to any of the following, except:
a. Size of the audit client.
b. Auditor's experience with the entity and knowledge of the business.
c. The nature and complexity of the audit engagement
d. The assessed level of control risk.

3. Which of the following is least likely considered by the auditor in developing the overall audit plan?
a. Understanding of the accounting and internal control systems.
b. Relevant risk and materiality.
c. The involvement of other auditors in the audit of major component of financial statements
d. The general level of competence of audit assistants.

4. Which of the following is not considered by the CPA when he makes an overall audit plan?
a. Identification of complex accounting areas including those involving accounting estimates.
b. The information technology used by the client.
c. The content of the representation letters.
d. The nature and timing of reports or other communication with the entity that are expected under the
engagement.

5. Audit plan should

ABCD
A. Precede action Yes No Yes No
B. Be fixed Yes No No Yes
C. Be cost beneficial Yes Yes Yes Yes

6. Which of the following least likely affect the form and content of the overall audit plan?
a. Complexity of the audit engagement.
b. Methodology and technology used by the auditor.
c. The entity's form of business organization.
d. The size of the entity.

7. The audit program should contain the following, except:

a. Audit objective
b. Time budget for the various audit areas
c. Set of planned audit procedures
d. The combined assessed level of inherent and control risk

8. Which of the following will most likely help the auditor to identify and understand the events,
transactions and practices of his audit client?
a. Obtaining a sufficient knowledge of the business of his client.
b. Understanding of accounting and internal control.
c. Testing control policies and procedures.
d. Obtaining a representation letter from the client management.

9. The auditor should have or obtain a knowledge of the client's business sufficient to:
a. Evaluate whether the financial statements are materially misstated.
b. Document material weaknesses in accounting and internal control systems.
c. Identify and understand events, transactions and practices that may have effect on financial
statements.
d. Have an overall evaluation of whether financial assertions are fairly presented in the financial
statements.
C

10. The auditor is not expected to have

a. A particular knowledge of the economy and the industry within which the entity operates.
b. A particular knowledge of how the entity operates.
c. A level of knowledge of business ordinarily less than that possessed by management.
d. A knowledge of business which is used in assessing inherent and control risk.

11. The auditor obtains knowledge of client's business

ABCD
Prior to acceptance of engagement No No Yes Yes
Planning stage of the audit Yes Yes Yes No
Testing of transactions stage No Yes Yes Yes

12. Understanding the business and using this information appropriately assists the auditor in, except
a. Deciding whether to do tests of controls.
b. Evaluating audit evidence.
c. Assessing risks and identifying potential problems.
d. Planning and performing the audit effectively and efficiently.

13. Which of the following is the ultimate concern of the knowledge about the business?
a. Consideration of how it affects the financial statements taken as a whole.
b. Assists the auditor in enforcing quality control procedures.
c. To assure that sufficient audit evidence is obtained.
d. It assists in determining the type of audit report to be issued.

14. A knowledge of the business is a frame of reference within which the auditor exercises professional
judgment. This assists the auditor in carrying out the following objectives, except: a. Assessing risks and
identifying problems.
b. Evaluating audit evidence.
c. Determining the audit opinion to be expressed.
d. Planning and performing the audit effectively and efficiently.

15. Throughout the course of the audit, the auditors make judgment about many matters where
knowledge of the business is important. These procedures do not include: a. Evaluating accounting
estimates and management representations.
b. Identifying related parties and related party transactions.
c. Assessing inherent and control risks.
d. Assessing the appropriateness of using statistical sampling instead of judgmental sampling.

16. Which of the following factors is inappropriately relevant to the management's assessment of the
going concern assumption?
a. The degree of uncertainty associated with the outcome of an event or condition decreases
significantly the further into the future of judgment being made about the outcome of an event or
condition.
b. Any judgment about the future is based on information available at the time at which the judgment is
made.
c. The size and complexity of the entity, and the nature and conditions of its business affect the
judgment regarding the outcome of events or conditions.
d. Subsequent events can contradict a judgment which was reasonable at the time it was made.

17. Which of the following may not cast significant doubt about the going concern assumption of an
entity.
a. The entity heavily used equity financing for investment in permanent assets.
b. Non-compliance with capital or other statutory requirements.
c. Pending legal or regulatory proceeding against the entity that may, if successful, result in claims that
are unlikely to be satisfied.
d. Changes in legislation or government policy expected to adversely affect the entity.

18. When events or conditions have been identified which may cast significant doubt on the entity's
ability to continue as a going concern, the auditor should:
a. Review management's plans for future actions based on its going concern assessment.
b. Gather sufficient appropriate audit evidence to confirm or dispel whether or not a material
uncertainty exists through carrying out procedures considered necessary, including considering the
effect of any plans of management and other mitigating factors.
c. Seek written representations from management regarding its plans for future action.
d. All of the above.

19. Which of the following proposed actions may mostly mitigate the going concern problem of an
entity?
a. Rescheduling of loan payments.
b. More vigorous business expansion.
c. Acquiring asset replacement using short-term loans.
d. Increasing the amount of cash dividends to be paid.

20. The following are related to the auditor's responsibility to assess the ability of the company to
continue as a going concern?
I. The auditor should consider the appropriateness of the management's use of the going concern
assumption in the preparation of the financial statements.
II. The auditor is to consider whether there are material uncertainties about the entity's ability to
continue as a going concern that needs to be disclosed in the financial statements.
III. The absence of any reference to going concern uncertainty in the auditor's report is viewed as a
guarantee as to the entity's ability to continue as a going concern. Which of the foregoing
inappropriately describe(s) the auditor's responsibility?
a. I only b. I and II only c. II only d. III only

21. The auditor considers events and condition relating to the going concern assumption during the
planning stage in order to:
a. Help management do action that may mitigate its going concern problems.
b. Identifying the areas of accounting and internal control systems that need tests of control.
c. To have a timely discussion with management and a review of management's plans and resolutions of
any identified going concern issues.
d. In order to shorten assessment period.

22. If adequate disclosure is not made by the entity regarding substantial doubt about its ability to
continue as a going concern, the auditor should include in his report specific reference to the substantial
doubt as to ability of the company to continue as a going concern and should express:
a. Unqualified opinion with explanatory paragraph
b. A subject to qualified opinion or adverse opinion.
c. Either an "except for" qualified opinion or an adverse opinion.
d. A disclaimer of opinion.

23. If the auditor believes that the entity will not be able to continue as a going concern and the
financial statements are prepared on a going concern basis, the auditor's report should include: a.
Unqualified opinion with explanatory paragraph. c. Adverse opinion.
b. Qualified opinion. d. Disclaimer of opinion.

C
24. If the auditor believes that management should extend its assessment but the latter refuses to do
so, the auditor should:
a. Rectify the lack of analysis by management.
b. Extend his audit procedures to obtain sufficiently appropriate evidence regarding the use of the going
concern assumption.
c. Emphasize this matter in the audit report.
d. Consider a modification of the report as a result of the limitation in the scope of the auditor's work.

25. The management denied the auditor's request that the management has to extend its assessment of
its going concern ability. However, the auditor's other procedures are sufficient to assess the
appropriateness of management use of the going concern assumption in the preparation of the financial
statements. he auditor should issue:
a. Unqualified opinion c. Adverse opinion
b. Unqualified opinion with explanatory paragraph d. Disclaimer of opinion

1. This refers to the development of a general strategy and a detailed approach for the expected nature,
timing and extent of audit refers to:
A. Supervision C. Audit planning
B. Direction D, Pre-engagement

2. Proper planning assures that (select the exception ):

A. Appropriate attention is devoted to important areas of the audit.
B. Potential problems ate Identified.
C. Work is completed expeditiously,
D. An unqualified opinion isexpressed.

3. The outputs of audit planning are:

A. An overall audit strategy that sets out the direction, scope and focus of the audit team's efforts
B. A detailed audit plan containing the nature, extent, and timing of risk assessment procedures and
planned further audit procedures at the assertion level.
C. Audit programs, tailored as needed to reflect the particular engagement circumstances.
D. All of the answers

D
4. An audit plan contains the nature, extent, and timing of procedures for gathering evidence.Regarding
audit procedures, which of the following best describes risk assessment procedures?

A. This category of procedures is used to obtain an understanding of the entity and its environment,
including its internal control, to assess the risks of material misstatement at the financial statement and
assertion levels.
B. This category of procedures is used to test the operating effectiveness of controls in preventing, or
detecting and correcting, material misstatements at the assertion level.
C. This category of procedures is used to detect material misstatements at the assertion level.
D. All of these statements describe risk assessment procedures.

5. The extent of planning will vary according to the following:

A. Size of the audit client.
B. Auditor's experience with the entity and knowledge of the business.
C. The nature and complexity of the audit engagement
D. All of these affect the extent of planning.

6. PSA 315 requires:

A. Obtaining an understanding of the entity and its environment
B. Discussion among engagement team members about the risk of material misstatement in the
financial statements.
C. Identifying and assessing the risks of material misstatement
D. All of the answers.

7. Which of the following statements best describes "observation"?

A. Physical examination of tangible assets. or the examination of records or documents, whether
internal or external, in paper form. electronic form, or other media.
B. Looking at a process or procedure being performed by others,
C. Seeking information of knowledgeable persons, both financial and non-financialinformation.
D. Evaluating financial information through a study of plausible relationships among both financial and
non-financial data.

8. The auditor's understanding of the entity and Its environment consists an understanding of the
following aspects:
A. Industry, regulatory and other external factors, including the applicable financial reporting framework
B. Nature of the entity, Including the entity's selection and application of accounting policies
C. Objectives and strategies and the related business risks that may result in a material misstatement of
the financial statements
D. All of these

9. An auditor obtains an understanding of the entity and Its environment in order to

A. Make constructive suggestions concerning improvements to the client's Internal control.
B. Develop an attitude of professional skepticism concerning management's financial statement
assertions
C. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a
whole to be materially misstated.
D. Understand the events and transactions that may have an effect on the client's financial statements.

10. A person or firm possessing special skill, knowledge and experience in a particular field excluding
accounting and auditing.
A. Expert C. Multi skilled personnel
B. Quality control reviewer D. Taxation specialist

11. In which of the following situations would an expert be least likely contracted by a CPA?
A. Application of accounting methods in computing inventory balances.
B. Determination of fair values using specialized statistical techniques.
C. Legal opinions concerning interpretations of engagements, statutes and regulations.
D. Valuations of certain types of assets like land and buildings.

12. Religious Corp. has a few large accounts receivable that total P1,000,000. Pilgrim Corp. hasa large
number of small accounts receivable that also total P1,000,000. The importance of an error in any one
account is, therefore, greater for Religious Corp. than for Pilgrim Corp.
This is an example of the auditor's concept of.
A. Materiality C. Reasonable assurance.
B. Comparative analysis D. Relative risk.

13. In considering materiality for planning purposes, an auditor believes that misstatements aggregating
P10,000 would have a material effect on an entity's profit and loss, but that misstatements would have
to aggregate P20,000 to materially affect the statement of financial position. Ordinarily, it would be
appropriate to design auditing procedures that would be expected to detect misstatements' that
aggregate:
A. P30,000 B. P20,000 C. P15,000 D. P10,000

14. When the auditors allocate the preliminary judgment about materiality to account balances, the
materiality allocated to any given account balance is referred to as:
A. The error range C. Tolerable misstatement.
B. The materiality range. D. Tolerable materiality.

15. Regardless of how the allocation of the preliminary judgment about materiality was done, when the
audit is complete the auditor must be confident that the combined errors in all accounts are
A. Less than the preliminary judgment
B. Equal to the preliminary judgment
C. More than the preliminary judgment.
D. Less than or equal to the preliminary judgment.

16. The relationship between materiality and audit risk is:

A. Direct. B. Inverse. C. Indeterminable. D. None of these.

17. When setting a preliminary judgment about materiality,

A. More evidence is required for a low peso amount than for a high peso amount.
B. Less evidence IS required for a low peso amount than for a high peso amount.
C. The same amount of evidence is required for either low or high peso amounts.
D. There is no relationship between it and the peso amount of evidence needed.

18. These are events or conditions that provide an opportunity, a motive or a means to commit fraud, or
indicate that fraud may already have occurred,
A. Audit risk. C. Risk of material misstatement.
B. Fraud risk factors. D. Fraud indications.

19. Which of the following characteristics most likely would heighten an auditor's concern about the risk
of intentional manipulation of financial statements?

A. Turnover of senior accounting personnel is low

B. Insiders recently purchased additional shares of the entity's stock
C. Management places substantial emphasis on meeting earnings projections
D. The rate of change in the entity's industry is slow.

20. This refers to acts of omission or commission by the entity being audited which are contrary to
prevailing laws or regulations:

A. Fraud B. Error C. Non-compliance D. Misstatements

21. One of the considerations in audit planning is obtaining a knowledge of the client's business.An
auditor obtains knowledge about a new client's business and its industry to

A. Make constructive suggestions concerning improvements to the client's internal control.

B. Develop an attitude of professional skepticism concerning management's financial statement
assertions.
C. Evaluate whether the aggregation or known misstatements causes the financial
statements taken as a whole to be materially misstated.
D. Understand the events and transactions that may have an effect on the client's financial statements.

22. When the continuing auditor intends to use information about the entity and its environment
obtained in prior periods, the auditor should

A. Seek permission with the client in using the prior period information obtained by theauditor.
B. Determine whether to equitably reduce the audit fee due to lower audit effort expended during the
engagement.
C. Determine whether changes have occurred that may affect the relevance of such information in the
current audit.
D. Assess control risk as "high" for the assertions affected by the prior-period information.

23. According to PSA 315, the auditor should document:

A. The discussion among the engagement team

B. Key elements of the understanding obtained regarding each of the aspects of the entity and its
environment, including each of the internal control components
C. The identified and assessed risks of material misstatement at the financial statement level and at the
assertion level, the risks identified and related controls evaluated
D. All of the choices
D

24. In obtaining an understanding of a client's objectives, strategies and related business risks,
theauditor would most likely consider the following as business risks, except:

A. The entity does not have the personnel or expertise to deal with the changes in the industry.
B. There is increased product liability.
C. Demand has not been accurately estimated.
D. The entity relies more on debt financing rather than equity financing.
E. All of the above are considered.

25. A reason to establish internal control is to:

A. Have a basis for planning the audit.

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

1. A measure of how willing the auditor is to accept that the financial statements may be materially
misstated after the audit is completed and an unmodified opinion has been issued is the
A. Inherent risk.
B. Acceptable audit risk.
C. Control risk.
D. Detection risk.

2. 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.

3. Which of the following statements concerning the relevance of various types of controls to a financial
statement audit is correct?
A. All controls are ordinarily relevant to a financial statement audit.
B. Controls over safeguarding of assets and liabilities are of primary importance, while controls over the
reliability of financial reporting may also be relevant.
C. Controls over the reliability of financial reporting are ordinarily most directly relevant to a financial
statement audit, but other controls may also be relevant.
D. An auditor may ordinarily ignore a consideration of controls when a substantive audit approach is
taken.

4. An auditor should consider two key issues when obtaining an understanding of a client's internal
controls. These issues are
A. The effectiveness and efficiency of the controls.
B. The frequency and effectiveness of the controls.
C. The design and implementation of the controls.
D. The implementation and efficiency of the controls.

5. Authorizations can be either general or specific. Which of the following is not an example of a general
authorization?
A. Automatic reorder points for raw materials inventory.
B. A sales manager's authorization for a sales return.
C. Credit limits for various classes of transactions.
D. A sales price list for merchandise.

6. An auditor should obtain sufficient knowledge of an entity's information system, including the related
business processes relevant to financial reporting, to understand the
A. Policies used to detect the concealment of fraud.
B. Process used to prepare significant accounting estimates.
C. Safeguards used to limit access to computer facilities.
D. Procedures used to assure proper authorization of transactions.

7. Which of the following controls most likely would provide reasonable assurance that all credit sales
transactions of an entity are recorded?
A. The accounting department supervisor controls the mailing of monthly statements to customers and
investigates any differences reported by customers.
B. The accounting department supervisor independently reconciles, on a monthly basis, the accounts
receivable subsidiary ledger to the accounts receivable control account.
C. The billing department supervisor matches prenumbered shipping documents with entries in the sales
journal.
D. The billing department supervisor sends copies of approved sales orders to the credit department for
comparison to authorized credit limits and current customer account balances.

C
8. Which of the following control activities in an entity's revenue/receipt cycle would provide reasonable
assurance that all billed sales are correctly posted to the accounts receivable ledger?
A. Each shipment of goods on credit is supported by a prenumbered sales invoice.
B. The accounts receivable subsidiary ledger is reconciled daily to the accounts receivable control
account in the general ledger.
C. Daily sales summaries are compared to daily postings to the accounts receivable ledger.
D. Each sales invoice is supported by a prenumbered shipping document.

9. Which of the following controls is not usually performed in the accounts payable department?
A. Indicating on the voucher the affected asset and expense accounts to be debited.
B. Approving vouchers for payment by having an authorized employee sign the vouchers.
C. Accounting for unused prenumbered purchase orders and receiving reports.
D. Matching the vendor's invoice with the related purchase requisition, purchase order, and receiving
report.

10. After gaining an understanding of internal control and assessing the risks of material misstatement,
an auditor decided to perform tests of controls. The auditor most likely decided that
A. Additional evidence to support a further reduction in control risk is not available.
B. It is not possible or practicable to reduce the risks of material misstatement at the assertion level to
an acceptably low level with audit evidence obtained only from substantive test procedures.
C. There were many internal control weaknesses that could allow misstatements to enter the accounting
system.
D. An increase in the assessed level of control risk is justified for certain financial statement assertions.

11. An auditor may decide to assess control risk at the maximum level for certain assertions because the
auditor believes
A. Controls are unlikely to pertain to the assertions.
B. The entity's control components are interrelated.
C. Sufficient appropriate audit evidence to support the assertions is likely to be available.
D. More emphasis on tests of controls than substantive tests is warranted.

12. Which of the following statements is correct concerning an auditor's assessment of control risk?
A. Assessing control risk may be performed concurrently during an audit with obtaining an
understanding of the entity's internal control.
B. Evidence about the operation of controls in prior audits may not be considered during the current
year's assessment of control risk.
C. The basis for an auditor's conclusions about the assessed level of control risk need not be
documented unless control risk is assessed at the maximum level.
D. The lower the assessed level of control risk, the less assurance the evidence must provide that the
controls are operating effectively.

13. In performing tests of the operating effectiveness of an entity's controls, an auditor selects from a
variety of techniques, including
A. Reperformance and observation.
B. Inquiry and analytical procedures.
C. Comparison and confirmation.
D. Inspection and verification.

14. Which of the following tests of controls most likely would help assure an auditor that goods shipped
are properly billed?
A. Scan the sales journal for sequential and unusual entries.
B. Examine shipping documents for matching sales invoices.
C. Compare the accounts receivable ledger to daily sales summaries.
D. Inspect unused sales invoices for consecutive prenumbering.

15. 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. Tests of controls and extensive tests of property and equipment balances at the end of the year.
B. Analytical procedures for current year property and equipment transactions.
C. Tests of controls and limited tests of current year property and equipment transactions.
D. Analytical procedures for property and equipment balances at the end of the year.

1. Which of the following would an auditor most likely use in determining the auditor's preliminary
judgment about materiality?
A. The anticipated sample size of the planned substantive tests.
B. The entity's annualized interim financial statements.
C. The results of the internal control questionnaire.
D. The contents of the management representation letter.

2. Which of the following statements concerning materiality is not correct?

A. When establishing the overall audit strategy, the auditor shall determine materiality for the financial
statements as a whole.
B. If, in the specific circumstances of the entity, there is one or more particular classes of transactions,
account balances or disclosures for which misstatements of lesser amounts than materiality for the
financial statements as a whole could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial statements, the auditor shall also determine the materiality
level or levels to those particular classes of transactions, account balances or disclosures.
C. Determining materiality involves the exercise of professional judgment.
D. The materiality level for the financial statements as a whole determined in the planning stage of the
audit should not be affected by changes in the circumstances of the engagement.

3. Analytical procedures used in planning an audit should focus on

A. Reducing the scope of tests of controls and substantive tests.
B. Providing assurance that potential material misstatements will be identified.
C. Enhancing the auditor's understanding of the client's business and identifying areas of potential risk.
D. Assessing the adequacy of the available evidential matter.

4. Which of the following would not be considered an analytical procedure?

A. Estimating payroll expense by multiplying the number of employees by the average hourly wage rate
and the total hours worked.
B. Projecting an error rate by comparing the results of a statistical sample with the actual population
characteristics.
C. Computing accounts receivable turnover by dividing credit sales by the average net receivables.
D. Developing the expected sales based on the sales trend of the prior five years.

5. Which of the following auditing procedures most likely would assist an auditor in identifying related
party transactions?
A. Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.
B. Vouching accounting records for recurring transactions recorded just after the balance sheet date.
C. Reviewing confirmations of loans receivable and payable for indications of guarantees.
D. Performing analytical procedures for indications of possible financial difficulties.

6. Which of the following most likely would indicate the existence of related parties?
A. Writing down obsolete inventory just before year-end.
B. Failing to correct previously identified internal control deficiencies.
C. Depending on a single product for the success of the entity.
D. Borrowing money at an interest rate significantly below the market rate.
D

7. If the results of the auditor's expert's work do not provide sufficient appropriate audit evidence or are
not consistent with other audit evidence, the auditor should
A. Report the matter to the appropriate regulatory agency of the government.
B. Resolve the matter.
C. Withdraw from the engagement.
D. Express an unqualified opinion with reference to the work of the expert.

8. The five major phases in conducting a risk based audit process are:

A. Audit planning and risks assessment activities

B. Preliminary engagement activities
C. Completing the audit and post-audit responsibilities
D. Reporting and communication
E. Responses to assessed risks

The proper sequence in applying the above steps is:

A. BAECD B. BAEDC C. BEACD D. BEADC

9. The audit risk against which the auditor and those who rely on his/her opinion require
reasonable protection is a combination of three separate risks at the account balance or class of
transactions level. The first risk is inherent risk. The second risk is that material misstatements will not
be prevented or detected by internal control. The third risk is that

A. The auditor will reject a correct account balance as incorrect.

B. Material misstatements that occur will not be detected by the audit
C. The auditor will apply an inappropriate audit procedure
D. The auditor will apply an inappropriate measure of audit materiality.

10. Analytical procedures enable the auditor to predict the balance or quantity of an item under audit.
Information to develop this estimate can be obtained from all of the following, except
A. Comparison of financial data with data for comparable prior periods, anticipated results (e.g., budgets
and forecasts), and similar data for the industry in which the entity operates.
B. Study of the relationships of elements of financial data that would be expected to conform to a
predictable pattern based upon the entity's experience.
C. Study of the relationships of financial data with relevant nonfinancial data
D. Tracing transactions through the system to determine whether procedures are being applied as
prescribed

11. Which of the following procedures would an auditor would an auditor mist likely perform in planning
a financial statement audit?
A. Reviewing investment transactions of the audit period to determine whether related parties were
credited
B. Performing analytical procedures to identify areas that may represent specific risks
C. Reading the minutes of stockholder and director meetings to discover whether any unusual
transactions have incurred
D. Obtaining a written representation letter from the client to emphasize managements responsibilities.

12. Which of the following statements is correct concerning an auditor's use of the work of a specialist?
A. The auditor need not obtain an understanding of the methods and assumptions used by the
specialist.
B. The auditor may not use the work of a specialist in matters material to the fair presentation of the
financial statements.
C. The reasonableness of the specialist's assumptions and their applications are strictly the auditor's
responsibility.
D. The work of a specialist who has a contractual relationship with the client may be acceptable under
certain circumstances.

13. Control activities component of internal control

A. Consists of the policies and procedures that help ensure that management directives are carried out
B. Includes the governance and management functions and the attitudes, awareness, and actions of
those charged with governance and management concerning the entity's internal control and its
importance in the entity.
C. Is the entity's process for identifying business risks relevant to financial reporting objectives and
deciding about actions to address those risks, and the results thereof.
D. Consists of the procedures and records established to initiate, record, process, and report entity
transactions (as well as events and conditions) and to maintain accountability for the related assets,
liabilities and equity.

1. The development of a general strategy and a detailed approach for the expected nature, timing, and
extent of audit refers to:
a. Supervision b. Audit procedures c. Directing d. Planning
D

2. The auditor should consider the nature, extent, and timing of the work to be performed and should
prepare a written audit program for every audit. Which audit standard is most closely related to this
requirement?
a. The audit is to be performed by a person or persons having adequate technical training and
proficiency as an auditor.
b. In all matters relating to the assignment, an independent mental attitude is to be maintained by the
auditor(s).
c. Due professional care is to be exercised in the planning and performance of the audit and preparation
of the report.
d. The work is to be adequately planned and assistants, if any, are to be properly supervised.

3. Which of the following would a successor auditor normally perform after acceptance of an audit
client?
a. Inquiry of predecessor auditor regarding the client.
b. Review the SEC filings of the client.
c. Inquiry of bankers regarding the client.
d. Review of predecessor auditor working papers.

4. To obtain an understanding of a continuing client's business in planning an audit, an auditor most

likely would
a. Perform tests of details of transactions and balances.
b. Review prior-year working papers and the permanent file for the client.
c. Read specialized industry journals.
d. Reevaluate client's internal control environment.

5. Which of the following is required documentation in an audit in accordance with generally accepted
auditing standards?
a. A flowchart or narrative of the information system describing the recording and classification of
transactions for financial reporting.
b. An audit program setting forth in detail the procedures necessary to accomplish the engagement's
objectives.
c. A planning memorandum establishing the timing of the audit procedures and coordinating the
assistance of entity personnel.
d. An internal control questionnaire identifying policies and procedures that assure specific objectives
will be achieved.
B

6. Which of the following procedures would an auditor most likely perform in planning a financial
statement audit?
a. Inquiring of the client's legal counsel concerning pending litigation.
b. Comparing the financial statements to anticipated results.
c. Examining computer generated exception reports to verify the effectiveness of internal controls.
d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.

7. Analytical procedures used in planning an audit should focus on

a. Reducing the scope of tests of controls and substantive tests.
b. Providing assurance that potential material misstatements will be identified.
c. Enhancing the auditor's understanding of the client's business.
d. Assessing the adequacy of the available evidential matter.

8. Analytical procedures, which means the analysis of significant ratios and trends including the resulting
investigation of fluctuations and relationships that are inconsistent with other relevant information or
which deviate from predicted amounts, are not required to be applied

a. At the planning stage of the audit c. As substantive procedures

b. Overall review stage of the audit d. None of the above

9. Which of the following statements is correct concerning analytical procedures?

a. Analytical procedures usually involve comparisons of ratios developed from recorded amounts to
assertions developed by management.
b. Analytical procedures used in planning an audit generally use data aggregated at a high level.
c. Analytical procedures can replace tests of controls in gathering evidence to support the assessed level
of control risk.
d. Analytical procedures are more efficient, but not more effective, than tests of details and
transactions.

10. Which of the following is an effective audit planning and control procedures that helps prevent
misunderstandings and inefficient use of audit personnel?
a. Make copies, for inclusion in the working papers, of those client supporting documents examined by
the auditor.
b. Provide the client with copies of the audit programs to be used during the audit.
c. Arrange a preliminary conference with the client to discuss audit objectives, fees, timing, and other
information.
d. Arrange to have the auditor prepare and post any necessary adjusting or reclassification entries prior
to final closing.

11. Which of the following is an aspect of scheduling and controlling the audit engagement?
a. Including in the audit program a column for estimated and actual time.
b. Performing audit work only after the client's books of account have been closed for the period under
examination.
c. Writing a conclusion in individual working papers indicating how the results of the audit will affect the
auditor's report.
d. Including in the engagement letter an estimate of the minimum and maximum audit fee.

12. Which of the following is an engagement attribute for an audit of an entity that processes most of its
financial data in electronic form without any paper documentation?

a. Discrete phases of planning, interim, and year-end field work.

b. Increased effort to search for evidence of management fraud.
c. Performance of audit tests on a continuous basis.
d. Increased emphasis on the completeness assertion.

13. Which of the following statements is not correct about materiality?

a. The concept of materiality recognizes that some matters are important for fair presentation of
financial statements in conformity with GAAP, while other matters are not important.
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 financial statements.
c. Materiality judgments are made in light of surrounding circumstances and necessarily involve both
quantitative and qualitative judgments.
d. 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.

14. The risk that the assertion contains material misstatements that, when aggregated with
misstatements in other assertions, could make the entire financial statements materially misstated is:
a. Individual audit risk b. Inherent risk c. Control risk d. Detection risk

A
15. Incremental risk is the increased risk that errors may not be detected at the balance sheet date
because:
a. Audit procedures were performed at an interim date
b. Inherent risk was assessed too low.
c. Analytical procedures were not performed.
d. Detection risk was set too high a level.

1. Adequate planning of the audit work helps the auditor of accomplishing the following objectives,
except:
a. Gathering of all corroborating audit evidence.
b. Ensuring that appropriate attention is devoted to important areas of the audit.
c. Identifying the areas that need a service of an expert.
d. The audit work is completed efficiently.

2. The extent of planning will vary according to any of the following, except:
a. Size of the audit client.
b. Auditor's experience with the entity and knowledge of the business.
c. The nature and complexity of the audit engagement
d. The assessed level of control risk.

3. Which of the following is least likely considered by the auditor in developing the overall audit plan?
a. Understanding of the accounting and internal control systems.
b. Relevant risk and materiality.
c. The involvement of other auditors in the audit of major component of financial statements
d. The general level of competence of audit assistants.

4. Which of the following is not considered by the CPA when he makes an overall audit plan?
a. Identification of complex accounting areas including those involving accounting estimates.
b. The information technology used by the client.
c. The content of the representation letters.
d. The nature and timing of reports or other communication with the entity that are expected under the
engagement.

5. Audit plan should

ABCD
A. Precede action Yes No Yes No
B. Be fixed Yes No No Yes
C. Be cost beneficial Yes Yes Yes Yes

6. Which of the following least likely affect the form and content of the overall audit plan?
a. Complexity of the audit engagement.
b. Methodology and technology used by the auditor.
c. The entity's form of business organization.
d. The size of the entity.

7. The audit program should contain the following, except:

a. Audit objective
b. Time budget for the various audit areas
c. Set of planned audit procedures
d. The combined assessed level of inherent and control risk

8. Which of the following will most likely help the auditor to identify and understand the events,
transactions and practices of his audit client?
a. Obtaining a sufficient knowledge of the business of his client.
b. Understanding of accounting and internal control.
c. Testing control policies and procedures.
d. Obtaining a representation letter from the client management.

9. The auditor should have or obtain a knowledge of the client's business sufficient to:
a. Evaluate whether the financial statements are materially misstated.
b. Document material weaknesses in accounting and internal control systems.
c. Identify and understand events, transactions and practices that may have effect on financial
statements.
d. Have an overall evaluation of whether financial assertions are fairly presented in the financial
statements.

10. The auditor is not expected to have

a. A particular knowledge of the economy and the industry within which the entity operates.
b. A particular knowledge of how the entity operates.
c. A level of knowledge of business ordinarily less than that possessed by management.
d. A knowledge of business which is used in assessing inherent and control risk.

11. The auditor obtains knowledge of client's business

ABCD
Prior to acceptance of engagement No No Yes Yes
Planning stage of the audit Yes Yes Yes No
Testing of transactions stage No Yes Yes Yes

12. Understanding the business and using this information appropriately assists the auditor in, except
a. Deciding whether to do tests of controls.
b. Evaluating audit evidence.
c. Assessing risks and identifying potential problems.
d. Planning and performing the audit effectively and efficiently.

13. Which of the following is the ultimate concern of the knowledge about the business?
a. Consideration of how it affects the financial statements taken as a whole.
b. Assists the auditor in enforcing quality control procedures.
c. To assure that sufficient audit evidence is obtained.
d. It assists in determining the type of audit report to be issued.

14. A knowledge of the business is a frame of reference within which the auditor exercises professional
judgment. This assists the auditor in carrying out the following objectives, except: a. Assessing risks and
identifying problems.
b. Evaluating audit evidence.
c. Determining the audit opinion to be expressed.
d. Planning and performing the audit effectively and efficiently.

15. Throughout the course of the audit, the auditors make judgment about many matters where
knowledge of the business is important. These procedures do not include: a. Evaluating accounting
estimates and management representations.
b. Identifying related parties and related party transactions.
c. Assessing inherent and control risks.
d. Assessing the appropriateness of using statistical sampling instead of judgmental sampling.
D

16. Which of the following factors is inappropriately relevant to the management's assessment of the
going concern assumption?
a. The degree of uncertainty associated with the outcome of an event or condition decreases
significantly the further into the future of judgment being made about the outcome of an event or
condition.
b. Any judgment about the future is based on information available at the time at which the judgment is
made.
c. The size and complexity of the entity, and the nature and conditions of its business affect the
judgment regarding the outcome of events or conditions.
d. Subsequent events can contradict a judgment which was reasonable at the time it was made.

17. Which of the following may not cast significant doubt about the going concern assumption of an
entity.
a. The entity heavily used equity financing for investment in permanent assets.
b. Non-compliance with capital or other statutory requirements.
c. Pending legal or regulatory proceeding against the entity that may, if successful, result in claims that
are unlikely to be satisfied.
d. Changes in legislation or government policy expected to adversely affect the entity.

18. When events or conditions have been identified which may cast significant doubt on the entity's
ability to continue as a going concern, the auditor should:
a. Review management's plans for future actions based on its going concern assessment.
b. Gather sufficient appropriate audit evidence to confirm or dispel whether or not a material
uncertainty exists through carrying out procedures considered necessary, including considering the
effect of any plans of management and other mitigating factors.
c. Seek written representations from management regarding its plans for future action.
d. All of the above.

19. Which of the following proposed actions may mostly mitigate the going concern problem of an
entity?
a. Rescheduling of loan payments.
b. More vigorous business expansion.
c. Acquiring asset replacement using short-term loans.
d. Increasing the amount of cash dividends to be paid.

A
20. The following are related to the auditor's responsibility to assess the ability of the company to
continue as a going concern?
I. The auditor should consider the appropriateness of the management's use of the going concern
assumption in the preparation of the financial statements.
II. The auditor is to consider whether there are material uncertainties about the entity's ability to
continue as a going concern that needs to be disclosed in the financial statements.
III. The absence of any reference to going concern uncertainty in the auditor's report is viewed as a
guarantee as to the entity's ability to continue as a going concern. Which of the foregoing
inappropriately describe(s) the auditor's responsibility?
a. I only b. I and II only c. II only d. III only

21. The auditor considers events and condition relating to the going concern assumption during the
planning stage in order to:
a. Help management do action that may mitigate its going concern problems.
b. Identifying the areas of accounting and internal control systems that need tests of control.
c. To have a timely discussion with management and a review of management's plans and resolutions of
any identified going concern issues.
d. In order to shorten assessment period.

22. If adequate disclosure is not made by the entity regarding substantial doubt about its ability to
continue as a going concern, the auditor should include in his report specific reference to the substantial
doubt as to ability of the company to continue as a going concern and should express:
a. Unqualified opinion with explanatory paragraph
b. A subject to qualified opinion or adverse opinion.
c. Either an "except for" qualified opinion or an adverse opinion.
d. A disclaimer of opinion.

23. If the auditor believes that the entity will not be able to continue as a going concern and the
financial statements are prepared on a going concern basis, the auditor's report should include: a.
Unqualified opinion with explanatory paragraph. c. Adverse opinion.
b. Qualified opinion. d. Disclaimer of opinion.

24. If the auditor believes that management should extend its assessment but the latter refuses to do
so, the auditor should:
a. Rectify the lack of analysis by management.
b. Extend his audit procedures to obtain sufficiently appropriate evidence regarding the use of the going
concern assumption.
c. Emphasize this matter in the audit report.
d. Consider a modification of the report as a result of the limitation in the scope of the auditor's work.

25. The management denied the auditor's request that the management has to extend its assessment of
its going concern ability. However, the auditor's other procedures are sufficient to assess the
appropriateness of management use of the going concern assumption in the preparation of the financial
statements. he auditor should issue:
a. Unqualified opinion c. Adverse opinion
b. Unqualified opinion with explanatory paragraph d. Disclaimer of opinion

1. This refers to the development of a general strategy and a detailed approach for the expected nature,
timing and extent of audit refers to:
A. Supervision C. Audit planning
B. Direction D, Pre-engagement

2. Proper planning assures that (select the exception ):

A. Appropriate attention is devoted to important areas of the audit.
B. Potential problems ate Identified.
C. Work is completed expeditiously,
D. An unqualified opinion isexpressed.

3. The outputs of audit planning are:

A. An overall audit strategy that sets out the direction, scope and focus of the audit team's efforts
B. A detailed audit plan containing the nature, extent, and timing of risk assessment procedures and
planned further audit procedures at the assertion level.
C. Audit programs, tailored as needed to reflect the particular engagement circumstances.
D. All of the answers

4. An audit plan contains the nature, extent, and timing of procedures for gathering evidence.Regarding
audit procedures, which of the following best describes risk assessment procedures?

A. This category of procedures is used to obtain an understanding of the entity and its environment,
including its internal control, to assess the risks of material misstatement at the financial statement and
assertion levels.
B. This category of procedures is used to test the operating effectiveness of controls in preventing, or
detecting and correcting, material misstatements at the assertion level.
C. This category of procedures is used to detect material misstatements at the assertion level.
D. All of these statements describe risk assessment procedures.

5. The extent of planning will vary according to the following:

A. Size of the audit client.
B. Auditor's experience with the entity and knowledge of the business.
C. The nature and complexity of the audit engagement
D. All of these affect the extent of planning.

6. PSA 315 requires:

A. Obtaining an understanding of the entity and its environment
B. Discussion among engagement team members about the risk of material misstatement in the
financial statements.
C. Identifying and assessing the risks of material misstatement
D. All of the answers.

7. Which of the following statements best describes "observation"?

A. Physical examination of tangible assets. or the examination of records or documents, whether
internal or external, in paper form. electronic form, or other media.
B. Looking at a process or procedure being performed by others,
C. Seeking information of knowledgeable persons, both financial and non-financialinformation.
D. Evaluating financial information through a study of plausible relationships among both financial and
non-financial data.

8. The auditor's understanding of the entity and Its environment consists an understanding of the
following aspects:
A. Industry, regulatory and other external factors, including the applicable financial reporting framework
B. Nature of the entity, Including the entity's selection and application of accounting policies
C. Objectives and strategies and the related business risks that may result in a material misstatement of
the financial statements
D. All of these

D
9. An auditor obtains an understanding of the entity and Its environment in order to
A. Make constructive suggestions concerning improvements to the client's Internal control.
B. Develop an attitude of professional skepticism concerning management's financial statement
assertions
C. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a
whole to be materially misstated.
D. Understand the events and transactions that may have an effect on the client's financial statements.

10. A person or firm possessing special skill, knowledge and experience in a particular field excluding
accounting and auditing.
A. Expert C. Multi skilled personnel
B. Quality control reviewer D. Taxation specialist

11. In which of the following situations would an expert be least likely contracted by a CPA?
A. Application of accounting methods in computing inventory balances.
B. Determination of fair values using specialized statistical techniques.
C. Legal opinions concerning interpretations of engagements, statutes and regulations.
D. Valuations of certain types of assets like land and buildings.

12. Religious Corp. has a few large accounts receivable that total P1,000,000. Pilgrim Corp. hasa large
number of small accounts receivable that also total P1,000,000. The importance of an error in any one
account is, therefore, greater for Religious Corp. than for Pilgrim Corp.
This is an example of the auditor's concept of.
A. Materiality C. Reasonable assurance.
B. Comparative analysis D. Relative risk.

13. In considering materiality for planning purposes, an auditor believes that misstatements aggregating
P10,000 would have a material effect on an entity's profit and loss, but that misstatements would have
to aggregate P20,000 to materially affect the statement of financial position. Ordinarily, it would be
appropriate to design auditing procedures that would be expected to detect misstatements' that
aggregate:
A. P30,000 B. P20,000 C. P15,000 D. P10,000

14. When the auditors allocate the preliminary judgment about materiality to account balances, the
materiality allocated to any given account balance is referred to as:
A. The error range C. Tolerable misstatement.
B. The materiality range. D. Tolerable materiality.

15. Regardless of how the allocation of the preliminary judgment about materiality was done, when the
audit is complete the auditor must be confident that the combined errors in all accounts are
A. Less than the preliminary judgment
B. Equal to the preliminary judgment
C. More than the preliminary judgment.
D. Less than or equal to the preliminary judgment.

16. The relationship between materiality and audit risk is:

A. Direct. B. Inverse. C. Indeterminable. D. None of these.

17. When setting a preliminary judgment about materiality,

A. More evidence is required for a low peso amount than for a high peso amount.
B. Less evidence IS required for a low peso amount than for a high peso amount.
C. The same amount of evidence is required for either low or high peso amounts.
D. There is no relationship between it and the peso amount of evidence needed.