Compilation Aud Theory

ACCTG.
324: AUDITING AND ASSURANCE: SPECIALIZED INDUSTRIES
Questions and Answers:
1. The nature, timing and extent of the substantive tests are highly dependent on the results of
the auditor’s consideration of internal control.
TRUE
2. Test of control is more costly than substantive testing in gathering evidence for auditing.
FALSE
3. Audit sampling is performed on the assumption that the sample selected for testing is
representative of the population.
TRUE
4. Variable sampling is generally used when performing tests of controls to estimate rate of
deviations.
FALSE
5. Audit sampling for test of controls is generally appropriate when application of the control
leaves evidence of performance.
TRUE
6. Material weaknesses found must be communicated to the management and those charge with
governance or the so-called Board Committee.
FALSE
7. The management letter attests to the accuracy of the financial statements that the company
has submitted to the auditors for their analysis.
FALSE
8. Substantive tests are needed as evidence to support the assertion that the financial records of
an entity are complete, valid and accurate.
TRUE
9. Substantive test is the substantive test of details of transactions, balances or both.
TRUE
10. Attribute sampling is the process used to predict the value of a specific variable within a
population.
FALSE
11. Corroborative evidence is evidence that tends to support proposition that is already supported
by some initial evidence.
TRUE
12. Requiring adjustment are those that provide further evidence of conditions that existed at the
financial statement date such as Settlement of litigation in excess of the recorded liability.
TRUE
13. Reviewing minutes of meeting of the board is an activity under substantive tests of control.
FALSE
14. For audit purposes, the auditor is only concerned with those events that occur subsequent to
the financial statement date, but before the date of auditor’s report.
TRUE
15. Final analytical procedures are required in Risk Assessment.
TRUE
16. In completing the audit, auditor must assist the company under going concern assumption.
TRUE
17. The entity’s audit committee is the primary source of information about litigation and claims.
FALSE
18. If the auditor believes that the going concern uncertainty is not adequately disclosed, the
auditor should express either qualified opinion or adverse opinion.
TRUE
19. IAS 1 contains an explicit requirement for management to make a specific assessment of the
entity’s ability to continue as going concern.
TRUE
20. Auditors are required to review the working papers once the audit report is issued.
FALSE
21. The written representation letter should be addressed to the auditor.
TRUE
22. Reviewing subsequent events includes extending the date and dual dating.
TRUE
23. An auditor can issue audit report even though engagement quality review report was not
undergone.
FALSE
24. The Auditors report should have a section with the heading “Basis for Opinion”
TRUE
25. The auditor’s report should be signed in the name of the audit firm or the personal name of the
auditor as appropriate.
TRUE
1.) Substantive testing is needed when the internal control is weak.
Ans: True
2.) Test of controls means to check if the internal control implemented effectively by the client even
the design is strong. Ans: True
3.) Attribute sampling is used in test of controls.
Ans: True
4.) An attributes sampling, the auditor will look at the amounts of the sampling not on the
characteristics. Ans: False
5.) Significant deficiencies means that the internal control is weak in which material misstatements is
possible.
Ans: False
6.) Management letter and management acknowledgement letter is not required by the standards
when conducting an audit.
Ans: False
7.) Management letter can be communicated by the auditor to the management either through written
or oral.
Ans: False
8.) Obtain audit evidence to detect material misstatements in the financial statements is the purpose
of substantive procedures.
Ans: True
9.) Statistical sampling techniques that auditors use in performing substantive tests require testing a
hypothesis.
Ans: True
10.) Non sampling risk is the risk that arises from human error and can be measured quantitatively.
Ans: False
11.) Sampling risk cannot be measured quantitatively.
Ans: False
12.) In making a hypothesis test, an auditor estimates the account balance using sample techniques.
Ans: True
13.) The auditor will consider not only tolerable misstatement or materiality for a particular account
but also the risks inherent in sampling.
Ans. True
14.) Variable sampling, the auditor will look at the characteristics of the sampling not on the amounts.
Ans: False
15.) Corroborating evidence means to find sufficient evidences.
Ans: True
16.) Test of details of transactions and balances means to inspect documents regarding with balances
and asking individuals for transactions.
Ans: True
17.) Substantive test is not costly in gathering of evidences.

Ans: False
18.) Normally audit firms, used the combination of analytical procedures and test of details of
transactions and balances.
Ans: True
19.) Audit firms can used either analytical procedures or test of details of transactions and balances
but not both without the risk assessment consideration.
Ans: False
20.) Significant transaction will also can be found in a review minutes of meeting of the board of
directors.
Ans: True
21.) In substantive test, analytical procedures is optional.
Ans: True
22.) Audit firms can used either analytical procedures or test of details of transactions and balances
but not both with consideration of the risk assessment.
Ans: True
23.) In completing the audit, analytical procedures is not required.
Ans: False
24.) In risk assessment, analytical procedures is optional.
Ans: False
25.) Subsequent after audit report is done will not consider even if significant.
Ans: False
1. Test the operating effectiveness even if the design is not strong.
Answer: FALSE
2. Conducting of a substantive test is costly.
Answer: TRUE
3.The sampling that is related to the test of control is what we called as Attribute Sampling.
Answer: TRUE
4. The standard requires only oral agreement between the audit committee to the management and
those charged with governance.

Answer: FALSE
5. Management letter and Management Representation Letter are just the same.
Answer: FALSE
6. In conducting substantive test, we use attribute sampling instead of variable sampling.
Answer: FALSE
7. When completing the audit there is a need to search for unrecorded liabilities and find evidence
that supports those transactions.
Answer: TRUE
8. Analytical procedures should be conducted in the risk assessment stage, substantive test stage
and completing the audit.
Answer: TRUE
9. In completion of the audit, subsequent events must be considered which happened already after
the audit report.
Answer: TRUE
10. You cannot extend the date of the audit report even if you find some misstatements to the report
which already happened after the issuance date.
Answer: FALSE
11. Extending the date and dual dating are just the same when used.
Answer: FALSE
12. According to the standard, it should not be allowed to issue an audit report if you do not have
engagement quality review report first.
Answer: TRUE
13. Engagement quality control review is a process designed to provide an objective evaluation, on or
before the date of the auditor's report.
Answer: TRUE
14. Failure to obtain management representation letter do not disable us to issue an audit report.
Answer: FALSE
15. An unqualified audit report signifies that it is fairly presented in all material aspect.
Answer: TRUE
16. The material misstatements, scope limitation and uncertainty in a qualified audit report should not
be pervasive.
Answer: TRUE
17. An audit report with material and pervasive misstatements should be regarded with adverse
opinion.
Answer: TRUE
18. The auditor cannot express an audit opinion when there is a high degree of scope limitation and
uncertainty.
Answer: TRUE
19. Qualified, adverse and disclaimer of opinion are also called as standard opinion.
Answer: FALSE
20. Unqualified opinion is also called as modified opinion.
Answer: FALSE
21. The opinion should be presented first in the contents of the audit report.
Answer: TRUE
22. All the most utmost and important information that is discovered by the auditor should be included
as part of the Key Audit Matters.
Answer: TRUE
23. Responsibilities of the management and those charged with governance should be included in the
contents of an audit report.
Answer: TRUE
24. Standard contents of the audit report includes the opinion, basis for opinion, key audit matters,
responsibilities of management and those charged with governance, auditor’s responsibilities, and
other legal and regulatory requirements.
Answer: TRUE
25. Emphasis of the matter paragraph should not be included as part of the contents of an audit
report.
Answer: FALSE
1. During the risk assessment process, Internal Auditing identifies and assesses both the likelihood
and potential impact of various risks to the organization. Answer: TRUE
2. The formula of the Audit Risk Model is Inherent Risk x Control Risk – Detection Risk Answer: FALSE
3. One of the procedures in the planning process is to understand the entity and its environment,
including the entity’s internal control. Answer: TRUE
4. Assessing risk is the core of the audit. The rest of the audit is designed to provide an understanding
of internal control. Answer: FALSE
5. Significant risks are often business risks that have the potential to result in material misstatement of
the financial statements. Answer: TRUE
6. Confirmation is one of the audit procedures to obtain a risk understanding. Answer: FALSE
7. Judgements about materiality are made in light of surrounding circumstances, and are affected by
the size or nature of a misstatement, or a combination of both. Answer: TRUE
8. The risk of not detecting error is higher than the risk of not detecting fraud. Answer: FALSE
9. The four types of test of controls includes inquiry, observation, inspection, re-performance. Answer:
TRUE 10. Substantive tests determine whether the information is managed under a system that
promotes correctness. Answer: FALSE
11. Substantive tests verify whether information is correct. Answer: TRUE
12. In completing the audit we need to search for unrecorded liabilities and review minutes of the
meeting only. Answer: FALSE
13. External documents like title to property, insurance policies and contracts are very reliable
evidence. Answer: TRUE
14. Observation is the auditor’s examination of the client’s documents, records or tangible assets to
substantiate the important information related to the financial statements. Answer: FALSE
15. The evidence-gathering technique of inquiry cannot be regarded as conclusive because it is not
from an independent source and might be biased. Answer: TRUE
16. The largest amount of audit evidence in an audit is obtained from the evidence-gathering
technique of inspection. Answer: FALSE
17. Accounting estimates are an amount measured at fair value where there is estimation uncertainty.
Answer: TRUE
18. The auditor is responsible to understand the controls of the client and to test all of its controls in
the process of evaluating the strength of the internal control system. Answer: FALSE
19. Controls of the client that the auditor expects to depend upon in reducing substantive testing must
be tested. Answer: TRUE
20. The purpose of tests of controls is to determine that account balances are properly stated.
Answer: FALSE
21. Management's evaluation of internal controls often presents opportunities to improve both the
quality of controls and the efficiency of processing. Answer: TRUE
22. In an auditor’s report, unqualified means “present fairly except for”. Answer: FALSE
23. An adverse report means “do not present fairly”. Answer: TRUE
24. The contents of audit report consist of opinion only. Answer: FALSE
25. Modified opinion means the future amendments which have to be followed in order to make the
financial statement transparent and clear. Answer: TRUE
1. Test the operating effectiveness only if the design is strong.
Answer: TRUE
2. Variables sampling is taking the characteristic of the audit process.
Answer: FALSE (AMOUNT)
3. Attribute sampling is taking the amount of the audit process.
Answer: FALSE (CHARACTERISTIC)
4. Corroborating evidence should not only have one evidence, it should also have some supporting
evidence to make it very convincing.
Answer: TRUE
5. In completing the audit, first thing that you should do is to research for recorded liabilities.
Answer: FALSE (UNRECORDED)
6. Review minutes of meetings to see the significant transaction that is going on the audit.
Answer: TRUE
7. The final analytic procedures of audit process have 4 stages.
Answer: FALSE (3)
8. The substantive test in the final analytical procedures is optional.
Answer: TRUE
9. It is required to complete the audit in finalizing the analytical procedures.
Answer: TRUE
10.In completing the audit process, you should also look for the loss contingencies.
Answer: TRUE
11.Review the subsequent events in completing the audit process.
Answer: TRUE
12.The most common type of audit report contains a qualified opinion.
Answer: FALSE (UNQUALIFIED)
13.In reviewing the subsequent events you should consider extending the date and dual dating of the
audit process.
Answer: TRUE
14.It is not prohibited to issue audit report even there is no engagement quality review report stated
by PSQC.
Answer: FALSE (PROBIHITED)
15.PSQC stands for Philippines Standards on Quality Control.
Answer: TRUE
16.The audit report must contain the obtain management representation letter to be issued to
acknowledge that all of the information is correct.
Answer: TRUE
17.Unqualified – “present fairly except for”
Answer: FALSE (QUALIFIED)
18.Qualified – “present fairly in all material aspects”
Answer: FALSE (UNQUALIFIED)
19.Present fairly except for material misstatements, scope and limitation or uncertainty.
Answer: TRUE
20. Adverse – “do not present fairly” in material and pervasive statement.
Answer: TRUE
21. Key Audit Matters (KAM) are defined as "Those matters that, in the auditor's professional
judgment, were of most not significant in the audit of financial statements of the current period."
Answer: FALSE (SIGNIFICANT)
22. Key audit matters are selected from matters communicated with those charged with governance.
Answer: TRUE
23.The management has a responsibility to plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether caused
by error or fraud.
Answer: FALSE (AUDITOR)
24. An adverse opinion is a statement made by an auditor that no opinion is being given regarding
the financial statements of a client.
Answer: FALSE (DISCLAIMER)
25.The engagement partner should issue the auditor’s report until the completion of the engagement
quality control review.
Answer: FALSE (SHOULD NOT)
FALSE 1. Test of controls is done only if the design is weak.
FALSE 2. Those charged with governance, which test of control results are communicated with, usually
refers to the Board of Directors.
TRUE 3. Attribute sampling focuses on the characteristics of data being sampled.
FALSE 4. Substantive test procedures involve analytical procedures or substantive test of details of
transactions and balances but not both.
TRUE 5. Variables sampling focuses on the amounts in the data sampled.
TRUE 6. Analytical procedures is a must in risk assessment.
FALSE 7. Analytical procedures is optional in completing the audit stage of the audit process.
FALSE 8. "Present fairly, in all material aspect" is a modified opinion.
TRUE 9. A qualified opinion states in the audit report that "the financial statements present fairly except for".
FALSE 10. "Do not express an opinion" is a standard audit opinion.

TRUE 11. If financial statements contain material misstatements, scope limitation or uncertainty but not
pervasive, auditor issues a qualified opinion.
TRUE 12. Analytical procedures are optional in the substantive test stage of the audit process.
FALSE 13. Emphasis of the matter paragraph is found after the basis for opinion paragraph in the audit
report.
FALSE 14. Management letter is synonymous to management representation letter.
TRUE 15. Substantive tests are more costly than test of controls.
TRUE 16. Corroborating evidence states that evidences should not be limited to one source.
TRUE 17. Management representation letter is sent by management to the auditor by the end of the audit
process.
FALSE 18. Modified opinions consist of Unqualified opinion, Qualified opinion and Adverse opinion.
FALSE 19. Key audit matters come after auditor's responsibility in the audit report.
FALSE 20. High degree of scope limitation and uncertainty will make the auditor issue an adverse opinion.
TRUE 21. The auditor's report begins with the opinion.
TRUE 22. Audit report shall not be released until an engagement quality review report is obtained.
FALSE 23. Qualified opinion is issued if financial statements has material and pervasive misstatements.
FALSE 24. Subsequent events are not part of the data considered by auditor in expressing an opinion
TRUE 25. Management letter is given by the auditor to management pointing out weaknesses in internal
control with corresponding recommendation for improvement.
TRUE Or FALSE
1. Management letter is submitted by an auditor to the management containing suggestions to improve internal control.
ANSWER: True
2. Test of control is the most costly procedure to gather an evidence.
ANSWER: False - Substantive test
3. Variable sampling is a statistical process used in audit procedures that aims to analyze the characteristics of a given
population. ANSWER: False - Attribute
4. Analytical procedure is needed in risk assessment stage, completing the audit and is optional during substantive
testing.
ANSWER: True
5. Substantive Testing is an audit procedure that examines the financial statements and supporting documentation to
see if they contain errors. ANSWER: True
6. If the internal control is strong it means that it is less effective and the auditor might not do substantive testing.
ANSWER: False- more
7. Corroborating evidence means that only one evidence is enough.
ANSWER: False- not enough
8.. Substantive test procedures may use the combination of analytical procedures and substantive test of details of
transaction and balances.
ANSWER: True
9. In completing the audit the audit will no longer search for unrecorded liabilities of the client.
ANSWER: False- will search
10. Audit report will be issued before the engagement quality review report is made.
ANSWER: False- after
11. Corroborating evidence is an evidence that strengthens, adds to, authenticates, serves as supporting evidence or
confirms already existing evidence.
ANSWER: True
12. The three modified opinions are qualified, adverse and disclaimer.
ANSWER: True
13. A qualified opinion is an independent auditor's judgment that a company's financial statements are fairly and
appropriately presented, without any identified exceptions, and in compliance with generally accepted accounting
principles (GAAP).
ANSWER: False - unqualified
14. An unqualified opinion is a statement made by an auditor that no opinion is being given regarding the financial
statements of a client. ANSWER: False - disclaimer
15. An adverse opinion is the type of modified audit opinion that concluded that there are material misstatements
found. Also, draws the conclusion that those material misstatements are pervasive to all financial statements.
ANSWER: True
16. The management has a responsibility to plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether caused by error or fraud.
ANSWER: False - auditor
17. The most common type of audit report contains a unqualified opinion.
ANSWER: True
18.Disclaimer of opinion is a type of modified opinion that the auditor did not express an opinion due to high degree of
scope limitations and uncertainty.
ANSWER: True
19. Forming an audit opinion and issue audit report is not the responsibility/job of an auditor in an audit engagement.
ANSWER: False- auditor's responsibility
20. The content of an audit report will include an opinion.
ANSWER: True
21. In contemplating an audit the auditor will review minutes of meetings held in clients company.
ANSWER: True
22. In reviewing subsequent events and there's a significant event that is beyond the audit report the auditor may
extend the date or may come up with dual dating.
ANSWER: True
23. Key Audit Matters (KAM) are defined as "Those matters that, in the auditor's professional judgment, were of most
not significant in the audit of financial statements of the current period."
ANSWER: False - significant
24. Going concern assumptions and loss contingencies are not included in contemplating an audit.
ANSWER: False- included
25. Search for unrecorded liabilities involves reviewing payment vouchers issued after year-end and unpaid supplier
invoices as at the date of audit to check that all material liabilities relating to the financial year have been recorded as at
year-end.
ANSWER: True
1. Test the operating effectiveness only if the design is weak.
ANSWER: False - strong
2. Substantive test is the costliest procedure to gather an evidence.
ANSWER: True
3. Management letter is submitted by an auditor to the management containing suggestions to improve internal control.
ANSWER: True
4. Variable sampling is a statistical process used in audit procedures that aims to analyze the characteristics of a given
population.
ANSWER: False - Attribute
5. Audit only provides high level of assurance, not absolute because only selected items are tested.
ANSWER: True
6. A material weakness is a reasonable possibility that a material misstatement of the company's financial statements
will not be prevented or detected on a timely basis.
ANSWER: True
7. A significant deficiency is a weakness in the internal controls associated with financial reporting, that is more severe
than a material weakness.
ANSWER: False - less
8. Test of control is an audit procedure that examines the financial statements and supporting documentation to see if
they contain errors.
ANSWER: False - substantive test
9. Analytical procedures consist of evaluations of financial information through analysis of plausible relationships to
identify any abnormalities or irregularities.
ANSWER: True
10. Substantive test of details means inspecting the documents, transactions and balances.
ANSWER: True
11. Attribute sampling is the process used to predict the value of a specific variable within a population.
ANSWER: False - Variable
12. Corroborating evidence is an evidence that strengthens, adds to, authenticates, serves as supporting evidence or
confirms already existing evidence.
ANSWER: True
13. If there are conflicting evidences, corroborating evidence helps identify possible misstatements.
ANSWER: True
14. Search for unrecorded liabilities involves reviewing payment vouchers issued after year-end and unpaid supplier
invoices as at the date of audit to check that all material liabilities relating to the financial year have been recorded as at
year-end.
ANSWER: True
15. The engagement partner should issue the auditor’s report until the completion of the engagement quality control
review.
ANSWER: False - should not
16. A management representation letter serves as acknowledgement of the management of its responsibilities and
verifies that the information provided is accurate and disclosed to the auditor.
ANSWER: True
17. The three modified opinions are unqualified, adverse and disclaimer.
ANSWER: False - qualified
18. A qualified opinion is an independent auditor's judgment that a company's financial statements are fairly and
appropriately presented, without any identified exceptions, and in compliance with generally accepted accounting
principles (GAAP).
19. An adverse opinion is a statement made by an auditor that no opinion is being given regarding the financial
statements of a client.
ANSWER: False - disclaimer
20. An adverse opinion is the type of modified audit opinion that concluded that there are material misstatements
found. Also, draws the conclusion that those material misstatements are pervasive to all financial statements.
ANSWER: True
21. The auditor review minutes of meetings which allows the auditor to review if the Board has made any decisions
subsequent to the issuance of the draft audit that are material to the financial statements, which may require disclosure
in the footnotes of the audit.
ANSWER: True
22. Key Audit Matters (KAM) are defined as "Those matters that, in the auditor's professional judgment, were of most
not significant in the audit of financial statements of the current period."
ANSWER: False - significant
23. Key audit matters are selected from matters communicated with those charged with governance.
ANSWER: True
24. The management has a responsibility to plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether caused by error or fraud.
ANSWER: False - auditor
25. The most common type of audit report contains a qualified opinion.
1. True. After making the deposit, the daily cash summaries and the validated deposit slips should be forwarded by
the cashier directly to the General Accounting.
2. False. The purpose of a transaction walk through is to select documents for detailed tests of controls.
3. False. Compare the check date with the first cancellation date is the appropriate audit procedures to test
canceled checks for authorized signatures.
4. True. Receptionist is the person who opens the mail commonly prepares a remittance advice when a customer
fails to return one with the payment.
5. False. In considering internal control within the revenue/receipt cycle, to verify the results of the auditor’s
sampling plan is the purpose of transaction walk through.
6. True. Understanding the sales journal is likely to conceal the misappropriation and unlikely to be detected.
7. True. Unbudgeted increase in materials prices is most likely to provide management with incentives to overstate
earnings.
8. True. After preparing a Flowchart of internal control for sales and cash receipts transactions and evaluating the
design of the system, the auditor would perform tests of controls on all control procedures that are considered
to be strengths that the auditor plans to rely on in assessing control risk.
9. False. To achieve control when there is no billing department, the billing function should performed by the sales
department.
10. False. When auditing cash, the auditor should mostly be concerned with detective risk.
11. True. A company policy should clearly indicate that defective merchandise returned by customers is to be
delivered to the Receiving Clerk.
12. False. Controls over approving credit relate to the completeness and assertion.
13. True. The purpose of tests controls over shipping is to determine whether shipments are billed.
14. True. The purpose of test of controls over billing is to determine whether billed goods have been shipped.
15. False. An effective procedure to test for unbilled shipments is to trace from the sales journal to the shipping
documents.
16. True. Materiality is addressed within a practitioners attestation and audit reports.
17. False. The use of negative assurance in the audit reports for historical financial statements is properly located in
the opinion paragraph of the unqualified report.
18. True. An audit opinion that is considered a “good” opinion is one that is unqualified.
19. False. Whenever an auditor issues an unqualified opinion, the implication is that the auditor does not know if
the statements are presented fairly.
20. False. When a misstatement in the financial statements exists, but is unlikely to affect the decisions of a
reasonable user, it would be appropriate to issue a qualified opinion.
21. True. A misstatement in the financial statements can be considered material if knowledge of the misstatement
would affect a decision of a reasonable user of the statements.
22. True. Independent is the descriptive word in the title of an audit report issued on a complete set of general-
purpose financial statements which affirms that the auditor has met all the relevant ethical requirements.
23. True. The auditor’s report states that the financial statements are presented fairly in all material respects.
24. False. The audit report date is important to users of financial statements because it indicates the last day of the
fiscal period.
25. False. If a company’s financial statements violate PFRS for an immaterial item which is expected to become
material in the future, the auditor is likely to issue unqualified with explanatory language.
1. Test of control is always conducted by the auditor.
Answer: False
2. Management representation letter is the communication tool prepared by the auditor communicating to client any
significant deficiencies and material weaknesses discovered by them.
Answer: False
3. Substantive test precedes test of control.
Answer: False
4. Attribute sampling is one of the reasons why auditor provide reasonable assurance to users.
Answer: True
5. Substantive test of details of transaction and balances involves gathering of corroborating evidence.
Answer: True
6. The standard allows auditor to communicate significant deficiencies and weaknesses of internal control orally or
through writing.
Answer: False
7. Substantive test could be both analytical procedure or substantive test of transactions and balances.
Answer: True
8. Analytical procedures involves the process of examining plausible relationships of transactions which can be done
through examining ratios and trends.
Answer: True
9. Corroborating evidence are hard facts which prove and disprove the accuracy of financial statements.
Answer: False
10. Substantive test is considered as the very heart of audit and is costly to conduct.
Answer: True
11. Analytical procedure is required in risk assessment phase; optional or required in substantive test stage; and
required upon completion the audit.
Answer: False
12. Reviewing minutes of meeting could be a tool to determine material transactions.
Answer: True
13. Prior to the completion of audit, auditor should consider the going concern assumption.
Answer: True
14. Review of subsequent events could lead to extending the date of audit or could result to issuance of report with dual
date.
Answer: True
15. In the completion stage of audit, it involves the obtaining of management letter.
Answer: False
16. Extending the date of audit means that the auditor assure that material misstatements occuring between issuance
date and extended period were reviewed.
Answer: True
17. Auditor cannot issue an audit report unless there is engagement quality review report.
Answer: True
18. Standard audit report includes unqualified and qualified opinions.
Answer: False
19. If the audit report states: "present fairly except for", the opinion expressed by the aiditor is adverse.
Answer: False
20. If the misstatement is pervasive and material, an auditor should issue a qualified opinion.
Answer: False
21. An audit report may include emphasis of the matter paragraph which is presented after the basis for opinion.
Answer: False
22. Key audit matters highlight the utmost important audit discoveries.
Answer: True
23. There are 4 types of opinion an auditor may express, 2 of which are standard while the others are modified.
Answer: False
24. When an auditor discovered material misstatement, unqualified opinion cannot be issued.
Answer: False
25. Audit report is made through writing and is the final product of an audit engagement.
Answer: True
1. Overall audit strategy is about obtaining evidence about the operating effectiveness of internal control.
FALSE
2. Attribute sampling means checking the data through its characteristics.
TRUE
3. Audit plans mean having a detailed plan while audit program means a specific set of instructions and procedures.
TRUE
4. The management representation letter and management letter are just the same both represent the management
of the company.
FALSE
5. Conducting variable sampling is under the test of control.
FALSE
6. Management representation letter comes from the management.
TRUE
7. Management letter comes from the auditor to management
TRUE
8. Substantive test procedures include analytical procedures, tests of control, or both.

FALSE
9. Variables sampling refers to the amount of the selected sample while attributes sampling to its characteristics.
TRUE
10. The overall audit strategy provides scope, timing, and direction of the audit.
TRUE
11. You cannot change anything in your report if you found that there is a misstatement.
FALSE
12. You don’t need to search for unrecorded liabilities because it is time-consuming.
FALSE
13. Creating analytical procedures in the substantive test are required.
FALSE
14. When communicating to the management and those charged with governance to suggest a more effective internal
control, you must present an authorization letter.
FALSE
15. Dual dating means having two dates in your report.
TRUE
16. If there is a high degree of uncertainty and pervasiveness, the auditor may issue disclaimer of opinion
TRUE
17. You can issue even there is no engagement quality review report.
FALSE
18. One of the factors for the auditor to issue a report is to obtain the management representation letter.
TRUE
19. Unqualified opinion includes the phrase “present fairly, in all material respect.”
TRUE
20. Extending the date and dual dating of the audit report are impossible to be done.
FALSE
21. A pervasive misstatement would be so serious that, to all intents and purposes the financial statements are useless.
TRUE
22. If the report presents material and pervasive misstatements the auditor may issue a qualified opinion.
FALSE
23. Modified opinions are unqualified, qualified, and adverse opinions.
FALSE
24. According to PSA 706, when there is an emphasis on the matter paragraph it must be put right after the opinion.
TRUE
25. Upon completing the audit, the auditor must perform the final analytical procedures.
TRUE
1. Test the operating effectiveness of an entity only if the internal control design is weak.
ANSWER: FALSE
2. If the management claims that their internal control design is good there is no need to perform the test of control.
ANSWER: FALSE
3. Before completing the audit, the auditor should search for unrecorded liabilities.
ANSWER: TRUE
4. There is no need to do a final analytical procedure.
ANSWER: FALSE
5. There is a need to do test of control in order minimize the substantive testing.
ANSWER: TRUE
6. Audit procedures provides absolute assurance to clients.
Answer: FALSE
7. Attribute sampling is the type of sampling used in test of control.
ANSWER: TRUE
8. Material weakness is the weakness in internal control wherein there is high possibility that material misstatement
occurs.
ANSWER: TRUE
9. Management letter is written by the management.
ANSWER: FALSE
10. Management representation letter is the letter which contains the acknowledgement of the entity of their
responsibility.
ANSWER: TRUE
11. Analytical procedure is done through analyzing plausible relationship wherein abnormalities are examined.
ANSWER: TRUE
12. You can only choose one between analytical procedures and substantive test of details of transactions and balances.
ANSWER: FALSE
13. Responsibilities of the auditors are not included in the audit report because it is already assumed.
ANSWER: FALSE
14. Variable sampling is used in substantive testing.
ANSWER: TRUE
15. Corroborative evidence is that evidence which supports the fact and assures the auditor that the audit evidence is
sufficient and appropriate.
ANSWER: TRUE
16. Significant deficiencies and material weaknesses should not be reported to the management and those charged
with governance.
ANSWER: FALSE
17. Completing the audit and audit report is the last part of the audit process.
ANSWER: TRUE
18. There is a need to review minutes of meetings because significant transactions are recorded in there.
ANSWER: TRUE
19. In the audit process there is no need to check the going concern assumption of the entity.
ANSWER: FALSE
20. Review of subsequent events should be done in the audit process because there may be events that are significant
beyond the reporting period.
ANSWER: TRUE
21. PSQC prohibits the issuance of audit report if there is no engagement quality review report.
ANSWER: TRUE
22. There are five different types of audit opinion.
ANSWER: FALSE
23. An unqualified opinion, sometimes referred to as a “clean report”, is the best possible type of report a business can
receive.
ANSWER: TRUE
24. Qualified opinion, is the type of audit opinion where auditors make a conclusion after their testing that there is
material misstatement found in the financial statements.
ANSWER: TRUE
25. Some of the contents of the audit report are opinion, basis for opinion and key audit matters.
ANSWER: TRUE
1. In conducting test of control, we need not to check or test all the controls regarding financial statements.
TRUE
2. Management representation letter is the same as management letter.
FALSE
3. If an auditor detects significant deficiencies and material weaknesses from the internal control of the management,
he needs to informed it to the management.
TRUE
4. When the design of internal control is strong that's the only time when you perform a test of control.
TRUE
5. If the internal control is weak, you still need to check the operating effectiveness or done the test of control. FALSE
6. As required to the standard, communication to management with regards to the suggestions of improving the
deficiencies of the internal control of the entity must be through written.
TRUE
7. Those charged with governance are implied as the top management.
FALSE
8. Management representation letter is where the auditor write his suggestions to improve the management's internal
control.
FALSE
9. Audit Plan is a more detailed plan that includes nature, timing, and extent of procedures.
TRUE
10. Audit program is a specific procedure where a set of instructions are presented.
TRUE
11. Variables sampling is selected items being sampled either will or won't possess certain qualities, or characteristics.
FALSE
12. Substantive testing is a detail testing where the main objective is to gather evidence and verify the balances,
transactions, and disclosures of financial statements.
TRUE
13. Under substantive procedures, normally it is possible that analytical procedures is enough in gathering evidences.
FALSE
14. Attributable sampling is the process used to predict the value using the amounts given of a specific variable within a
population.
FALSE
15. In gathering evidences, initial evidence is not enough, there is a need of support in confirming the proposition -
corroborating evidence.
TRUE
16. Once completed a risk assessment, it should still be reviewed periodically and in any case when there has been
significant changes to the specific activity or task at any stage.
TRUE
17. Analytical procedures are done only under risk assessment stage.
FALSE
18. Subsequent events in auditing considers both events occurring between the date of the financial statements and the
date of the auditor's report, and facts discovered after the date of the auditor's report.
TRUE
19. You can issue an audit report even without the management representation letter.
FALSE
20. According to Philippine Standards of Quality Control or auditing standards, an auditor is not allowed to issue an audit
report without the engagement quality review report.
TRUE
21. Qualified opinion is an auditor's opinion that the financial statements are fairly represented in all material aspects.
FALSE
22. Adverse opinion is an auditor's opinion that the financial statements do not present fairly and contains material and
pervasive misstatements.
TRUE
23. In a disclaimer opinion, an auditor cannot express an opinion because of the management's high degree of scope
limitations and uncertainty.
TRUE
24. Unqualified opinion is one of the modified opinions under audit report.
FALSE
25. If an auditor detects material misstatements, an auditor must issue directly either of the 3 modified opinions such as
qualified, adverse or disclaimer, depends on what the auditor's opinion was.
FALSE
Answer: False
2. Substantive test is the most costly procedure for the auditor.
Answer: True
3. As an auditor, absolute assurance should be provided to your client.
Answer: False
4. Management letter is same with management representation letter.
Answer: False
5. As the name itself, the management is the one who creates the management letter.
Answer: False
6. You can conduct analytical procedures, substantive test of details of transactions and balance or combination of both
for substantive testing.
Answer: True
7. Corroborating evidence is used to strengthen other evidences.
Answer: True
8. Test of control is done after performing risk assessment.
Answer: True
9. You need not to search for unrecorded liabilities.
Answer: False
10. Reviewing minutes of the meetings might help in completing the audit.
Answer: True
11. Risk assessment is not required in conducting analytical procedures.
Answer: False
12. Upon the completion of audit, you may check loss contingencies and make going concern assumption.
Answer: True
13. Reviewing of subsequent events is not important in the audit process.
Answer: False
14. Extending the date of audit report is not possible.
Answer: False
15. Dual dating can be done if you see material events after the audit period.
Answer: True
16. You are not allowed to issue audit report until there is engagement quality review report.
Answer: True
17. audit process can be done without the need of management representation letter.
Answer: False
18. Unqualified opinion states that the financial statements are presented fairly in all material respect.
Answer: True
19. If there is material misstatement but not pervasive, qualified opinion is issued.
Answer: True
20. Qualified opinion contains phrases like "do not present fairly".
Answer: False
21. If the financial statements contain material and pervasive misstatements, adverse opinion is issued.
Answer: True
22. The auditor may issue disclaimer of opinion if there is a high degree of uncertainty and pervasiveness.
Answer: True
23. Unqualified, qualified, adverse and disclaimer of opinion are all modified opinions.
Answer: False
24. If there is material misstatements, qualified, adverse or disclaimer of opinion are issued immediately.
Answer: False
25. Risk assessment is done from the beginning until the end since it is a continuous process.
Answer: True
1. You can test the operating effectiveness only if the design is strong.
Answer: TRUE
2. Testing the reliability of general controls may include observing client’s personnel in performing their duties,
inspecting program documentation, and observing the security measures in force.
Answer: TRUE
3. In testing the controls, there are times that you needed to test out all the controls in the financial statements to have
a high level of assurance to the audited company.
Answer: FALSE
4. The significant deficiencies and material weaknesses may not be needed to communicate to the management and to
those charged with governance as long as the auditor is sure to produce a reliable assurance that the financial
statements are now free from errors.
Answer: FALSE
5. Substantive tests are audit procedures designed to substantiate the account balances or to detect material
misstatements in the financial statements.
Answer: TRUE
6. Balance sheet accounts are more predictable than the income statement accounts knowing that it reports the
company's assets, liabilities and shareholders' equity.
Answer: FALSE
7. Test of details of transactions involves direct testing of the ending balance of an account.
Answer: FALSE
8. The auditor should determine the appropriate quality of evidence needed to support the desired level of detection
risk.
Answer: TRUE
9. The extent of substantive tests is based on the auditor’s judgment after developing an effective audit approach.
Answer: FALSE
10. In expressing an opinion on the financial statements, the auditor relies on the effectiveness of the internal control
to prevent material errors in the accounting process, and on substantive tests to verify the amounts in the financial
statements.
Answer: TRUE
11. Substantive tests provide evidence that indicates a misstatement is likely to occur. While tests of control provide
evidence about the existence of misstatement in an account balance.
Answer: FALSE
12. Analytical procedures applied as substantive tests enables the auditor to obtain corroborative evidence about a
particular account.
Answer: TRUE
13. Test of balances will be used when account balances are affected by large volume of relatively immaterial
transactions.
Answer: TRUE
14. Corroborating information refers to the accounting records underlying the financial statements.
Answer: FALSE
15. Attribute sampling is a sampling plan used to estimate a numerical measurement of a population such as peso
value.
Answer: FALSE
16. The auditor should perform procedures designed to obtain sufficient appropriate evidence that all events up to the
date of the auditor’s report that may require adjustment of, or disclosure in, the financial statements have been
identified.
Answer: TRUE
17. The date of the written representations shall be as near as practicable to, after the date of the auditor’s report.
Answer: FALSE
18. When the auditor decides to date the report as of the date of the subsequent event, his responsibility for the
subsequent events is extended up to subsequent event date.
Answer: TRUE
19. If the auditor does not want to extend his subsequent event review procedures, another option available to him is
to dual date the audit report.
Answer: TRUE
20. Failure on the part of the client to make appropriate amendments to the financial statements, where the auditor
believes they need to be amended, will cause the auditor to issue either qualified or unqualified opinion.
Answer: FALSE
21. During the period from the date of the auditor’s report to the date the financial statements are issued, the
responsibility to inform the auditor of facts which may affect the financial statements rests with management.
Answer: TRUE
22. When evaluating an entity’s going concern assumption, the auditor should remember that the conditions and
events that may indicate significant doubt about entity’s continued existence cannot be mitigated by other factors.
Answer: FALSE
23. If the going concern assumption is not appropriate, the financial statements should be prepared using other
appropriate basis.
Answer: TRUE
24. If management accepts all the adjusting entries proposed by the auditor, an unmodified report is issued on the
financial statements.
Answer: TRUE
25. If there is a reasonable assurance that the entity is a going concern, the auditor should express a modified audit
report.
Answer: FALSE
1. Test of control refers to obtaining evidence about the operating effectiveness of internal control.
Answer: True
2. The sampling related to audit test of control is called attribute sampling.

Answer: True
3. Significant deficiencies and material strengths are both important to the management and those charged with the
governance of the entity.
Answer: False
4. The substantive test is considered the heart of auditing for it serves significant purpose throughout the process.
Answer: True
5. In completing the audit, the last thing the auditor should do is search for unrecorded liabilities.
Answer: False
6. The purpose of conducting test of control is to check if the organization has accurate records and met its objectives.
Answer: True
7. When conducting substantive test of details of transactions and balances, you will be examining documents and
receipts.
Answer: True
8. Qualified opinion refers to the opinion that all are presented fairly, in all material aspects.
Answer: False
9. As prescribed by the standards, you can issue audit reports without obtaining the management representation letter
from the management signifying their acknowledgment to their responsibility.
Answer: False
10. The substantive test is the most costly procedure when gathering evidence.
Answer: True
11. The reason why auditors cannot provide absolute assurance and only at high level is because of the attribute
sampling.
Answer: True
12. When conducting test of control, you have to test the entire attributes to guarantee the level of assurance.
Answer: False
13. If the design is strong that means the internal control is effective.
Answer: True
14. The management of the entity is responsible for ensuring that all significant subsequent events that occurred
between the date of financial statements and the date of auditor’s report have been adequately disclosed.
Answer: False
15. According to PSQC and PSA, you can issue audit report even if there is still no engagement quality review report.
Answer: False
16. The auditor should perform audit procedures designed to obtain insufficient appropriate audit evidence.
Answer: False
17. If the internal control of the entity has a strong design and proven effective, you can minimize the substantive test.
Answer: True
18. When reviewing subsequent events at the completion of audit, the past events are not anymore included for it is
already irrelevant.
Answer: False
19. Corroborating evidence refers to the evidence that tends to support a proposition that is already supported by some
initial evidence.
Answer: True
20. Substantive testing is required when conducting analytical procedures.

Answer: False
21. In conducting test, for test of control it is called attribute sampling because it focuses on the characteristics while in
substantive testing it is called variable sampling because it is monetary.
Answer: True
22. The engagement letter shall be used when communicating to the management and those charged with governance
to suggest a more effective internal control.
Answer: False
23. Auditors can only provide high level of assurance but not absolute.
Answer: True
24. If you have weak internal control, you need not to have to undergo test of control but rather proceed to substantive
testing.
Answer: True

Answer: False

Answer: False
2. Test of control tests the effectiveness of internal control of the client.
Answer: True
3. A strong design is subject for a test of control.
Answer: True
4.Test of control is done for the sake of lessening the conduct of substantive testing.
Answer: True
5.Test of control is the most costly way of obtaining evidence.
Answer: False
6. A revised audit plan is needed if the design was mistakenly judged to be strong by an auditor.
Answer: True
7. Attribute Sampling enables the need to test all the elements in the financial statements.
Answer: False
8. Insignificant deficiencies and immaterial weaknesses should still be communicated to those charged with governance.
Answer: False
9. Communication to management is required to be through a management letter.
Answer: True
10. Management letter comes from the management.
Answer: False
11. The heart of audit is the substantive testing.
Answer: True
12. Substantive test procedures include either analytical procedure or substantive test of details of transactions and
balances but not both.
Answer: False
13. In test of control there is variable sampling while on the substantive testing, there is attribute sampling.
Answer: False
14. Corroborating evidence claims that there is a need for supporting evidence.
Answer: True
15. Conflicting evidence means that there could be misstatements.
Answer: True
16. Risks assessment is a continuous process done from the beginning to the end of the audit.
Answer: True
17. Searching for unrecorded liabilities is one of the part of completing liabilities.
Answer: True
18. Final Analytical Procedures is done through the stages of Risk Assessment and Completing the Audit only.
Answer: False
19. Loss Contingencies and Going Concern Assumption are also done upon the completion of an audit.
Answer: True
20. Review of Subsequent Events does not include the events after the audit report date.
Answer: False
21. Extending the date of the audit report is possible to be done.
Answer: True
22. Dual Dating means cancelling the date of the first issued audit report then replacing it with a new date.
Answer: False
23.PSQC states that issuing an audit report before having an engagement quality review report first is prohibited.
Answer: True
24. Even without obtaining first a Management Representation Letter, an auditor can issue an audit report.
Answer: False
25. A qualified opinion includes the phrase “present fairly, in all material respect.”
Answer: False
1. Key audit matters provides additional information to intended users of the financial statements to assist them in
understanding those matters that, in the auditor's professional judgment, were of most significance in the audit of the
financial statements of the current period.
Answer: True
2. Test of controls test the operating effectiveness of internal control only if the design is weak.
Answer: False
3. Substantive test is a costly procedure of gathering evidence.
Answer: True
4. When the internal control is strong, test of controls is used to lessen the use substantive testing.
Answer: True
5. When the internal control is weak, test of controls is not necessary and one shall use test of details and balances.
Answer: True
6. Extentive substance procedure is not necessary when one needs to revise the audit plan procedure.
Answer: False
7. When using test of control, it is a must to check all financial statements.
Answer: False
8. Attribute samping is a statistical process used in audit procedures that aims to analyze the characteristic of a given
population.
Answer: True
9. Material weaknesses refer to material misstatements.
Answer: True
10. Discovery of deficiencies and material weaknesses need to be communicated to management and those charge w/
government.
Answer: True
11. Management letter is used to communicate with the management which discusses the findings and
recommendations for improvements in internal control.
Answer: True
12. According to the standard, deficiencies and recommendations of auditor are communicated orally to the
management.
Answer: False
13. Management representation letter theorectically came from the auditor.
Answer: False
14. Test of details of Balances and Transactions is obtaining evidences about substantives details of accounts,
transactions, and disclosures.
Answer: True
15. Substantive testing is the heart of audit process.
Answer: True
16. Substantive test of details of transactions involve comparisons of different sets of financial and operational
informations, to see if historic relationship are continuing forward into the period under review.
Answer: False
17. Analytical procedures involves inspections of documents or people about transactions and balances.
Answer: False
18. Substantive test procedures can use analytical procedure or substantive test of details of transactions and balances,
but never both.
Answer: False
19. Substantive testing makes use of attribute sampling.
Answer: False
20. Unqualified opinion is a professional opinion made by an auditor indicating that a company's financial statements
are misrepresented, misstated, and do not accurately reflect its financial performance and health.
Answer: False
21. Variable sampling is the process used to predict the value of a specific variable within a population.
Answer: True
22. Corrobation is an evidence that tends to support a proposition that is already supported by some initial evidence,
therefore confirming that proposition.
Answer: True
23. Risk assessment is a continuous process.
Answer: True
24. Analytical procedure is necessary in risk assessment, substantive testing and completing the audit.
Answer: False
25. After the reporting date of audit report, one discovers a significant event, an auditor may extend the date of
reporting.
Answer: True
1. If the internal control is strong, we conduct substantive test to prove if it is effective.
ANSWER: False
2. An auditor needs to conduct a test of control to minimize substantive testing since it is costly to gather evidence.
ANSWER: True
3. Variable sampling is one of the reasons why only high level of assurance is provided by an audit.
ANSWER: False
4. In attribute sampling, only selected items will be tested.
ANSWER: True
5. In attribute sampling, an auditor only looks at the characteristics, not in the amounts.
ANSWER: True
6. Significant deficiencies are more than material weaknesses.
ANSWER: False
7. Material weaknesses means that there is a possibility that there are material misstatements.
ANSWER: True
8. Significant deficiencies are not necessarily to provide material misstatements and it is not important for the
management and those charged with governance.
ANSWER: False
9. An auditor communicates significant deficiencies and material weaknesses to management and those charged
with governance through written communication.
ANSWER: True
10. Management Representation Letter is the same from Management Letter.
ANSWER: False
11. Management Representation Letter is coming from the client management given to the auditor.
ANSWER: True
12. Management Letter is coming from the auditor given to the client management.
ANSWER: True
13. Test of Controls serve as the “heart of audit”.
ANSWER: False
14. When it says substantive test of details of transaction and balances, an auditor will inspects the documents and
people who are involved in the transaction.
ANSWER: True
15. It is not okay if there are no analytical procedures in substantive testing.
ANSWER: False
16. It is expected that the auditor will test all the evidences in an audit.
ANSWER: False
17. In test of controls, there is attribute sampling while in substantive testing, there is a variable sampling.
ANSWER: True
18. If an auditor finds more misstatements, he doesn’t need to extend the audit procedures.
ANSWER: False
19. Corroborating Evidence means that when an auditor gather evidence, it is not enough to have only one evidence
but he needs to find supporting evidence.
ANSWER: True
20. In risk assessment, analytical procedures are optional.
ANSWER: False
21. In going concern assumption, the auditor will assess if an entity will close within the next twelve months.
ANSWER: True
22. It is okay to issue an audit report even if there is no engagement quality review report.
ANSWER: False
23. There are four types of audit opinion.
ANSWER: True
24. Unqualified opinion is an audit opinion indicating that a company’s financial statements are misrepresented,
misstated, and do not accurately reflects its financial performance and health.
ANSWER: False
25. Disclaimer of opinion means that there is a high degree of scope limitation and uncertainty.
ANSWER: True
1. Test of control is about testing the external control of the management.

Answer: False
2. Test the operating effectiveness if and only if the design is too weak.
Answer: False
3. We use test of control to prove if the client’s internal control is effective and strong.
Answer: True
4. To lessen the use of substantive tests which is more costly, we conduct test of control.
Answer: True
5. Significant deficiencies are more than material weaknesses.
Answer: False
6. Management Representation Letter came from management to auditor while Management Letter came from
auditor to management.
Answer: True
7. Substantive testing is preparatory stage for performing risk assessment.
Answer: False
8. Substantive Test of Details of transactions and balances refers to gathering and inspecting relevant
documents, transactions and other evidences needed in auditing.
Answer: True
9. Substantive test procedures can be done by analytical procedures, substantive test of details or by both.
Answer: True
10. In test of control, we use variable sampling while in substantive test, we use attribute sampling.
Answer: False
11. Gathering of evidences can only be done in Substantive Testing stage.
Answer: False
12. Corroborating Evidence needs only one source in gathering relevant evidences.
Answer: False
13. Conducting analytical procedures is required in completing the audit.
Answer: True
14. In completing the audit, assess if the entity will still be applicable to the going concern assumption or not.
Answer: True
15. It is not possible to extend the date or apply dual dating in reviewing of subsequent events.
Answer: False
16. You are not allowed to issue an audit report without the engagement quality review report.
Answer: True
17. You can still issue an audit report without the management representation letter.
Answer: False
18. An audit opinion must always be unqualified in all cases.
Answer: False
19. An unqualified opinion usually contains the phrase “ present fairly, in all material respect”
Answer: True
20. A qualified opinion states that the financial statements contains material misstatements, scope limitations
and uncertainty with pervasiveness.
Answer: False
21. Adverse opinion usually contains the phrase “present fairly, except for”
Answer: False
22. If the financial statements are said to have material and pervasive misstatements, then the opinion used
will be adverse.
Answer: True
23. Disclaimer of Opinion states that the financial statements contains pervasive and high degree of scope
limitation and uncertainty.
Answer: True
24. Best example of a modified opinion is the unqualified opinion.
Answer: False
25. The contents of audit report contains key audit matters.
Answer: True
1. Test of controls is utilized to test the operating effectiveness regardless of the strength of its design.
Answer: False
2. In an entity's internal control, Control environment refers to the foundation for all other components, where it sets
the tone of the organization, provides discipline & structure, and influences the control consciousness of employees.
Answer: True
3. Test of controls can reduce the need for Substantive Tests

Answer: True
4. After conducting the test of controls, there is no more need for substantive testing
Answer: False
5. It is also possible that despite conducting test of controls, a further extensive substantive testing is needed
Answer: True
6. Extensive audit procedures (i.e. substantive testing) is needed when it is found out that the internal control is weak
Answer: True
7. When conducting test of controls, it is necessary to conduct testing on all controls for the financial statements
Answer: False
8. Attribute sampling is used in test of controls aiming to analyze the characteristics of a given population
Answer: True
9. After conducting test of controls, it is not necessary to communicate with those charged with governance any
observed material weaknesses.
Answer: False
10. When communicating with those charged with governance regarding any material weaknesses in its internal
controls, such communication can be done in written or orally.
Answer: False
11. A Management Letter is synonymous to the Management representation Letter

Answer: False
12. Substantive tests refer to the audit procedure of testing the internal control design of the entity
Answer: False
13. Analytical Procedures can be a part of the audit's substantive tests

Answer: True
14. Because of inherent limitations, internal control cannot be designed to provide reasonable assurance regarding the
achievement of objectives concerning elimination of all fraud
Answer: True
15. When conducting Substantive testing, there is a necessity to provide substantive test of details of Transactions &
balances, but never both.
Answer: False
16. When conducting substantive testing, it is necessary for the auditor to test every transaction and/or balance
Answer: False
17. When Conducting Test of controls, Variables Sampling is used, as there is no need to test every control of the entity.
Answer: False
18. When conducting substantive testing, it is necessary to use Attribute sampling, as there is no need to test every
transaction and balance of the entity
Answer: False
19. It is necessary to look for corroborating evidence in the case of accumulating audit evidence
Answer: True
20. Audit Evidence are usually conclusive in nature, rather than persuasive
Answer: False
21. Because Audit evidence are usually conclusive in nature, it is not necessary for an auditor to provide corroborating
evidence, unless on special cases where it is needed.
Answer: False
22. It is required to conduct analytical procedures in risk assessment and substantive testing
Answer: False
23. It is not necessary for an auditor to conduct final analytical procedures when completing the audit
Answer: False
25. In completing the audit, it is necessary to review the subsequent events of the entity
Answer: True
1. Test of control could mean testing the effectiveness of the internal control of the client.
-TRUE
2. If the desugn of internal control is weak, you are still required to test its operating effectiveness.
-FALSE
3. Test of controls must always be done regardless of the status of its design.
-FALSE
4. Discovering about the ineffectiveness of internal control is a signal that you should proceed already to substantive
testing.
-TRUE
5. We do test of control to lessen substantive resting which is costly to be done.
-TRUE
6. Strong internal control design does not always imply of having an effective internal control.
-TRUE
7. You are not allowed to revise your audit plan.
-FALSE
8. Your are always required to test all internal control characteristics in test of control.
-FALSE
9. Significant deficiencies and material weaknesses are two important matters that must be communicated to the
management and those charge with governance.
-TRUE
10. The standard requires that the communication to management and those charge with governance is written.
-TRUE
11. Management representation letter and management letter both come from the auditor.
-FALSE
12. Test of details of balances and transactions fall under rest of control.
-FALSE
13. Substantive testing is the very heart of the audit.
-TRUE
14. Analytical procedures and substantive test of details of transactions and balances are two substantive test
procedures.
-TRUE
15. You cannot conduct both analytical procedures and substance test of details of transactions and balances.
-FALSE
16. Variables sampling refers to testing all the amounts given in the document.
-FALSE
17. Corroborating evidence is about looking for another evidence that will support the given evidence.
-TRUE
18. The fourth stage of audit process is substantive testing.
-TRUE
19. The second stage of audit process is test of control.
-FALSE
20. Completing the audit is the last stage of audit process.
-TRUE
21. Searching unrecorded liabilities is one of the final works that must be done before completing the audit.
-TRUE
22. You should not review the of the meeting of the board before the completion of the audit.
-FALSE
23. Analytical procedure is required in performing risk assessment.
-TRUE
24. In completing the audit, you are required to conduct analytical procedures.
-TRUE
25. Conducting analytical procedures is a continuous process.
-TRUE
1. A test of control is an audit procedure to test the effectiveness of a control used by a client entity to prevent or detect
material misstatements.
Answer: TRUE
2. An auditor does not need to test the internal control of the management if it's truly implementing the design
effectively.
Answer: FALSE
3. Substantive testing is more expensive and costly way of obtaining evidence than the test of control.
Answer: TRUE
Answer: TRUE
5. An auditor need not to revise and make the audit plan more extensive if the result was mistakenly judge by the
auditor to be strong, just ignore it.
Answer: FALSE
6. The heart of audit is the test of control.
Answer: FALSE
7. The audit committee are composed of the management and those charged with governance.
Answer: TRUE
8. Substantive test procedure includes either analytical procedure or the substantive test of details of the transactions
and balances or both.
Answer: TRUE
9. In conducting substantive test procedure, analytical procedure is not an optional.
Answer: FALSE
10. Variable sampling enables to test the characteristics of the evidence gathered in a substantive test.
Answer: FALSE
11. Corroborating evidence means finding other source of information for supporting evidence and strong confirmation.
Answer: TRUE
12. As required by the standard, communicating to the management and those charged with governance is through
writing a letter specifically the management letter.
Answer: TRUE
13. According to the Philippine Standards on Quality Control (PSQC), unless the engagement quality review report was
still on hold, the auditor is not allowed to issue the audit report.
Answer: TRUE
14. Reviewing of subsequent events does not require the auditor to extend the date when discovering significant events
beyond the issuing date.
Answer: FALSE
15. Management representation letter comes from the auditor to the management as a suggestion to improve the
company's internal control.
Answer: FALSE
16. Search for unrecorded liabilities and review minutes of meetings are done upon completing the audit procedure.
Answer: TRUE
17. The final analytical procedures are part of the risk assessment procedure.
Answer: FALSE
18. Dual-dating means using two dates for the audit report comprising the original audit report date and the date of the
event, to disclose the work done.
Answer: TRUE
19. Qualified, adverse, and disclaimer of opinion are part of the standard opinions.
Answer: FALSE
20. Qualified opinion is an audit report that presents fairly in all material aspects.
Answer: TRUE
21. An adverse opinion is an audit report that represents a fair judgement except for material misstatements, scope
limitations, and uncertainty.
Answer: FALSE
22. It is during the completion stage that the auditor reviews the evidence obtained during the audit together with the
final version of the financial statements with the objective of forming the auditor’s opinion.
Answer: TRUE
23. Disclaimer of opinion is an audit report that do not present fairly and contains material and pervasive
misstatements.
Answer: FALSE
24. The contents of an audit report may include the emphasis of the matter paragraph and other matter paragraph.
Answer: TRUE
25. Contents of an audit report consist of opinion, basis for opinion, key audit matters, and auditors responsibilities only.
Answer: FALSE
TRUE 1. Audit plan is a more detailed plan that includes the nature, timing and extent of procedures of the audit work.
TRUE 2. Test of control happens when the design of internal control is strong.
FALSE 3. When auditors assess control risk at the minimum level, they are not required to perform any test of controls.
FALSE 4. Test of controls examines how ineffective a strong designed internal control.
TRUE 5. The ineffectiveness of a strongly designed internal control leads to a revision of the audit plan.
FALSE 6. Attribute sampling is the sampling related to the conduct of Substantive test.
TRUE 7. Substantive test are procedures that directly test accounts or classes of transactions to detect material monetary
errors or misstatements in financial assertions.
TRUE 8. If the internal control is weak there is no need to conduct test of control rather we go directly to substantive test.
FALSE 9. Analytical procedure evaluate internal control by studying plausible relationship among financial data and/or
nonfinancial data.
TRUE 10. In a substantive test the auditor consider the materiality of the financial statement assertions.
TRUE 11. Material weakness is the possibility that an internal control is prone to material misstatements.
TRUE 12. Upon discovering significant deficiencies and material weakness, an auditor must communicate to the
management and those charge with governance.
FALSE 13. Management representation letter is required by the standards to be used in communicating the significant
deficiencies and material weakness that auditors discover.
FALSE 14. Comparing inventory turnover from the historical records is an example test of control.
TRUE 15. Management representation letter is given by the management that serves as an acknowledgement towards the
organization responsibility while management letter is given by the auditor as a way to communicate what they have found
during the test of control.
FALSE 16. Auditors can do analytical procedures or substantive test details of transactions and balances: but not both.
TRUE 17. When the results of test of controls displays to be ineffective, the auditors may opt to proceed with substantive
test.
TRUE 18. One analytical procedure to test the overstatement or understatement of sales is by comparing the sales amount
and gross profit percentage for product lines by month and with those previous years.
FALSE 19. Audit procedures performed, relevant audit obtains and conclusions the auditor searched must be recorded
through what we called audit file.
TRUE 20. Before completing the audit an audit must obtain evidence on unrecorded liabilities.
TRUE 21. Completing the audit includes the evaluation whether the entity continues to be a going a concern.
FALSE 22. After the statement of financial position date the auditor is not responsible at all in reviewing the events and
transactions occurred.
TRUE 23. The auditor ordinarily has no responsibility to perform procedures and make inquiry of subsequent events after
the date of the report.
TRUE 24. According to Philippine Standards Quality Control (PSQC) an auditor is not allowed to issue an audit report without
the issuance of engagement quality control review.
FALSE 25. The management explicitly acknowledge their responsibility that the financial evidences or reports they have
provided to the auditor are right and just therefore there is no need for them to issue or release a management
representation letter.
1. Obtaining evidence about the operating effectiveness of the internal control is referred to as the test of control
Answer: True
2. Test the operating effectiveness only when the design is weak.
Answer: False
3. If the internal control is weak, perform substantive testing.
Answer: True
4. Substantive testing is not costly compared to test of control in terms of gathering evidence.
Answer: False
5. In auditing, we only test samples, not the entire population.
Answer: True
6. Significant deficiencies and material weakness should not be communicated to the management.
Answer: False
7. Management representation letter is just the same as management letter.
Answer: False
8. Substantive testing considered as the heart of auditing.
Answer: True
9. In substantive testing of procedure, you must always perform both the analytical and substantive test of detail together.
Answer: False
10. Gathering corroborating evidence is not necessary in auditing.
Answer: False
11. The first step in completing the audit is to review minutes of meetings with the board of directors.
Answer: False
12. In completing the audit, it is required to conduct analytical procedure.
Answer: True
13. You can not review subsequent events after you have audited the report.
Answer: False
14. According to PSQC, you are not allowed to issue audit report if there is no engagement quality review report.
Answer: True
15. Qualified report means that the financial statement is presented fairly, in all material respect.
Answer: False
16, Unqualified report means that there are material misstatements, scope limitation or uncertainty in the audited financial
statement of the company.
Answer: False
17.An audit report is considered adverse if there are material and pervasive misstatements.
Answer: True
18. Disclaimer of opinion means that there is a high degree of scope limitation and uncertainty.
Answer: True
19. Qualified, adverse and disclaimer of opinion are considered as standard opinion.
Answer: False
20. If you detect material misstatement, issue immediately modified opinion if there is scope limitation.
Answer: False
21. Modifying the audit report is not automatic.

Answer: True
22. The content of audit report also include the emphasis of the matter paragraph which can be found in the right after the
opinion.
Answer: True
23. The first content of the audit report should be the auditors responsibilities.
Answer: False
24. Other legal and regulatory requirements should not be included in the content of the audit report.
Answer: False
25. The basis for the opinion is excluded from the content of the audit report.
Answer: False
1. Substantive test is the most costly procedure in gathering evidence. - TRUE

2.Sampling that is related to test of control is called attribute sampling. TRUE
3. Mamangement representation letter and management letter are the same. FALSE
4. Management letter are from auditor given to the management as suggestions to improve the
internal control. TRUE
5. In substantive test the sampling that is being used is variables sampling. TRUE
6. Before completing the audit you should search for unrecorded liabilities. TRUE
7. In reviewing minutes of meeting of board you will the the significant transactions that occur. TRUE
8. In final analytic procedures having a substantive test is required. FALSE
9. It is okay to issue audit report even if you don’t have an engagement quality review report. FALSE
10. Unqualified opinion states that the financial statements are “presented fairly except for”. FALSE
11. If the financial statements are material and pervasive misstatements the auditor should issue
adverse opinion. TRUE
12. In adverse opinion the users would mostly rely to it. FALSE
13. Qualified opinIon is a standard opinion. FALSE
14. Engagement letter is the contract between the auditor and the client. TRUE
15. If the auditor does not want to extend his subsequent event review procedures, another option
available is to dual date the audit report. TRUE
16. In the contents of audit report the emphasis of the matter paragraph should write after the opinion.
TRUE
17. You will only test the operating effectiveness of internal controls if the system is not strong.
FALSE
18. Material weaknesses are the weaknesses of internal controls where there is a high possibility of
material misstatements - TRUE
19. Attribute sampling is testing all of the population present in the evidence presented by the
company. FALSE
20. Test of control should not be continuously updated. FALSE
21. Auditors are required to test all of the populations or documents presented by the company.
FALSE
22. If you have discovered more material misstatements, you need to change your audit plan. TRUE
23. You will not apply substantive test anymore if you are using already the test of controls. FALSE
24. In Audit you only give high level of assurance not absolute. TRUE
25. According to PSQC, you’re not allowed to issue Engagement report unless you had Engagement
Quality Control Review. TRUE
1. Audit program is a set of instructions to assistants.
Answer: True
2. Detection risk can be computed by using formula; Inherent Risk x Control Risk x Detection Risk
Answer: False
3. Overall audit strategy is composed of nature, timing, and extend of procedures.
Answer: False
4. Audit plan are those scope, timing, and direction of the audit
Answer: False
5. Audit risk can be computed as Inherent Risk x Control Risk x Detection risk
Answer: True
6. Test the operating effectivenes only if the design is strong
Answer: True
7. If internal control is weak, no need to co test of control instead, perform substantive test.
Answer: True
8. Substantive test is the most cheaper procedure for the auditor to gather some evidences
Answer: False
9. Attribute sampling means that an item being sampled either will or won’t possess certain qualities, or attributes
Answer: True
10. Inherent risk is a type of risk that cannot be determined.
Answer: False
11. Detection risk is the risk posed by an error or omission in a financial statement due to a factor other than a
failure of internal control.
Answer: False
12. Control risk is the chance that an auditor will fail to find material misstatements that exist in entity’s financial
statements.
Answer: False
13. Overall materiality represents the significant level in the financial statements of the company, which can
influence the decision making of the users of the financial statement of the company as a whole, as judged by the
auditor appointed by the company.
Answer: True
14. Significant deficiency is a combination of deficiencies in an internal control over financial reporting. There is a
reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be
prevented or detected on a timely basis.
Answer: False
15. Material weaknesses is less than the significant deficiency, yet important enough to merit attention by
those responsible for oversight of the company’s financial reporting.
Answer: False
16. Those charged with governance normally refers to the audit committee
Answer: True
17. Initial audit planning is an audit process that being planned thoroughly
Answer: True
18. Management representation letter is a form of letter written by a company’s external auditors which is signed
by the senior company management. Management also recognizes his responsibilities through this letter.
Answer: True
19. Risk assessment is a continuous process and needs to be revised until you will not learn something new.
Answer: False
20. Understanding the entity and its environment comprises the industry, nature, accounting policies, objectices
and strategies of internal management.
Answer: True
21. The confirmation of accounts receivable is most closely associated with detection risk
Answer: True
22. The auditor will most likely perform extensive tests for possible under statement of capital
Answer: False
23. Comfort letters ordinarily are signed by independent auditor
Answer: True
24. Analytical procedure are performed as an overall review of the financial statements at the end of the audit
process to assess whether they are consistent with the auditor’s understating understand of the entity
Answer: True
25. Fraudulent financial reporting is often called theft of assets.
Answer: False
F 1. Test the operating effectiveness if the design is weak

T 2. We perform the test of controls to minimize doing substantive tests.
F 3. When performing test of controls and finding out that the design is weak contrary to the first
assumption, the auditor shall revise the test of contols.
T 4. Attribute Sampling is a way of testing controls.
T 5. Material weakness is the possibility of material misstatement.
F 6. Significant deficiencies always mean that there is a material misstaement.
T 7. Maetrial weaknesses and Significant deficiencies should be communicated to management
and those charged with governance.
F 8. Communicating wih management and those charged with governance must be done orally.
T 9. Communicating wih management and those charged with governance should be done through a
management letter.
F 10. Management letter is also called management representation letter.
T 11. Management representation letter is given by the management to tha auditor.
F 12. Substantive test is an option in auditing which will be done at the auditors choice.
T 13. Analytical procedure is a vital step in substantive test.
F 14. Either analytical procedures and test of details can be done in substantive test but not both.
T 15. Substantive test makes use of variables sampling.
F 16. One evidence is enough for substantive test.
T 17. Searching for unrecorded liabilities is part of completing the audit.
F 18. Analytical procedure is only done during substantive test.
T 19. Analytical procedure is optional in substantive test.
F 20. Analytical procedure is not required in risk assessment.
T 21. Risk assessment and Completing the audit both requires analytical procedures.
F 22. Reviewing subsequent events is an important step in test of controls.
T 23. In completing the audit, the audior will assess whether the entity is a going concern or will
close within 12 months.
F 24. The auditor need not assess as to whether the entity is a going concern or will close within 12
months.
T 25. Review of subsequent events includes transactions after the report date.
1. If the internal control is weak do not use substantive testing instead directly use the test of controls.
Answer: False
2. If the internal control is strong we will conduct more on test of control and less reliance of substantive testing.
Answer: True
3. The auditor provides only a high level of assurance and not absolute that the financial statement is free from
Answer: True
4. Substantive test is a costly procedure used by auditor in gathering evidence.
Answer: True
5. Significant deficiencies and material weakness may or may not be communicated to management and those
charge with governance.
Answer: False; must be
6. As per standard significant deficiencies and material weakness must be communicated orally to those charge
with governance.
Answer: False; communicated through written
7. Those charge with governance are the audit committee,
Answer: False
8. In substantive test procedures, you can gather evidence through analytical procedures or substantive test
details of transactions and balances but not both.
Answer: False; could be both
9. In gathering evidence, it is expected that the auditor will inspect all the documents of the company.
Answer: False; selected items
10. In attribute sampling we look out the characteristics not the amount.
Answer: True
11. Before completing the audit, of the things that should be is to search for unrecorded liabilities.
Answer: True
12. According to Philippine Standard on Quality Control, you are not prohibited to issue an audit report if there is no
Engagement Quality Review Report,
Answer: False; Prohibited
13. As per standard, you are prohibited to issue an audit report if the management did not give letter that they
acknowledge their responsibility.
Answer: True
Answer: True
15. It is unqualified opinion if the financial statement has a “present fairly except for” that is presented in the
report.
Answer: False; Qualified
16. It is qualified opinion if the financial statement has a “presently fairly, in all material respect” that is presented in
the audit report.
Answer: False; Unqualified
17. It is Disclaimer of Opinion if the auditor did not express an opinion.

Answer: True
18. Material weaknesses are the weaknesses of internal controls where there is a high possibility of material
misstatements.
Answer: True
19. Responsibilities of management and those charged with governance is one of the content of audit report.
Answer: True
20. In the content of audit report, you cannot include the emphasis of the matter paragraph.
Answer: False
21. Obtaining substantive evidence about accounts, disclosures and assertion is also known as test of controls.
Answer: False; Substantive Test
22. Obtaining evidence about internal control operating effectiveness is also known as substantive test.
Answer: False; Test of Control
23. Risk assessment is continuously updated.
Answer: True
24. In conducting analytical procedure risk assessment is required.
Answer: True
25. Qualified, Adverse, and Disclaimer of Opinion are modified opinion.
Answer: True
1. According to PSA 706, if an auditor’s report contains Emphasis of the Matter Paragraph, it must be placed before
the Opinion.
Answer: False
2. An Unqualified opinion is a modified opinion.
Answer: False
3. Auditor’s suggestion for the improvement of management’s internal control is communicated through
Management Letter.
Answer: True
4. If the management’s internal control is weak, there is no need to conduct substantive test in obtaining evidence.
Answer: False
5. In obtaining evidence using test of controls, attribute sampling is used.
Answer: True
6. Final analytical procedures are required in risk assessment and in completing the audit.
Answer: True
7. Unqualified and adverse opinion are standard opinion given by the auditor.
Answer: False
8. According to Philippine Standard on Quality Control (PSQC), issuing an audit report without an Engagement Quality
Control Report is not allowed.
Answer: True
9. Analytical procedures are only required in risk assessment.
Answer: False
10. An auditor is not allowed to issue an audit report without obtaining Management Representation Letter.
Answer: True
11. If there is a pervasive material misstatement, scope limitation or uncertainty in the financial statement, the auditor
must give a qualified opinion.
Answer: False
12. An extensive substantive test procedure is needed when management has a strong internal control system.
Answer: False
13. If the material misstatement, scope limitation or uncertainty is not pervasive, the auditor can give a qualified
opinion to his audit report.
Answer: True
14. Analytical procedures are used in analyzing plausible relationships and to check if there are abnormalities and
irregularities.
Answer: True
15. In substantive testing, analytical procedure is required.
Answer: False
16. Corroborating evidence means there must be a supporting evidence since one evidence is not enough in obtaining
sufficient and appropriate evidence.
Answer: True
17. One of the requirements in completing the audit is to search for unrecorded liabilities.
Answer: True
18. Management representation letter acknowledge auditor’s responsibility.
Answer: False
19. Substantive test procedure is conducted after performing risk assessment.
Answer: False
20. Search for unrecorded liabilities is usually done through confirmation or analyzing warranties.
Answer: True
21. Review Minutes of Meetings is done during test of control stage.
Answer: False
22. Qualified, Adverse and Disclaimer of Opinion are modified opinion.

Answer: True
23. Disclaimer of opinion is given by the auditor if there is a low degree of scope limitation and uncertainty.
Answer: False
24. Issuance of audit report is done after performing risk assessment.
Answer: False
25. Review of subsequent events is done during completing the audit stage.
Answer: True
1. You will only test the operating effectiveness of internal controls if the system/design is
strong.
Answer: True
2. Substantive testing is used if the internal control system of the company is weak.
Answer: True
3. When gathering evidence substantive testing is a costly procedure to perform.
Answer: True
4. Variable sampling is testing the specific amount / value in the evidence presented by the
company.
Answer: True
5. You will not apply substantive test anymore if you are using already the test of controls.
Answer: False
6. If it turns out that you have detected significant deficiencies and material weaknesses
relating to internal control of the company, you need to communicate it to the management
and those charged with governance.
Answer: True
7. Management letter is also known as “management representation letter”
Answer: False
8.In Audit you only give high level of assurance not absolute.
Answer: True
9. Attribute sampling is testing all of the population present in the evidence presented by the
company.
Answer: False
10. Management Representation Letter is given by the auditor to the management as
suggestion to improve their internal controls.
Answer: False
11. In substantive test of details of transactions and balances, you will inspect documents or
employees about transactions and balances to gather evidence.
Answer: True
12.Test of control should not be continuously updated.
Answer: False
13. In conducting substantive test, you cannot do both the analytical procedures and
substantive test of details.
Answer: False
14. In test of controls, attribute sampling variable sampling is use while in substantive test,
variable sampling is use.
Answer: True
15.In reviewing of subsequent events , extending the date and dual dating is needed.
Answer: True
16. Auditors are required to test all of the populations or documents presented by the
company.
Answer: False
17.Those Charged with governance are the audit committee
Answer:False
18.According to PSQC, you’re not allowed to issue Engagement report unless you had
Engagement Quality Control Review
Answer: True
19. Before Completing the audit one of the thigs that should be done is to perform final
analytical procedures.
Answer: True
20. In test of controls, variable sampling is use while in substantive test, attribute sampling is
use.
Answer: False
21. Audit report is the third to the last step in an audit process.
Answer: False
22.It is unqualified opinion if the financial statement has a “present fairly except for” that is
presented in the report.
Answer: False
23. The Contents of Audit Report contains, opinion, the basis of opinion and the key audit
matters.
Answer: True
24.In gathering evidence ,the auditor will inspect all the documents of the company.
Answer: False
Answer: True
1. If the internal control is weak do not use substantive testing instead directly use the test of controls.
Answer: False
2. If the internal control is strong we will conduct more on test of control and less reliance of substantive testing.
Answer: True
3. The auditor provides only a high level of assurance and not absolute that the financial statement is free from
Answer: True
4. Substantive test is a costly procedure used by auditor in gathering evidence.
Answer: True
5. Significant deficiencies and material weakness may or may not be communicated to management and those
charge with governance.
Answer: False; must be
6. As per standard significant deficiencies and material weakness must be communicated orally to those charge
with governance.
Answer: False; communicated through written
7. Those charge with governance are the audit committee,
Answer: False
8. In substantive test procedures, you can gather evidence through analytical procedures or substantive test
details of transactions and balances but not both.
Answer: False; could be both
9. In gathering evidence, it is expected that the auditor will inspect all the documents of the company.
Answer: False; selected items
10. In attribute sampling we look out the characteristics not the amount.
Answer: True
11. Before completing the audit, of the things that should be is to search for unrecorded liabilities.
Answer: True
12. According to Philippine Standard on Quality Control, you are not prohibited to issue an audit report if there is no
Engagement Quality Review Report,
Answer: False; Prohibited
13. As per standard, you are prohibited to issue an audit report if the management did not give letter that they
acknowledge their responsibility.
Answer: True
Answer: True
15. It is unqualified opinion if the financial statement has a “present fairly except for” that is presented in the
report.
Answer: False; Qualified
16. It is qualified opinion if the financial statement has a “presently fairly, in all material respect” that is presented in
the audit report.
Answer: False; Unqualified
17. It is Disclaimer of Opinion if the auditor did not express an opinion.

Answer: True
18. Material weaknesses are the weaknesses of internal controls where there is a high possibility of material
misstatements.
Answer: True
19. Responsibilities of management and those charged with governance is one of the content of audit report.
Answer: True
20. In the content of audit report you cannot include the emphasis of the matter paragraph.
Answer: False
21. Obtaining substantive evidence about accounts, disclosures and assertion is also known as test of controls.
Answer: False; Substantive Test
22. Obtaining evidence about internal control operating effectiveness is also known as substantive test.
Answer: False; Test of Control
Answer: True
24. In conducting analytical procedure risk assessment is required.
Answer: True
25. Qualified, Adverse, and Disclaimer of Opinion are modified opinion.
Answer: True
1.When tests of controls are not considered effective, or when control deviations are discovered, substantive
tests will be eliminated.
Answer: False
2.Substantive tests are audit procedures that may be either tests of transactions, direct tests of financial
balances, or analytical test.
Answer: True
3. Analytical Procedures are not usually effective and efficient for tests of controls.
Answer: True
4. It is common to use analytical procedures at any time during the audit
Answer: True
5. Audit evidence in the form of documents and written representation is less reliable than oral
representations.
Answer: False
6. If the tests of controls are weak, do not rely on it but instead used the Substantive Testing.
Answer: True
7.If the internal Control is reliable, the auditor will have to perform extensive substantive tests.
Answer: False
8.Management Representation Letter is from Management to Auditor while Management Letter is from
Auditor to Management.
Answer: True
9. An effective internal control structure provides more assurance about the reliability of evidential matter.
Answer: True
10. Analytical Procedure used in planning an audit should not use financial information.
Answer: False
11. The evidence that tends to support a proposition that is already supported by some initial evidence is
called Corroborating evidence.
Answer: True
12. The procedures performed in completing the audit are optional since they have only an indirect impact on
the opinion to be expressed.
Answer: False
13.Representation Letter is optional
Answer: False
14. It is not only the Risk Assessment that requires to make an analytical procedure but also in the completing
the audit stage.
Answer: True
15. Either the design is strong or weak, you can still test the operating effectiveness.
Answer: False
16. In tests of control, it contains physical evidence or supporting documentation to see if they contain errors.
Answer: False
17. Performing extensive substantive tests means that there is less reliance to tests of control.
Answer: True
18. Extending the date and Dual Dating is allowed in Review of Subsequent events but they do have the same
implications.
Answer: False
19. Subsequent events are defined as events which occur subsequent to the date of the auditor’s report.
Answer: False
20. The Management Letter required by the Standard is can be both written or orally.
Answer: False
21.Representation letter confirms written representation made by management.
Answer: True
22.In completing the audit, no need to search for unrecorded liabilities.
Answer: False
23. It is not required to perform analytical procedure or it is optional when conducting Substantive testing.
Answer: True
24. According to Philippine Standard on Quality Control (PQC), it is allowed to issue an audit report even if
there is no Engagement Quality Control Review.
Answer: False
25. The last stage of audit is not the tests of controls.
Answer: True
TRUE OR FALSE
FALSE 1. Test of Controls is appropriate and necessary if internal control is weak.
TRUE 2. In Test of Controls, test the operating effectiveness only if the design is strong.
FALSE 3. It is necessary to check all controls undertaken in conducting Test of Controls.
TRUE 4. Attribute Sampling is testing the characteristics of a sample in a population.
TRUE 5. Significant deficiencies and material weaknesses are to be communicated to management and
those charged with governance through management letter.
TRUE 6. Substantive Testing involves gathering of evidence.
FALSE 7. Test of Controls include obtaining details about transactions and balances.
FALSE 8. In Variables Sampling, it is necessary to test all of the documents.
FALSE 9. Attribute Sampling is done in Substantive Testing and Variable Sampling is done in Test of
Controls.
TRUE 10. Corroborating Evidence requires not just one evidence but also other supporting evidence.
FALSE 11. Possible misstatements are not traced while corroborating evidences.
FALSE 12. In completing the audit, searching for unrecorded liabilities is no longer a concern.
TRUE 13. Review of minutes of meetings of the board is necessary in completing the audit.
TRUE 14. Knowing the major and nonrecurring transactions while completing the audit is important.
FALSE 15. Analytical Procedures is not practiced in completing the audit.
TRUE 16. Risk assessment requires analytical procedures.

FALSE 17. Substantive Testing requires analytical procedures.
TRUE 18. Going Concern Assumption is considered in completing the audit.
TRUE 19. Review of Subsequent Events includes after reporting date events in auditing.
FALSE 20. According to PSQC, it is allowed to issue audit report even if there’s no Engagement Quality
Review Report.
FALSE 21. It is allowed to issue audit report even not obtaining Management Representation Letter.
FALSE 22. “Present fairly, in all material respect” is a Qualified Audit Opinion.
TRUE 23. Adverse Opinion has material and pervasive misstatements.
FALSE 24. Responsibilities is the first content of Audit Report.
TRUE 25. Emphasis of the Matter Paragraph is included when the auditor wants to emphasize essential
events like judgments, uncertainties and litigations that the client encountered.
1. One of the procedures in the planning process is to understand the entity and its environment, including the entity’s
internal control.
Answer: True
2. The Type 1 internal control report is a report on the description and design of controls at a service organization and
encompasses a description by the management of the service organization, the service organization’s system, control
objectives, and related controls, and a report by the service auditor conveying their opinion of the service organization’s
system.
Answer: True
3. Misappropriation of assets involves intentional misstatements including omissions of amounts or disclosures in

financial statements to deceive financial statement users.
Answer False
4. Judgements about materiality are made in light of surrounding circumstances, and are affected by the size or nature
of a misstatement, or a combination of both.
Answer: True
5. Assessing risk is the core of the audit. The rest of the audit is designed to provide an understanding of internal control.
Answer False
6. Test of Control is to determine whether these internal controls are sufficient to detect or prevent risks of material
misstatements.
Answer: True
7. For good internal control, the credit department should have no access to computer system.
Answer: False
8. A risk-neutral investor is an investor who neither likes or dislikes risk.
Answer: True
9. Substantive test is necessary if you have strong internal control.
Answer: False
10. The entity use internal control to reduce the substantive testing.
Answer: True
11. Auditors can rely on an estimate of zero inherent risk because they have assessed that management has integrity.
Answer: False
12. The objective of an auditor performing an audit is to limit audit risk (AR) to a low level.
Answer: True
13. The auditor would ordinarily expect to find evidence to support management representations and assume they are
necessarily correct.
Answer: False
14. Assertions are relevant to the audit process because they are the representations of management embodied in the
FS.
Answer: True
15. The internal auditor is a primary provider of operational audits
Answer: True
16. An independent audit of a small business by a CPA firm usually results in an unconditional guarantee of the accuracy
of the financial statements.
Answer: False
17. The sufficiency of evidence is a measure of evidence quality.
Answer: False
18. All audit procedures need to be performed at or after the client's balance sheet date.
Answer: False
19. One of the most rigorous approaches to substantive analytical procedures is regression analysis
Answer: Tue
20. It is not necessary for a sample selection method to be easily replicated if the auditor is accepting the use of non-
statistical audit plans.
Answer: True
21. An audit is successfully completed and will stand up to scrutiny even if all audit steps are completed without
documentation of the steps performed and their results.
Answer: False
22. Audit work is completed and an opinion can be given without qualitative evaluation being performed.
Answer: True
23. Account balances can be substantively audited in full at an interim date. That is, no other substantive procedures are
required from the interim date to year-end.
Answer: False
24. Performing a walk-through of a transaction through the accounting and control systems is a classic example of audit
sampling.
Answer: False
25. Adequate documents and records is a subcomponent of the control environment.
Answer: False
Test the operating effectiveness only if the design is strong. - TRUE
Test of controls is a costly procedure in gathering evidences. – FALSE
Attribute sampling only took selected items for testing the validity of the evidences. –TRUE
Variable sampling focus on characteristics rather than value or amount. – FALSE
The required communication to management is written based on standard. –TRUE
Significant deficiencies have highest possibility that have a material misstatement. FALSE
There is a revision happens if only the design is strong and the reality is that it’s bad because it does not follow
the standards. –TRUE
Significant deficiency is less than the material weaknesses. TRUE
Management letter is the letter from the management to the auditor to improve internal control. –FALSE
Substantive test is the root in gathering evidences. –TRUE
Corroborating evidence states that one evidence is not enough and it needs to gather more or look for a supporting
evidence. –TRUE
Attribute sampling test the amounts rather than characteristics. –FALSE
Analytical procedure is enough in conducting substantive testing. –FALSE
In review minutes of meetings, we can locate some significant transactions in the meeting of the BOD if there is
a major or non-recurring transactions. –TRUE
Risk assessment is required in conducting an audit. –TRUE
Substantive test is optional in conducting an audit. –TRUE
In reviewing of subsequent events the things that might happen are extending the date and dual dating. –TRUE
It is right to issue an audit report even if there is no engagement quality review report. –FALSE
If you discover significant events after the date of issuance of audit report and you include it in your report, you
can extend the date of your audit report. – TRUE
Unqualified opinion means the financial statement of the company is fairly stated in all material respects. –TRUE
Qualified opinion means the financial statements of the company is not fairly stated. –FALSE
Going concern assumption of the company is assessed at the test of control stage in the audit process. –FALSE
If you have discovered more material misstatements, you need to change your audit plan. –TRUE
Search for unrecorded liabilities can generate evidences. –TRUE
If the system is strong you will go for test of control in validating the audit report. -TRUE

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ACCTG.

324: AUDITING AND ASSURANCE: SPECIALIZED INDUSTRIES

Questions and Answers:

1.) Substantive testing is needed when the internal control is weak.

3.) Attribute sampling is used in test of controls.

11.) Sampling risk cannot be measured quantitatively.

15.) Corroborating evidence means to find sufficient evidences.

17.) Substantive test is not costly in gathering of evidences.

21.) In substantive test, analytical procedures is optional.

23.) In completing the audit, analytical procedures is not required.

24.) In risk assessment, analytical procedures is optional.

1. Test the operating effectiveness even if the design is not strong.

2. Conducting of a substantive test is costly.

those charged with governance.

6. In conducting substantive test, we use attribute sampling instead of variable sampling.

20. Unqualified opinion is also called as modified opinion.

1. Test the operating effectiveness only if the design is strong.

2. Variables sampling is taking the characteristic of the audit process.

Answer: FALSE (AMOUNT)

3. Attribute sampling is taking the amount of the audit process.

Answer: FALSE (CHARACTERISTIC)

Answer: FALSE (UNRECORDED)

7. The final analytic procedures of audit process have 4 stages.

Answer: FALSE (3)

8. The substantive test in the final analytical procedures is optional.

9. It is required to complete the audit in finalizing the analytical procedures.

11.Review the subsequent events in completing the audit process.

12.The most common type of audit report contains a qualified opinion.

Answer: FALSE (UNQUALIFIED)

Answer: FALSE (PROBIHITED)

15.PSQC stands for Philippines Standards on Quality Control.

17.Unqualified – “present fairly except for”

Answer: FALSE (QUALIFIED)

18.Qualified – “present fairly in all material aspects”

Answer: FALSE (UNQUALIFIED)

Answer: FALSE (SIGNIFICANT)

Answer: FALSE (AUDITOR)

Answer: FALSE (DISCLAIMER)

Answer: FALSE (SHOULD NOT)

FALSE 1. Test of controls is done only if the design is weak.

TRUE 3. Attribute sampling focuses on the characteristics of data being sampled.

TRUE 5. Variables sampling focuses on the amounts in the data sampled.

TRUE 6. Analytical procedures is a must in risk assessment.

FALSE 8. "Present fairly, in all material aspect" is a modified opinion.

FALSE 10. "Do not express an opinion" is a standard audit opinion.

FALSE 14. Management letter is synonymous to management representation letter.

2. Test of control is the most costly procedure to gather an evidence.

ANSWER: False - Substantive test

ANSWER: False- more

7. Corroborating evidence means that only one evidence is enough.

ANSWER: False- not enough

ANSWER: False- will search

ANSWER: False- after

ANSWER: False - unqualified

ANSWER: False - auditor

20. The content of an audit report will include an opinion.

ANSWER: False - significant