ICARE BATCH 3

FINAL PREBOARD QUESTIONS

1. The auditors of Commission on Audit are considered external auditors with respect to
government agencies that they audit for they are

A. Guided by professional standards such as the Philippine Standards on Auditing

B. Organizationally independent
C. Funded by the government
D. Appointed by the President of the Republic of the Philippines

2. The Chairpersons of the Financial Reporting Standards Council and Auditing and Assurance
Standards Council shall be appointed by

A. President of the Republic of the Philippines

B. Professional Regulation Commission
C. Philippine Institute of Certified Public Accountants
D. Professional Regulatory Board of Accountancy

3. Which portion of the audit may not be completed before the statement of financial position date?

A. Test of operating effectiveness of controls

B. Substantive analytical procedures
C. Communication of management letter points
D. Obtaining an understanding of the entity and its environment

4. The consideration of internal control by the external auditor is intended to

A. Determine the planned level of detection risk

B. Determine the extent of tests of controls which must be performed
C. Ascertain whether NOCLAR are probable
D. Assess the building blocks of sustainable risk management of the client

5. The evaluation of deviations that were observed upon completing tests of operating effectiveness
of controls

A. May require modification of the nature, timing, and extent of planned substantive procedures
B. May require the need for doing more extensive understanding of control.
C. May require more extensive tests of controls.
D. Always requires documentation of the basis of assessment of control risk.
6. Shappy, Inc. processes large volume of sales transactions which are transmitted, processed,
maintained and accessed online. The external auditor of the Company has concluded that it is not
possible to reduce detection risk to an acceptable level by performing a purely substantive
approach on a number of financial statement assertions. With this, the auditor may

A. Accept a higher level of acceptable audit risk

B. Perform test of operating effectiveness of controls
C. Focus audit tests on other assertions for which substantive tests prove to be effective.
D. Require management to provide representations over the validity of transactions processed
online.

7. The audit engagement file would likely exclude

A. An indication as to who performed the audit procedures and when they were performed.
B. Copy of the internal audit’s audit program.
C. Analyses of significant ratios and trends.
D. Documentation of the auditor’s understanding of the accounting and internal control
systems.

8. In which of the following matters will an auditor not apply materiality limits when obtaining
specific written management representations?

A. Disclosure of compensating balance arrangements involving restrictions on cash balances.

B. Fraud involving employees with significant roles in internal control
C. Information concerning related party transactions and related amounts receivable or payable.
D. The absence of errors and unrecorded transactions in the financial statements.

9. The description of each key audit matter in the Key Audit Matters section of the auditor’s report
shall address

A. Why the matter was communicated to management

B. How the matter was addressed in the audit
C. When was the matter communicated to those charged with governance
D. What are the account balances and/or classes of transactions affected by the matter

10. Aslan, CPA, was appointed as the external auditor of Chloe Company which is an entity that lists
its equity securities in the Philippine Stock Exchange. Which of the following non-assurance
services can Aslan, CPA, render to Chloe Company if considered not material to the financial
statements?

A. Bookkeeping services
B. Serving as General Counsel
C. Valuation services
D. Negotiating for the client as part of a recruiting service
11. According to the International Code of Ethics for Professional Accountants, ___________ is
required for assurance engagements. This permits the expression of a conclusion without being
affected by influences that compromise professional judgment.
a. Objectivity
b. Independence
c. Prudence
d. Conservatism
12. It is an engagement in which a practitioner is engaged to issue, or does issue, a written
communication that expresses a conclusion about the reliability of a written assertion that is the
responsibility of another party.
a. Attest
b. Advisory
c. Assurance
d. Direct Reporting Engagement
13. Statement 1: Attestation services require the formal establishment of measurement criteria or
their description in the presentation.
Statement 2: The subject matter of audit engagements may be non-financial in nature.
a. True, True
b. True, False
c. False, True
d. False, False
14. It is an independent appraisal function established within an organization to examine and
evaluate its activities as a service to the organization.
a. Operational Audit
b. Compliance Audit
c. `Internal Audit
d. Governance Audit
15. Which of the following best defines the valuation and allocation assertion?
a. All assets and equities contained in the balance sheet exist and that all transactions in the
income statement actually occurred.
b. Financial statement items are correctly classified (e.g., long-term liabilities will not mature
within one year) and that footnote disclosures are adequate to avoid misleading the users
of financial statements.
c. Assets and equities are valued in accordance with GAAP and that allocated amounts such
as depreciation expense are calculated on a systematic and rational basis.
d. Assets and equities are valued in accordance with GAAP and that allocated amounts such
as depreciation expense are calculated on a systematic and rational basis.
16. It refers to the probability that the auditor will not render an unqualified (clean) opinion on
financial statements that are, in fact, not materially misstated.
a. Audit Risk
b. Inherent Risk
c. Risk of Material Misstatements
d. Alpha Risk
17. Which of the following components of audit risk is controllable by the auditor?
 a. Inherent Risk
b. Control Risk
c. Detection Risk
d. All of the above are controllable by the auditor.
18. An auditor obtains knowledge about a new client's business and its industry in order to
a. Make constructive suggestions concerning improvements to the client's internal control
structure
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
19. Which of the following is not considered to be an analytical procedure?
a. Comparisons of financial statement amounts with source documents.
b. Comparisons of financial statement amounts with nonfinancial data.
c. Comparisons of financial statement amounts with budgeted amounts.
d. Comparisons of financial statement amounts with comparable prior year amounts.
20. Which of the following factors would most likely influence an auditor's consideration of the
reliability of data when performing analytical procedures?
a. Whether the data were developed in a computerized or a manual accounting system.
b. Whether the data were prepared on the cash basis or in conformity with GAAP.
c. Whether the data were developed under a system with adequate controls.
d. Whether the data were processed in an online system or a batch entry system.
21. Which of the following is not considered one of the five major components of internal control?
a. Risk assessment.
b. Segregation of duties.
c. Control activities.
d. Monitoring.
22. Which of the following is not one of the factors that make up the control environment?
a. sufficient budget allocation
b. board of directors and audit committee
c. organizational structure
d. human resource policies and practices
23. The existence of audit risk is recognized by the statement in the auditor’s standard report that
the auditor
a. Obtains reasonable assurance about whether the financial statements are free of material
misstatement.
b. Assesses the accounting principles used and also evaluates the overall financial statement
presentation.
c. Realizes some matters, either individually or in the aggregate, are important while other
matters are not important.
d. Is responsible for expressing an opinion on the financial statements, which are the
responsibility of management.
24. The date of the management representation letter should normally coincide with the:
a. Balance sheet date.
b. Date of the auditor's report.
c. Date of the latest subsequent event referred to in the notes to the financial statements.
d. Date of the engagement agreement.
25. Which of the following procedures is the least likely one to be performed by a practitioner
performing a review engagement of annual financial statements of a client entity?
a. Inquiry of client personnel
b. Analytical procedures of financial statements
c. Test of a control primarily assessed to be ineffective
d. Confirmation of accounts receivable deemed to have likely misstatements
26. The following misstatements are considered arising from errors, except
a. The improper application of equity method for its investment because of ambiguous
provision in the standard.
b. The mathematical inaccuracy in the cost accounting system.
c. The use of percentage of sales instead of percentage of accounts receivable in the
computation of bad debts as derived from the customer's trend.
d. The use of cookie jar reserves for future unprofitable operations.
27. Which threat to fundamental principles or values is mostly created when the independent
financial statement auditor who is a CPA-Lawyer concurrently acts as the legal counsel of the
client in a particular litigation?
a. Familiarity threat
b. Self-review threat
c. Advocacy threat
d. Intimidation threat
28. Which of the following audit procedures may not be performed during risk assessment
procedures?
a. Reperformance
b. Inquiry
c. Inspection
d. Observation
29. It refers to the paragraph in the enhanced auditor's report which contains those matters that, in
the auditor's professional judgment, were of most significance in the audit of the financial
statements of the current period.
a. Emphasis of a matter paragraph
b. Key audit matter paragraph
c. Other matter paragraph
d. Report on other legal and regulatory requirements paragraph
30. Under the enhanced auditor's report, basis for opinion paragraph shall be presented
a. Immediately before the opinion paragraph
b. Immediately after the management's responsibility paragraph
c. Immediately after the opinion paragraph
d. Immediately before the auditor's responsibility paragraph
31. Which of the following causes of material misstatements in the financial statements has the
highest detection risk?
a. Error
b. Management fraud
c. Employee fraud
d. Noncompliance
32. If the entity is already under liquidation proceedings but the management still prepares and
presents the financial statements using going concern assumption, what type of opinion shall be
issued by the financial statement auditor?
a. Adverse opinion
b. Qualified opinion due to material misstatement
c. Either A or B depending on pervasiveness of material misstatements
d. Disclaimer of opinion
33. This opinion is issued when the auditor is unable to obtain sufficient appropriate evidence about
certain assertion(s) of the management which the auditor concludes has/have a possible material
but not pervasive effect to the financial statements.
a. Qualified Opinion
b. Adverse Opinion
c. Disclaimer of Opinion
d. Unmodified Opinion
34. Which statement is correct about sampling risk?
a. Risk of assessing control risk too low and risk of incorrect acceptance affects audit
effectiveness as it would usually lead to additional work to establish that initial
conclusions were incorrect.
b. The mathematical complements of sampling risks are termed sampling deviation.
c. Risk of assessing control risk too low is the risk that the auditor will conclude, in the case
of a test of control, that control risk is higher than it actually is.
d. Sampling risk arises from 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 audit procedure.
35. The Auditing and Assurance Standards Council is composed of the following members except
which one?
a. Banko Sentral ng Pilipinas
b. Securities and Exchange Commission
c. Association of CPAs in Public Practice
d. Bureau of Internal Revenue