To succeed in an action against the auditor, the client must be able to show that:

● there is a close causal connection between the auditor’s breach of the standard

Which of the following is prohibited by the Code of Ethics?

● Charging and accepting a contingent fee for a financial statement review
engagement.

Which of the following is not one of the management assertions?

● They are all management assertions. (Completeness, Existence, Rights and
obligations)

A set of criteria used to determine measurement, recognition, representation, and

disclosure of all material items appearing in the financial statements is referred to as a
● Financial reporting framework.

An attest engagement in which the CPAs agree to perform procedures for a specified
party and issue a report that is restricted to use by that party
● Agreed-upon engagement

The public expects auditors to:

a. All of the above
b. Require accounting principles the best portray the spirit of the concepts adopted
by accounting standard setters
c. Be independent of management
d. Find fraud

Which of the following is not an assurance engagement?

● Compilation

By definition, proper professional skepticism on an audit requires:

● Questioning mind YES Subjective assessment of audit evidence NO

Which of the following is false? Philippine Framework for Assurance Engagements

● establishes standards or provides procedural requirements for the performance
of assurance engagements.

Society has attached a special meaning to the term “professional”. A professional is

● a person who is expected to conduct himself or herself at a higher level than the
requirements of society’s laws or regulations.

Attestation risk is limited to a low level in which of the following engagement(s)?

● Examinations, but not reviews.
Which of the following statements is correct?
● Working papers prepared by the auditor solely for the engagement need not be
returned to the client.

Compliance auditing often extends beyond audits leading to the expression of opinion
on the fairness of financial presentation and includes audits of efficiency, economy
effectiveness, as well as
● Adherence to specific rules of procedures

Which of the following parties are involved in preparing and auditing financial
statements?
● External auditor

Which of the following procedures is least likely to be performed during the final phase
of the audit opinion formulation process?
● Performance of preliminary analytical review procedures.

In pursuing a CPA firm's quality control objectives, a CPA firm may maintain records
indicating which partners or employees of the CPA firm were previously employed by
the CPA firm's clients. Which quality control objective would this be most likely to
satisfy?
● Relevant ethical requirements.

A practitioner should plan and conduct the assurance engagement in an effective

manner to meet the objective of the engagement. Which of the following matters need
not be a concern of the practitioner in planning the work?
● Specific format of the assurance report

It is a standard-setting body which is committed to developing in the public interest, a

single set of high quality, global accounting standards that require transparent and
comparable information in general purpose financial statements.
● International Accounting Standards Board

An audit should be designed to obtain reasonable assurance of detecting material

misstatements due to:
● Errors, fraud, and noncompliance with laws with a direct effect on financial
statement amounts and others.

Which of the following does a firm need not establish and maintain a system of quality
control for?
● Maximizing revenue

Which of the following statements is true about the audit opinion formulation process?
 ● The audit opinion formulation process is based on the premise that management
has responsibility to prepare the financial statements and maintain internal
control over financial reporting.

Which of the following professional services would be considered an attestation

engagement?
● An engagement to report on statutory requirements.

Which of the following is not a broad category of threat to auditor independence?

● Positive work relationship.

Contingency fee based pricing of accounting services is:

● Prohibited for clients for whom attestation services are provided.

An audit provides reasonable assurance of detecting which of the following types of

material illegal acts?
● Direct Effect YES Without a Direct Effect NO

Which management assertion addresses whether the components of the financial

statements are properly classified, described, and disclosed?
● Presentation and disclosure

CPAs are considered professional persons because they:

● serve the interests of the public in general and clients in particular.

When it comes to being independent, auditors must not only be: (I) independent in fact,
(II) independent in appearance, (III) independent judgement, (IV) independent
professional.
● I and II only

It is a standard-setting body has its mission the development and enhancement of the
profession to enable it to provide services of consistently high quality in the public
interest.
● International Federation of Accountants
Most lawsuits against CPAs are filed by:
● client

An attitude that includes a questioning mind, being alert to conditions that may indicate
possible misstatements, and a critical assessment of audit evidence is referred to as:
● Professional skepticism.
An independent, objective assurance & consulting activity designed to add value and
improve an organization’s operations.
● Internal audit

Independent auditing can best be described as

● A professional activity that measures and communicates financial and business
data.

Auditors are periodically punished for holding an investment in a client. This violates
which ethical rule?
● Independence.

Which of the following factors does not create a demand for external audit services?
● Requirement of PICPA.

Which of the following is accurate, as indicated in the principles underlying an audit?

● An auditor is unable to obtain absolute assurance that the financial statements
are free from material misstatement.

Which of the following is not an element of quality control?

● Documentation

The least important element in the evaluation of a CPA firm’s system of quality controls
would concern its policies and procedures with respect to
● determination of audit fees

An operational audit differs in many ways from an audit of financial statements. Which
of the following is the best example of one of these differences?
● Operational audits are more subjective and often involve evaluating efficiency
and effectiveness of operations.

A basic objective of a CPA firm is to provide professional services that conform with
professional standards. Reasonable assurance of achieving this basic objective is
provided through
● a system of quality control.

Which of the following is a principle underlying an audit conducted in accordance with

generally accepted auditing standards?
 ● An auditor's opinion enhances the degree of confidence that intended users can
place in the financial statements.

Audits of financial statements are designed to obtain reasonable assurance of detecting

misstatement due to:
● Fraudulent Financial Reporting YES Misappropriation of Assets YES

Which of the following items should be included in audit documentation?

a. Audit evidence examined
b. Procedures performed
c. Conclusions reached with respect to relevant financial statement assertions
d. All of the above should be included

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

statement audit report?
● The year the auditor began serving the company.

Which of the following best describes the operational audit?

● It concentrates on seeking aspects of operations in which waste could be
reduced by the introduction of controls.

A client company has not paid its 20X6 audit fees. According to the Code of Ethics, in
order for the auditor to be considered independent with respect to the 20X7 audit, the
20X6 audit fees must be paid before the:
● 20X7 report is issued.

Which of the following is not an underlying premise of an audit?

● Management and the auditors have responsibility for the preparation of financial
statements in accordance with the applicable financial reporting framework.

In determining the scope and nature of services to be performed in public practice, a

CPA firm should:
● Determine that the performance of all services is consistent with the firm's
members' role as professionals.

When the professional accountant has obtained sufficient appropriate evidence to

conclude that the subject matter conforms in all material respects with identified suitable
criteria, he/she can provide
● reasonable level of assurance.
A CPA should maintain objectivity and be free of conflicts of interest when performing:
● All professional services.

This is the government agency that regulates the registration and operation of
corporations, partnership and other forms of business associations in the Philippines.
● Securities and Exchange Commission

Which of the following is not a component of engagement risk?

● Business risk

It is a standard-setting body which is tasked to assist the BOA in carrying out its powers
and functions particularly the adoption of IFRS in the Philippines.
● Financial Reporting Standards Council

The prudent person concept establishes in law that

● the CPA firm is not expected to be infallible.

Which of the following activities is not part of the activities within the audit opinion
formulation process?
● The auditor determines the appropriate nonaudit consulting services to provide to
the client.

An assurance engagement that provides a high level of assurance that the financial
statements are free of material misstatement is known as
● independent financial statements audit.

An audit that includes providing assurance on both the financial statements and internal
control.
● Integrated audit

An engagement designed to express limited assurance relating to subject matter or an

assertion.
● Review

It is a standard-setting body which is assigned to assist the BOA in carrying out its
powers and functions particularly the adoption of auditing and assurance standards in
the Philippines.
● Auditing and Assurance Standards Council
Inquiries and analytical procedures ordinarily form the basis for which type of
engagement?
● Review.

Which of the following are the responsibilities of the external auditor in auditing financial
statements?
a. None of the above.
b. Providing internal oversight of the reporting process
c. Maintaining internal controls and preparing financial reports
d. Providing internal assurance on internal control and financial reports

Under this approach, the auditor performs the following:

a. Only I, II and IV
b. All of the given
c. I. Identification of the client’s strategy & the processes for developing that
strategy.
d. III. Identification for each of the key processes the objectives, inputs, activities,
outputs, systems and transactions.
e. II. Examination of the core business process and resource management
f. IV. Assessment of the risks that the processes will not meet the goals and
controls related to those risks.

Which of the following statements is a false statement regarding audit documentation?

● The only purpose of audit documentation is to provide evidence that the audit
was planned and performed in accordance with auditing standards.

This is the government agency that audits or determines whether government units
handle their funds according to existing laws and whether their program are being
conducted efficiently and economically.
● Commission on Audit

A CPA establishes quality control policies and procedures for deciding whether to
accept a new client or to continue to perform services for a current client. The primary
purpose for establishing such policies and procedures is to
● minimize the likelihood of association with clients whose management, lacks
integrity.

It administers, implements and enforces the regulatory policies of the national

government with respect to the regulation and licensing of the various professions under
its jurisdiction including the maintenance of professional standards and ethics and the
enforcement of the rules and regulations relative thereto.
● Professional Regulation Commission

Which of the following is a true statement regarding audit evidence and audit
procedures?
● The auditor has a responsibility to design and perform audit procedures to obtain
sufficient appropriate audit evidence.

In terms of technical knowledge and expertise, which of the following should external
auditors do?
a. Understand accounting and auditing authoritative literature.
b. All of the above.
c. Develop and apply computer skills.
d. Develop industry and client-specific knowledge.

Which of the following terms best describes the audit of a taxpayer's tax return by a BIR
auditor?
● Compliance audit.

Which of the following is not an element of quality control that should be considered by
a firm of independent auditors?
● Keeping records of quality control policies and procedures

Quality control for a CPA firm, as referred to in auditing standards, applies to

● auditing and accounting and review services.

This type of decisions such as review performance, make operational decisions and
report results to capital markets.
● Management

Operational auditing is primarily oriented toward:

● Future improvements to accomplish the goals of management.

Which of the following expectations can users of the audit report reasonably expect with
regards to the audited financial statements?
● The financial statements are presented fairly according to the substance of
PFRS.

The practice of accounting includes the following expect

 ● Practice in commerce and industry, when the CPA is appointed as marketing
manager of the enterprise.

A typical objective of an operational audit is for the auditor to:

● Make recommendations for improving performance.

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

● Agreed-upon procedures report.

Which of the following is included as part of the principles governing an audit?

● An audit has inherent limitations such that auditor cannot provide absolute
assurance about whether the financial statements are free of misstatement.

Professional services that enhance the quality of information, or its context, for decision
makers.
● Assurance services

The existence of extreme or unusual negligence, even though there was no intent to
deceive or do harm, is
● constructive fraud

This is the government agency responsible for enforcement of the tax laws, rules and
regulations.
● Bureau of Internal Revenue

The Government Accountability Office (GAO):

● Responsibilities include conducting operational audits to ensure spending meets
Congress's requirements.

The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis after the date
of the auditor’s report.

Operational audits generally have been conducted by internal auditors and government
audit agencies but may be performed by certified public accountants. A primary purpose
of an operational audit is to provide
 ● A measure of management performance in meeting organizational goals.

Which of the following are elements of a CPA firm’s quality control that should be
considered in establishing its quality control policies and procedures?
● Advancement Yes Inspection Yes Consultation Yes

The risk associated with survivability and profitability is referred to as

● Business risk

Which of the following is considered a type of threat to compliance with the Rules of the
Code of Ethics?
● Self interest

Which of the following is not a broad category of safeguards that mitigate or eliminate
threats to independence?
● Safeguards created to assure proper training within both the client and attest
environment.

Independence requirements suggest that a CPA should evaluate whether a particular

threat to independence would lead a reasonable person, aware of all the relevant facts,
to conclude that:
● An unacceptable risk of non-independence exists.

A nonpublic company auditors' report is most likely to be addressed to the company

whose financial statements are being examined or to that company's:
● Audit Committee.

In performing an attestation engagement, a CPA typically

● Expresses a conclusion about an assertion

An audit independence issue might be raised by the auditor's participation in consulting

services engagements. Which of the following statements is most consistent with the
profession's attitude toward this issue?
● The auditor should not make management decisions for an audit client.

The standard of due care to which the auditor is expected to be held is referred to as
the
● prudent person concept
What are the factors to consider in implementing the audit risk model?
a.All of the given
b.IV. Potential Fraud
c.II. Existence of large non-routine transactions
d.I. High risk activities
e.III. Matters requiring judgement or management intervention
f.Only I, II and IV

An engagement in which the CPAs issue an examination, a review, or an agreed-upon

procedures report on subject matter or an assertion about subject matter that is the
responsibility of another party (e.g., management)
● Attest engagement

Which of the following family relationships is most likely to impair a CPA's independence
with respect to a particular audit client on which the CPA works as a?
● The CPA's sister is controller of the audit client.

An attest engagement designed to provide the highest level of assurance that CPAs
provide on an assertion.
● Examination

In comparison to the external auditor, an internal auditor is more likely to be concerned

with
● Operational auditing

Which of the following eliminates voluminous details from the auditor’s working trial
balance by classifying and summarizing similar or related items?
● Lead schedules

When planning an audit, which of the following is not a factor that affects auditors’
decisions about the quantity, type, and content of audit working papers?
● The auditors’ judgment about their independence with regard to the client.

Which of the following would not be included in the auditor’s working papers?
● The accounting manual.

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

● Available safeguards to independence.
Permanent files contain all the data
● of a historical or continuing nature pertinent to the current audit

An auditor should examine the minutes of board of directors’ meetings:

● through the date of the audit report

Which of the following is a possible safeguard implemented by the client that might
mitigate an audit independence threat?
● Management has suitable skills to make managerial decisions.

For purposes of PSA 210, the term management would refer to

● Management and, where appropriate those charged with governance

Audit working papers should be:

● designed to meet the circumstances and the auditors’ needs on each
engagement.

In the auditing environment, failure to meet auditing standards is often

● conclusion evidence of negligence.

When reviewing working papers, an audit supervisor will be concerned primarily with
determining whether the
● working papers adequately support the audit findings, conclusions, and reports.

The largest portion of the auditor’s working papers are the

● supporting schedules
An analysis schedule is designed to show the activity in
● a statement of financial position account during the entire period under audit,
tying together the beginning and ending balances.

The permanent section of the auditor’s working papers generally should include
● a copy of the engagement letter.

A written understanding between the auditor and the client concerning the auditor’s
responsibility for the discovery of illegal acts is usually set forth in a(an)
● engagement letter.

A different opinion concerning accounting and auditing matters relative to a particular

phase of the audit arises between an assistant auditor and the auditor responsible for
the engagement. After appropriate consultation, the assistant auditor asks to be
disassociated from the resolution of the matter. The working papers would probably:
● document the assistant auditor‘s position and how the difference of opinion was
resolved.

The record of audit procedures performed, relevant audit evidence obtained, and
conclusions the auditor reached.
● Audit documentation

The audit working paper that reflects the major components of an amount reported in
the financial statements is the
● lead schedule.

Which of the following items would not normally be included, in whole or in part, in the
auditor’s permanent file on a client?
● The audit program
This Philippine Standard on Auditing, PSA 240 deals with the auditor’s responsibilities
relating to fraud in an audit of financial statements.

A primary purpose of the audit working papers is to:

● support the auditors’ opinion.

The purpose of this type of audit is to detect a deter fraudulent activities.

● Internal audit

The current file of the auditor’s working papers generally should include
● a copy of the financial statements.

The working papers are

● the primary means of documenting that an adequate audit was conducted in
accordance with Standards on Auditing.

Which of the following is not a factor that affects the independent auditors’ judgment as
to the quality, type, and content of working papers?
● The timing and the number of personnel to be assigned to the engagement.

Reclassification entries are recorded in the

● financial statements but not in the general ledger
Ordinarily, the working papers cannot be provided to someone else without the express
permission of the client unless
● the papers are transferred as a result of a CPA selling his/her practice to another
CPA firm.

The permanent tile section of the working papers that is kept for each audit client most
likely contains
● narrative description of the client’s internal control structure.

It refers to an intentional act by one or more individuals among management,

employees, or third parties, which results in a misrepresentation of financial statements.
● Fraud

Reportable conditions are matters that come to an auditor’s attention that should be
communicated to an entity’s audit committee because they represent
● significant deficiencies in the design or operation of the internal control system.

Which of the following is a common rationalization for fraudulent financial reporting?

● This is one-time transaction and it will allow the company to get through the
current financial crisis, but we’ll never do it again

PSA 315 requires that the auditor should obtain an understanding of relevant industry,
regulatory and other external factors including the applicable financial reporting
framework. Which of the following is not among the items that relate to industry
conditions?
● Inflation and currency revaluation

Which of the following is not among the risk assessment procedures that the auditor
should perform in obtaining an understanding of the entity and its environment,
including its internal control?
● Continuation.

What is not considered in developing the overall audit plan for a new client?
● Amount of estimated audit fee

What is the essential consideration before the audit program can be finalized?
● Consideration of the entity’s internal control has been completed
It documents and confirms the auditor’s acceptance of the appointment, the objective
and scope of the audit, the extent of the auditor’s responsibilities to the client and the
form of any reports.
● Engagement letter

It refers to the financial statement assertions which states that a transaction or event is
recorded at the proper amount and revenue or expense is allocated to the proper
period.
● Measurement

When an auditor increases the planned assessed level of control risk because certain
control procedures were determined to be ineffective, the auditor would most likely
increase the
● extent of tests of details.

What is the most effective control procedure established to avoid allowing any person to
be in position to perpetrate & then conceal errors or fraud?
● Separation of the functional responsibilities custodianship, record keeping,
operations & authorizations

Which of the following should the auditor obtain from the predecessor auditors before
accepting an audit engagement?
● All matters of continuing accounting significance.

Those charged with governance, management, external auditors & internal auditors all
play important roles in creating proper control processes. Senior management is
primarily responsible for
● Implementing and monitoring controls designed by the board of directors

PSA 315 requires that the auditor should obtain an understanding of the entity’s
selection and application of accounting policies and consider whether they are
appropriate for its business and consistent with the applicable financial reporting
framework and accounting polices used in the relevant industry. The understanding
does not encompass
● Criteria in the selection of the company’s chief accounting executive.

Transactions and events are appropriately aggregated or disaggregated and clearly

described, and related disclosures are relevant and understandable in the context of the
requirements of the applicable financial reporting framework.
● Presentation

Which of the following is not considered as inherent limitations of internal control?

● Incompatible duties
If preparation of a periodic scrap report is essential in order to maintain adequate
control over the manufacturing process, the data for this report should be accumulated
in the
● Accounting department

In a study and evaluation of the control system policies and procedures, the completion
of a questionnaire is most closely associated with which of the following?
● Obtaining an initial understanding of the system.

The primary objective of procedures performed to obtain an understanding of the

internal control system is to provide an auditor with
● knowledge necessary to plan the audit.

Which of the following can an auditor observe as a general control procedure used by
companies?
● Segregation of functional responsibilities.

Which of the following does not affect the form and content of working papers?
● Estimated audit fee agreed upon between the client and the auditor.

Refers to national governments, regional (for example, provincial, territorial)

governments, local (for example, city, town) governments and related governmental
entities (for example, agencies, boards, commissions and enterprises).
● Public Sector

Why is it necessary that there will be coordination of activities between internal and
external auditors?
● Includes the exchange of audit reports and management letters

With respect to an internal control measure that will ensure accountability for fixed asset
retirements, management should implement controls that include
● Periodic observation of plant assets by the internal auditors

To comply with relevant laws and regulations and avoid any action that discredits the
profession refers to what principle in the code of ethics.
● Professional behavior

Which of the following is most likely to be an overall response to fraud risks identified in
an audit?
● Use less predictable audit procedures.

Which of the following best describes what is meant by the term “fraud risk factor”?
● Factors often observed in circumstances where funds have occurred.

The process which ensures that policies and procedures help, prevent, detect and
correct risks, ‘arms and legs’ of internal control refers to.
● Information and communication

These factors may be qualitative or quantitative, and include complexity, subjectivity,

change, uncertainty or susceptibility to misstatement due to management bias or other
fraud risk factors insofar as they affect inherent risk..
● Inherent risk factors

The procedure requiring preparation of a pre-listing of incoming cash receipts, with

copies of the pre-list going to the cashier and to accounting is an example of which type
of control?
● Preventive

Who is responsible to oversee the financial reporting process, thereby reducing the
risks of material misstatement of the financial statements?
● Those charged with governance

Which of the following is intended to detect deviations from prescribed controls?

● Test of controls designed specifically for the client

When there are numerous property and equipment transactions during the year, an
auditor who plans to assess control risk at a low level usually performs
● tests of controls and limited tests of current year property and equipment
transactions.

Which of the following forms of advertising would most likely be considered a violation
of the Code of Ethics?
● Advertising including an indication that the firm has a close relationship with
several tax court judges.

During consideration of the internal control system in a financial statement audit, an

auditor is not obligated to
● search for significant deficiencies in the operation of the internal control system.

Which of the following audit techniques most likely would provide an auditor with the
greatest assurance about the effectiveness, of the operation of an internal control
procedure?
● Observation of client personnel.

Refers to acts of omission or commission by the entity being audited, either intentional
or unintentional, which are contrary to the prevailing laws or regulations.
● Noncompliance

For control purposes, the quantities of materials ordered may be omitted from the copy
of the purchase order that is
● Forwarded to the receiving department
An audit program should be designed for each individual audit and should include audit
steps and procedures to
● Provide assurance that the objectives of the audit are met

It refers to the engagement to perform agreed-upon procedures, an auditor is engaged

to carry out those procedures of an audit nature to which the auditor and the entity and
any appropriate third parties have agreed and to report on factual findings.
● Agreed-upon procedures

The objective of this activity is to enable an auditor to state whether, on the basis of
procedures which do not provide all the evidence that would be required in an audit,
anything has come to the auditor’s attention that causes the auditor to believe that the
financial statements are not prepared, in all material respects, in accordance with an
identified financial reporting framework.
● Review engagement

Which of the following is not an Indicator of significant deficiencies in internal control on

the evidence of ineffective aspects of the control environment?
● Evidence of management’s inability to oversee the preparation of the financial
statements.

Given that an audit in accordance with Generally Accepted Auditing Standards (GAAS)
is influenced by the possibility of material errors & fraud. How should the auditor
conduct the audit?
● Professional skepticism

Identify the possible inventory or cost of goods sold manipulation that might occur when
inventory is sold.
● Not record cost of goods sold nor reduce inventory

Transactions and events that have been recorded or disclosed have occurred, and such
transactions and events pertain to the entity.
● Occurrence

The most important means of verifying account balances in the payroll and personnel
cycle are
● Test of transactions

This refers to the person with final responsibility for the audit.
● Auditor

Which of the following is an example of fraud in the acquisition and payment cycle?
a. Employee schemes involving fictitious vendors as means to transfer payments to
themselves
b. Executives recording fictitious inventory or inappropriately recording higher
 values for existing inventory
c. All of the above
d. Theft of inventory by an employee

The responsibility for evaluating the costs and benefits of implementing remedial action
in significant deficiencies rests with
● Management & TCWG

It is a threat that a financial or other interest will appropriately influence the professional
accountant’s judgment or behavior.
● Self-interest threats

The determination of whether an assertion is a relevant assertion is made before

consideration of any related controls.
● Relevant Assertions

Amounts and other data relating to recorded transactions and events have been
recorded appropriately, and related disclosures have been appropriately measured and
described.
● Accuracy

This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibility to
apply the concept of materiality in planning and performing an audit of financial
statements.
● PSA 540

Which of the following is a device designed to help the audit team obtain evidence
about the control environment and about the accounting and control procedures of an
audit client?
● An internal control questionnaire.

It is described as one of the fraud quadrangle: ‘High degree of competition or market

saturation, accompanied by declining margins’.
● Incentive or pressure

It refers to the financial statement assertions which states that there are no unrecorded
assets, liabilities, transactions or events, or undisclosed items.
● Completeness

To be straightforward and honest in all professional and business relationships refers to

what principle in the code of ethics.
● Integrity

It describes the role of persons entrusted with the supervision, control and direction of
an entity.
 ● Governance

In determining others within the entity to whom inquiries may be directed and the extent
of those inquiries, the auditor considers what information may be obtained that would
help him/her in identifying risks of material misstatement. The term “others” does not
include the
● Controller.

Inherent risks related to debt obligations primarily include which of the following?
a. Interest expense is not properly accrued
b. Debt is not appropriately classified as short or long term
c. Debt covenants are not properly disclosed
d. All of the above are inherent risks related to debt obligations
e. Debt is not properly authorized

The level of detail at which to communicate significant deficiencies is a matter of the

auditor’s __________ in the circumstances.
● Professional judgment

An Internet firewall is designed to provide protection against

● Unauthorized access from outsiders

When an auditor assesses control risk below the maximum level, the auditor is required
to document his or her (I) Basis for understanding that control risk is below the
maximum level, and (II) Understanding of the entity’s internal control system elements.
● I and II are both true

PSA 230 states that an appropriate time limit within which to complete the assembly of
the final audit file is ordinarily not more than 60 days after the date of the auditor’s
report.

In developing a preliminary audit strategy, an auditor should consider

● the planned assessed level of control risk.

It is described as “to minimize the impact of threat’.

● Corrective controls

These are used by the auditor to consider the different types of potential misstatements
that may occur when identifying, assessing and responding to the risks of material
misstatement.
● Assertions

A risk resulting from significant conditions, events, circumstances, actions or inactions

that could adversely affect an entity’s ability to achieve its objectives and execute its
strategies, or from the setting of inappropriate objectives and strategies.
● Business risk
Which of the following matters would least likely appear in the audit program?
● Documentation of the accounting and internal control system being reviewed

A well-designed system of internal control that is functioning effectively is most likely to

detect an irregularity arising from
● The fraudulent action of an individual employee

It refers to the financial statement assertions which states that an asset or a liability
exists at a given date.
● Existence

It is a category of objectives set forth in the COSO, which pertains to adherence to laws
and regulations to which the entity is subject.
● Compliance objectives

It is a type of control that focuses on activity that operates within a specific process for
the purpose of achieving process-level objectives.
● Process-level control

The audit procedures designed and performed to identify and assess the risks of
material misstatement, whether due to fraud or error, at the financial statement and
assertion levels.
● Risk assessment procedures

In most audits of large companies, internal control risk assessment contributes to audit
efficiency, which means:
● auditors will be able to reduce the cost of year-end audit work by an amount
more than the control evaluation costs.

Which of the following creates an opportunity for fraud to be committed in an

organization?
● Poor internal control

Which of the following accounts would not typically be included in the audit of debt
obligations?
● Interest income

An auditor uses the knowledge provided by the understanding of the internal control
system and the assessed level of control risk primarily to
● determine the nature, timing, and extent of substantive tests for financial
statement assertions.

This PSA focuses primarily on communications from the auditor to those charged with
governance.
● PSA 260
The control objective designed to reduce the probability that fictitious transactions get
recorded in the accounts is:
● Validity.

Refers to a person or firm possessing special skill, knowledge and experience in a

particular field other than accounting and auditing.
● Expert

In planning and performing an audit, auditors are concerned about risk factors for two
distinct types of fraud: fraudulent financial reporting and misappropriation of assets.
Which of the following is a risk factor for misappropriation of assets?
● An unreliable accounting system.

The risk assessment component of internal controls refer to

● The entity’s identification & analysis of the risks relevant to the
achievement of the objectives

The audit procedure that may be helpful in identifying the existence of unusual
transactions or events, and amounts, ratios and trends that may indicate matters that
have financial statement and audit implications is
● Analytical procedures.

The objective of the auditor is to plan the audit so that it will be performed in an effective
manner.
● PSA 300

It contains a clear written expression of opinion on the financial statements as a whole.

● Auditor's report

Audit programs are modified to suit the circumstances of a particular engagement.

When can be said that a final audit program for an engagement generally has been
developed?
● After the auditors have completed their consideration of the existing internal
control

When assessing the client, which of the following factors is considered pervasive and
creates both an attitude & culture that affects the client’s reporting system, the process
of recording transactions, and the process of making estimates & adjustments?
● Control environment

The system designed, implemented and maintained by those charged with governance,
management and other personnel, to provide reasonable assurance about the
achievement of an entity’s objectives with regard to reliability of financial reporting,
effectiveness and efficiency of operations, and compliance with applicable laws and
regulations.
● System of internal control

It refers to the financial statement assertions which states that an an asset or liability is
recorded at an appropriate carrying value.
● Valuation

It is described as “the use of policies and procedures’.

● Directive controls

It refers to the financial statement assertions which states that a transaction or event
took place which pertains to the entity during the period;
● Occurrence

It is described as “the past due account reports’.

● Detective controls

Which of the following statements is most correct with respect to separation of duties?
● Employees who authorize transactions should not have custody of related assets

The objective of tests of details of transactions performed as tests of controls is to

● evaluate whether an internal control system policy or procedure operated
effectively.

It is described as “the control access to physical facilities’.

● Preventive controls

What is the element of the audit planning process most likely to be agreed upon with the
client before implementation of the audit strategy?
● Schedules & analyses to be prepared by client’s staff

It refers to the principle in the Code of Ethics, “To not allow bias, conflict of interest or
undue influence of others to override professional or business judgment”.
● Objectivity

After obtaining an understanding of an entity’s internal control system and assessing

control risk, an auditor next may
● consider whether evidential matter is available to support a further reduction in
the assessed level of control risk.

These are records of the auditor’s planning; nature, timing and extent of the auditing
procedures performed; and results of such procedures and the conclusions drawn from
the evidence obtained.
● Working papers
What is the primary difference between fraud and errors in financial statement
reporting?
● The intent to deceive

Independence is required of a CPA performing:

● Attestation services, but not other professional services.

The attest function:

● Includes the preparation of a report of the CPA's findings.

A worker feels that fellow employees are not honest.

● Rationalization

The evidence considered most appropriate or competent by auditors is best described

as:
● direct personal knowledge obtained through physical observation and
mathematical recalculation.

The purpose of logical security control is for

● Restrict access to data

Which is not an audit techniques used to describe & determine the reasons for
significant changes?
● Verify

Which of the following statements describes why a properly designed and executed
audit may not detect a material irregularity?
● Audit procedures that are effective for detecting an unintentional misstatement
may be ineffective for an intentional misstatement that IS concealed through
collusion.

Which of the following is not true of internal control as defined by COSO integrated
framework?
● It is narrower than internal control over financial reporting

Which of the following is not an internal control weakness related to factory equipment?
● Checks issued in payment of acquisitions of equipment are not signed by the
controller

Assets, liabilities and equity interests are appropriately aggregated or disaggregated

and clearly described, and related disclosures are relevant and understandable in the
context of the requirements of the applicable financial reporting framework.
● Presentation

As a result of analytical procedures, the independent auditor determines that the gross
profit has declined from 30% in the preceding year to 20% In the current year. The
auditor should
● consider the possibility of an error in the financial statements.

The establishment of an overall audit strategy may involve any of the following. (I.)
Determining the characteristics of the engagement that define its scope. (II)
Ascertaining the reporting objectives of the engagement to plan the timing of the audit &
the nature of the communications required. (III.) Considering the important factors that
will determine the focus of the engagement team’s efforts.
● All of the above

An audit procedure designed to detect material misstatements at the assertion level of

classes of transactions, account balances and disclosures.
● Test of details

The auditor will most likely perform extensive tests for possible understatement of
● Liabilities.

Materiality in the context of an audit explains __________as the possible effect of

misstatements on specific individual users, whose needs may vary widely, is not
considered.
● Judgments about matters

What is the underlying motive under PSA 300 that states, “the work is to be adequately
planned, and assistants, if any, are to be properly supervised”?
● Early appointment of the auditors is advantageous to the auditors and the client

Which of the following factors is most important in determining the appropriateness of

audit evidence?
● The quantity of the evidence obtained

Lewi, CPA, is planning the audit of Jen’s Company. Jen verbally asserts to Lewi that all
the expenses for the year have been recorded in the accounts. Jen’s representation in
this regard:
● is not considered a sufficient basis for Lewi to conclude that all expenses have
been recorded.

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

assurance that the financial statements follow Philippine Financial Reporting Standards,
or another acceptable basis of accounting.
● Audit of financial statements

Reasonable assurance, as it pertains to internal control, means that

● Inherent limitations of internal control preclude a system of internal control from
providing absolute assurance that objectives will be achieved.
It refers to representations by management, explicit or otherwise, that are embodied in
the financial statements..
● Assertions

Miles Retailing, Inc., maintains a staff of three full-time internal auditors who report
directly to the controller. In planning to use the internal auditors to provide assistance in
performing the audit, the independent auditor most likely will
● place limited reliance on the work performed by the internal auditors.

Which audit technique is used to obtain objective knowledge?

● Inquire

A service organization used by another service organization to perform some of the

services provided to user entities that are part of those user entities’ information
systems relevant to financial reporting.
● Subservice organization

An auditor who, at the request of the service organization, provides an assurance report
on the controls of a service organization.
● Service auditor

In testing the existence assertion for an asset, an auditor ordinarily works from the
● accounting records to the supporting evidence.

Top management of the company closely guards internal financial information, to the
extent that even some employees on a “need-to-know basis” are denied full access.
● Opportunity

What is the crucial element in dealing with the audit of owner-managed businesses?
● Auditor’s judgment

A third-party organization (or segment of a third-party organization) that provides

services to user entities that are part of those entities’ information systems relevant to
financial reporting.
● Service organization

Materiality in the context of an audit explains __________ include omissions, are

considered to be material if they, individually or in the aggregate, could reasonably be
expected to influence the economic decisions of users taken on the basis of the
financial statements.
● Misstatements

When control risk is assessed at the maximum level for all financial statement
assertions, an auditor should document the following:
 ● Understanding of the entity’s internal control elements and Conclusion that
control risk is at the maximum level

_________ means the amount or amounts set by the auditor at less than materiality for
the financial statements as a whole to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds
materiality for the financial statements as a whole.
● Performance materiality

_____ is the risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated
● Audit risk

The primary purpose for obtaining an understanding of an audit client’s internal control
structure is to:
● determine the nature, timing, and extent of tests to be performed in the audit.

A client’s control procedure is:

● an action taken by client personnel for the purpose of preventing, detecting, and
correcting errors and irregularities in transactions.

The auditor shall design and implement overall responses to address the assessed
risks of material misstatement at the financial statement level.
● PSA 330

Working papers that record the procedures used by the auditor to gather evidence
should be
● designed to meet the circumstances of the particular engagement.

Which of the following presumptions is correct about the reliability of evidential matter?
● Effective internal control provides more assurance about the reliability of
evidential matter.

An auditor who audits and reports on the financial statements of a user entity.
● User auditor

Audit programs should be designed so that

● the audit evidence gathered supports the auditor’s conclusions.

Which audit technique is used to establish existence, ownership, & condition of the
assets?
 ● Count

Which of the following statements is generally correct about the competence of

evidential matter?
● The auditor’s direct personal knowledge, obtained through observation and
inspection, is more persuasive than information obtained indirectly from
independent outside sources.

Which audit technique is used to verify validity & accuracy of balances & other
information with outside party?
● Confirm

It is a threat that occurs when, by virtue of a close relationship with an assurance client,
its directors or employees, a firm or a member of the assurance team becomes too
sympathetic to the client’s interests.
● Familiarity threat

The objective of the auditor in ______ is to communicate appropriately to those charged

with governance and management deficiencies in internal control that the auditor has
identified during the audit and that, in the auditor’s professional judgment, are of
sufficient importance to merit their respective attentions.
● PSA 265

It refers to the risk that the auditor gives an inappropriate audit opinion when the
financial statements are materially misstated.
● Audit risk

Which of the following is not an Indicator of significant deficiencies in internal control: (I)
Evidence of ineffective aspects of the control environment (II) Absence of a risk
assessment process within the entity where such a process would ordinarily be
expected to have been established. (III) Evidence of an ineffective entity risk
assessment process, such as management’s failure to identify a risk of material
misstatement that the auditor would expect the entity’s risk assessment process to have
identified. (IV) Evidence of an ineffective response to identified significant risks. (V)
Misstatements detected by the auditor’s procedures that were not prevented, or
detected and corrected, by the entity’s internal control. (VI) Restatement of previously
issued financial statements to reflect the correction of a material misstatement due to
error or fraud.
● None at all
Which of the following statements most accurately summarizes the auditor’s
responsibility for reviewing the client’s correspondence files?
● The auditor should review correspondence with banks, other lending institutions,
attorneys, and governmental agencies.

The auditors who become aware of an internal control reportable condition are required
to communicate this to the
● Audit committee

An audit procedure designed to detect material misstatements at the assertion level.

● Substantive procedures

Which of the following statements concerning the relevance of various types of controls
to a financial statement audit is correct?
● Controls over reliability of financial reporting are ordinarily most directly relevant
to a financial statement audit, but other controls may also be relevant

Which of the following is not an assurance engagement?

● Management Consulting Service

Which audit technique is compare sales with sales budget?

● Analytical review

PSA 315 requires that the auditor should obtain an understanding of the entity’s
objectives and strategies, and the related business risks that may result in material
misstatement of the financial statements. Which of the following is not an example of
business risks that may have financial consequences and may affect the financial
statements?
● Contracting economy.

An auditor’s preliminary analysis of accounts receivables revealed the following turnover

rates: 2015 (4.3%); 2014 (6.2%); 2013 (7.3%). Which of the following is the most likely
cause of the decrease in accounts receivable turnover?
● Liberalization of credit policy

An entity that uses a service organization and whose financial statements are being
audited.
● User entity
A primary purpose for establishing a code of conduct within a professional organization
is to:
● Demonstrate acceptance of responsibility to the interests of those served by the
profession.

The auditor shall communicate material weaknesses in internal control identified during
the audit on a timely basis to management at an appropriate level of responsibility and,
as required by PSA_____.
● PSA 260

A basic premise underlying the application of analytical procedures is that

● plausible relationships among data may reasonably be expected to exist and
continue in the absence of known conditions to the contrary.

Which of the following audit procedures would provide the least reliable evidence that
the client has legal title to inventories?
● Observation of physical inventory counts

It refers to the financial statement assertions which states an asset or a liability pertains
to the entity at a given date.
● Rights and obligations

The policies and procedures designed, implemented and maintained by the service
organization to provide user entities with the services covered by the service auditor’s
report.
● Service organization’s system

This PSA does not establish requirements regarding the auditor’s communication with
an entity’s management or owners unless they are also charged with a governance role.
● PSA 260

An individual who has practical audit experience, and a reasonable understanding of: (i)
Audit processes; (ii) PSAs and applicable legal and regulatory requirements; (iii) The
business environment in which the entity operates; and (iv) Auditing and financial
reporting issues relevant to the entity’s industry.
● Experienced auditor

At least what level of probability of a material misstatement is required for a control

deficiency to be considered a material weakness?
● Reasonable possibility
Which of the following presumptions does not relate to the competence of audit
evidence?
● An auditor’s opinion, to be economically useful, is formed within a reasonable
time and based on evidence obtained at a reasonable cost.

In connection with the planning phase of an audit engagement, which of the following
statements is always correct?
● A portion of the audit of a continuing client can be performed at interim dates

Which of the following circumstances is most likely to cause an auditor to consider

whether a material misstatement exists?
● Transactions selected for testing are not supported by proper documentation.

In testing the reasonableness of interest income, an auditor could most effectively use
analytical procedures involving
● the average monthly balance in the investments account for fixed income
securities.

The following are two independent statements. (1) Accountants of corporations are
Which is not an audit techniques used to determine compliance with prescribed
procedures?
● Examine

It is described as “the use of well-designed documents’.

● Preventive controls

It refers to the assertions by management, explicit or otherwise, that are embodied in

the financial statements.
● Financial statement assertions

All assets, liabilities and equity interests that should have been recorded have been
recorded, and all related disclosures that should have been included in the financial
statements have been included.
● Completeness

After obtaining an understanding of an entity’s internal control system, an auditor may

assess control risk at the maximum level for some assertions because the auditor
● believes the internal control policies and. procedures are unlikely to be effective.
This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibility to
design and implement responses to the risks of material misstatement identified and
assessed by the auditor in accordance with PSA _______, “Identifying and Assessing
Risks of Material Misstatement” in a financial statement audit.
● PSA 315

Which of the following matters would an auditor most likely consider when establishing
the scope of the audit?
● Expected audit coverage, including the number & locations of the
entity’s components to be included.

Controls that the service organization which assumes, in the design of its service, will
be implemented by user entities, and, if necessary, to achieve control objectives, are
identified in the description of its system.
● Complementary user entity controls

An auditor’s analytical procedures most likely will be facilitated if the entity.

● uses a standard cost system that produces variance reports.

_____ is the risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated.
● Audit risk

Which of the following is the best definition? Appropriate evidence is evidence that
● is reasonably free of error and bias and faithfully represents what it purports to
represent.

An auditor most likely would review an entity’s periodic accounting for the numerical
sequence of shipping documents and invoices to support management’s financial
statement assertion of
● Completeness.

This includes all partners and professional staff engaged in the audit practice of the firm.
● Personnel

Of the following, which is the least persuasive type of audit evidence?

● Copies of sales invoices inspected by the auditor

You are performing the audit for ABC Company. Which of the following would represent
a material weakness in the test of internal control?
 ● The entity’s CFO was indicted for embezzling funds

Significant deficiencies are matters that come to an auditor’s attention and should be
communicated to an entity’s audit committee in writing because they represent
● Internal control deficiencies that could adversely affect entity’s ability to initiate,
record, process

Which of the following elements ultimately determines the specific auditing procedures
necessary under the circumstances to afford a reasonable basis for an opinion?
● Auditor judgment.

This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibility to
design and implement responses to the risks of material misstatement identified and
assessed by the auditor in accordance with PSA, “Identifying and Assessing Risks of
Material Misstatement” in a financial statement audit.
● PSA 330

The business has no cameras or security devices at its warehouse.

● Opportunity

Which of the following best describes the primary purpose of audit procedures?
● To gather corroborative evidence.

All transactions and events that should have been recorded have been recorded, and all
related disclosures that should have been included in the financial statements have
been included.
● Completeness

The objective of the auditor is to obtain sufficient appropriate audit evidence about the
assessed risks of material misstatement, through designing and implementing
appropriate responses to those risks.
● PSA 330

Assets, liabilities and equity interests have been included in the financial statements at
appropriate amounts and any resulting valuation or allocation adjustments have been
appropriately recorded, and related disclosures have been appropriately measured and
described.
● Accuracy, valuation and allocation
As a result of obtaining an understanding of an entity's internal control system, the
auditor may become aware of material weaknesses in the design or implementation of
internal control. The auditor is required to communicate this matter to
● Those charged with governance

Which PSA requires that the auditor shall communicate on a timely basis with those
charged with governance the responsibilities of the auditor in relation to the financial
statement audit
● PSA 260

It refers to the balance sheets, income statements or profit and loss accounts,
statements showing either all changes in equity or changes in equity other than those
arising from capital transactions with owners and distributions to owners, cash flow
statements, notes and other statements and explanatory material which are identified as
being part of the financial statements.
● Financial statements

PSA 315 requires that the auditor should obtain an understanding of relevant industry,
regulatory and other external factors including the applicable financial reporting
framework. Which of the following is not an example of matters relating to regulatory
environment that the auditor would usually consider?
● Product technology relating to the entity’s product.

Fraud may be most properly defined as

● false representation or concealment of a material fact to the benefit or detriment
of an individual or organization.

Which of the following can be used by organizations for obtaining financing?

a. Notes
b. Mortgages
c. All of the above
d. Bonds
● All of the above

Which of the following need not be documented in the working papers as required by
PSA 230?
● Basis in choosing the members of the audit engagement team.

This refers to the material prepared by and for, or obtained and retained by the auditor
in connection with the performance of the audit.
● Documentation
A difference between the amount, classification, presentation, or disclosure of a
reported financial statement item and the amount, classification, presentation, or
disclosure that is required for the item to be in accordance with the applicable financial
reporting framework. Misstatements can arise from error or fraud.
● Misstatements

_________consists of seeking information of knowledgeable persons, both financial and

nonfinancial, within the entity or outside the entity.
● Inquiry

Which is described in this statement: “The auditor shall determine the effect on the audit
of identified misstatements whether there is a need to perform additional audit
procedures or revisions to the audit strategy & detailed audit plans”.
● Misstatements

Materiality in the context of an audit explains __________ are made in light of

surrounding circumstances, and are affected by the size or nature of a misstatement, or
a combination of both.
● Judgments about materiality

A process comprising-an ongoing consideration and evaluation of the firm’s system of

quality control including a periodic inspection of a selection of completed engagements
designed to provide the firm with reasonable assurance that its system of quality control
is operating effectively.
● Monitoring

In planning an audit engagement, which of the following is a factor that affects the
independent auditor’s judgment as to the quantity, type and content of working papers?
● The anticipated nature of auditor’s report

The person responsible for reconciling sales invoices to customer orders does not
access to the company’s master price list in order to correctly compute sales. Which
control deficiency is highlighted?
● Design deficiency

Identify which statement/s is/are correct or true.

● An audit of financial statements is a cumulative and iterative process.
In a review engagement, the auditor provides a _________ that the information subject
to review is free of material misstatement. This is expressed in the form of negative
assurance.
● Moderate level of assurance

_____ is a function of the risks of material misstatement and detection risk.

● Audit risk

It is a category of objectives set forth in the COSO, which pertains to internal and
external financial and nonfinancial reporting and may encompass reliability, timeliness,
transparency or other terms as set forth by regulators, standard setters or the entity’s
policies.
● Reporting objectives

Within the context of the firm’s system of quality control, _________ have a
responsibility to implement quality control procedures that are applicable to the audit
engagement and provide the firm with relevant information to enable the functioning of
that part of the firm’s system of quality control relating to independence.
● Engagement teams

PSA ______ establishes requirements and provides guidance for performing external
confirmation procedures.
● PSA 505

_________procedures frequently are relevant when addressing assertions associated

with certain account balances and their elements.
● External confirmation

_________provides audit evidence about the performance of a process or procedure,

but is limited to the point in time at which the observation takes place, and by the fact
that the act of being observed may affect how the process or procedure is performed.
● Observation

Requiring a user ID and password would be an example of what type of control?

● Preventive

The risk that the auditor will conclude, based on substantive procedures, that a material
misstatement does not exist in an account balance when, in fact, such misstatement
does exist is referred to as
● Detection risk
In a compilation engagement, although the users of the compiled information derive
some benefit from the accountant's involvement, _______ is expressed in the report.
● No assurance

The control that would most likely ensure that payroll checks are written only for
authorized amounts if for
● Require supervisory approval of employee time cards

The working papers prepared during the engagement are the property of
● the auditor, even including those prepared by client for auditor.

Which of the following statement is false.

● The audit of financial statements does relieve management or those charged
with governance of their responsibilities.

It is a set of principles that guides professional accountants in appropriately conducting

and portraying themselves to help fulfill the responsibility of the profession: to act not
only for the client’s or employing entity’s interest, but primarily for the public interest.
● Ethics

A CPA's retention of client records as a means of enforcing payment of an overdue

audit fee is an action that is:
● Considered discreditable to the profession.

The objective of the auditor in this PSA ____is to design and perform audit procedures
in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to
be able to draw reasonable conclusions on which to base the auditor’s opinion.
● PSA 500

Representations, explicit or otherwise, with respect to the recognition, measurement,

presentation and disclosure of information in the financial statements which are inherent
in management representing that the financial statements are prepared in accordance
with the applicable financial reporting framework.
● Assertions

Which of the following statements describes why a properly designed and executed
audit may not detect amaterial irregularity?
 ● Audit procedures that are effective for detecting an unintentional misstatement
may be ineffective for an intentional misstatement that IS concealed through
collusion.

Misstatements that the auditor has accumulated during the audit and that have not been
corrected.
● Uncorrected misstatements

In forming the audit opinion, the auditor obtains sufficient appropriate audit evidence to
be able to draw conclusions on which to base that opinion.
● Draw conclusions

_________represents audit evidence obtained by the auditor as a direct written

response to the auditor from a third party (the confirming party), in paper form, or by
electronic or other medium.
● External confirmation

Which of the following is not one of the three primary objectives of effective internal
control?
● Assurance of elimination of business risk

Which of the following ordinarily is designed to detect possible material peso errors on
the financial statements?
● Analytical procedures.

This refers to the accountant engaged to use accounting expertise as opposed to

auditing expertise to collect, classify and summarize financial information.
● Compilation Engagement

Which of the following best exemplifies a control activity referred to as independent

verification?
● Reconciliation of bank accounts by someone who does not handle cash or
record cash transactions

_________ also refers to the amount or amounts set by the auditor at less than the
materiality level or levels for particular classes of transactions, account balances or
disclosures.
● Performance materiality

Which of the following statement is false?

 ● The audit of financial statements does relieve management or those charged
with governance of their responsibilities.

_________involves the auditor’s independent execution of procedures or controls that

were originally performed as part of the entity’s internal control.
● Recalculation

As the auditor performs planned audit procedures, the audit evidence obtained may
cause the auditor to modify the following
● A, B and C

A weakness in internal control over recording retirements of equipment may cause an

auditor to
● elect certain items of equipment from the accounting records and locate them In
the plant

Offered gifts and undue hospitality from the client may give rise to
● Self-review threats to objectivity

_________ are designed to evaluate the operating effectiveness of controls in

preventing, or detecting and correcting, material misstatements at the assertion level.
● Test of controls

In _________, the auditor provides a moderate level of assurance that the information
subject to review is free of material misstatement. This is expressed in the form of
negative assurance.
● Review engagement

The records of initial accounting entries and supporting records, such as checks and
records of electronic fund transfers; invoices; contracts; the general and subsidiary
ledgers, journal entries and other adjustments to the financial statements that are not
reflected in journal entries; and records such as work sheets and spreadsheets
supporting cost allocations, computations, reconciliations and disclosures.
● Accounting records

establishes requirements and provides guidance on circumstances that may result in a

modification to the auditor’s opinion on the financial statements, the type of opinion
appropriate in the circumstances, and the content of the auditor’s report when the
auditor’s opinion is modified. in the prior period.
● PSA 705
This Philippine Standard on Auditing (PSA) deals with the auditor’s use of analytical
procedures as substantive procedures (“substantive analytical procedures”), and as
procedures near the end of the audit that assist the auditor when forming an overall
conclusion on the financial statements.
● PSA 520

In conducting an initial audit engagement, the objective of the auditor with respect to
opening balances is to obtain sufficient appropriate audit evidence about whether:
● The auditor shall read the most recent financial statements, if any, and the
predecessor auditor’s report thereon, if any, for information relevant to opening
balances, including disclosures.

It refers to evaluations of financial information through analysis of plausible relationships

among both financial and non-financial data. It encompasses such investigation as is
necessary of identified fluctuations or relationships that are inconsistent with other
relevant information or that differ from expected values by a significant amount.
● Analytical procedures

The following are two independent statements. (1) Even a sophisticated predictive
model may be effective as an analytical procedure. (2) The use of widely recognized
trade ratios can often be used effectively in substantive analytical procedures to provide
evidence to support the reasonableness of recorded amounts.
a. Not given
b. Observing the accounting policies followed by the entity.
c. Performing audit procedures on gross profit and cutoff.
d. Performing audit procedures on the valuation of the opening inventory items.
e. Observing a current physical inventory count and reconciling it to the opening
inventory quantities.
● Statement 2 is correct/true

Which of the following is not an example of events or conditions under financing aspects
that, individually or collectively, may cast significant doubt on the entity’s ability to
continue as a going concern?
● Changes in law or regulation or government policy expected to adversely affect
the entity.

This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities in
the audit of financial statements relating to going concern and the implications for the
auditor’s report.
 ● PSA 570

The date that the auditor’s report and audited financial statements are made available to
third parties.
● Date the financial statements are issued

Which of the following is not an example of events or conditions that, individually or

collectively, may cast significant doubt on the entity’s ability to continue as a going
concern?
a. Fixed-term borrowings approaching maturity without realistic prospects of
renewal or repayment.
b. Not given
c. Loss of key management without replacement.
d. Management intentions to liquidate the entity or to cease operations.
e. Net liability or net current liability position.
● Not given

The date the auditor dates the report on the financial statements in accordance with
PSA 700.
● Date of the auditor’s report

Which of the following is not the objective of PSA 570?

● To determine whether management has already performed a preliminary
assessment of the entity’s ability to continue as a going concern.

Under PSA 600, the group engagement team shall establish an overall group audit
strategy and shall develop a group audit plan in accordance with PSA ________
(Redrafted).
● PSA 300

Which of the following PSAs does not require a written representations?

● PSA 260

________ is all the information used by the auditor in arriving at the conclusions on
which the audit opinion is based.
● Audit evidence

An entity or business activity for which group or component management prepares

financial information that should be included in the group financial statements.
 ● Component

This is an item included in PSA 580, Written Representation: “We have disclosed to
you all known instances of non-compliance or suspected non-compliance with laws and
regulations whose effects should be considered when preparing financial statements”.
Which PSA does this applies?
● PSA 250

Financial statements that include the financial information of more than one component.
It refers to combined financial statements aggregating the financial information prepared
by components that have no parent but are under common control.
● Group financial statements

What is the important challenge to the auditor?

- In PSA 580, obtaining suitable and appropriate written statements from management
or those in charge of governance, the auditor must make sure that the written
representations received are comprehensive, accurate, and consistent with other audit
evidence gathered throughout the audit. Identify the BREAKOUT ROOM that
contributed this comment.
● 1

One significant learning from PSA 600?

PSA 600 requires the group engagement partner each year formally to assess whether
it is appropriate to act as group auditor. If at any point the group engagement partner
concludes that they lack the professional skills necessary to form a group audit opinion,
they should go out on the group.
 Identify the BREAKOUT ROOM that contributed this
comment.
● 4

This is an item included in PSA 580, Written Representation: “We have disclosed to
you all information in relation to fraud or suspected fraud that we are aware of and that
affects the entity and involves: Management; Employees who have significant roles in
internal control; or others where the fraud could have a material effect on the financial
statements.” Which PSA does this applies?
● PSA 240

Significant learning PSA 610

Effective communication between the external and internal auditor ensures the
adequacy and reliability of the information or work the internal auditor gives.
Which Breakout Room this comment pertains?
 ● 4

Significant learning PSA 620

Additional audit procedures, such as testing of controls or substantive procedures, may
also be designed to address risks identified at the assertion level.
Which Breakout Room this comment pertains?
● 1

This PSA 610 is effective for audits of financial statements for periods ending on or after
…
● December 15, 2013

Philippine Standards of Auditing ______ discusses the assumptions and methods used
by management in making accounting estimates, including the use in some cases of
highly specialized, entity-developed models.
● PSA 540

Challenges from PSA 620

whether an auditor's expert's work will be sufficient for the auditor's needs depends in
large part on the expert's skill, capabilities, and objectivity. Competence is related to the
type and degree of the auditor's expert's knowledge.
Which Breakout Room this comment pertains?
● 6

Challenges from PSA 610

Determining whether the internal auditor has any conflicts of interest or biases that can
compromise the quality of their job can also be difficult in performing external audit
functions.
Which Breakout Room this comment pertains?
● 3

A monetary amount set by the auditor in respect of which the auditor seeks to obtain an
appropriate level of assurance that the monetary amount set by the auditor is not
exceeded by the actual misstatement in the population.
● Tolerable misstatement

A statement explaining that management is in charge of preparing the financial

statements in accordance with the relevant financial reporting framework must be
included in the description, including the design, implementation and maintenance of
internal control to assure that the FS are prepared free from material misstatements.
 ● 5

The report made by the auditor shall be clear, concise and provide all relevant
information especially presenting to the users of financial statements.
● 4

PSA 200 defines the term ___________ as a structured representation of historical

financial information, including related notes, intended to communicate an entity’s
economic resources or obligations at a point in time or the changes therein for a period
of time in accordance with a financial reporting framework.
● Financial statements

A title indicating the report is the report of an independent auditor, for example,
“Independent Auditor’s Report” means…
● Affirms that the auditor has met all of the relevant ethical requirements regarding
independence

It refers to a financial reporting framework that requires compliance with the

requirements of the framework and: (i) Acknowledges explicitly or implicitly that, to
achieve fair presentation of the financial statements, it may be necessary for
management to provide disclosures beyond those specifically required by the
framework; or PSA (ii) Acknowledges explicitly that it may be necessary for
management to depart from a requirement of the framework to achieve fair presentation
of the financial statements.
● Fair presentation framework

Identify which section this statement pertains. “In our opinion, the consolidated financial
statements present fairly, in all material respects, (or give a true and fair view of) the
financial position of ABC Company and its subsidiaries as (of) December 31, 20X1, and
(of) their financial performance and cash flows for the year then ended in accordance
with Philippine Financial Reporting Standards.”
● Opinion

After performing further audit procedures to gather more relevant audit evidence, the
auditor offers an unmodified opinion about the financial statements. The three
illustrations differ in terms of the form of entity to be audited by an external auditor.
● 6

Law or regulation often specifies to whom the auditor’s report is to be addressed in that
particular jurisdiction. The auditor’s report is normally addressed to those for whom the
report is prepared, often either to the ___________ of the entity whose financial
statements are being audited.
● Shareholders and those charged with governance

Identify which section this statement pertains. “ Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material
misstatement.”
● Auditor’s responsibility

PSA _________ deals with circumstances where there are conflicts between the
financial reporting standards and the legislative or regulatory requirements.
● PSA 210

For example, they all comprise the title, addressee, introductory paragraph,
management's responsibility, auditor's responsibility, the basis for opinion, opinion, and
other reporting responsibilities sections. However, there may be differences in the
content of the illustrations depending on the specific circumstances of the audit.
● 3

The application of audit procedures to less than 100% of items within a population of
audit relevance such that all sampling units have a chance of selection in order to
provide the auditor with a reasonable basis on which to draw conclusions about the
entire population.
a. Not given
b. Sampling risk
c. Audit sampling
d. Analytical procedures
e. Population
● Audit sampling

This PSA does not apply if the entity does not have an internal audit function..
a. PSA 610
b. PSA 600
c. PSA 580
d. Not given
e. PSA 620
● PSA 610
It consists of looking at a process or procedure being performed by others, for example,
the observation by the auditor of the counting of inventories by the entity’s personnel or
the performance of internal control procedures that leave no audit trail.
● Observation

What is recognized by the concept of reasonable assurance in the context of an entity’s

internal control?
● The cost of some controls may be too high to implement in relation to potential
benefits.

In designing written audit programs, an auditor should establish audit objectives that
relate primarily to the
● Financial statement assertions

PSA 540 requires a separate assessment of ________ when assessing the risks of
material misstatement at the assertion level for accounting estimates.
● Control risk

Identify which section this statement pertains. “ Our responsibility is to express an

opinion on these consolidated financial statements based on our audit.”
● Auditor’s responsibility

The auditor’s report states that the auditor’s responsibility is to ____________ on the
financial statements based on the audit in order to contrast it to management’s
responsibility for the preparation of the financial statements.
● Express an opinion

When an accountant is not independent, the accountant is precluded from issuing a:

● Review report.

The objective of the firm under PSA ____ is to design, implement and operate a system
of quality management for audits or reviews of financial statements, or other assurance
or related services engagements performed by the firm, that provides the firm with
reasonable assurance.
● PSA 220

Soni Corpuz audited the client's accounts receivable, but he could not get any good
information about customer #102's balance. The customer responded to the
confirmation saying, "Our system does not provide detail for such a response." The
sales invoice and shipping document papers have been lost, and the customer has not
yet paid. Soni should:
● treat customer 102's account as being entirely wrong (overstated), if doing so will
not affect his audit conclusion about the receivables taken altogether.

Identify which section this statement pertains. “We have audited the accompanying
financial statements of ABC Company, which comprise the balance sheet as at
December 31, 20X1, and the income statement, statement of changes in equity and
cash flow statement for the year then ended, and a summary of significant accounting
policies and other explanatory information.”
● Report on the Financial Statements

________ A written statement by management provided to the auditor to confirm certain

matters or to support other audit evidence.
● Written representation

A function of an entity that performs assurance and consulting activities designed to

evaluate and improve the effectiveness of the entity’s governance, risk management
and internal control processes.
● Internal audit function

Which factor is described in evaluating the sufficiency and appropriateness audit

evidence in this question: “Are the sources of available information reliable and
appropriate for supporting the audit conclusions?”
● Quality of information

Which of the following PSAs does not require a written representations?

a. Not given
b. PSA 550
c. PSA 540
d. PSA 560
e. PSA 570
● Not given

_________consists of looking at a process or procedure being performed by others, for

example, the auditor’s observation of inventory counting by the entity’s personnel, or of
the performance of control activities.
● Observation

It involves tracing a few transactions through the accounting system.

 ● Walk-through test

It is the process of dividing a population into subpopulations, each of which is a group of

sampling units which have similar characteristics (often monetary value).
● Stratification
This PSA _____also deals with the form and content of the auditor’s report issued as a
result of an audit of financial statements.
● PSA 700

As a result of sampling procedures applied as tests of controls, an auditor incorrectly

assessed control risk lower than appropriate. The most likely explanation for this
situation is that
● the deviation rate in the auditor's sample is less than the tolerable rate, but the
deviation rate in the population exceeds the tolerable rate.

Jones, CPA, is auditing the financial statements of ABC Retailing, Inc. What assurance
does Jones provide that the audit will detect either direct effect illegal acts that are
material to ABC's financial statements or illegal acts that have a material but indirect
effect on the financial statements? (I) Direct-Effect Illegal Acts, and (II) Indirect-Effect
Illegal Acts
● (I) Reasonable, (II) None

The date on which all the statements that comprise the financial statements have been
prepared and those with the recognized authority have asserted that they have taken
responsibility for those financial statements.
● Date of approval of the financial statements

When the auditors express an opinion on financial statements, their responsibilities

extend to:
● Whether the results of their client's operating decisions are fairly presented in the
financial statements.

It is potentially affected by self-interest, self-review, advocacy, familiarity and intimidation

threats .
● Independence

Which of the following would be designed to estimate a numerical measurement of a

population, such as a peso value?
● Sampling for variables.
Which of the following is not an objective of the auditor under PSA 220 to implement
quality control procedures at the engagement level that provide the auditor with
reasonable assurance?
● The auditor’s report must be anchored on sufficient appropriate audit evidence.

It refers to a person or firm possessing special skill, knowledge and experience in a

particular field other than accounting and auditing.
● Expert

It refers to national governments, regional (for example, provincial, territorial)

governments, local (for example, city, town) governments and related governmental
entities (for example, agencies, boards, commissions and enterprises).
● Public sector

The date of the end of the latest period covered by the financial statements.
● Date of the financial statements

Inherent risk and control risk differ from detection risk in that they
● exist independently of the financial statement audit.

Which of the following statements best describes an auditor's responsibility to detect

errors and irregularities?
● The auditor should assess the risk that errors and irregularities may cause the
financial statements to contain material misstatements, and design the audit to
provide reasonable assurance of detecting material errors and irregularities.

Where joint auditors conduct the group audit, the joint engagement partners and their
engagement teams collectively constitute the group engagement partner and the group
engagement team.
● Group engagement partner

Which of the following procedures would best detect the theft of valuable items from an
inventory that consists of hundreds of different items selling for P10 to P100 and a few
items selling for hundreds of pesos?
● Maintain a perpetual inventory master file of only the more valuable items with
frequent periodic verification of the validity of the perpetuals

This is an item included in PSA 580, Written Representation: “We have disclosed to you
all information in relation to fraud or suspected fraud that we are aware of and that
affects the entity and involves: Management; Employees who have significant roles in
internal control; or others where the fraud could have a material effect on the financial
statements.” Which PSA does this applies?
● PSA 240

It is a report, separate from the financial statements, in which an entity provides third
parties with qualitative information on the entity’s commitments towards the
environmental aspects of the business, its policies and targets in that field, its
achievement in managing the relationship between its business processes and
environmental risk, and quantitative information on its environmental performance.
● Environmental performance report

The control objective designed to reduce the probability that a credit sale transaction will
get debited to cash instead of accounts receivable is:
● classification.

The measure of the quantity of audit evidence. The quantity of the audit evidence
needed is affected by the auditor’s assessment of the risks of material misstatement
and also by the quality of such audit evidence.
a. Appropriateness of audit evidence
b. Sufficiency of audit evidence
c. Accounting records
d. Audit documentation
e. Management’s expert
● Sufficiency of audit evidence
What is an auditor's evaluation of a statistical sample for attributes when a test of 50
documents results in 3 deviations, if the tolerable occurrence rate is 7%, the expected
occurrence rate is 5%, and the allowance for sampling risk is 2%?
● Modify the planned assessed level of control risk, because the sample deviation
rate plus the allowance for sampling risk exceeds the tolerable rate.

Which of the following is an element of sampling risk?

● Concluding that no material misstatement exists in a materially misstated
population based on taking a sample that includes no misstatement.

Applications of auditing procedures using the computer as an audit tool.

● Computer-assisted audit techniques

This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities
regarding the use of an individual or organization’s work in a field of expertise other than
accounting or auditing, when that work is used to assist the auditor in obtaining
sufficient appropriate audit evidence..
● PSA 620

consists of all the policies and procedures adopted by the management of an entity to
assist in achieving management’s objective of ensuring, as far as practicable, the
orderly and efficient conduct of its business, including adherence to management
policies, the safeguarding of assets, the prevention and detection of fraud and error, the
accuracy and completeness of the accounting records, and the timely preparation of
reliable financial information.
● Internal control system

This is an item included in PSA 580, Written Representation: “Related party

relationships and transactions have been appropriately accounted for and disclosed in
accordance with the requirements of Philippine Financial Reporting Standards.” Which
PSA does this applies?
● PSA 550

__________ is the measure of the quality of audit evidence; that is, its relevance and its
reliability in providing support for the conclusions on which the auditor’s opinion is
based.
● Appropriateness

Sampling is a function of material misstatement. Identify the type of risk involved in the
test of details. Sampling risk: Incorrect rejection Material misstatement is considered to
exist, when in fact it doesn't Affects the audit: Efficiency, additional procedures and work
● Apha risk

Law or regulation often specifies to whom the auditor’s report is to be addressed in that
particular jurisdiction. The auditor’s report is normally addressed to those for whom the
report is prepared, often either to the ___________shareholders or to those charged
with governance of the entity whose financial statements are being audited.
● Shareholders and those charged with governance

Identify which section this statement pertains. “ Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material
misstatement.”
● Auditor’s responsibility
In discussing the planned use of their work with the internal audit function as a basis for
coordinating the respective activities, it may be useful to address the following, except:
a. The nature of the work performed.
b. Not given
c. The timing of such work.
d. The extent of audit coverage.
e. Materiality for the financial statements as a whole, and performance
materiality.
● Not given

Which of the following would an auditor typically not perform as part of gaining an
understanding of the client's control related to debt obligations?
● Recalculate interest expense

One of the elements of an assurance engagement is the three party relationship. Who is
not considered a party?
● Auditor

This is an item included in PSA 580, Written Representation: “Related party

relationships and transactions have been appropriately accounted for and disclosed in
accordance with the requirements of Philippine Financial Reporting Standards.” Which
PSA does this applies?
● PSA 550

It refers to the material (working papers) prepared by and for, or obtained and retained
by the auditor in connection with the performance of the audit.
● Documentation

Within the context of the firm’s system of quality control, engagement teams able to the
audit engagement and provide the firm with relevant information to enable the
functioning of that part of the firm’s system of quality control relating to _________.
● Independence

Assertions refer to representations by management, explicit or otherwise, that are

embodied in the financial statements.
This is an item included in PSA 580, Written Representation: “Significant assumptions
used by us in making accounting estimates, including those measured at fair value, are
reasonable.” Which PSA does this applies?
● PSA 540
Assurance engagements, which include audit engagements, may only be accepted
when the practitioner considers that relevant ethical requirements such as
independence and professional competence will be satisfied, and when the
engagement exhibits certain characteristics.

This is an item included in PSA 580, Written Representation: “We have disclosed to you
all known instances of non-compliance or suspected non-compliance with laws and
regulations whose effects should be considered when preparing financial statements”.
Which PSA does this applies?
● PSA 250

If the disclosure as to the compliance with the other framework is misleading, a modified
opinion is expressed in accordance with PSA __________.
● PSA 705

PSA ______ the premise, relating to the responsibilities of management and, where
appropriate, those charged with governance, on which an audit in accordance with
PSAs is conducted.
● PSA 200

_________procedures also are used to obtain audit evidence about the absence of
certain conditions, for example, the absence of a “side agreement” that may influence
revenue recognition.
● External confirmation

The phrase used to express the auditor’s opinion is ___________

● Present fairly, in all material respects

PSA 540 requires a separate assessment of ______ for purposes of assessing the risks
of material misstatement at the assertion level for accounting estimates.
● Inherent risk

An effective system of internal controls is most likely to detect a fraud perpetrated by a

● Single employee

PSA 540 requires the exercise of ____________ in relation to accounting estimates is

affected by the auditor’s consideration of inherent risk factors, and its importance
increases when accounting estimates are subject to a greater degree of estimation
uncertainty or are affected to a greater degree by complexity, subjectivity or other
inherent risk factors.
● Professional skepticism

It is the measure of the quality of audit evidence and its relevance to a particular
assertion and its reliability.
● Appropriateness

Controls over the entity’s IT processes that support the continued proper operation of
the IT environment, including the continued effective functioning of information
processing controls and the integrity of information in the entity’s information system.
● General information technology controls

In a _________, although the users of the compiled information derive some benefit
from the accountant's involvement, no assurance is expressed in the report.
● Compilation engagement

PSA ____explains how materiality is applied in evaluating the effect of identified

misstatements on the audit and of uncorrected misstatements, if any, on the financial
statements.
● PSA 450

An auditor’s primary consideration regarding an entity’s internal control system policies

and procedures is whether the policies and procedures
● affect the financial statement assertions.

Which portion of an audit is least likely to be completed before the balance sheet date?
● Assessment of control risk.

Top management of the company closely guards internal financial information, to the
extent that even some employees on a “need-to-know basis” are denied full access.
● Opportunity

Susceptibility to an inherent lack of precision in measurement

● Estimation uncertainty

It refers to a financial reporting framework that requires compliance with the

requirements of the framework, but does not contain (i) Acknowledges explicitly or
implicitly that, to achieve fair presentation of the financial statements, it may be
necessary for management to provide disclosures beyond those specifically required by
the framework; or PSA (ii) Acknowledges explicitly that it may be necessary for
management to depart from a requirement of the framework to achieve fair presentation
of the financial statements.
● Compliance framework

Which of the following PSAs does not require a written representations?

a. PSA 250
b. PSA 240
c. PSA 450
d. Not given
e. PSA 200
● PSA 200

It is a type of engagement wherein an auditor is engaged to carry out those procedures

of an audit nature to which the auditor and the entity and any appropriate third parties
have agreed and to report on factual findings.
● Agreed-upon procedures engagement

It does not reflect the reason why auditors use sampling.

● Nature of audit evidence

It contains a clear written expression of opinion on the financial statements as a whole.

● Opinion

Which of the following is not an example of events or conditions that, individually or

collectively, may cast significant doubt on the entity’s ability to continue as a going
concern?
a. Labor difficulties.
b. Excessive reliance on short-term borrowings to finance long-term assets.
c. Fixed-term borrowings approaching maturity without realistic prospects of
renewal or repayment.
d. Indications of withdrawal of financial support by creditors.
e. Loss of a major market, key customer(s), franchise, license, or principal
supplier(s).
● Indications of withdrawal of financial support by creditors.

Absolute assurance in auditing is not attainable as a result of some factors and the fact
that most of the evidence available to the auditor is _________.
● Persuasive rather than conclusive in nature
Who has the primary responsibility for designing, implementing and maintaining internal
control, and the tone of internal control?
● Management and those charged with governance

The auditor’s report shall include a section with the heading “______.” The financial
statements present fairly, in all material respects, … in accordance with the applicable
financial reporting framework.
● Opinion

Which part of the ‘Auditor’s Report’ does this statement is reflected: “As discussed in
Note yy, the Company’s financing arrangements expire and amounts outstanding are
payable on March 19, 20X2. The Company has been unable to conclude
re-negotiations or obtain replacement financing. This situation indicates that a material
uncertainty exists that may cast significant doubt on the Company’s ability to continue
as a going concern.”?
● Basis for Qualified Opinion

It is a threat that a professional accountant will not appropriately evaluate the results of
a previous judgment made or service performed by a professional accountant, or by
another individual with the professional accountant’s firm or employing organization, on
which the accountant will rely when forming a judgment as part of providing a current
service.
● Self-review threats

The following are factors that the auditor may consider when determining the sample
size for tests of details. Factor: An increase in tolerable misstatement. What is the effect
on the sample size?
● Decrease

This Philippine Standard on Auditing (PSA) deals with specific considerations by the
auditor in obtaining sufficient appropriate audit evidence in accordance with PSA ____.
● PSA 330

A sole practitioner, partnership or corporation or other entity of professional

accountants, or public sector equivalent.
● Firm

It means the maximum error in a population that the auditor is willing to accept.
● Tolerable error
This section of the auditor’s report describes the responsibilities of those in the
organization that are responsible for the preparation of the financial statements.
● Management’s responsibility for the financial statements

Identify which section this statement pertains. “We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our audit opinion.”
● Auditor’s responsibility

While performing a substantive test of details during an audit, the auditor determined
that the sample results supported the conclusion that the recorded account balance was
materially misstated. It was, in fact, not materially misstated. This situation illustrates the
risk of
● incorrect rejection.

Which of the following is not an example of events or conditions that, individually or

collectively, may cast significant doubt on the entity’s ability to continue as a going
concern?
a. Inability to pay creditors on due dates.
b. Not given
c. Adverse key financial ratios.
d. Arrears or discontinuance of dividends.
e. Substantial operating losses or significant deterioration in the value of assets
used to generate cash flows.
● Not given

Identify the section in the Audit of the Financial Statement where this statement
pertains. “In our opinion, except for the possible effects of the matter described in the
Basis for Qualified Opinion section of our report, the accompanying consolidated
financial statements present fairly, in all material respects, the financial position of the
Group as at December 31, 20X1, and (of) its consolidated financial performance and its
consolidated cash flows for the year then ended in accordance with Philippine Financial
Reporting Standards (PFRSs).”
● Qualified opinion

______may provide reliable audit evidence with respect to their existence, but not
necessarily about the entity’s rights and obligations or the valuation of the assets.
● Inspection of tangible assets

The overall attitude and awareness of an entity's board of directors concerning the
importance of internal control usually is reflected in its
 ● Control environment

It is the susceptibility of an account balance or class of transactions to misstatement

that could be material, individually or when aggregated with misstatements in other
balances of classes, assuming that there were no related internal controls.
● Inherent risk

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “Management is responsible for the other information. The other
information obtained at the date of this auditor’s report is information included in the X
report, but does not include the financial statements and our auditor’s report thereon.”
● Other Information

This Philippine Standard on Auditing (PSA) deals with how the form and content of the
auditor’s report is affected when the auditor expresses a modified opinion.
● PSA 705

A monetary amount for which the measurement, in accordance with the requirements of
the applicable financial reporting framework, is subject to estimation uncertainty.
● Accounting estimate

Which of the following activities would be least likely to strengthen a company’s internal
control?
● Maintaining insurance for fire and the theft

Identify the section in the Audit of the Financial Statement where this statement
pertains. “These matters were addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.”
● Key audit matters

In pursuing its quality control objectives with respect to assigning personnel to

engagements, a CPA firm may use policies and procedures such as the following
● requiring timely identification of the staff requirements of specific engagements
so that enough qualified personnel can be made available.

Which the following is not the objective of analytical procedures?

● Set forth in detail the procedures necessary to accomplish the engagement’s
objectives.
It is a type of opinion which could be both material and pervasive.
● Disclaimer

Identify which section this statement pertains. “An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements.”
● Auditor’s responsibility

Initial audit planning involves four matters. Which of the following is not of these?
● Request that bank balances be confirmed

Within the context of the firm’s ________, engagement teams have a responsibility to
implement quality control procedures that are applicable to the audit engagement and
provide the firm with relevant information to enable the functioning of that part of the
firm’s system of quality control relating to independence.
● System of quality control

Identify the section in the Audit of the Financial Statement where this statement
pertains. “We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.”
● Basis for opinion

Identify the section in the Audit of the Financial Statement where this statement
pertains. “As part of our audit of the 20X2 financial statements, we also audited the
adjustments described in Note X that were applied to amend the 20X1 financial
statements. In our opinion such adjustments are inappropriate.”
● Other matter

This Philippine Standard on Auditing (PSA) deals with the external auditor’s
responsibilities if using the work of internal auditors.
● PSA 610

Identify the section in the Audit of the Financial Statement where this statement
pertains. “As a result of these matters, we were unable to determine whether any
adjustments might have been found necessary in respect of recorded or unrecorded
inventories and accounts receivable, and the elements making up the statement of
comprehensive income, statement of changes in equity and statement of cash flows.”
● Basis for disclaimer of opinion
Which of the following is not an example of events or conditions that, individually or
collectively, may cast significant doubt on the entity’s ability to continue as a going
concern?
a. Not given
b. Change from credit to cash-on-delivery transactions with suppliers.
c. Inability to comply with the terms of loan agreements.
d. Inability to obtain financing for essential new product development or other
essential investments.
● Not given

The following are factors that the auditor may consider when determining the sample
size for tests of details. Factor: The number of sampling units in the population. What is
the effect on the sample size?
● Negligible

Identify which section this statement pertains. “The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error.”
● Auditor’s responsibility

Identify the section in the Audit of the Financial Statement where this statement
pertains. “Our responsibilities under those standards are further described in the
Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.”
● Basis for opinion

Which of the following PSA does not require a ‘written representation’?

● PSA 500

This PSA applies to audits of complete sets of general purpose financial statements of
listed entities and circumstances when the auditor otherwise decides to communicate
key audit matters in the auditor’s report.
● PSA 701

If the disclosure is not misleading, but the auditor judges it to be of such importance that
it is fundamental to the users’ understanding of the financial statements, an Emphasis of
Matter paragraph is added in accordance with PSA __________, drawing attention to
the disclosure.
● PSA 706
A component identified by the group engagement team (i) that is of individual financial
significance to the group, or (ii) that, due to its specific nature or circumstances, is likely
to include significant risks of material misstatement of the group financial statements.
● Group management

This PSA _____ deals with special considerations relevant to an audit of a single
financial statement or of a specific element, account or item of a financial statement.
● PSA 805

_________consists of checking the mathematical accuracy of documents or records.

● Recalculation

Identify the section in the Audit of the Financial Statement where this statement
pertains. “We were not engaged to audit, review, or apply any procedures to the 20X1
financial statements of the company other than with respect to the adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the 20X1
financial statements taken as a whole.”
● Other matter

A qualified opinion, an adverse opinion or a disclaimer of opinion on the financial

statements.
● Modified opinion

Which of the following is not a benefit claimed for the practice of determining materiality
in the initial planning stage of starting an audit?
● Being able to decide early what kind of audit opinion to give.

The electronic transmission of documents between organizations in a machine-readable

form.
● Electronic date interchange

This PSA _____ deals with special considerations when financial statements are
prepared in accordance with a special purpose framework.
● PSA 800

A document, or combination of documents, prepared typically on an annual basis by

management or those charged with governance in accordance with law, regulation or
custom, the purpose of which is to provide owners with information on the entity’s
operations and the entity’s financial results and financial position as set out in the
financial statements.
● Annual report

Which of the following forms of advertising would most likely be considered a violation
of the Code of Ethics?
● Advertising including an indication that the firm has a close relationship with
several tax court judges.

It refers to the financial statement assertions which states that an item is disclosed,
classified, and described in accordance with the applicable financial reporting
framework.
● Presentation and disclosure

An auditor who, at the request of the group engagement team, performs work on
financial information related to a component for the group audit.
● Component auditor

This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibility to
communicate key audit matters in the auditor’s report.
● PSA 701

________ are necessary information that the auditor requires in connection with the
audit of the entity’s financial statements.
● Written representation

Procedures designed to restrict access to on-line terminal devices, programs and data.
● Access controls

Identify the section in the Audit of the Financial Statement where this statement
pertains. “Our responsibility is to conduct an audit of the Company’s financial
statements in accordance with Philippine Standards on Auditing and to issue an
auditor’s report.”
● Auditor’s Responsibilities for the audit of financial statements

This PSA______ may also assist the auditor in complying with relevant ethical
requirements2Fthat require the auditor to avoid being knowingly associated with
information that the auditor believes contains a materially false or misleading statement,
statements or information furnished recklessly, or omits or obscures information
required to be included where such omission or obscurity would be misleading.
 ● PSA 720

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.”
● Key audit matters/ Basis for Opinion

PSA 600 assists the group engagement partner to meet the requirements of PSA_____
(Redrafted) where component auditors perform work on the financial information of
components.
● PSA 220

For agreed upon procedures as the auditor simply provides a report of the _____,
_____ is expressed. Instead, users of the report assess for themselves the procedures
and findings reported by the auditor and draw their own conclusions from the auditor's
work.
● Factual findings, no assurance

What are the two key concepts that underlie management’s design and implementation
of internal control?
● Inherent limitations and reasonable assurance

Which of the following is not an element of an assurance engagement?

a. Not given
b. A Written assurance report in the form appropriate to a reasonable assurance
engagement or a limited assurance engagement.
c. Suitable criteria
d. Sufficient appropriate evidence
● Not given

PSA710 is effective for audits of financial statements for periods ending on or after
_____.
● December 15, 2009

Which of the following should not normally be included in the engagement letter for an
audit?
● A listing of the client’s branch offices selected for testing.
Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “Since opening inventories enter into the determination of the
financial performance and cash flows, we were unable to determine whether
adjustments might have been necessary in respect of the profit for the year reported in
the statement of comprehensive income and the net cash flows from operating activities
reported in the statement of cash flows.”
● Basis for qualified opinion

Identify which section this statement pertains. “Management is responsible for the
preparation and fair presentation of these consolidated financial statements in
accordance with Philippine Financial Reporting Standards; this includes the design,
implementation and maintenance of internal control relevant to the preparation and fair
presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.”
● Opinion

Identify the section in the Audit of the Financial Statement where this statement
pertains. “We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in [jurisdiction],
and we have fulfilled our other ethical responsibilities in accordance with these
requirements.”
● Basis for qualified opinion
● Or
● Auditor’s Responsibilities for the audit of financial statements

Identify the section in the Audit of the Financial Statement where this statement
pertains. “Because of the significance of the matters described in the Basis for
Disclaimer of Opinion section of our report, we have not been able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on these financial
statements.”
● Disclaimer of opinion

An example of a reclassification of entry would be an entry

● to change material credit balances in accounts receivable accounts to accounts
payable accounts.

Auditing standards require the use of analytical procedures

● Planning phase & final review phase.
It is the risk that an auditor’s substantive procedures will not detect a misstatement that
exists in an account balance or class of transactions that could be material, individually
or when aggregated with misstatements in other balances or classes.
● Detection risk

Risk that that audit tests do not uncover existing exceptions in the sample
● non-sampling risks

It comprises the source documents and accounting records underlying the financial
statements and corroborating information from other sources.
● Audit evidence

The auditor’s responsibilities under this PSA _______ do not constitute an assurance
engagement on other information or impose an obligation on the auditor to obtain
assurance about the other information.
● PSA 720

Identify which section this statement pertains. “We have audited the accompanying
consolidated financial statements of ABC Company and its subsidiaries, which comprise
the consolidated balance sheet as at December 31...”
● Report on the Consolidated Financial Statements

It contains or accompanies the financial statements and the auditor’s report thereon and
usually includes information about the entity’s developments, its future outlook and risks
and uncertainties, a statement by the entity’s governing body, and reports covering
governance matters.
● Annual report

It is a type of opinion as a result of the auditors assessment that the material

misstatement is material but not pervasive to both the financial and non-financial
information.
● Qualified opinion

Professionals, other than partners, including any experts the firm employs.
● Staff

The entity holds or controls the rights to assets, and liabilities are the obligations of the
entity.
● Rights and obligations
Events occurring between the date of the financial statements and the date of the
auditor’s report, and facts that become known to the auditor after the date of the
auditor’s report.
● Subsequent events

The actual monetary amount that results from the resolution of the transaction(s),
event(s) or condition(s) addressed by an accounting estimate.
● Outcome of an accounting estimate

Identify which section this statement pertains. “In making those risk assessments, the
auditor considers internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control.”
● Auditor’s responsibility

Which of the following PSA does not require a communication ‘with those charged with
governance’?
● PSA 500

This PSA701 is effective for audits of financial statements for periods ending on or after
_____.
● December 15, 2016

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.”
● Key audit matters

It is expressed when the auditor concludes that the financial statements are presented
fairly, in all material respects, in accordance with the identified financial reporting
framework.
● Unqualified opinion

Which part of the ‘Auditor’s Report’ does this statement is reflected: “We draw attention
to Note 6 in the financial statements, which indicates that the Company incurred a net
loss of ZZZ during the year ended December 31, 20X1 and, as of that date, the
Company’s current liabilities exceeded its total assets by YYY.”?
● Material Uncertainty Related to Going Concern
The auditor shall not express an/a ___________ on a single financial statement of a
complete set of financial statements if the auditor has expressed an adverse opinion or
disclaimed an opinion on the complete set of financial statements as a whole.
● Unmodified opinion

It is a type of opinion as a result of the auditors assessment that the material

misstatement is both material and pervasive to both the financial and non-financial
information.
● Adverse opinion

The following are factors that the auditor may consider when determining the sample
size for tests of controls. Factor: An increase in the extent to which the auditor’s risk
assessment takes into account relevant controls. What is the effect on the sample size?
● Increase

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated.”
● Other Information

This is an item included in PSA 580, Written Representation: “We have disclosed to you
the identity of the entity’s related parties and all the related party relationships and
transactions of which we are aware.” Which PSA does this applies?
● PSA 550

These are representations by management, explicit or otherwise, that are embodied in

the financial statements.
● Assertions

Which of the following courses of action would an auditor be most likely to follow in
planning a sample of cash disbursements if the auditor were aware of several unusually
large cash disbursements?
● Stratify the cash disbursements population so that the unusually large
disbursements were selected.

Which of the following statements is false regarding fraud risk factors related to
long-lived assets?
 ● Because long-lived assets are typically an audit are of low risk, auditors do not
need to perform brainstorming activities related to long-lived assets

Long-lived assets include which of the following

a. Tangible assets such as equipment
b. Intangible assets such as patents
c. All of the above
d. Natural resources
● All of the above

Information used by the auditor in arriving at the conclusions on which the auditor’s
opinion is based. Audit evidence includes both information contained in the accounting
records underlying the financial statements and other information.
● Audit evidence

Identify the section in the Audit of the Financial Statement where this statement
pertains. “In addition to the matter described in the Basis for Qualified Opinion section
we have determined the matters described below to be the key audit matters to be
communicated in our report.”
● Key audit matters

It refers to acts of omission or commission by the entity being audited, either intentional
or unintentional, which are contrary to the prevailing laws or regulations.
● Noncompliance

Identify the section in the Audit of the Financial Statement where this statement
pertains. “We conducted our audit in accordance with Philippine Standards on Auditing
(PSAs).”
● Basis for qualified opinion

When making a sample-based decision about the peso amount in an account balance,
the incorrect acceptance decision error is considered more serious than the incorrect
rejection decision error because:
● the incorrect acceptance decision impairs the effectiveness of the audit.

Identify which section this statement pertains. “Management is responsible for the
preparation of these financial statements in accordance with XYZ Law of Jurisdiction X;
this includes the design, implementation and maintenance of internal control relevant to
the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.”
 ● Management’s responsibility for the financial statements

Which of the following PSA does not require a communication ‘with those charged with
governance’?
a. PSA 560
b. PSA 570
c. PSA 580
d. PSA 550
● PSA 580

Identify the section in the Audit of the Financial Statement where this statement
pertains. “We do not express an opinion on the accompanying financial statements of
the Company.”
● Disclaimer of opinion

_________deals with the logical connection with, or bearing upon, the purpose of the
audit procedure and, where appropriate, the assertion under consideration.
● Relevance

This is an item included in PSA 580, Written Representation: “We have disclosed to you
the results of our assessment of the risk that the financial statements may be materially
misstated as a result of fraud.” Which PSA does this applies?
● PSA 240

The purpose of PSA ________ is to enhance the communicative value of the auditor’s
report by providing greater transparency about the audit that was performed.
● PSA 701

The objectives of the auditor are to determine key audit matters and, having formed an
opinion on the financial statements, communicate those matters by describing them in
the auditor’s report.
● PSA 701

Identify the section in the Audit of the Financial Statement where this statement
pertains. “We draw attention to Note X of the financial statements, which describes the
effects of a fire in the Company’s production facilities. Our opinion is not modified in
respect of this matter.”
● Emphasis of matter
Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “In our opinion, except for the possible effects of the matter
described in the Basis for Qualified Opinion section of our report, the accompanying
consolidated financial statements present fairly, in all material respects, (or give a true
and fair view of) the financial position of the Group as at December 31, 20X1, and (of)
its consolidated financial performance and its consolidated cash flows for the year then
ended in accordance with Philippine Financial Reporting Standards (PFRSs).”
● Qualified Opinion

An entity ordinarily issues on an annual basis a document which includes its financial
statements together with the audit report thereon.
● Annual report

The individual items constituting a population.

● Sampling unit

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in [jurisdiction],
and we have fulfilled our other ethical responsibilities in accordance with these
requirements.”
● Basis for opinion

It refers to either a firm or entity providing audit services, including where appropriate its
partners, or a sole practitioner.
● Audit firm

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our qualified opinion.”
● Basis for qualified opinion

The partner or other person in the firm who is responsible for the group audit
engagement and its performance, and for the auditor’s report on the group financial
statements that is issued on behalf of the firm.
● Group engagement partner

Within the context of the firm’s system of quality control, _________ have a
responsibility to implement quality control procedures that are applicable to the audit
engagement and provide the firm with relevant information to enable the functioning of
that part of the firm’s system of quality control relating to independence.
● Engagement teams

The risk that an auditor's procedures will lead to the conclusion that a material error
does exist in an account balance when, in fact, such error does exist is referred to as
● detection risk.

Identify which section this statement pertains. “An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.”
● Auditor’s responsibility

All partners and staff performing the audit engagement, and any other individuals who
perform audit procedures on the engagement, excluding an auditor’s external expert4
and internal auditors who provide direct assistance on an engagement.
● Engagement team

A paragraph included in the auditor’s report that refers to a matter other than those
presented or disclosed in the financial statements that, in the auditor’s judgment, is
relevant to users’ understanding of the audit, the auditor’s responsibilities or the
auditor’s report.
● Other matter paragraph

Which of the following factor does not influence the auditor’s judgment as to what
constitutes the sufficient appropriate audit evidence?
● The auditors’ judgment about their independence with regard to the client.

This PSA _____ refers to auditor’s conclusion whether uncorrected misstatements are
material, individually or in aggregate.
● PSA 450

Which of the following forms may the subject matter of an assurance engagement take?
a. Systems-and processes
b. All of the above
c. Behavior
d. Historical financial information
● All of the above
Financial statements prepared in accordance with a special purpose framework with
reference to PSA 800 mentioned in PSA 700.
● Special purpose financial statements

Which part of the ‘Auditor’s Report’ does this statement is reflected: “The Company has
been unable to conclude re-negotiations or obtain replacement financing and is
considering filing for bankruptcy. This situation indicates that a material uncertainty
exists that may cast significant doubt on the Company’s ability to continue as a going
concern.”?
● Basis for Adverse Opinion

If, from a random sample, an auditor can state with a 5 percent acceptable risk of
assessing control risk too low (ARACR) that the exception rate in the population does
not exceed 20 percent, he or she can state that the exception rate does not exceed 25
percent with
● risk less than 5 percent.

What is meant by the risk assessment component of internal control?

● The entity’s identification and analysis of risks relevant to achievement of its
objectives

_________consist of evaluations of financial information made by a study of plausible

relationships among both financial and non-financial data.
● Analytical procedure

For _________, as the auditor simply provides a report of the factual findings, no
assurance is expressed.
● Agreed-upon procedures

Identify the section in the Audit of the Financial Statement where this statement
pertains. “Because of the significance of the matter described in the Basis for Disclaimer
of Opinion section of our report, we have not been able to obtain sufficient appropriate
audit evidence to provide a basis for an audit opinion on these consolidated financial
statements.”
● Disclaimer of opinion

An entity ordinarily issues on an annual basis a document which includes its financial
statements together with the audit report thereon.
● Annual report
The accountant’s report on an examination of prospective financial statements should
not include
a. A statement that the accountant assumes no responsibility to update the report
for events and circumstances occurring after the
date of the report.
b. A caveat that the prospective results may not be achieved.
c. A statement that the examination was made in accordance with financial
reporting standards, and a brief description of the
nature of such examination.
d. The accountant’s opinion that the prospective financial statements are
presented in conformity with PICPA presentation guidelines
and that the underlying assumptions provide a reasonable basis for the forecast,
a reasonable basis for the projection given the
assumptions.
● A statement that the accountant assumes no responsibility to update the report
for events and circumstances occurring after the date of the report.

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “We were unable to obtain sufficient appropriate audit evidence
about the carrying amount of ABC’s investment in XYZ as at December 31, 20X1 and
ABC’s share of XYZ’s net income for the year because we were denied access to the
financial information, management, and the auditors of XYZ. Consequently, we were
unable to determine whether any adjustments to these amounts were necessary.”
● Basis for qualified opinion

Refers to those who comprises officers and others who also perform senior managerial
functions.
● Management

Which of the following procedures is not included in a review engagement of a

nonpublic entity?
● A study and evaluation of internal control.

Which of the following is an inherent risk relating to inventory?

a. Inventory may become obsolete because of technological advances even
though there are no visible signs of wear
b. Inventory is easily transportable
c. All of the above
d. Inventory is often returned by customers, so care must be taken to separately
identify returned merchandise, check it for quality,
 and record it a net realizable value
● All of the above

It refers to a division, branch, subsidiary, joint venture, associated company or other

entity whose financial information is included in financial statements audited by the
principal auditor.
● Component

Identify the section in the Audit of the Financial Statement where this statement
pertains. “The Company’s inventories are carried in the statement of financial position at
xxx. Management has not stated the inventories at the lower of cost and net realizable
value but has stated them solely at cost, which constitutes a departure from PFRSs.”
● Basis for qualified opinion

Prospective financial statements are for general use or for limited use. General use
refers to use by any third party, whereas limited use refers to use by third parties with
whom the responsible party is negotiating directly. Which of the following statements is
not correct?
● Projections can be provided for general use.

It is the process of obtaining and evaluating audit evidence through a direct

communication from a third party in response to a request for information about a
particular item affecting assertions made by management in the financial statements.
● External confirmation

What is the term used by Philippine Standards on Review Engagements (PSREs) to

express the final statement of the review?
● Limited assurance engagement

The CPA presents information (financial statements) that is the representation of

management without undertaking to express any assurance on the statements.
● Compilation

It means an error that arises from an isolated event that has not recurred other than on
specifically identifiable occasions and is therefore not representative of errors in the
population.
● Anomalous error

The diagram below depicts the auditor's estimated maximum deviation rate compared
with the tolerable rate, and also depicts the true population deviation rate compared with
the tolerable rate: Auditor’s estimate based on samples, (a) True state of population
with deviation rate is less than tolerable rate, and (b) True state of population with
deviation rate exceeds tolerable rate. As a result of the tests of controls, the auditor
assesses control risk higher than necessary, and thereby, increases substantive testing.
This is illustrated by situation
● Maximum deviation rate is less that tolerable rate, (b) III

A financial reporting framework designed to meet the common financial information

needs of a wide range of users. The financial reporting framework may be a fair
presentation framework or a compliance framework.
● General purpose framework

A financial reporting framework designed to meet the financial information needs of

specific users. The financial reporting framework may be a fair presentation framework
or a compliance framework with reference to PSA 800 mentioned in PSA 700.
● Special purpose framework

Comparative information where amounts and other disclosures for the prior period are
included for comparison with the financial statements of the current period but, if
audited, are referred to in the auditor’s opinion.
● Comparative financial statements

This PSA______ may also assist the auditor in complying with relevant ethical
requirements that require the auditor to avoid being knowingly associated with
information that the auditor believes contains a materially false or misleading statement,
statements or information furnished recklessly, or omits or obscures information
required to be included where such omission or obscurity would be misleading
● PSA 720

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “Our opinion on the financial statements does not cover the other
information and we do not and will not express any form of assurance conclusion
thereon.”
● Other Information

Identify the section in the Audit of the Financial Statement where this statement
pertains. “We believe that the audit evidence we have obtained is sufficient and
appropriate to provide".
● Basis of opinion
Independent Auditor’s Report. The title of the audit report should be simple and include
the word “independent”. This indicates that the audit was performed by an external,
independent, and unbiased third party.
● Title

This indicates unmodified opinion on financial statements prepared in accordance with a

fair presentation and compliance framework and with reference to PFRS.
● Opinion

It is a set of financial statements prepared by an organization that have been reviewed

by a certified public accountant (CPA) or an independent auditor.
● Audit of Consolidated Financial Statements

Accountant puts client information in financial statement form without obtaining any
assurance that material modification should or should not be made to the financial
statements.
● Compilation engagement

Which of the following procedures would provide the most reliable audit evidence?
● Inspection of bank statements obtained directly from the client’s financial
institution

When obtaining knowledge about an entity's internal control, it is important for the
auditor to consider the competence of its employees, because their competence bears
directly and importantly upon the
● Achievement of the objectives of internal control

It serves as a set of instructions to assistants involved in the audit and as a means to

control the proper execution of the work.
● Audit program

These are a record of the auditor’s planning; nature, timing and extent of the auditing
procedures performed; and results of such procedures and the conclusions drawn from
the evidence obtained.
● Working papers

Which of the following PSA does not require a communication ‘with those charged with
governance’?
a. PSA 720
b. PSA 700
 c. PSA 710
d. PSA 707
● PSA 707

Proper segregation of duties reduces the opportunities in which a person could both
● perpetuate errors and irregularities and conceal them.

A requirement that working papers be reviewed by the supervisor, and any deficiencies
be discussed with the preparer is an example of a quality control procedure in the area
of:
● Engagement performance.

Which factor is excluded in evaluating the sufficiency and appropriateness of audit

evidence?
● Flowchart of the internal controls.

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report that fact. We
have nothing to report in this regard.”
● Other Information

In a review engagement, the auditor expressed an assurance in the form of

● Negative assurance

The following are factors that the auditor may consider when determining the sample
size for tests of details. Factor: An increase in the use of other substantive procedures
directed at the same assertion. What is the effect on the sample size?
● Decrease

A misstatement of the other information exists when the other information is incorrectly
stated or otherwise misleading
● Misstatement of the other information

This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities
relating to other information, whether financial or non-financial information (other than
financial statements and the auditor’s report thereon), included in an entity’s annual
report.
● PSA 720
These are tests performed to obtain audit evidence to detect material misstatements in
the financial statements.
● Substantive procedures
More than a compilation, but less than an audit, a review consists mainly of performing
inquiry and analytical procedures. Such procedures provide the CPA a basis for
expressing limited assurance concerning conformance with PFRS.
● Review

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “This investment is therefore accounted for on a cost basis… Had
XYZ Company been consolidated, many elements in the accompanying consolidated
financial statements would have been materially affected. The effects on the
consolidated financial statements of the failure to consolidate have not been
determined.”
● Basis for adverse opinion

This is an item included in PSA 580, Written Representation: “We have disclosed to you
all information in relation to allegations of fraud, or suspected fraud, affecting the entity’s
financial statements communicated by employees, former employees, analysts,
regulators or others.” Which PSA does this applies?
● PSA 240

The process of transforming programs and information into a form that cannot be
understood without access to specific decoding algorithms (cryptographic keys). For
example, the confidential personal data in a payroll system may be encrypted against
unauthorized disclosure or modification.
● Encryption

It is described as “the check points in production jobs’.

● Detective controls

Which of the following procedures would best detect the theft of valuable items from an
inventory that consists of hundreds of different items selling for P10 t0 P100 and a few
items selling for hundreds of pesos?
● Maintain a perpetual inventory master file of only the more valuable items with
frequent periodic verification of the validity of the perpetual.C) Have separate
warehouse space for the move valuable items with sequentially numbered tags.

Which of the following is not one of the benefits why the auditor should properly plan
engagements?
 ● Ensure gathering of sufficient appropriate audit evidence.

This PSA ________ prohibits the auditor from communicating key audit matters when
the auditor disclaims an opinion on the financial statements, unless such reporting is
required by law or regulation.
● PSA 705

The specific controls over the relevant accounting applications maintained by the
computer.
● Application controls in computer information systems

To maintain professional knowledge & skill at the level required to ensure that a client or
employer receives competent professional services based on current developments in
practice, legislation & techniques & act diligently & in accordance with applicable
technical & professional standards refers to what principle in the code of ethics.
● Professional competence and due care

This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities
regarding related party relationships and transactions when performing an audit of
financial statements.
● PSA 550

Auditors consider statistical sampling to be characterized by the following:

● representative sample selection and statistical calculation of the results.
In the application of statistical techniques to the estimation of peso amounts, a
preliminary sample usually is taken primarily for the purpose of estimating the
population
● Variability

Significant deficiencies are matters that come the auditor’s attention & should be
communicated to an entity’s audit committee in writing because they represent
● Internal control deficiencies that could adversely affect entity’s ability to initiate,
record, process

Which of the following is not an inherent risk typically associated with the existence of
dividends?
● Dividends are not properly authorized

It is expressed when the auditor concludes that an unqualified opinion cannot be

expressed but that the effect of any disagreement with management, or limitation on
scope is not so material and pervasive as to require an adverse opinion or a disclaimer
of opinion.
● Qualified opinion

Identify the section in PSA 720 in the Audit of the Financial Statement where this
statement pertains. “We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.”
● Basis for opinion

Identify the section in the Audit of the Financial Statement where this statement
pertains. “Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements of the current period.”
● Key audit matters

Identify which section this statement pertains. “ We conducted our audit in accordance
with Philippine Standards on Auditing.”
● Auditor’s responsibility

Before performing a review of a nonpublic entity's financial statements, on accountant

should
● obtain a sufficient level of knowledge of the accounting principles and practices
of the industry in which the entity operates

Which of the following is not a typical ‘rationalization’ of a fraud perpetrator?

● I’m smarter than the rest of them

Each page of a nonpublic entity's financial statements reviewed by an accountant

should include the following reference:
● "See Accountant's Review, Report.”

Sampling is a function of material misstatement. Identify the type of risk involved in the
test of details.
Sampling risk: Incorrect rejection
Material misstatement is considered to exist, when in fact it doesn't
Affects the audit: Efficiency, additional procedures and work
● Apha risk

Law or regulation often specifies to whom the auditor’s report is to be addressed in that
particular jurisdiction. Management and, where appropriate, those charged with
governance are responsible for the preparation of the financial statements in
accordance with the applicable financial reporting framework.
● Management and where appropriate, those charged with governance

“The matters raised in this report arise from our financial statement audit & relate to
matters that we believe need to be brought to your attention.” This statement is
addressed to whom?
● Those charged with governance.

It refers to the review procedures deemed necessary in the circumstances to achieve

the objective of the review
● Scope of a review

What is the principal reason for developing a written audit program?

● Audit work is properly planned and documented

A rate of deviation from prescribed internal control procedures set by the auditor in
respect of which the auditor seeks to obtain an appropriate level of assurance that the
rate of deviation set by the auditor is not exceeded by the actual rate of deviation in the
population.
● Tolerable rate of deviation

Those matters that, in the auditor’s professional judgment, were of most significance in
the audit of the financial statements of the current period.
● Key audit matters

The auditor’s responsibility for events and transactions after the date of the auditor’s
report is addressed in PSA
● PSA 560

Identify the section in the Audit of the Financial Statement where this statement
pertains. “In our opinion, the accompanying financial statements present fairly, in all
material respects, (or give a true and fair view of) the financial position of the Company
as at December 31, 20X1, and (of) its financial performance and its cash flows for the
year then ended in accordance with Philippine Financial Reporting Standards (PFRSs).”
● Opinion

Defined as complete financial statements in the same form as traditional income

statements, statement of financial positions and statements of changes in financial
position.
 ● Prospective financial statements

It arises from the possibility that the auditor’s conclusion, based on a sample may be
different from the conclusion reached if the entire population were subjected to the
same audit procedure.
● Sampling risk

The _______ provides a framework of principles that members of assurance teams,

firms and network firms use to identify threats to independence, evaluate the
significance of those threats and, if the threats are other than clearly insignificant,
identify and apply safeguards to eliminate the threats or reduce them to an acceptable
level, such that independence of mind and independence in appearance are not
compromised.
● Code of Ethics for Professional Accountants in the Philippines

This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities
regarding comparative information in an audit of financial statements.
● PSA 710

Policies or procedures designed and implemented by the firm to address one or more
quality risk(s). (i) Policies are statements of what should, or should not, be done to
address a quality risk(s). Such statements may be documented, explicitly stated in
communications or implied through actions and decisions. (ii) Procedures are actions to
implement policies.
● Response

This Philippine Standard on Auditing (PSA) explains what constitutes audit evidence in
an audit of financial statements, and deals with the auditor’s responsibility to design and
perform audit procedures to obtain sufficient appropriate audit evidence to be able to
draw reasonable conclusions on which to base the auditor’s opinion.
● PSA 500

Competence as a certified public accountant includes all of the following except:

● Guaranteeing the accuracy of the work performed.

Engagement risk is influenced by the risks associated with the following except
● unreasonably low professional fee.

Non-assurance engagements include all of the following except

● compliance audit.
Assurance engagements should exhibit the following elements except
● appropriate professional fees.

The audit risk-based audit process includes the following, except:

● Only I, II and III

The accounting firm should establish policies and procedures assigned to promote an
internal culture based on the recognition that quality is essential in performing
engagements. This may be communicated through the following means except
● Publication in PICPA newsletter.

For purposes of PSA 210, the agreed terms of the audit engagement shall have the
following, except:
● Access to some information of which management is aware relevant to audit

The auditor shall prepare audit documentation that is sufficient to enable an

experienced auditor, having no previous connection with the audit, to understand the
following, except: (a) The nature, timing, and extent of the audit procedures performed
to comply with the PSAs and applicable legal and regulatory requirements; (b) The
results of the audit procedures performed, and the audit evidence obtained; (c) Scope
and timing of the audit process; (d) Significant matters arising during the audit, the
conclusions reached thereon, and significant professional judgments made in reaching
those conclusions.
● C

For purposes of PSA 210, in order to establish the existence of preconditions for an
audit it shall have the following, except:
● Access to some information of which management is aware relevant to audit

Who is an experienced auditor? An individual who has practical audit experience, and a
reasonable understanding, except: (i) Audit processes; (ii) PSAs applicable to fraud &
errors; (iii) PSAs and applicable legal and regulatory requirements; (iv) The business
environment in which the entity operates; (v) Auditing and financial reporting issues
relevant to the entity’s industry.
● Only i, ii, iii & v

If, in exceptional circumstances, the auditor performs new or additional audit procedures
or draws new conclusions after the date of the auditor’s report, the auditor shall
document the following, except: (a) The circumstances encountered; (b) Scope and
timing of the audit procedures; (c) The new or additional audit procedures performed,
audit evidence obtained, and conclusions reached, and their effect on the auditor’s
report; (d) When and by whom the resulting changes to audit documentation were made
and reviewed.
● B

The auditor’s understanding of the entity and its environment consists of an

understanding of the following aspects except
● Entity’s selection and screening process of marketing and production personnel.

Materiality in the context of an audit the auditor’s determination of materiality is a matter

of professional judgment and affected by auditor’s perception of the financial
information needs of the users of the financial statements. In this context, it is
reasonable for the auditor to assume that users will include the following, except:
a. Recognize the uncertainties inherent in the measurement of amounts based on
the use of estimates, judgment and the consideration of future events
b. Understand that financial statements are prepared, presented and audited to
levels of materiality
c. Have a reasonable knowledge of business and economic activities and
accounting and a willingness to study the information in the financial statements
with reasonable diligence
d. Not given
e. Make reasonable economic decisions on the basis of the information in the
financial statements

The nature & extent of planning will vary according the following, except
● All of the above will affect the nature and extent of planning

In planning the audit, the auditor makes judgments about the size of misstatements that
will be considered material. These judgments provide a basis for the following, except:
● Making reasonable economic decisions on the basis of the information in the
financial statements

The risks of material misstatement to be identified and assessed include both those due
to fraud and those due to error as required by the following PSAs, except:
● PSA 260

Relevant industry factors include industry conditions such as the competitive

environment, supplier and customer relationships, and technological developments.
Matters the auditor may consider include the following, except:
● The size and complexity of the entity, including its IT environment.

Circumstances that may indicate a significant control deficiency exists include matters
include the following, except:
● Inspecting documents and reports
Key indicators used for evaluating financial performance may include the following,
except:
● Taxation legislation and regulations.

The risk assessment procedures shall include the following, except:

● Substantive testing

Examples for certain audit procedures can be performed only at or after the period end,
except:
● Emphasizing to the audit team the need to maintain professional skepticism.

The objectives of PSA. 260 are the following, except:

● To promote effective way communication between the auditor and those charged
with governance

Further relevant factors that influence the auditor’s consideration of when to perform
audit procedures include the following, except:
a. The period or date to which the audit evidence relates.
b. The nature of the risk.
c. Not given
d. When relevant information is available.
e. The control environment

In determining whether it is appropriate to use audit evidence about the operating

effectiveness of controls obtained in previous audits, and, if so, the length of the time
period that may elapse before retesting a control, the auditor shall consider the
following, except:
a. Whether the lack of a change in a particular control poses a risk due to changing
circumstances; and
b. The effectiveness of general IT-controls.
c. The risks of material misstatement and the extent of reliance on the control.
d. The effectiveness of other elements of internal control, including the control
environment, the entity’s monitoring of controls, and
the entity’s risk assessment process
e. Not given
f. The risks arising from the characteristics of the control, including whether it is manual
or automated.
● Not given

Overall responses to address the assessed risks of material misstatement at the

financial statement level may include the following, except:
a. Assigning more experienced staff or those with special skills or using experts.
b. Emphasizing to the audit team the need to maintain professional skepticism.
c. The overall responses to address the assessed risks of material misstatement
at the financial statement level, and the nature,
 timing, and extent of the further audit procedures performed.
d. Providing more supervision.
e. Incorporating additional elements of unpredictability in the selection of further
audit procedures to be performed.
● The overall responses to address the assessed risks of material misstatement at
the financial statement level, and the nature, timing, and extent of the further
audit procedures performed.

External parties may also review and analyze the entity’s financial performance, in
particular for entities where financial information is publicly available. The auditor may
also consider publicly available information to help the auditor further understand the
business or identify contradictory information from the following, except:
● Taxation legislation and regulations.

Matters that the user auditor may identify during the audit and may communicate to
management and those charged with governance of the user entity include the
following, except:
● Not given

Irrespective of the assessed risks of material misstatement, the auditor shall design and
perform substantive procedures for each material ____, except:
● Financial statements

Information on the nature of the services provided by a service organization may be

available from a wide variety of sources, including the following, except:
● Not given

The contract or service level agreement between the user entity and the service
organization may provide for matters include the following, except:
● Not given

Relevant matters for consideration when designing audit procedures to obtain audit
evidence about whether changes in inventory amounts between the count date, or
dates, and the final inventory records are properly recorded includes the following,
except:
● A request that the entity’s external legal counsel confirm the reasonableness of
management’s assessments and provide the auditor with further information if
the list is considered by the entity’s external legal counsel to be incomplete or
incorrect.

The selection of particular procedures to achieve specific audit objectives is influenced

by the following considerations, except:
a. Reliance that can be placed on internal control structure
b. Nature & materiality of the particular component of the financial statements
c. Nature of the audit objective to be achieved.
d. Not given
e. Relative risk of material errors or irregularities. The kinds and competence of available
evidence.
● Not given

The auditor shall obtain an understanding of the control environment relevant to the
preparation of the financial statements, through performing risk assessment procedures,
by understanding the set of controls, processes and structures that address will include
the following, except:
● Industry, regulatory and other external factors

Matters that may be relevant for the auditor to consider in obtaining an understanding of
the governance of the entity include the following, except:
● The size and complexity of the entity, including its IT environment;

An engagement team comprises the following, except:

● Experts the client employs

Tests of controls are performed only on those controls that the auditor has determined
are suitably designed to_________a material misstatement in an assertion, except:
● Transfer

When deviations from controls upon which the auditor intends to rely are detected, the
auditor shall make specific inquiries to understand these matters and their potential
consequences, and shall determine the following, except:
● The risks of material misstatement and the extent of reliance on the control.

Examples of service organization services that are relevant to the audit include the
following, except:
● Reports by service organizations, internal auditors or regulatory authorities on
controls at the service organization.

The auditor’s judgment as to what constitutes sufficient appropriate audit evidence is

influenced by such factors as the following, except:
● Source, reliability and availability of audit evidence

The higher the risk of material misstatement, or the greater the reliance on controls, the
shorter the time period elapsed, if any, is likely to be. Factors that may decrease the
period for retesting a control, or result in not relying on audit evidence obtained in
previous audits at all, include the following, except:
 a. Weak monitoring of controls.
b. Changing circumstances that indicate the need for changes in the control.
c. Significant manual element to the relevant controls.
d. Not given
e. Personnel changes that significantly affect the application of the control.
f. A weak control environment.
● Not given

The auditor shall include in the audit documentation will include the following, except:
● Between people within the entity, including how financial reporting roles and
responsibilities are communicated.

The engagement team, led by the engagement partner, is responsible, within the
context of the firm’s system of quality management and through complying with the
following requirements, except:
a. Given the nature and circumstances of the audit engagement, determining
whether to design and implement responses at the
engagement level beyond those in the firm’s policies or procedures
b. Communicating to the firm information from the audit engagement that is
required to be communicated by the firm’s policies or
procedures to support the design, implementation and operation of the firm’s
system of quality management.
c. Implementing the firm’s responses to quality risks that are applicable to the
audit engagement using information communicated
by, or obtained from, the firm
d. Not given
● Not given

Performing substantive procedures at an interim date without undertaking additional

procedures at a later date increases the risk that the auditor will not detect
misstatements that may exist at the period end. This risk increases as the remaining
period is lengthened. Factors such as the following may influence whether to perform
substantive procedures at an interim date, except:
● Changing circumstances that indicate the need for changes in the control

Relevant regulatory factors include the regulatory environment. The regulatory

environment encompasses, among other matters, the applicable financial reporting
framework and the legal and political environment and any changes thereto. Matters the
auditor may consider include the following, except:
● The market and competition, including demand, capacity, and price competition.
The auditor’s documentation of uncorrected misstatements may take into account the
following, except:
a. The evaluation of whether the materiality level or levels for particular classes
of transactions, account balances or disclosures, if
any, have been exceeded
b. Not given
c. The evaluation of the effect of uncorrected misstatements on key ratios or
trends, and compliance with legal, regulatory and
contractual requirements (for example, debt covenants).
d. The consideration of the aggregate effect of uncorrected
● Not given

When information to be used as audit evidence has been prepared using the work of a
management’s expert, the auditor shall, to the extent necessary, having regard to the
significance of that expert’s work for the auditor’s purposes to do the following, except:
● Not given

Audit procedures to obtain audit evidence can include the following, except:
● Substantive analytical procedures

In certain circumstances, the auditor also may judge it necessary to meet with the
entity’s external legal counsel to discuss the likely outcome of the litigation or claims.
This may be the case of the following example, except:
● A list of litigation

Attendance at physical inventory counting involve the following, except:

● Inquiry of management and, where applicable, others within the entity, including
in-house legal counsel

Audit procedures to obtain audit evidence can include the following, except:
● Substantive analytical procedures

Depending on the circumstances, example of matters that may be relevant when

obtaining an understanding of the methods used by management in determining
segment information and whether such methods are likely to result in disclosure in
accordance with the applicable financial reporting framework include the following,
except:
● There is disagreement between management and the entity’s external legal
counsel.
Analytical procedures include the consideration of comparisons of the entity’s financial
information with, for example, except:
● The evaluation of whether the materiality level or levels for particular classes of
transactions, account balances or disclosures, if any, have been exceeded

Additional audit procedures for opening balances may be necessary, and one or more
of the following may provide sufficient appropriate audit evidence: except:
● Observing the accounting policies followed by the entity.

The following are the additional audit procedures when events or conditions are
identified that may cast significant doubt about the ability of the entity to continue as a
going concern, except:
● Confirming the existence of inventories and property plant and equipment.

In inquiring of management and, where appropriate, those charged with governance, as

to whether any subsequent events have occurred that might affect the financial
statements, the auditor may inquire as to the current status of items that were
accounted for on the basis of preliminary or inconclusive data and may make specific
inquiries about the following matters, except:
● Whether the information systems may be ineffective at identifying or summarizing
transactions and outstanding balances between an entity and its related parties.
● Or
● Information systems may be ineffective at identifying or summarizing transactions
and outstanding balances between an entity and its related parties.

The objectives of PSA 600 includes the following, except:

a. Not given
b. To report under this PSA.
c. To obtain sufficient appropriate audit evidence about the financial information
of the components and the consolidation process to express an opinion whether
the group financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework.
d. To communicate clearly with component auditors about the scope and timing
of their work on financial information related to components and their findings.
e. To determine whether to act as the auditor of the group financial statements.
● To obtain understanding of the components, its environment and internal control.
When the group engagement team plans to request a component auditor to perform
work on the financial information of a component, the group engagement team shall
obtain an understanding of the following, except:
a. Not given
b. The component auditor’s professional competence.
c. Whether the component auditor understands and will comply with the ethical
requirements that are relevant to the group audit
and, in particular, is independent.
d. Whether the component auditor operates in a regulatory environment that
actively oversees auditors.
e. Whether the group engagement team will be able to be involved in the work of
the component auditor to the extent necessary to obtain sufficient appropriate
audit evidence.
● Not given

For a component that is significant because it is likely to include significant risks of

material misstatement of the group financial statements due to its specific nature or
circumstances, the group engagement team, or a component auditor on its behalf, shall
perform one or more of the following, except:
a. Specified audit procedures relating to the likely significant risks of material
misstatement of the group financial statements
b. The analytical procedures performed at group level.
c. Not given
d. An audit of the financial information of the component using component
materiality.
e. An audit of one or more account balances, classes of transactions or
disclosures relating to the likely significant risks of material misstatement of the
group financial statements.
● The analytical procedures performed at group level.
The objectives of the external auditor, where the entity has an internal audit function and
the external auditor expects to use the work of the function to modify the nature or
timing, or reduce the extent, of audit procedures to be performed directly by the external
auditor , or to use internal auditors to provide direct assistance, are the following,
except:
● If using the work of the internal audit function, to determine whether that work is
adequate for purposes of the audit.

The respective roles and responsibilities of the auditor and the auditor’s external expert
are the following, except:
 ● The nature and scope of the procedures to be performed by the auditor’s
external expert.
● or
● The assumptions and methods, including models where applicable, the auditor’s
external expert will use, and their authority.
● or
● Any relevant technical performance standards or other professional or industry
requirements the auditor’s external expert will follow.

Information regarding the competence, capabilities and objectivity of an auditor’s expert

may come from a variety of sources include the following, except:
a. Discussions with that expert.
b. Discussions with other auditors or others who are familiar with that expert’s
work.
c. Not given
d. Personal experience with previous work of that expert.
● Not given

Examples of work of the internal audit function that can be used by the external auditor
include the following, except:
● Inquiry to management and those charged with governance on systems of
internal control

In the Philippines, SRC Rule 68 requires that the auditor’s report on financial statements
filed with the Securities and Exchange Commission (SEC), which will likewise be filed
with the Bureau of Internal Revenue (BIR), be manually signed. In case of an auditing
firm, the certifying partner shall sign his/her own signature and shall indicate that he/she
is signing for the firm, the name of which is also indicated in the report. The auditor is
also required to state the following, except: statement or on a specific element of a
financial statement, the auditor shall apply the requirements in PSA 705, adapted as
necessary in the circumstances of the engagement
● Report on the Consolidated Financial Statements

The introductory paragraph in the auditor’s report shall include the following, except:
● Identify the entity whose financial statements have been audited
● State that the financial statements have been audited
● Identify the title of each statement that comprises the financial statements
● Refer to the summary of significant accounting policies and other explanatory
information
 ● Specify the date or period covered by each financial statement comprising the
financial statements.
● Not given

Under PSA 570, some financial reporting frameworks may address disclosures about
going concern, except:
a. Management’s evaluation of the significance of those events or conditions in
relation to the entity’s ability to meet its obligations.
b. Principal events or conditions.
c. Management’s plans that mitigate the effect of these events or conditions.
d. Adequacy of support for any planned disposals of assets.
● Adequacy of support for any planned disposals of assets

Matters that the auditor may consider communicating with those charged with
governance with respect to theauditor’s views about significant qualitative aspects of the
entity’s accounting practices related to accounting estimates and related disclosures,
except:
a. The relevance and reliability of information obtained from an external
information source.
b. Significant differences in judgments between the auditor and management or a
management’s expert regarding valuations.
c. Not given
d. Significant difficulties encountered when obtaining sufficient appropriate audit
evidence relating to data obtained from an
external information source or valuations performed by management or a
management’s expert.
e. Whether the data and significant assumptions used by management in making
the accounting estimates are appropriate in the
context of the applicable financial reporting framework.
● Not given

In determining the nature, timing and extent of those procedures, the auditor shall
consider matters include the following, except:
a. The effective date of, or when applicable the testing period for, the subject
matter of the auditor’s external expert’s work, and
requirements regarding subsequent events.
b. Not given
c. The assumptions and methods, including models where applicable, the
auditor’s external expert will use, and their authority.
d. Evaluate the adequacy of that work for the auditor’s purposes.
 ● Not given

When designing an audit sample, the auditor shall consider the following, except:
a. Select items for the sample in such a way that each sampling unit in the
population has a chance of selection
b. Purpose of the audit procedure
c. Characteristics of the population from which the sample will be drawn
d. Not given
e. Sample size sufficient to reduce sampling risk to an acceptably low level
● Not given

The nature of related party relationships and transactions may, in some circumstances,
give rise to higher risks of material misstatement of the financial statements than
transactions with unrelated parties. Examples are the following, except:
a. Related party relationships may present a greater opportunity for collusion,
concealment or manipulation by management.
b. Information systems may be ineffective at identifying or summarizing
transactions and outstanding balances between an entity
and its related parties.
c. Related parties may operate through an extensive and complex range of
relationships and structures, with a corresponding
increase in the complexity of related party transactions.
d. Related party transactions may not be conducted under normal market terms
and conditions; for example, some related party
transactions may be conducted with no exchange of consideration.
e. Not given
● Not given

The existence of the following relationships may indicate the presence of control or
significant influence, except:
a. Direct or indirect equity holdings or other financial interests in the entity.
b. The chief ethics officer or equivalent person.
c. Being part of those charged with governance or key management.
d. Being a close family member of any person
e. The entity’s holdings of direct or indirect equity or other financial interests in
other entities.
● The chief ethics officer or equivalent person.
The auditor shall evaluate whether the financial statements are prepared, in all material
respects, in accordance with the requirements of the applicable financial reporting
framework which include the following, except:
a. The information presented in the financial statements is relevant, reliable,
comparable and understandable.
b. The terminology used in the financial statements, including the title of each
financial statement, is appropriate.
c. The financial statements provide adequate disclosures to enable the intended
users to understand the effect of material transactions and events on the
information conveyed in the financial statements.
d. Not given
e. The financial statements adequately disclose the significant accounting
policies selected and applied.
● Not given

In evaluating the business rationale of a significant related party transaction outside the
entity’s normal course of business, the auditor may consider whether the transaction of
the following, except:
a. Involves previously unidentified related parties.
b. Is processed in an unusual manner.
c. Lacks an apparent logical business reason for its occurrence.
d. Is overly complex.
e. Not given
f. Has unusual terms of trade, such as unusual prices, interest rates, guarantees
and repayment terms.
● Not given

The auditor shall evaluate the adequacy of the auditor’s expert’s work for the auditor’s
purposes, except:
a. The relevance and reasonableness of that expert’s findings or conclusions,
and their consistency with other audit evidence.
b. If that expert’s work involves the use of source data that is significant to that
expert’s work, the relevance, completeness, and
accuracy of that source data.
c. If that expert’s work involves use of significant assumptions and methods, the
relevance and reasonableness of those assumptions
and methods in the circumstances.
d. The nature, scope and objectives of that expert’s work.
e. Not given
● The nature, scope and objectives of that expert’s work.
In pursuing its quality control objectives with respect to independence, a CPA firm may
use policies and procedures such as the following except
a. suggesting that employees conduct their banking transactions with banks that
do not maintain accounts with client firms
b. assigning employees who may lack independence to research positions that
do not require participation in field audit work.
c. emphasizing independence in mental attitude in firm training programs and in
supervision and review of work.
d. prohibiting employees from owning shares of the stock of publicly traded
companies.
● prohibiting employees from owning shares of the stock of publicly traded
companies

Since the external auditor has sole responsibility for the audit opinion expressed, the
external auditor needs to make the significant judgments in the audit engagement.
Significant judgments include the following, except:
a. Tracing transactions through the information system relevant to financial
reporting.
b. Not given
c. Assessing the risks of material misstatement.
d. Evaluating the sufficiency of tests performed.
e. Evaluating the appropriateness of management’s use of the going concern
assumption.
● Tracing transactions through the information system relevant to financial
reporting.

Matters that may affect the auditor’s determination of whether the engagement team
requires specialized skills or knowledge. The nature, timing and extent of the
involvement of individuals with specialized skills and knowledge may vary throughout
the audit. The following are some of the examples, except:
a. The need for judgment about matters not specified by the applicable financial
reporting framework.
b. The alternative assumptions to those used by management.
c. The complexity of the requirements of the applicable financial reporting
framework relevant to accounting estimates, including
whether there are areas known to be subject to differing interpretation or practice
or areas where there are inconsistencies in how
accounting estimates are made.
 d. The procedures the auditor intends to undertake in responding to assessed
risks of material misstatement.
● The alternative assumptions to those used by management.

Under PSA 570, some financial reporting frameworks may address disclosures about
going concern, except:
a. Significant judgments made by management as part of its assessment of the
entity’s ability to continue as a going concern.
b. Management’s plans that mitigate the effect of these events or conditions.
c. Principal events or conditions.
d. Audit procedures regarding subsequent events to identify those that either
mitigate or otherwise affect the entity’s ability to continue as a going concern.
● Audit procedures regarding subsequent events to identify those that either
mitigate or otherwise affect the entity’s ability to continue as a going concern.

Testing Procedures which Do Not Involve Sampling, except:

a. Analytical procedures
b. Audit sampling
c. 1.Inquiry & observation
a) procedures that depend on segregation of duties or no documentary evidence
b) Tracing transaction/s to obtain understanding of an accounting system & its
internal control
d. Tests performed on 100% of the items within a population
e. not given
● Audit sampling

The auditor shall evaluate whether the financial statements are prepared, in all material
respects, in accordance with the requirements of the applicable financial reporting
framework which include the following, except:
a. The accounting policies selected and applied are consistent with the
applicable financial reporting framework and are
appropriate.
b. The financial statements adequately disclose the significant accounting
policies selected and applied.
c. Not given
d. The accounting estimates made by management are reasonable.
● Not given

Examples of transactions outside the entity’s normal course of business may include the
following, except:
 a. Transactions under contracts whose terms are changed before expiry.
b. Transactions with circular arrangements, for example, sales with a
commitment to repurchase.
c. Sales transactions with unusually large discounts or returns.
d. Transactions involving the related party are rarely independently reviewed and
approved.
● Transactions involving the related party are rarely independently reviewed and
approved.

Examples of arrangements that may indicate the existence of related party relationships
or transactions that management has not previously identified or disclosed to the auditor
include the following, except:
a. Sales transactions with unusually large discounts or returns.
b. Guarantees and guarantor relationships.
c. Participation in unincorporated partnerships with other parties.
d. Agreements for the provision of services to certain parties under terms and
conditions that are outside the entity’s normal course
of business.
● Sales transactions with unusually large discounts or returns.

The accounting firm should establish policies and procedures assigned to promote an
internal culture based on the recognition that quality is essential in performing
engagements. This may be communicated through the following means except
● Publication in PICPA newsletter

Expertise in a field other than accounting or auditing may include expertise in relation to
such matters as, except:
a. The actuarial calculation of liabilities associated with insurance contracts or
employee benefit plans.
b. The valuation of complex financial instruments, land and buildings, plant and
machinery, jewelry, works of art, antiques, intangible
assets, assets acquired and liabilities assumed in business combinations and
assets that may have been impaired.
c. Not given
d. The estimation of oil and gas reserves.
● Not given

Examples of accounting estimates related to classes of transactions, account balances

and disclosures include the following, except:
 a. Valuation of financial instruments
b. Valuation of infrastructure assets.
c. Inventory obsolescence.
d. Depreciation of property and equipment.
e. Operating times or quantities of output from a production machine.
● Operating times or quantities of output from a production machine.

Relevant factors when evaluating the relevance and reasonableness of the findings or
conclusions of the auditor’s expert, whether in a report or other form, may include
whether they are, except:
a. Based on an appropriate period and take into account subsequent events,
where relevant.
b. Presented in a manner that is consistent with any standards of the auditor’s
expert’s profession or industry.
c. Generally accepted within the auditor’s expert’s field.
d. Clearly expressed, including reference to the objectives agreed with the
auditor, the scope of the work performed and standards
applied.
● Generally accepted within the auditor’s expert’s field

The respective roles and responsibilities of the auditor and the auditor’s external expert
are the following, except:
a. Any agreement to inform the auditor’s external expert of the auditor’s
conclusions concerning that expert’s work.
b. Any restriction on the auditor’s external expert’s association with the auditor’s
report.
c. Any relevant technical performance standards or other professional or industry
requirements the auditor’s external expert will
follow.
d. The expectation that the auditor’s external expert will use all knowledge that
expert has that is relevant to the audit or, if not, will
inform the auditor.
● Any relevant technical performance standards or other professional or industry
requirements the auditor’s external expert will follow.

In determining the nature, timing and extent of those procedures, the auditor shall
consider matters include the following, except:
a. Evaluate the adequacy of that work for the auditor’s purposes.
b. The significance of that expert’s work in the context of the audit.
 c. Whether that expert is subject to the auditor’s firm’s quality control policies and
procedures.
d. The auditor’s knowledge of and experience with previous work performed by
that expert.
e. Not given
● Evaluate the adequacy of that work for the auditor’s purposes.

When a component auditor performs an audit of the financial information of a significant

component, the group engagement team shall be involved in the component auditor’s
risk assessment to identify significant risks of material misstatement of the group
financial statements. The nature, timing and extent of this involvement are affected by
the group engagement team’s understanding of the component auditor, but at a
minimum shall include the following, except:
a. Reviewing the component auditor’s documentation of identified significant risks
of material misstatement of the group financial
statements.
b. Not given
c. Reviewing specified audit procedures relating to the likely significant risks of
material misstatement of the group financial statements
d. Discussing with the component auditor the susceptibility of the component to
material misstatement of the financial information due to fraud or error.
e. Discussing with the component auditor or component management those of
the component’s business activities that are significant to the group.
● Reviewing specified audit procedures relating to the likely significant risks of
material misstatement of the group financial statements

For such accounting estimates, the risk assessment procedures and further audit
procedures required by PSA 540 would not be expected to be extensive. Moreover,
much more extensive risk assessment procedures are expected when the following are
very high, except:
a. Uncertainty
b. Complexity
c. Nature & timing
d. Other inherent factors
e. Subjectivity
● Nature & timing

Expertise in a field other than accounting or auditing may include expertise in relation to
such matters as, except:
a. The valuation of environmental liabilities, and site clean-up costs.
 b. The interpretation of contracts, laws and regulations.
c. Not given
d. The analysis of complex or unusual tax compliance issues..
● Not given

The auditor shall agree, in writing when appropriate, on the following matters with the
auditor’s expert, except:
a. The nature, scope and objectives of that expert’s work.
b. The respective roles and responsibilities of the auditor and that expert.
c. The nature, timing and extent of communication between the auditor and that
expert, including the form of any report to be
provided by that expert.
d. Not given
e. The need for the auditor’s expert to observe confidentiality requirements.
● Not given

In meeting the PSA 315 requirement to obtain an understanding of the control

environment, the auditor may consider features of the control environment relevant to
mitigating the risks of material misstatement associated with related party relationships
and transactions such as the following, except:
a. Policies and procedures for open and timely disclosure of the interests that
management and those charged with governance
have in related party transactions.
b. Timely disclosure and discussion between management and those charged
with governance of significant related party
transactions outside the entity’s normal course of business, including whether
those charged with governance have
appropriately challenged the business rationale of such transactions.
c. The assignment of responsibilities within the entity for identifying, recording,
summarizing, and disclosing related party
transactions.
d. Internal ethical codes, appropriately communicated to the entity’s personnel
and enforced, governing the circumstances in which
the entity may enter into specific types of related party transactions.
e. Not given
● Not given

Fraudulent financial reporting often involves management override of controls that

otherwise may appear to be operating effectively. Examples of possible fraud include
the following, except:
 a. Creating fictitious terms of transactions with related parties designed to
misrepresent the business rationale of these transactions.
b. Life insurance policies acquired by the entity.
c. Engaging in complex transactions with related parties, such as
special-purpose entities, that are structured to misrepresent the
financial position or financial performance of the entity.
d. Fraudulently organizing the transfer of assets from or to management or
others at amounts significantly above or below market
value.
● Life insurance policies acquired by the entity.

The following are the additional audit procedures when events or conditions are
identified that may cast significant doubt about the ability of the entity to continue as a
going concern, except:
a. Performing audit procedures regarding subsequent events to identify those
that either mitigate or otherwise affect the entity’s
ability to continue as a going concern.
b. Evaluating the entity’s plans to deal with unfilled customer orders.
c. Reading minutes of the meetings of shareholders, those charged with
governance and relevant committees for reference to
financing difficulties.
d. Not given
● Not given

When an auditor’s expert’s work involves the use of significant assumptions and
methods, factors relevant to the auditor’s evaluation of those assumptions and methods
include the following, except:
a. Generally accepted within the auditor’s expert’s field.
b. Consistent with those of management, and if not, the reason for, and effects
of, the differences.
c. Consistent with the requirements of the applicable financial reporting
framework.
d. Dependent on the use of specialized models.
e. Not given
● Not given

Matters that the auditor may consider communicating with those charged with
governance with respect to the auditor’s views about significant qualitative aspects of
the entity’s accounting practices related to accounting estimates and related
disclosures, except:
 a. Whether there has been or ought to have been a change from the prior period
in the methods for making the accounting
estimates
b. Whether management’s methods for making the accounting estimates,
including when management has used a model, are
appropriate in the context of the measurement objectives, the nature, conditions
and circumstances, and other requirements of
the applicable financial reporting framework.
c. Not given
d. When there has been a change from the prior period in the methods for
making the accounting estimate, why, as well as the
outcome of accounting estimates in prior periods.
e. The nature and consequences of significant assumptions used in accounting
estimates and the degree of subjectivity involved in
the development of the assumptions.
● Not given

Analytical procedures also include consideration of relationships, for example, except:

a. Among elements of financial information that would be expected to conform to
a predictable pattern based on the entity’s
experience, such as gross margin percentages.
b. Similar industry information, such as a comparison of the entity’s ratio of sales
to accounts receivable with industry averages or
with other entities of comparable size in the same industry.
c. Not given
d. Between financial information and relevant non-financial information, such as
payroll costs to number of employees.
● Similar industry information, such as a comparison of the entity’s ratio of sales to
accounts receivable with industry averages or with other entities of comparable
size in the same industry.

PSA 320 conforms with the following PSAs, except:

a. PSA 240
b. PSA 540
c. PSA 230
d. PSA 600
e. PSA 260
● PSA 240 or 360
PSA 300 requires that in establishing the overall audit strategy, the auditor shall
undertake the following activities, except:
a. Evaluating and communicating significant deficiencies.
b. Consider the results of preliminary engagement activities and, where
applicable, whether knowledge gained on other
engagements performed by the engagement partner for the entity is relevant.
c. Identify the characteristics of the engagement that define its scope.
d. Ascertain the nature, timing and extent of resources necessary to perform the
engagement.
● Evaluating and communicating significant deficiencies.

The following are inherent risk factors, except:

a. Estimation uncertainty
b. Subjectivity
c. Nature, timing & extent of audit procedures
d. Complexity
e. Measurement basis
● Nature, timing & extent of audit procedures

Factors that the auditor should consider as increasing the effectiveness of the audit
committee include all of the following, except
a. It comprises almost exclusively of members of management, ensuring detailed
knowledge of the company’s operations
b. It interacts regularly with internal auditors
c. It is independent of management
d. It asks management difficult questions
● It comprises almost exclusively of members of management, ensuring detailed
knowledge of the company’s operations

The auditor shall obtain an understanding of the entity’s risk assessment process
relevant to the preparation of the financial statements, through performing risk
assessment procedures, by understanding the entity’s process include the following,
except:
a. Addressing those risks
b. Identifying business risks relevant to financial reporting objectives.
c. Assessing the significance of those risks, including the likelihood of their
occurrence
d. When those charged with governance are separate from management, the
independence of, and oversight over the entity’s s\stem of internal control by,
those charged with governance.
 ● Assessing the significance of those risks, including the likelihood of their
occurrence

During the audit, the auditor may inspect records or documents that may provide
information about related party relationships and transactions include the following,
except:
a. The provision of designated services or financial support.
b. Significant contracts and agreements not in the entity’s ordinary course of
business.
c. Specific invoices and correspondence from the entity’s professional advisors.
d. Records of the entity’s investments and those of its pension plans.
e. Contracts and agreements with key management or those charged with
governance.
● The provision of designated services or financial support.

For purposes of this PSA 540, reasonable in the context of the applicable financial
reporting framework means that the relevant requirements of the applicable financial
reporting framework have been applied appropriately, including those that address the
following, except:
a. The determination of sufficient appropriate audit evidence about whether
accounting estimates and related disclosures in the
financial statements are reasonable in the context of the applicable financial
reporting framework.
b. The disclosures about the accounting estimate, including disclosures about
how the accounting estimate was developed and that
explain the nature, extent, and sources of estimation uncertainty.
c. The making of the accounting estimate, including the selection of the method,
assumptions and data in view of the nature of the
accounting estimate and the facts and circumstances of the entity;
d. The selection of management’s point estimate; and
● The determination of sufficient appropriate audit evidence about whether
accounting estimates and related disclosures in the financial statements are
reasonable in the context of the applicable financial reporting framework.

The auditor shall determine, from the matters communicated with those charged with
governance, those matters that required significant auditor attention in performing the
audit. In making this determination, the auditor shall take into account the following,
except:
a. Significant auditor judgments relating to areas in the financial statements that
involved significant management judgment,
 including accounting estimates that have been identified as having high
estimation uncertainty.
b. These matters were addressed in the context of the audit of the financial
statements as a whole, and in forming the auditor’s
opinion thereon, and the auditor does not provide a separate opinion on these
matters.
c. The effect on the audit of significant events or transactions that occurred
during the period.
d. Areas of higher assessed risk of material misstatement, or significant risks
identified in accordance with PSA 315.
● These matters were addressed in the context of the audit of the financial
statements as a whole, and in forming the auditor’s opinion thereon, and the
auditor does not provide a separate opinion on these matters.

In inquiring of management and, where appropriate, those charged with governance, as

to whether any subsequent events have occurred that might affect the financial
statements, the auditor may inquire on the following matters, except:
a. Whether new commitments, borrowings or guarantees have been entered into.
b. Whether sales or acquisitions of assets have occurred or are planned.
c. Whether there have been increases in capital or issuance of debt instruments,
such as the issue of new shares or debentures.
d. Whether the auditor has read the entity’s latest available budgets, cash flow
forecasts and other related management reports for periods after the date of the
financial statements.
● Whether the auditor has read the entity’s latest available budgets, cash flow
forecasts and other related management reports for periods after the date of the
financial statements.

In determining the nature, timing and extent of those procedures, the auditor shall
consider matters include the following, except:
a. The nature and scope of the procedures to be performed by the auditor’s
external expert.
b. The objectives of the auditor’s external expert’s work in the context of
materiality and risk considerations concerning the matter to
which the auditor’s external expert’s work relates, and, when relevant, the
applicable financial reporting framework.
c. Any relevant technical performance standards or other professional or industry
requirements the auditor’s external expert will
follow.
d. Evaluate the adequacy of that work for the auditor’s purposes.
 ● Evaluate the adequacy of that work for the auditor’s purposes.

A service organization may be required under the terms of the contract with user entities
to disclose to affected user entities any of the following, except:
a. Any fraud
b. Non-compliance with laws and regulations
c. Uncorrected misstatements attributable to the service organization’s
management or employees
d. Not given
● Not given

The need for the auditor’s expert to observe confidentiality requirements, include the
following, except:
a. Additional requirements that may be imposed by law or regulation, if any.
b. Specific confidentiality provisions requested by the entity, if any.
c. The confidentiality provisions of relevant ethical requirements that apply to the
auditor.
d. The auditor’s external expert’s responsibility to communicate promptly
instances in which the entity restricts that expert’s
access to records, files, personnel or experts engaged by the entity.
● The auditor’s external expert’s responsibility to communicate promptly instances
in which the entity restricts that expert’s access to records, files, personnel or
experts engaged by the entity.

Communications and reporting under PSA 620 include the following, except:
a. The auditor’s external expert’s responsibility to communicate to the auditor all
information that expert believes may be relevant to
the audit, including any changes in circumstances previously communicated.
b. The auditor’s external expert’s responsibility to communicate circumstances
that may create threats to that expert’s objectivity,
and any relevant safeguards that may eliminate or reduce such threats to an
acceptable level.
c. The auditor’s external expert’s responsibility to communicate promptly
instances in which the entity restricts that expert’s access
to records, files, personnel or experts engaged by the entity.
d. Any relevant technical performance standards or other professional or industry
requirements the auditor’s external expert will
follow.
● Any relevant technical performance standards or other professional or industry
requirements the auditor’s external expert will
Although specific audit procedures vary from one engagement to the next, the following
stages are involved in every risk-based audit engagement, except
a. Risk response
b. Analysis of client’s results of operations & its financial position
as of the end of audit period
c. Risk assessment
d. Reporting
● Analysis of client’s results of operations & its financial position as
of the end of audit period

The auditor’s risk assessment procedures may have included, except:

a. Observing management’s comparison of monthly budgeted and actual
expenses.
b. Inquiring about management’s use of budgets.
c. Inspecting reports pertaining to the investigation of variances between
budgeted and actual amounts.
d. Applying the financial statement analysis
● Applying the financial statement analysis

The objective of the auditor under PSA 501 is to obtain sufficient appropriate audit
evidence regarding the following, except:
a. Control over the movement of inventory between areas and the shipping and
receipt of inventory before and after the cutoff
date.
b. Existence and condition of inventory;
c. Presentation and disclosure of segment information in accordance with the
applicable financial reporting framework.
d. Completeness of litigation and claims involving the entity; and
● Control over the movement of inventory between areas and the shipping and
receipt of inventory before and after the cutoff date

In inquiring of management and, where appropriate, those charged with governance, as

to whether any subsequent events have occurred that might affect the financial
statements, the auditor may inquire on the following matters, except:
a. Whether an agreement to merge or liquidate has been made or is planned.
b. Whether any assets have been appropriated by government or destroyed, for
example, by fire or flood.
c. Whether the auditor has read the entity’s latest available budgets, cash flow
forecasts and other related management reports
 for periods after the date of the financial statements.
d. Whether any unusual accounting adjustments have been made or are
contemplated.
e. Whether there have been any developments regarding contingencies.
● Whether the auditor has read the entity’s latest available budgets, cash flow
forecasts and other related management reports for periods after the date of the
financial statements.

The objectives of the auditor under PSA 720, having read the other information, are the
following, except:
a. To respond appropriately when the auditor identifies that such material
inconsistencies appear to exist, or when the auditor
otherwise becomes aware that other information appears to be materially
misstated.
b. To consider whether there is a material inconsistency between the other
information and the financial statements.
c. To consider whether there is a material inconsistency between the other
information and the auditor’s knowledge obtained in the
audit.
d. Not given
e. To report in accordance with this PSA.
● Not given

If the external auditor uses the work of the internal audit function, the external auditor
shall include in the audit documentation shall include evaluation of the following, except:
a. Not given
b. Whether the function’s organizational status and relevant policies and
procedures adequately support the objectivity of the
internal auditors.
c. The level of competence of the function.
d. Whether the function applies a systematic and disciplined approach, including
quality control.
● Not given

The auditor may develop a point estimate or a range in a number of ways, except:
a. Using a different model than the one used by management.
b. Using the auditor’s own method but developing alternative assumptions to
those used by management.
c. Selecting a point estimate that may indicate a pattern of optimism or
pessimism.
 d. Using management’s model but developing alternative assumptions or data
sources to those used by management.
e. Employing or engaging a person with specialized expertise to develop or
execute a model, or to provide relevant assumptions.
● Selecting a point estimate that may indicate a pattern of optimism or pessimism.

During the audit, the auditor shall inquire the management of the existence of related
party relationships or transactions regarding the following, except:
a. The nature of the relationships between the entity and these related parties
b. Such other records or documents as the auditor considers necessary in the
circumstances of the entity.
c. The identity of the entity’s related parties, including changes from the prior
period
d. Whether the entity entered into any transactions with these related parties
during the period and, if so, the type and purpose of the transactions.
● Such other records or documents as the auditor considers necessary in the
circumstances of the entity.

The auditor shall design and perform audit procedures in order to identify litigation and
claims involving the entity which may give rise to a risk of material misstatement
including the following, except:
a. Controlling over the movement of inventory between areas and the shipping
and receipt of inventory before and after the
cutoff date.
b. Reviewing minutes of meetings of those charged with governance and
correspondence between the entity and its external legal
counsel; and
c. Inquiry of management and, where applicable, others within the entity,
including in-house legal counsel;
d. Reviewing legal expense accounts
● Controlling over the movement of inventory between areas and the shipping and
receipt of inventory before and after the cutoff date.
If the auditor identifies that a material inconsistency appears to exist, the auditor shall
discuss the matter with management and, if necessary, perform other procedures to
conclude the following, except:
a. Whether the auditor’s understanding of the entity and its environment needs to
be updated.
b. Whether the other information are supported by sufficient appropriate audit
evidence.
c. Whether a material misstatement of the other information exists.
 d. Whether a material misstatement of the financial statements exists.
● Whether the other information are supported by sufficient appropriate audit
evidence.

Matters relevant in evaluating management’s instructions and procedures for recording

and controlling the physical inventory counting include whether they address the
following, except:
a. The application of appropriate control activities, for example, collection of used
physical inventory count records, accounting for
unused physical inventory count records, and count and re-count procedures.
b. Whether adequate procedures are expected to be established and proper
instructions issued for physical inventory counting.
c. Control over the movement of inventory between areas and the shipping and
receipt of inventory before and after the cutoff date.
d. The accurate identification of the stage of completion of work in progress, of
slow moving, obsolete or damaged items and of
inventory owned by a third party, for example, on consignment.
e. The procedures used to estimate physical quantities, where applicable, such
as may be needed in estimating the physical
quantity of a coal pile.
● Whether adequate procedures are expected to be established and proper
instructions issued for physical inventory counting.

If the auditor concludes that it is necessary to express an adverse opinion or disclaim an

opinion on the entity’s complete set of financial statements as a whole but, in the
context of a separate audit of a specific element that is included in those financial
statements, the auditor nevertheless considers it appropriate to express an unmodified
opinion on that element, the auditor shall only do so if the following are present, except:
a. The auditor is not prohibited by law or regulation from doing so.
b. The effect of the specific element is determined.
c. That opinion is expressed in an auditor’s report that is not published together
with the auditor’s report containing the adverse
opinion or disclaimer of opinion.
d. The specific element does not constitute a major portion of the entity’s
complete set of financial statements.
● The effect of the specific element is determined.

An annual report is different in nature, purpose and content from other reports, such as
a report prepared to meet the information needs of a specific stakeholder group or a
report prepared to comply with a specific regulatory reporting objective. Examples of
reports that, when issued as standalone documents, are not typically part of the
combination of documents that comprise an annual report, except:
a. Product responsibility reports.
b. Diversity and equal opportunity reports.
c. Labor practices and working conditions reports.
d. Internal control and risk assessment reports.
e. Human rights reports.
● Internal control and risk assessment reports.

When, after the financial statements have been issued, a fact becomes known to the
auditor that, had it been known to the auditor at the date of the auditor’s report, may
have caused the auditor to amend the auditor’s report, the auditor shall do the following,
except:
a. Whether any events have occurred that are relevant to the measurement of
estimates or provisions made in the financial
statements.
b. Discuss the matter with management and, where appropriate, those charged
with governance.
c. Determine whether the financial statements need amendment.
d. Inquire how management intends to address the matter in the financial
statements.
● Whether any events have occurred that are relevant to the measurement of
estimates or provisions made in the financial statements.

In order for intended users to understand the significance of a key audit matter in the
context of the audit of the financial statements as a whole, as well as the relationship
between key audit matters In order for intended users to understand the significance of
a key audit matter in the context of the audit of the financial statements as a whole, as
well as the relationship between key audit matters, except:
a. Changes in the entity’s strategy or business model that had a material effect
on the financial statements.
b. Relates the matter directly to the specific circumstances of the entity, while
avoiding generic or standardized language.
c. Takes into account how the matter is addressed in the related disclosure(s) in
the financial statements, if any.
d. Does not contain or imply discrete opinions on separate elements of the
financial statements.
e. Does not imply that the matter has not been appropriately resolved by the
auditor in forming the opinion on the financial statements.
 ● Changes in the entity’s strategy or business model that had a material effect on
the financial statements.

Group management may need to keep certain material sensitive information

confidential. Examples of matters that may be significant to the financial statements of
the component of which component management may be unaware include the
following, except:
● Significant related party transactions

During the audit, the auditor shall remain alert, when inspecting records or documents,
for arrangements or other information that may indicate the existence of related party
relationships or transactions that management has not previously identified or disclosed
to the auditor. The auditor in particular shall inspect the following documents, except:
a. Bank and legal confirmations obtained as part of the auditor’s procedures
b. Such other records or documents as the auditor considers necessary in the
circumstances of the entity.
c. Direct or indirect equity holdings or other financial interests in the entity.
d. Minutes of meetings of shareholders and of those charged with governance
● Direct or indirect equity holdings or other financial interests in the entity.

If the financial statements of the prior period were audited by a predecessor auditor and
the auditor is permitted by law or regulation to refer to the predecessor auditor’s report
on the corresponding figures and decides to do so, the auditor shall state in an Other
Matter paragraph in the auditor’s report the following, except:
● The requirement to obtain sufficient appropriate audit evidence that the opening
balances

Below are the required items to be written after the signature of the auditor, except:
➔ CPA Reg. No. 0095626
➔ TIN 906-174-059
➔ PTR No. 9566639, January 3, 2023, Makati City
➔ SEC Group A Accreditation Partner - No. 95626-SEC (until financial period 2026)
Firm - No. 0002 (until Dec. 31, 2024)
➔ BIR AN 08-002511-022-2022 (until Oct. 13, 2025)
➔ Firm’s BOA/PRC Cert. of Reg. No. 0002 (until Aug. 27, 2024)
➔ SEC Group TIN 890600-098

Team Checker's highlighted the following sections to the audited financial statements,
except:
➔ Report of the audit of the financial statements
 ➔ Responsibilities of management and those charged with governance for the F/S
➔ Auditor's responsibilities for the audited F/S
➔ Report on other legal and regulatory requirements
➔ Supplemental statements of the independent auditors
➔ Other Information of the audited F/S

Matters relevant to the auditor’s evaluation of whether the expectation can be

developed sufficiently precisely to identify a misstatement that, when aggregated with
other misstatements, may cause the financial statements to be materially misstated,
include the following, except:
a. The degree to which information can be disaggregated.
b. The accuracy with which the expected results of substantive analytical
procedures can be predicted.
c. Not given
d. The availability of the information, both financial and non-financial.
e. Source of the information available.
● Source of the information available.

In determining the nature, timing and extent of those procedures, the auditor shall
consider matters include the following, except:
a. The need for the auditor’s expert to observe confidentiality requirements.
b. The significance of that expert’s work in the context of the audit.
c. The risks of material misstatement in the matter to which that expert’s work
relates.
d. Not given
e. The nature of the matter to which that expert’s work relates.
● The need for the auditor’s expert to observe confidentiality requirements

If it is considered unlikely that the entity’s external legal counsel will respond
appropriately to a letter of general inquiry, for example if the professional body to which
the external legal counsel belongs prohibits response to such a letter, the auditor may
seek direct communication through a letter of specific inquiry. For this purpose, a letter
of specific inquiry includes the following, except
● The matter is complex

Materiality and audit risk are considered throughout the audit, except:
● Reporting and communicating the RoMM to TCWG

Procedures to be applied in compiling prospective financial statements should include

the following, except:
 a. Test the mathematical accuracy of computations.
b. Obtain client representations concerning compliance with the guidelines.
c. Not given
d. Read the statements for conformity with PSA presentation guidelines.
● Not given

Examples of accounting estimates related to classes of transactions, account balances

and disclosures include the following, except:
a. Prices agreed in market transactions
b. Fair value of assets or liabilities acquired in a business combination, including
the determination of goodwill and intangible assets.
c. Impairment of long-lived assets or property or equipment held for disposal.
d. Non-monetary exchanges of assets or liabilities between independent parties.
e. Revenue recognized for long-term contracts.
● Prices agreed in market transactions

Since the external auditor has sole responsibility for the audit opinion expressed, the
external auditor needs to make the significant judgments in the audit engagement.
Significant judgments include the following, except:
a. Not given
b. Evaluating significant accounting estimates.
c. Evaluating the appropriateness of management’s use of the going concern
assumption.
d. Evaluating related party transactions.
e. Evaluating the adequacy of disclosures in the financial statements, and other
matters affecting the auditor’s report
● Evaluating related party transactions

The following are two independent statements. (1) A CPA is a person who, after
obtaining the required education (BSA) passes an extensive examination (CPALE) and
is licensed by the country (PRC through BOA) to practice as a professional accountant.
(2) The most effective way to manage a risk is to manage it at the source.
● Both Statements are correct/true

The following are two independent statements. (1) Attest services occur when a
practitioner is engaged to issue a report on subject matter, or an assertion about a
subject matter, that is the responsibility of another party. (2) Auditing is a systematic
process implies that there should be a well-planned and thorough approach for
conducting an audit.
● Both Statements are correct/true
The following are two independent statements. (1) Audit risk is a concept that drives the
auditor’s thinking about planning the audit and then executing an audit. (2) Risk-based
audit approach is an audit approach that begins with an assessment of the types and
likelihood of misstatements in account balance and then adjusts the amount and type of
audit work, to the likelihood of material misstatements occurring in account balances.
● Both Statements are correct/true

The following are two independent statements. (1) Business risks are all about
uncertainties. (2) The most effective way to manage a risk is to manage it at the source.
● Both Statements are correct/true

The following are two independent statements. (1) Any person shall practice
accountancy in this country or use the title “CPA”. (2) A CPA is a person who, after
obtaining the required education (BSA) passes an extensive examination (CPALE) and
is licensed by the country (PRC through BOA) to practice as a professional accountant.
● Statement 2 is correct/true

The following are two independent statements. (1) Extending auditors’ activities to
assurance services allows reporting not only on the reliability and credibility of
information but also on the relevance and timeliness of the information. (2) Assurance
services are independent professional services that improve the quality of information or
its context for decision makers.
● Both Statements are correct/true

The following are two independent statements. (1) Compliance auditing is the
examination to detect a deter fraudulent activities. (2) Forensic auditors are employed
by corporations, government agencies, public accounting firms and specialized
consulting and investigative service firms.
● Both Statements are incorrect/false
The following are two independent statements. (1) The first step is identifying the risk
the organization faces. (2) It will be very difficult to manage risks if we do not know
which risk to manage or accept.
● Both Statements are correct/true

The following are two independent statements. (1) Auditing is a systematic process
implies that there should be a well-planned and thorough approach for conducting an
audit. (2) Several government agencies perform a significant number of audits which
includes COA and BIR.
● Both Statements are correct/true
The following are two independent statements. (1) Accountants of corporations are
within the scope of the practice of Public Accountancy. (2) A professional accountant is
an individual who holds a valid certificate issued by the Board of Accountancy, whether
he/she be in the public practice, industry, commerce, public sector or education.
● Statement 2 is correct/true

The following are two independent statements. (1) An independence of an auditor

relates to the objectivity of the application of professional judgment and due care by the
provider. (2) Auditors have a reputation of partiality and objectivity.
● Statement 1 is correct/true

The following are two independent statements. (1) A professional accountant is an

individual who holds a valid certificate issued by the Board of Accountancy, whether
he/she be in the public practice, industry, commerce, public sector or education. (2) A
CPA is a person who, after obtaining the required education (BSA) passes an extensive
examination (CPALE) and is licensed by the country (PRC through BOA) to practice as
a professional accountant.
● Both Statements are correct/true

The following are two independent statements. (1) BIR audits affect individuals as well
as businesses. (2) Forensic auditors are employed by corporations, government
agencies, public accounting firms and specialized consulting and investigative service
firms.
● Both Statements are correct/true

The following are two independent statements. (1) Forensic auditors are employed by
corporations, government agencies, public accounting firms and specialized consulting
and investigative service firms. (2) Several government agencies perform a significant
number of audits and is limited to COA.
● Statement 1 is correct/true

The following are two independent statements. (1) It will be very difficult to manage risks
if we do not know which risk to manage or accept. (2) The risk can be prioritized in
terms of their impact (significance) and likelihood (probability).
● Both Statements are correct/true

The following are two independent statements. (1) Several government agencies
perform a significant number of audits which includes COA and BIR. (2) Internal
auditing is an independent, objective assurance and consulting activity designed to add
value and improve organizations.
 ● Both Statements are correct/true

The following are two independent statements. (1) In account-based auditing, auditors
first obtain an understanding of control and assess control risk for particular types of
error and frauds in specific accounts and cycle. (2) The auditor’s standard report states:
“We conducted our audits in accordance with PFRS. Those standards require that we
comply with the ethical requirements & plan & perform the audit to obtain reasonable
assurance about whether the financial statements are free of material statements.”
● Statement 1 is correct/true

The following are two independent statements. (1) The auditor’s standard report states:
“We conducted our audits in accordance with PFRS. Those standards require that we
comply with the ethical requirements & plan & perform the audit to obtain reasonable
assurance about whether the financial statements are free of material statements.” (2)
Risk appetite is the level of risk that the organization is willing to take its value creation
activities, particularly in its investing activities.
● Statement 2 is correct/true

The following are two independent statements. (1) Making good decisions requires
quality information. (2) Assurance services are independent professional services that
improve the quality of information or its context for decision makers.
● Both Statements are correct/true

The following are two independent statements. (1) Risk appetite is the level of risk that
the organization is willing to take its value creation activities, particularly in its investing
activities. (2) The first step is identifying the risk the organization faces.
● Both Statements are correct/true

The following are two independent statements. (1) Compliance auditing is the
examination, audit and settlement in accordance with law and regulation. (2) BIR audits
affect individuals as well as businesses.
● Both Statements are correct/true

The following are two independent statements. (1) The practices of Public Accountancy
and Academe require accreditation from BOA. (2) Philippine Accountancy Act of 2004
or RA 9297 spells out the scope of practice of accountancy.
● Statement 1 is correct/true

The following are two independent statements. (1) Auditors have a reputation of
partiality and objectivity. (2) Attest services occur when a practitioner is engaged to
issue a report on subject matter, or an assertion about a subject matter, that is the
responsibility of another party.
● Statement 2 is correct/true

These are two independent statements. (1) Direct controls are controls that are precise
enough to address risks of material misstatement at the assertion level. Indirect controls
are controls that support direct controls. (2) Controls are always direct.
● Statement 1 is true

These are two independent statements: (1) The auditor must communicate with TCWG
about significant qualitative aspects of the entity’s accounting practices, including
accounting policies, accounting estimates and financial statement disclosures. (2) The
auditor shall communicate always in writing with those charged with governance
regarding auditor independence.
● Both statements are false

These are independent statements. Statement 1: An inspector in a monitoring process

of the quality control should be any person other than a member of the engagement and
the engagement quality control review teams. Statement 2: The firm shall establish
policies and procedures designed to maintain the objectivity of the engagement quality
control reviewer.
● Both statements are correct

These are independent statements. 1. The best way to address risks is to first identify
and assess them, as performed by the entity’s risk assessment process. 2. The auditor
shall determine whether internal control deficiencies have been identified.
● Both statements are true.

These are independent statements. 1. When company designs and implements internal
controls, cost of the control is not a valid consideration as long as potential benefits can
possibly be achieved. 2. Weakness in the tone at the top has been associated with most
financial frauds during the past decade.
● Both statements are true.

These are independent statements. 1. When preparing the audit plan, the auditor
should be guided by the results of the risk assessment and procedures performed to
gain and support the understanding of the entity. 2. In an audit engagement,
management has a primary responsibility for the financial statements and its internal
control, but not to provide the auditor with the information the auditor may need to
obtain evidence.
● Statement 1 is true.

These are two independent statements: (1) As a result of unexpected events, changes
in conditions, or the audit evidence obtained from the results of audit procedures, the
auditor may need to modify the overall audit strategy and audit plan and thereby the
resulting planned nature, timing and extent of further audit procedures, based on the
revised consideration of assessed risks. (2) In audits of small entities, the entire audit
may be conducted by a very small audit team.
● Both statements are true

These are two independent statements: (1) Controls may be designed to operate
individually or in combination to effectively prevent, or detect and correct,
misstatements. (2) Communicating significant deficiencies in writing to those charged
with governance reflects the importance of these matters, and assists those charged
with governance in fulfilling their oversight responsibilities.
● Both statements are true

These are two independent statements. (1) There is a relationship between the
percentage and the chosen benchmark, such that a percentage applied to profit before
tax from continuing operations will normally be higher than a percentage applied to total
revenue. (2) Where a public sector entity has custody of public assets, assets may be
an appropriate benchmark.
● Both statements are true

These are independent statements. 1. An auditor’s understanding of the entity, its

environment, and its internal control, serves as the foundation of effective audit. It
establishes the frame of reference within which the auditor plans and exercises
professional judgment. 2. Simply put, adequate planning helps the auditor perform an
effective audit – to reduce audit risk to an acceptable low level and obtain reasonable
assurance as a result.
● Both statements are true.

These are two independent statements: (1) Regardless of the timing of the written
communication of significant deficiencies, the auditor may communicate these always in
writing in the first instance to management and, when appropriate, to those charged
with governance to assist them in taking timely remedial action to minimize the risks of
material misstatement. (2) The level of detail at which to communicate significant
deficiencies is a matter of the auditor’s professional judgment in the circumstances.
● Statement 2 is true

These are independent statements. 1. Nevertheless, audit planning remains the

auditor’s responsibility. Discussing the nature of the timing of detailed audit procedures
with management may compromise the effectiveness of the audit by making the audit
too predictable. 2. The audit work performed by each assistant should be reviewed to
determine whether it was adequately performed and to evaluate whether the auditor’s
system of quality control has been maintained at a high level.
● Statement 1 is true.

These are two independent statements. (1) Performance materiality is set to reduce to
an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements in the financial statements exceeds materiality for the
financial statements as a whole. (2) The determination of performance materiality is a
simple mechanical calculation and involves the exercise of professional judgment.
● Statement 1 is true

[Statement 1]: Tests of controls directed toward the effectiveness of the design of an
internal control structure policy and procedure would normally include procedures such
as inquiry, inspection, observation, and re-performance. [Statement 2]: Tests of controls
directed toward the operating effectiveness of an internal control structure policy and
procedure would normally include procedures such as inquiry, inspection, and
observation.
● Both statements are incorrect

The following are two independent statements. (1) Risk-based audit approach is an
audit approach that begins with an assessment of the types and likelihood of
misstatements in account balance and then adjusts the amount and type of audit work,
to the likelihood of material misstatements occurring in account balances. (2) In
account-based auditing, auditors first obtain an understanding of control and assess
control risk for particular types of error and frauds in specific accounts and cycle.
● Both Statements are correct/true

These are independent statements. Statement 1: The primary responsibility for

designing, implementing and maintaining internal control and the tone of internal control
typically originates or rests with chief executive officer. Statement 2: The most important
type of productive measure for safeguarding asset is the use of physical precautions.
● Statement 2 is correct

These are independent statements. Statement 1: PSA 265 specifies which identified
deficiencies the auditor is required to communicate to those charged with governance
and management. Statement 2: PSA 315 assumes that there is always a risk of fraud
arising from management override of internal control. All controls are relevant to risk
assessment process.
● Statement 1 is correct

These are two independent statements. (1) Procedures may be mandated, through
formal documentation or other communication by management or those charged with
governance, or may result from behaviors that are not mandated but are rather
conditioned by the entity’s culture. (2) Policies are implemented through the actions of
personnel within the entity, or through the restraint of personnel from taking actions that
would conflict with such policies.
● Statements 1 and 2 are true

These are two independent statements: (1) The auditor shall evaluate whether the
two-way communication between the auditor and those charged with governance has
been adequate for the purpose of the audit. (2) The auditor is required to obtain an
understanding of internal control relevant to the audit when identifying and assessing
the risks of material misstatement.
● Both statements are true

These are two independent statements. (1) Risks to the integrity of information arise
from susceptibility to effective implementation of the entity’s information policies, which
are policies that define the information flows, records and reporting processes in the
entity’s information system. (2) Controls are always direct.
● Statements 1 and 2 are false

These are two independent statements: (1) Communication by the auditor does not
relieve management of this responsibility. (2) Law or regulation restrict the auditor’s
communication of certain matters with those charged with governance.
● Statement 1 is true

These are two independent statements: (1) The objective of the auditor in PSA 265 is to
communicate appropriately to those charged with governance and management
deficiencies in internal control that the auditor has identified during the audit and that, in
the auditor’s professional judgment, are of sufficient importance to merit their respective
attentions. (2) The auditor may identify deficiencies in internal control not only during
this risk assessment process but also at any other stage of the audit.
● Both statements are true

These are independent statements. 1. Audit planning includes the need to consider
prior to the auditor’s identification and assessment of the risk of material misstatements
through outright exclusion of experts as part of the audit team. 2. The communication
with management and those charged with governance helps the auditor coordinate
matters that need client assistance such as preparing audit schedules, arranging the
timing of procedures, etc.
● Statement 2 is true.

These are two independent statements: (1) Those charged with governance are those
responsibility for overseeing the strategic direction of the entity and obligations related
to the accountability of the entity. (2) Management are those with executive
responsibility for the conduct of the entity’s operations.
● Both statements are true

These are two independent statements: (1) The documentation of the overall audit
strategy is a record of the key decisions considered necessary to properly plan the audit
and to communicate significant matters to the audit team. (2) Documentation serves as
a record of the proper planning of the audit procedures that can be reviewed and
approved prior to their performance.
● Statement 2 is true

These are two independent statements. (1) In the case of very small entities, there may
not be many control activities that could be identified by the auditor, or the extent to
which their existence or operation have been documented by the entity may be limited.
(2) Tests of controls are performed only on those controls that the auditor has
determined are suitably designed to prevent, or detect and correct, a material
misstatement in an assertion.
● Both statements are true

These are independent statements. (1) Public sector auditors do not generally have
broad rights of access established by legislation. (2) A public sector auditor may also
obtain or ask the user entity to incorporate rights of access in any contractual
arrangements between the user entity and the service organization.
● Statement 2 is true

These are independent statements. 1. One of the reasons to evaluate the internal
control of an entity is to become a basis for planning an audit. 2. An audit team’s
responsibility would not include designing and implementing an effective internal control
structure to aid the management in maintaining the consistency in the application of
Financial Reporting Framework.
● Both statements are true

These are two independent statements. (1) When more persuasive audit evidence is
needed regarding the effectiveness of a control, it may be appropriate to adjust the
extent of testing of the control. (2) Tests of controls are performed only on those controls
that the auditor has determined are suitably designed to prevent, or detect and correct,
a material misstatement in an assertion.
● Statement 2 is true

These are independent statements. Statement 1: The fact that fraud is usually
concealed can make it very difficult to detect. Statement 2: Determining fraud is a
matter of applying professional skepticism.
● Both Statements are true
These are two independent statements. (1) The auditor shall design and perform further
audit procedures whose nature, timing, and extent are based on and are responsive to
the assessed risks of material misstatement at the assertion level. (2) Materiality for the
financial statements as a whole may need to be revised as a result of a change in
circumstances that occurred during the audit, new information, or a change in the
auditor’s understanding of the entity and its operations as a result of performing further
audit procedures.
● Both statements are true

These are independent statements. 1. The auditor shall, in planning an audit, first
establish the audit plan for the engagement and then develop an overall audit strategy.
2. Planning the audit involves discrete activities, thus, its nature and extent does not
vary according to the size and complexity of the entity.
● Both statements are false.

These are independent statements. (1) If reference to the work of a service auditor is
relevant to an understanding of a modification to the user auditor’s opinion, the user
auditor’s report shall indicate that such reference does diminish the user auditor’s
responsibility for that opinion. (2) The user auditor shall not refer to the work of a service
auditor in the user auditor’s report containing an unmodified opinion unless required by
law or regulation to do so.
● Statement 2 is true

These are independent statements. (1) Knowledge obtained through the user auditor’s
experience with the service organization, for example through experience with other
audit engagements, may also be helpful in obtaining an understanding of the nature of
the services provided by the service organization. (2) The user auditor shall not refer to
the work of a service auditor in the user auditor’s report containing an unmodified
opinion unless required by law or regulation to do so.
● Both statements are true

These are independent statements. (1) A user entity may use a service organization
such as one that processes transactions and maintains related accountability, or
records transactions and processes related data. (2) Knowledge obtained through the
user auditor’s experience with the service organization, for example through experience
with other audit engagements, may also be helpful in obtaining an understanding of the
nature of the services provided by the service organization.
● Both statements are true

These are independent statements. (1) Public sector auditors do not generally have
broad rights of access established by legislation. (2) Public sector auditors may also use
another auditor to perform tests of controls or substantive procedures in relation to
compliance with law, regulation or other authority.
● Statement 2 is true

These are two independent statements: (1) The documentation of the overall audit
strategy is a record of the key decisions considered necessary to properly plan the audit
and to communicate significant matters to the audit team. (2) The purpose and objective
of planning the audit are not the same whether the audit is an initial or recurring
engagement.
● Both statements are false
These are two independent statements. (1) The cumulative effect of material
uncorrected misstatements related to prior periods may have a material effect on the
current period’s financial statements. (2) There are different acceptable approaches to
the auditor’s evaluation of such uncorrected misstatements on the current period’s
financial statements.
● Statement 1 is true

These are two independent statements. (1) If, at the auditor’s request, management has
examined a class of transactions, account balance or disclosure and corrected
misstatements that were detected, the auditor shall not perform additional audit
procedures to determine whether misstatements remain. (2) It is not necessary that the
auditor shall request management to correct those misstatements.
● Both statements are false

These are independent statements. Statement 1: Weakness in the tone at the top has
been associated with most financial statement frauds during the past decades.
Statement 2: Internal control varies with entity’s size and complexity. In smaller entities
use simpler processes and procedures to achieve their objectives.
● Both Statements are true

These are two independent statements. (1) Audit evidence is necessary to support the
auditor’s opinion and report. (2) It is non-cumulative in nature and is primarily obtained
from audit procedures performed during the course of the audit.
● Statement 1 is true

These are two independent statements. (1) It is not necessary that the auditor shall
request management to correct those misstatements. (2) The auditor shall
communicate with those charged with governance uncorrected misstatements and the
effect that they, individually or in aggregate, may have on the opinion in the auditor’s
report, unless prohibited by law or regulation.
● Statement 2 is true

These are two independent statements. (1) Audit evidence obtained for purposes of
identifying litigation and claims that may give rise to a risk of material misstatement also
may provide audit evidence regarding other relevant considerations, such as valuation
or measurement, regarding litigation and claims. (2) PSA 500 establishes requirements
and provides guidance relevant to the auditor’s consideration of litigation and claims
requiring accounting estimates or related disclosures in the financial statements.
● Statement 1 is true
These are two independent statements. (1) The auditor is required to date the auditor’s
report no earlier than the date on which the auditor has obtained sufficient appropriate
audit evidence on which to base the auditor’s opinion on the financial statements in
accordance with PSA 500. (2) In certain circumstances, the auditor also may judge it
necessary to meet with the entity’s external legal counsel to discuss the likely outcome
of the litigation or claims.
● Statement 2 is true

These are two independent statements. (1) Analytical procedures also encompass the
investigation of identified fluctuations and relationships that are inconsistent with other
relevant information or deviate significantly from predicted amounts. (2) External
confirmation procedures frequently are not relevant when addressing assertions
associated with certain account balances and their elements.
● Statement 1 is true

These are two independent statements. (1) Audit evidence is necessary to support the
auditor’s recommendation and report. (2) Information that may be used as audit
evidence may have been prepared using the work of a management’s expert.
● Statement 2 is true

These are two independent statements. (1) Audit evidence from different sources or of a
different nature may often be relevant to the same assertion. (2) The relevance of
information to be used as audit evidence may be affected by the direction of testing.
● Both statements are true

These are two independent statements. (1) Most of the auditor’s work in forming the
auditor’s opinion consists of obtaining and evaluating audit evidence. (2) Audit
procedures to obtain audit evidence can include inspection, observation, confirmation,
recalculation, reperformance and analytical procedures, often in some combination, in
addition to inquiry.
● Both statements are true

These are two independent statements. (1) The auditor shall accumulate misstatements
identified during the audit, including those that are clearly trivial. (2) If, at the auditor’s
request, management has examined a class of transactions, account balance or
disclosure and corrected misstatements that were detected, the auditor shall not
perform additional audit procedures to determine whether misstatements remain.
● Both statements are false
These are two independent statements. (1) The auditor may obtain copies of cutoff
information, such as details of the movement of inventory, to assist the auditor in
performing audit procedures over the accounting for such movements at a cut-off date.
(2) Inspecting inventory when attending physical inventory counting assists the auditor
in ascertaining the existence of the inventory and in identifying, for example, obsolete,
damaged or ageing inventory.
● Statement 2 is true

These are two independent statements. (1) PSA 500 establishes requirements and
provides guidance relevant to the auditor’s consideration of litigation and claims
requiring accounting estimates or related disclosures in the financial statements. (2)
PSA 501 establishes requirements and provides guidance for performing external
confirmation procedures.
● Both statements are false

These are independent statements. (1) To obtain reasonable assurance, the auditor
shall obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably
low level and thereby enable the auditor to draw reasonable recommendations on which
to base the auditor’s conclusions. (2) The auditor shall exercise independence in
planning and performing an audit of financial statements.
● Statements 1 & 2 are false

These are two independent statements. (1) Audit evidence about the status of litigation
and claims up to the date of the auditor’s report may be obtained by inquiry of
management, including in-house legal counsel, responsible for dealing with the relevant
matters. In some instances, the auditor may need to obtain updated information from
the entity’s external legal counsel. (2) The auditor is required to date the auditor’s report
no earlier than the date on which the auditor has obtained sufficient appropriate audit
evidence on which to base the auditor’s opinion on the financial statements in
accordance with PSA 500.
● Statement 1 is true

These are two independent statements. (1) For practical reasons, the physical inventory
counting may be conducted at a date, or dates, other than the date of the financial
statements. (2) PSA 200 explained the matter of difficulty, time, or cost involved is not in
itself a valid basis for the auditor to omit an audit procedure for which there is no
alternative or to be satisfied with audit evidence that is less than persuasive.
● Both statements are true
These are two independent statements. (1) The auditor shall design and perform audit
procedures that are appropriate in the circumstances for the purpose of obtaining
sufficient appropriate audit evidence. (2) The auditor may designate an amount below
which misstatements would be clearly trivial and would not need to be accumulated
because the auditor expects that the accumulation of such amounts clearly would not
have a material effect on the financial statements.
● Both statements are true

These are independent statements. Statement 1: The primary responsibility for the
prevention and detection of fraud rests with both TCWG and management. Statement 2:
The auditor shall document communications about fraud made to management, TCWG,
regulators and others.
● Both Statements are true

These are two independent statements. (1) Controls are embedded within the
components of the entity’s system of internal control. (2) Policies are implemented
through the actions of personnel within the entity, or through the restraint of personnel
from taking actions that would conflict with such policies.
● Statements 1 and 2 are true

These are two independent statements. (1) the auditor may seek direct communication
with the entity’s external legal counsel through a letter of specific inquiry. (2) In certain
circumstances, the auditor also may judge it necessary to meet with the entity’s external
legal counsel to discuss the likely outcome of the litigation or claims.
● Statement 2 is true

These are independent statements. (1) Knowledge obtained through the user auditor’s
experience with the service organization, for example through experience with other
audit engagements, may also be helpful in obtaining an understanding of the nature of
the services provided by the service organization. (2) The user auditor shall not refer to
the work of a service auditor in the user auditor’s report containing an unmodified
opinion unless required by law or regulation to do so.
● Both statements are true

These are two independent statements. (1) When using information produced by the
entity, the auditor shall evaluate whether the information is sufficiently reliable for the
auditor’s purposes, including as necessary in the circumstances of obtaining audit
evidence about the accuracy and completeness of the information. (2) When using
information produced by the entity, the auditor shall evaluate whether the information is
sufficiently reliable for the auditor’s purposes, including as necessary in the
circumstances of evaluating whether the information is sufficiently precise and detailed
for the auditor’s purposes.
● Both statements are true

These are two independent statements. (1) The auditor shall design and perform audit
procedures that are appropriate in the circumstances for the purpose of obtaining
sufficient appropriate audit evidence. (2) When designing and performing audit
procedures, the auditor shall consider the relevance of the information to be used as
audit evidence.
● Statement 1 is true

These are independent statements. 1. The auditor may in a timely manner

communicate significant deficiencies & material weaknesses in internal control in writing
to management and TCWG. 2. The objective of the auditor is to communicate
appropriately to those charged with governance (TCWG) and management deficiencies
in internal control that the auditor has identified during the audit and that, in the auditor’s
professional judgment, are of sufficient importance to merit their respective attention.
● Statement 2 is true

These are two independent statements. (1) Recalculation may be performed manually
or electronically. (2) External confirmation procedures frequently are relevant when
addressing assertions associated with certain account balances and their elements.
● Both statements are true

These are two independent statements. (1) The auditor shall communicate with those
charged with governance uncorrected misstatements and the effect that they,
individually or in aggregate, may have on the opinion in the auditor’s report, unless
prohibited by law or regulation. (2) The auditor may request a written representation
from management and, where appropriate, those charged with governance whether
they believe the effects of uncorrected misstatements are immaterial, individually and in
aggregate, to the financial statements as a whole.
● Statement 1 is true

These are two independent statements. (1) Direct communication with the entity’s
external legal counsel assists the auditor in obtaining sufficient appropriate audit
evidence as to whether potentially material litigation and claims are known and
management’s estimates of the financial implications, including costs, are reasonable.
(2) A letter of specific inquiry requests the entity’s external legal counsel to inform the
auditor of any litigation and claims that the counsel is aware of, together with an
assessment of the outcome of the litigation and claims, and an estimate of the financial
implications, including costs involved.
● Statement 1 is true

These are two independent statements. (1) Audit evidence is necessary to support the
auditor’s opinion and report. (2) It is non-cumulative in nature and is primarily obtained
from audit procedures performed during the course of the audit.
● Statement 1 is true

The following are two independent statements. (1) A modification to the predecessor
auditor’s opinion may not be relevant and material to the opinion on the current period’s
financial statements. (2) The inability of the auditor to obtain sufficient appropriate audit
evidence regarding opening balances may result in one of the following modifications to
the opinion in the auditor’s report unless prohibited by law or regulation, an opinion
which is qualified or disclaimed, as appropriate, regarding the results of operations, and
cash flows, where relevant, and unmodified regarding financial position
● Both statements are correct/true

The following are two independent statements. (1) For non-current assets and
liabilities, some audit evidence about opening balances may be obtained as part of the
current period’s audit procedures. (2) For non-current assets and liabilities, such as
property plant and equipment, investments and long-term debt, some audit evidence
may be obtained by examining the accounting records and other information underlying
the opening balances.
● Statement 2 is true

The following are two independent statements. (1) It may be effective to use analytical
data prepared by management, provided the auditor is satisfied that such data is
properly prepared. (2) The suitability of a particular analytical procedure will depend
upon the auditor’s assessment of how effective it will be in detecting a misstatement
that, individually or when aggregated with other misstatements, may cause the financial
statements to be materially misstated.
● Both statements are true

The phrase “material uncertainty” is used in PAS 1 in discussing the uncertainties

related to events or conditions which may cast significant doubt on the entity’s ability to
continue as a going concern that should be disclosed in the financial statements.
● The statement is true
These are independent statements. (1) PSA 610 override laws or regulations that
govern an audit of financial statements.. (2) PSA 300 addresses how the knowledge
and experience of the internal audit function can inform the external auditor’s
understanding of the entity and its environment and identification and assessment of
risks of material misstatement.
● Both statements are false

These are independent statements. (1) An auditor’s expert may be either an auditor’s
internal expert or an auditor’s external expert. (2) If expertise in a field other than
accounting or auditing is necessary to obtain sufficient appropriate audit evidence, the
auditor shall determine whether to use the work of an auditor’s expert.
● Both statements are true

These are independent statements. (1) The entity must have a specific confidentiality
provisions be agreed with auditor’s external experts. (2) Subject to any agreement to
the contrary, auditor’s external experts’ working papers are their own and do form part
of the audit documentation.
● Statement 1 is true

These are independent statements. (1) PSA 210 requires the auditor to determine the
acceptability of the financial reporting framework applied in the preparation of the
financial statements. (2) PSA 700 deals with the form and content of the auditor’s
report.
● Both statements are true

These are independent statements. (1) Although written representations provide

necessary audit evidence, they do provide sufficient appropriate audit evidence on their
own about any of the matters with which they deal. (2) The auditor shall request written
representations from management or those with charged with governance with
appropriate responsibilities for the financial statements and knowledge of the matters
concerned..
● Both statements are false

These are independent statements. (1) The entity must have a specific confidentiality
provisions be agreed with auditor’s external experts. (2) Subject to any agreement to
the contrary, auditor’s external experts’ working papers are their own and do form part
of the audit documentation.
● Statement 1 is true
These are independent statements. Statement 1: Computer fraud is increased when
employees are not trained. Statement 2: One of the objectives of fraud investigation is
to identify, gather and protect information.
● Statement 1 is correct

The following are two independent statements. (1) Haphazard selection is not
appropriate when using statistical sampling. (2) When using systematic selection, the
auditor would need to determine that sampling units within the population are not
structured in such a way that the sampling interval corresponds with a particular pattern
in the population.
● Both Statements are correct/true

These are independent statements. (1) The auditor’s report shall state that the audit
was conducted in accordance with financial reporting framework. (2) The auditor’s
report shall state that the responsibility of the auditor is to express an opinion on the
financial statements based on the audit.
● Statement 2 is true

These are independent statements. (1) Effective two-way communication facilitates the
proper integration of the nature, timing and extent of the auditor’s expert’s procedures
with other work on the audit, and appropriate modification of the auditor’s expert’s
objectives during the course of the audit. (2) Agreement on the respective roles and
responsibilities of the auditor and the auditor’s expert may also include agreement about
access to, and retention of, each other’s working papers.
● Both statements are true

These are independent statements. (1) PSA 610 override laws or regulations that
govern an audit of financial statements.. (2) PSA 300 addresses how the knowledge
and experience of the internal audit function can inform the external auditor’s
understanding of the entity and its environment and identification and assessment of
risks of material misstatement..
● Both statements are false
These are independent statements. (1) The date of the written representations shall be
as near as practicable after the date of the auditor’s report on the financial statements.
(2) The written representations shall be in the form of a representation letter addressed
to the regulatory agencies.
● Both statements are false

These are independent statements. (1) The auditor’s report shall describe management
and TCWG’s responsibility for the preparation of the financial statements in the manner
in which that responsibility is described in the terms of the audit engagement. (2) The
auditor’s report shall include a section with the heading “Auditor’s Responsibility.”
● Statement 2 is true

These are independent statements. (1) “The auditor’s expert will have access to
sensitive or confidential entity information”. This has be set in writing. (2) The evaluation
of the significance of threats to objectivity and of whether there is a need for safeguards
may depend upon the role of the auditor’s expert and the significance of the expert’s
work in the context of the audit.
● Both statements are true

These are two independent statements. (1) Responses to inquiries may provide the
auditor with information not previously possessed or with corroborative audit evidence.
(2) Inquiry is used infrequently throughout the audit in addition to other audit
procedures.
● Statement 1 is true

These are independent statements. (1) PSA 610 requires the external auditor to use the
work of the internal audit function to modify the nature or timing, or reduce the extent, of
audit procedures to be performed directly by the external auditor; it remains a decision
of the external auditor in establishing the overall audit strategy. (2) In some jurisdictions,
the external auditor may be prohibited, or restricted to some extent, by law or regulation
from using the work of the internal audit function or using internal auditors to provide
direct assistance.
● Statement 2 is true

These are independent statements. (1) The auditor may need to fulfill additional legal
obligations even when the auditor has notified management to issue the financial
statements and management has agreed to this request. (2) In some jurisdictions,
management may be required by law, regulation or the financial reporting framework to
issue amended financial statements.
● Both statements are false
These are independent statements. (1) The auditor shall evaluate whether the financial
statements adequately refer to or describe the applicable financial reporting framework.
(2) The auditor shall form an opinion on whether the financial statements are prepared,
in all material respects, in accordance with PSAs.
● Statement 1 is true
These are two independent statements. (1) Materiality relates to the financial
statements on which the auditor is reporting. (2) Determining a percentage to be applied
to a chosen benchmark involves the exercise of professional judgment.
● Both statements are true

These are independent statements. (1) Depending upon the results of the auditor’s risk
assessment procedures, the auditor may consider it appropriate to obtain audit
evidence with testing the entity’s controls over related party relationships and
transactions. (2) If the auditor has assessed a significant risk of material misstatement
due to fraud as a result of the presence of a related party with dominant influence, the
auditor may, in addition to the general requirements of PSA 200.
● Both statements are false

These are independent statements. 1. PSA 265 deals with the auditor’s responsibility to
communicate appropriately and in a regular basis to those charged with governance
and management deficiencies in internal control that the auditor has identified in an
audit of financial statements. 2. The auditor considers internal control in order to design
audit procedures that are appropriate in the circumstances, and for the purpose of
expressing an opinion on the effectiveness of internal control.
● Both statements are false.

These are two independent statements. (1) Depending on the circumstances, the
auditor may judge it appropriate to examine related source documents, such as invoices
for legal expenses, as part of the auditor’s review of legal expense accounts. (2) A letter
of specific inquiry requests the entity’s external legal counsel to inform the auditor of any
litigation and claims that the counsel is aware of, together with an assessment of the
outcome of the litigation and claims, and an estimate of the financial implications,
including costs involved.
● Statement 1 is true

These are independent statements. (1) The auditor shall form an opinion on whether the
financial statements are prepared, in all material respects, in accordance with PSAs. (2)
In order to form that opinion, the auditor shall conclude as to whether the auditor has
obtained reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error.
● Statement 2 is true

These are independent statements. (1) The management and those charged with
governance shall evaluate management’s assessment of the entity’s ability to continue
as a going concern. (2) The auditor shall request management to extend its assessment
period to at least twelve months from that date, if management’s assessment of the
entity’s ability to continue as a going concern covers greater than twelve months from
the date of the financial statements.
● Both statements are false

These are independent statements. (1) Estimation uncertainty may exist even when the
valuation method and data are well defined. (2) Not all accounting estimates are subject
to a high degree of estimation uncertainty.
● Both statements are true

These are independent statements. (1) The external auditor has sole responsibility for
the audit opinion expressed, and that responsibility is not reduced by the external
auditor’s use of the work of the internal audit function or internal auditors to provide
direct assistance on the engagement. (2) PSA 300 addresses how the knowledge and
experience of the internal audit function can inform the external auditor’s understanding
of the entity and its environment and identification and assessment of risks of material
misstatement..
● Statement 1 is true

These are independent statements. (1) The auditor’s opinion covers the complete set of
financial statements as defined by the applicable financial reporting framework. (2)
When the auditor is aware that the audited FS will be included in a document that
contains other information, such as an annual report, the auditor may consider, if the
form of presentation allows, identifying the page numbers on which the audited financial
statements are presented.
● Both statements are true

These are independent statements. (1) The auditor shall refer to the work of an auditor’s
expert in an auditor’s report containing an unmodified opinion unless required by law or
regulation to do so. (2) The nature, timing and extent of the auditor’s procedures with
respect to the requirements in PSA 620 will vary depending on the circumstances.
● Statement 2 is true

The following are two independent statements. (1) Even a sophisticated predictive
model may be effective as an analytical procedure. (2) The use of widely recognized
trade ratios can often be used effectively in substantive analytical procedures to provide
evidence to support the reasonableness of recorded amounts.
● Statement 2 is correct/true
These are independent statements. (1) The auditor shall express an modified opinion
when the auditor concludes that the financial statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework. (2) The
auditor shall form an opinion on whether the financial statements are prepared, in all
material respects, in accordance with PSAs.
● Both statements are false

The following are two independent statements. (1) The auditor is not expected to
investigate the nature and cause of any deviations or misstatements identified, and
evaluate their possible effect on the purpose of the audit procedure and on other areas
of the audit. (2) The auditor shall obtain this degree of certainty by performing additional
audit procedures to obtain sufficient appropriate audit evidence that the misstatement or
deviation does not affect the remainder of the population.
● Statement 2 is correct/true

The following are two independent statements. (1) Audit efficiency may be improved if
the auditor stratifies a population by dividing it into non-discrete sub-populations which
have an identifying characteristic. (2) A population may be stratified according to a
particular characteristic that indicates a higher risk of misstatement, for example, when
testing the allowance for doubtful accounts in the valuation of accounts receivable,
balances may be stratified by age.
● Statement 2 is correct/true

These are independent statements. (1) The nature, timing and extent of the further audit
procedures that the auditor may select to respond to the assessed risks of material
misstatement associated with related party relationships and transactions depend upon
the nature of those risks and the circumstances of the entity. (2) If the auditor has
assessed a significant risk of material misstatement due to fraud as a result of the
presence of a related party with dominant influence, the auditor may, in addition to the
general requirements of PSA 200.
● Statement 1 is true

These are independent statements. (1) The matter of difficulty, time, or cost involved is
in itself a valid basis for the auditor to omit an audit procedure for which there is no
alternative or to be satisfied with audit evidence that is less than persuasive. (2) The
auditor is expected to, and cannot, reduce audit risk to zero and cannot therefore obtain
absolute assurance that the financial statements are free from material misstatement
due to fraud or error.
● Statements 1 & 2 are false
These are two independent statements. (1) Procedures may be mandated, through
formal documentation or other communication by management or those charged with
governance, or may result from behaviors that are not mandated but are rather
conditioned by the entity’s culture. (2) Controls are always direct.
● Statement 1 is true

These are independent statements. (1) The nature, timing and extent of the further audit
procedures that the auditor may select to respond to the assessed risks of material
misstatement associated with related party relationships and transactions depend upon
the nature of those risks and the circumstances of the entity. (2) If the auditor has
assessed a significant risk of material misstatement due to fraud as a result of the
presence of a related party with dominant influence, the auditor may, in addition to the
general requirements of PSA 200.
● Statement 1 is true

These are independent statements. (1) PSA 610 requires the external auditor to use the
work of the internal audit function to modify the nature or timing, or reduce the extent, of
audit procedures to be performed directly by the external auditor; it remains a decision
of the external auditor in establishing the overall audit strategy. (2) In some jurisdictions,
the external auditor may be prohibited, or restricted to some extent, by law or regulation
from using the work of the internal audit function or using internal auditors to provide
direct assistance.
● Statement 2 is true

These are independent statements. (1) The auditor may also conduct the audit in
accordance with both PSAs and auditing standards of a specific jurisdiction or country.
(2) The public sector auditor’s responsibilities, however, may be affected by the audit
mandate, or by obligations on public sector entities arising from legislation, regulation,
ministerial directives, government policy requirements, or resolutions of the legislature,
which may encompass a broader scope than an audit of financial statements in
accordance with the PSAs.
● Statements 1 & 2 are true

The following are two independent statements. (1) It may be effective to use analytical
data prepared by management, provided the auditor is satisfied that such data is
properly prepared. (2) The suitability of a particular analytical procedure will depend
upon the auditor’s assessment of how effective it will be in detecting a misstatement
that, individually or when aggregated with other misstatements, may cause the financial
statements to be materially misstated.
● Both Statements are correct/true
These are independent statements. (1) If management does take the necessary steps
to ensure that anyone in receipt of the previously issued financial statements is
informed of the situation and does not amend the financial statements in circumstances
where the auditor believes they need to be amended, the auditor shall notify
management and, unless all of those charged with governance are involved in
managing the entity, those charged with governance, that the auditor will seek to
prevent future reliance on the auditor’s report. (2) Since audited financial statements
cannot be issued without an auditor’s report, the date that the audited financial
statements are issued must be at or later than the date of the auditor’s report, but must
also be at or later than the date the auditor’s report is provided to the entity.
● Both statements are false

These are independent statements. (1) The auditor may also conduct the audit in
accordance with both PSAs and auditing standards of a specific jurisdiction or country.
(2) The auditor is required to use the objectives to evaluate whether sufficient
appropriate audit evidence has been obtained in the context of the overall objectives of
the auditor.
● Statements 1 & 2 are true

The following are two independent statements. (1) The auditor may inquire of
management as to the availability and reliability of information needed to apply
substantive analytical procedures, and the results of any such analytical procedures
performed by the entity. (2) The auditor’s substantive procedures at the assertion level
may be tests of details, substantive analytical procedures, or a combination of both.
● Both Statements are correct/true

These are two independent statements. (1) The relevance of information to be used as
audit evidence may be affected by the direction of testing. (2) Responses to inquiries
may provide the auditor with information not previously possessed or with corroborative
audit evidence.
● Both statements are true

These are independent statements. (1) PSA 210 requires the auditor to determine the
acceptability of the financial reporting framework applied in the preparation of the
financial statements. (2) PSA 700 deals with the form and content of the auditor’s
report.
● Both statements are true
The following are two independent statements. (1) To draw a conclusion on the entire
population, the auditor will need to consider the risk of material misstatement in relation
to whatever other strata make up the entire population. (2) Projected misstatements for
each stratum are then combined when considering the possible effect of misstatements
on the total class of transactions or account balance.
● Both Statements are correct/true

These are independent statements. (1) The auditor is expected to, and cannot, reduce
audit risk to zero and cannot therefore obtain absolute assurance that the financial
statements are free from material misstatement due to fraud or error. (2) The PSAs do
ordinarily refer to inherent risk and control risk separately, but rather to a combined
assessment of the “risks of material misstatement.”
● Statements 1 & 2 are false

These are independent statements. (1) The auditor’s report shall include a section with
the heading “Auditor’s Responsibility.” (2) The auditor’s report shall state that the
responsibility of the auditor is to express an opinion on the financial statements based
on the audit.
● Both statements are true

These are independent statements. (1) The auditor shall plan and perform an audit with
professional skepticism recognizing that circumstances may exist that cause the
financial statements to be materially misstated. (2) The auditor shall exercise
professional judgment in planning and performing an audit of financial statements.
● Statements 1 & 2 are true

These are independent statements. (1) As individuals in the internal audit function are
not independent of the entity as is required of the external auditor when expressing an
opinion on financial statements. (2) The amount of judgment involved and the risk of
material misstatement are also relevant in determining the work that may be assigned to
internal auditors providing direct assistance.
● Both statements are true

The following are two independent statements. (1) The greater the amount of
misstatement the auditor expects to find in the population, the larger the sample size
needs to be in order to make a reasonable estimate of the actual amount of
misstatement in the population. (2) When a population can be appropriately stratified,
the aggregate of the sample sizes from the strata generally will be less than the sample
size that would have been required to attain a given level of sampling risk, had one
sample been drawn from the whole population.
 ● Both Statements are correct/true

These are two independent statements. (1) Although corroboration of evidence obtained
through inquiry is often of particular importance, in the case of inquiries about
management intent, the information available to support management’s intent may be
limited. (2) Responses to inquiries may provide the auditor with information not
previously possessed or with corroborative audit evidence.
● Both statements are true

These are independent statements. 1. Purchasing and payment cycle encompasses the
production of raw materials to finished products for sale. 2. An entity may have effective
purchasing system, but if the bookkeeper is incompetent, many errors could still occur.
● Statement 2 is true.

These are independent statements. (1) When the auditor believes that management, or
those charged with governance, have failed to take the necessary steps to prevent
reliance on the auditor’s report on financial statements previously issued by the entity
despite the auditor’s prior notification that the auditor will take action to seek to prevent
such reliance, the auditor’s course of action depends upon the auditor’s legal rights and
obligations. (2) In some jurisdictions, entities in the public sector can issue amended
financial statements by law or regulation.
● Statement 1 is true

These are independent statements. 1. For proper internal control, there should be
adequate separation of duties. However, the extent of separation of duties considered
‘adequate’ depends heavily on the size of the organization. 2. There is no sense or no
point understanding specific controls when pervasive or entity-level controls are
ineffective.
● Both statements are true.

The following are two independent statements. (1) The level of risk is the product of
both the impact (significance) and likelihood (probability). (2) The first step is identifying
the risk the organization faces.
● Both Statements are correct/true

These are independent statements. (1) The auditor shall omit the phrase that the
auditor’s consideration of internal control is not for the purpose of expressing an opinion
on the effectiveness of internal control, if he is required to do so. (2) An audit also
includes evaluating the appropriateness of the accounting policies used and the
reasonableness of accounting estimates made by management, as well as the overall
presentation of the financial statements.
● Both statements are true

These are two independent statements. (1) The auditor shall communicate with those
charged with governance uncorrected misstatements and the effect that they,
individually or in aggregate, may have on the opinion in the auditor’s report, unless
prohibited by law or regulation. (2) The auditor shall also communicate with those
charged with governance the effect of uncorrected misstatements related to prior
periods on the relevant classes of transactions, account balances or disclosures, and
the financial statements as a whole.
● Both statements are true

These are two independent statements. (1) Significance can be considered in the
context of quantitative factors only such as relative magnitude, the nature and effect on
the subject matter and the expressed interests of intended users or recipients. (2) When
the auditor expresses a qualified or adverse opinion, communicating other key audit
matters would still be not relevant to enhancing intended users’ understanding of the
audit, and therefore the requirements to determine key audit matters apply.
● Both statements are false

These are independent statements. (1) Estimation uncertainty may exist even when the
valuation method and data are well defined. (2) The presence of subjectivity gives rise
to the need for judgment by management and the susceptibility to unintentional or
intentional management bias.
● Both statements are true

The following are two independent statements. (1) Audit efficiency may be improved if
the auditor stratifies a population by dividing it into non-discrete sub-populations which
have an identifying characteristic. (2) The objective of stratification is to increase the
variability of items within each stratum and therefore allow sample size to be reduced
without increasing sampling risk.
● Both Statements are incorrect/false

These are independent statements. (1) The auditor shall evaluate whether sufficient
appropriate audit evidence has been obtained regarding, and shall conclude on, the
appropriateness of management’s use of the going concern basis of accounting in the
preparation of the financial statements. (2) The auditor shall request management to
extend its assessment period to at least twelve months from that date, if management’s
assessment of the entity’s ability to continue as a going concern covers greater than
twelve months from the date of the financial statements.
● Statement 1 is true

These are independent statements. (1) In general, misstatements, including omissions,

are considered to be material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of the
financial statements. (2) Judgments about materiality are made in the light of
surrounding circumstances, and are affected by the auditor’s perception of the financial
information needs of users of the financial statements, and by the size or nature of a
misstatement, or a combination of both.
● Statements 1 & 2 are true

These are two independent statements. (1) When comparative financial statements are
presented, the auditor’s opinion shall refer to each period for which financial statements
are presented and on which an audit opinion is expressed. (2) If the prior period
financial statements are amended, and the predecessor auditor agrees to issue a new
auditor’s report on the amended financial statements of the prior period, the auditor
shall report only on the current period.
● Both statements are true

The following are two independent statements. (1) Audit evidence relevant to
management’s responses may be obtained by evaluating those responses taking into
account the auditor’s understanding of the entity and its environment, and with other
audit evidence obtained during the course of the audit. (2) The determination of the
suitability of particular substantive analytical procedures is influenced by the nature of
the assertion and the auditor’s assessment of the risk of material misstatement.
● Both Statements are correct/true

These are two independent statements. (1) The major procedures applied in a review
consist of reading the financial statements, inquiry as to accounting procedures, and
analytical procedures. (2) A compilation, in contrast to a review, consists of obtaining an
understanding of industry accounting principles and practices and reading the financial
statements.
● Both statements are true
These are two independent statements. (1) If the auditor is able to attend physical
inventory counting due to unforeseen circumstances, the auditor shall make or observe
some physical counts on an alternative date, and perform audit procedures on
intervening transactions. (2) If attendance at physical inventory counting is
impracticable, the auditor shall perform alternative audit procedures to obtain sufficient
appropriate audit evidence regarding the existence and condition of inventory.
● Statement 2 is true

The following are two independent statements. (1) Different types of analytical
procedures don’t provide different levels of assurance. (2) The determination of the
suitability of particular substantive analytical procedures is influenced by the nature of
the assertion and the auditor’s assessment of the risk of material misstatement.
● Statement 2 is correct/true

In the auditor’s report on an entity’s complete set of financial statements, the expression
of a disclaimer of opinion regarding the results of operations and cash flows, where
relevant, and an unmodified opinion regarding the financial position is permitted since
the disclaimer of opinion is being issued in respect of the results of operations and cash
flows only and not in respect of the financial statements as a whole in reference to PSA
510.
● True

PSA 706: Even when the modified opinion on the entity’s complete set of financial
statements, Emphasis of Matter paragraph or Other Matter paragraph does not relate to
the audited financial statement or the audited element, the auditor may still deem it
appropriate to refer to the modification in an Other Matter paragraph in an auditor’s
report on the financial statement or on the element because the auditor judges it to be
relevant to the users’ understanding of the audited financial statement or the audited
element or the related auditor’s report .
● True

These are independent statements. (1) The effects of complexity, subjectivity or other
inherent risk factors on the measurement of these monetary amounts affects their
susceptibility to misstatement. (2) all accounting estimates, the degree to which an
accounting estimate is subject to estimation uncertainty will vary substantially.
● Both statements are true

These are independent statements. (1) The component auditor is responsible for the
direction, supervision and performance of the group audit engagement in compliance
with professional standards and regulatory and legal requirements, and whether the
auditor’s report that is issued is appropriate in the circumstances. (2) Where component
auditors will perform work on the financial information of such components, the group
engagement partner shall evaluate whether the group engagement team will be able to
be involved in the work of those component auditors to the extent necessary to obtain
sufficient appropriate audit evidence.
● Statement 2 is true

These are two independent statements. (1) Inspection of individual inventory items is
not necessary to accompany the observation of inventory counting. (2) Inspecting an
executed contract may provide audit evidence relevant to the entity’s application of
accounting policies, such as revenue recognition.
● Statement 2 is true

These are independent statements. 1. The nature and extent of planning activities
depend on the key engagement team members’ previous experience with the entity. 2.
Philippine Standards on Auditing (PSA) 315 deals with the auditor’s responsibility to
plan an audit of financial statements.
● Statement 1 is true.

These are independent statements. (1) The practitioner should accept (or discontinue
where applicable) an assurance. (2) The practitioner should accept (or continue where
applicable) an assurance engagement only if, on the basis of a preliminary knowledge
of the engagement circumstances, nothing comes to the attention of the practitioner to
indicate that the requirements of the Code or of the PSAEs will not be satisfied.
● Statement 2 is true

These are independent statements. (1) If the auditor is required by law or regulation of a
specific jurisdiction to use a specific layout or wording of the auditor’s report, the
auditor’s report shall refer to PSAs only. (2) The auditor’s opinion covers the complete
set of financial statements as defined by the applicable financial reporting framework.
● Both statements are true

These are independent statements. (1) The auditor shall modify the opinion in the
auditor’s report in accordance with PSA 700. (2) The auditor’s report shall be in writing
or orally.
● Both statements are false

These are independent statements. (1) The practitioner should plan the engagement so
that it will be performed effectively. (2) A practitioner should consider the
appropriateness of a request, made before the completion of an assurance
engagement, to change the engagement to a non-assurance engagement or from a
reasonable assurance engagement to a limited assurance engagement, and should not
agree to a change without reasonable justification.
 ● Statements 1 and 2 are true

These are independent statements. (1) Whether the auditor has performed an audit in
accordance with PSAs is determined by the audit procedures performed in the
circumstances, the sufficiency and appropriateness of the audit evidence obtained as a
result thereof and the suitability of the auditor’s report based on an evaluation of that
evidence in light of the overall objectives of the auditor. (2) Appropriate planning assists
in making sufficient time and resources available for the conduct of the audit.
● Statements 1 & 2 are true

These are independent statements. (1) The degree of uncertainty associated with the
outcome of an event or condition increases significantly the further into the future an
event or condition or the outcome occurs. (2) The detailed requirements regarding
management’s responsibility to assess the entity’s ability to continue as a going concern
and related financial statement disclosures may also be set out in law or regulation.
● Both statements are true

These are two independent statements. (1) Accountant obtains limited assurance
through analytical procedures that there are no material modifications that should be
made to financial statements. (2) An accountant who is not independent may report on
a compilation service, but not on a review service or audit engagement.
● Both statements are true

These are independent statements. (1) The practitioner should accept (or continue
where applicable) an assurance engagement only if the practitioner is satisfied that
those persons who are to perform the engagement collectively possess the necessary
professional competencies. (2) The nature and extent of planning activities will vary with
the engagement circumstances, for example the size and complexity of the entity and
the practitioner’s previous experience with it.
● Statements 1 and 2 are true

The following are two independent statements. (1) The auditor shall evaluate the results
of the sample; and whether the use of audit sampling has provided a reasonable basis
for conclusions about the population that has been tested. (2) The auditor shall obtain
this degree of certainty by performing additional audit procedures to obtain sufficient
appropriate audit evidence that the misstatement or deviation does not affect the
remainder of the population.
● Both Statements are correct/true
These are independent statements. (1) An auditor’s point estimate or range may be
used to evaluate an accounting estimate directly or indirectly. (2) Not all accounting
estimates are subject to a high degree of estimation uncertainty.
● Both statements are true

These are independent statements. (1) The practitioner in PSAE 3000 should obtain an
understanding of the subject matter and other engagement circumstances, sufficient to
identify and assess the risks of the subject matter information being materially
misstated, and sufficient to design and perform further evidence-gathering procedures.
(2) The practitioner in PSAE 3000 ordinarily has a lesser depth of understanding than
the responsible party.
● Statements 1 and 2 are true

These are two independent statements. (1) Inspection of records and documents
provides audit evidence of varying degrees of reliability, depending on their nature and
source and, in the case of internal records and documents, on the effectiveness of the
controls over their production. (2) Inspecting an executed contract may provide audit
evidence relevant to the entity’s application of accounting policies, such as revenue
recognition.
● Both statements are true

These are independent statements. (1) The practitioner in PSAE 3000 should conclude
whether sufficient appropriate evidence has been obtained to support the conclusion
expressed in the assurance report. (2) The practitioner should document matters that
are significant in providing evidence that supports the assurance report and that the
engagement was performed in accordance with PSAEs.
● Statements 1 and 2 are true

These are independent statements. 1. The auditor’s understanding of the entity’s

internal control gives the auditor the insight of what risk of material misstatement could
be present in the entity’s financial statements. 2. Financial Statement audit is primarily
concerned with financial reporting objective.
● Both statements are true

These are two independent statements. (1) For practical reasons, the physical inventory
counting may be conducted at a date, or dates, other than the date of the financial
statements. (2) Observing the performance of management’s count procedures, for
example those relating to control over the movement of inventory before, during and
after the count, assists the auditor in obtaining audit evidence that management’s
instructions and count procedures are adequately designed and implemented.
 ● Both statements are true

These are independent statements. (1) The management and those charged with
governance shall evaluate management’s assessment of the entity’s ability to continue
as a going concern. (2) The auditor shall request management to extend its assessment
period to at least twelve months from that date, if management’s assessment of the
entity’s ability to continue as a going concern covers greater than twelve months from
the date of the financial statements.
● Both statements are false

These are independent statements. (1) Because of the inherent limitations of an audit,
there is an unavoidable risk that some material misstatements of the financial
statements may not be detected, even though the audit is properly planned and
performed in accordance with PSAs. (2) Appropriate planning assists in making
sufficient time and resources available for the conduct of the audit.
● Statements 1 & 2 are true

These are two independent statements. (1) The auditor should implement quality control
procedures that are applicable to the individual engagement. (2) The auditor should
plan and perform the review with an attitude of professional skepticism, recognizing that
circumstances may exist that cause the interim financial information to require a
material adjustment for it to be prepared, in all material respects, in accordance with the
applicable financial reporting framework.
● Both statements are true

These are independent statements. (1) The practitioner in PSAE 3000 should plan the
engagement so that it will be performed effectively. (2) Planning is not a discrete phase,
but rather a continual and iterative process throughout the review and audit.
● Statement 1 is true

These are independent statements. (1) the financial statements may be prepared in
accordance with two financial reporting frameworks, which are therefore both applicable
financial reporting frameworks. (2) The auditor’s report shall state whether the auditor
believes that the audit evidence the auditor has obtained is sufficient and appropriate to
provide a basis for the auditor’s conclusion.
● Statement 1 is true

In conducting an audit of financial statements, the overall objective of the auditor is to

obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, due to fraud or error, thereby enabling the auditor to
express an opinion whether the financial statements are prepared, in all material
respects, in accordance with an applicable financial reporting framework.

The Philippine Institute of Certified Accountants is the accredited professional

organization (APO) of CPAs by the Professional Regulation Commission and has
been awarded twice as PRC most outstanding APO from among other professional
organizations. PICPA was founded in November 1929 by a group of illustrious pioneers
in the accounting profession: Enrique Caguiat, Santiago de la Cruz, Francisco Dalupan,
Jaime Hernandez, Felipe Ollada, Ramon del Rosario, Antonio Sanchez, Jose Torres,
Artemio Tulio, Clemente Uson and Jesus Zulueta. W. W. Larkin, holder of CPA
Certificate No. 1, was its first president.

The AASC issues Philippine Auditing Practice Note to provide interpretative guidance
and assistance to professional accountants in implementing the PSAs and to promote
good practice.

RA 9298: Declaration of Policy

The state shall develop and nurture professional accountant that are competent,
virtuous, productive and well-rounded through inviolable, honest, effective and credible
licensure examination and through regulatory measures, program and activities that
foster their professional growth and development.

Philippine Standards on Related Services are to be applied to compilation

engagements, engagements to apply agreed upon procedures to information and other
related services engagements as specified by the AASC.

The International Ethics Standards Board for Accountants (IESBA) sets

high-quality, internationally appropriate ethics standards for professional accountants,
including auditor independence requirements.

Qualification of Board Members

No person shall be appointed a member of the Board of Accountancy unless he:

1. Is a citizen of the Philippines;

2. Is of good moral character;
3. Is a duly registered Certified Public Accountant in the Philippines;
4. Has been in the practice of accountancy for at least ten years; and
5. Is not directly or indirectly connected with any school, college, or university
granting degrees that may qualify graduates with such degrees for admission to
 the Certified Public Accountant examinations, or with Certified Public
Accountant’s Review School or Institute, nor shall have any pecuniary interest in
such school, college, university or Certified Public Accountant’s Review School or
Institute.

Financial audit is conducted to determine whether the financial statements of an entity

are fairly presented in accordance with the applicable financial reporting framework.

Audit risk is the function of Inherent risk, Control risk and Detection risk.

The CPA Licensure Exam (CPALE) covers the following:

1. Auditing - Theory is 50% and Application is 50%
2. Management Advisory Services - Theory is 30% and Application is 70%
3. Taxation - Theory is 30% and application is 70%
4. Regulatory Framework for Business Transactions - Theory is 70% and application is
30%
5. Financial Accounting and Reporting - Theory is 30% and application is 70%
6. Advanced Financial Accounting and Reporting - Theory is 30% and application is
70%

Auditing is a systematic process of objectively obtaining an evidence regarding

assertions about economic actions and events to ascertain the degree of
correspondence between the assertions and established criteria and communicating the
results to the interested parties.

The mission of Philippine Institute of Certified Accountants to serve the best interest
of the members and the stakeholders while promoting, upholding, and maintaining high
standards in the accountancy profession and protecting public interest.
The core values of Philippine Institute of Certified Accountants are the following:
1. Professional excellence – We are committed to excellence in all aspects of our
professional practice.
2. Integrity – We advocate the truth and conduct ourselves at all times with honesty,
uprightness and adherence to sound moral principles, thereby gaining the respect of the
public.
3. Commitment – We bind ourselves to uphold these ideals to ensure the
accomplishment of PICPA’s Vision and Mission.
4. Partnership and Team Work – We uphold a strong bond of unity, working in the
spirit of harmony and commonality.
5. Advocacy for quality – We strictly adhere to the code of professional conduct
adopted by PICPA to ensure highest spiritual, moral and ethical standards.
6. New technologies and innovativeness – We seek and apply new ideas to improve
performance. We continuously promote creativity, flexibility and resourcefulness amidst
constant change.
7. Social responsibility – We commit ourselves to a strong, active and devoted sense
of duty.

The CPA Licensure Exam (CPALE) covers the following:

1. Auditing
2. Management Advisory Services
3. Taxation
4. Regulatory Framework for Business Transactions
5. Financial Accounting and Reporting
6. Advanced Financial Accounting and Reporting

The Auditing and Assurance Standards Council AASC is a ruling body in ensuring
the excellence and uniformity of auditing and assurance related services in the country.
The main objective of the AASC is to adopt the International Auditing and Assurance
Standards Board (IAASB) standards and practice statements to attain uniformity of the
local Generally Accepted Auditing Standards GAAS with the IAASB
pronouncements. This harmonization is expected to enhance the reliability and
acceptability of audited financial statements of Philippine companies.

The vision of Philippine Institute of Certified Accountants is a responsive and

globally relevant professional organization committed to service excellence towards its
members and stakeholders.

RA 9298 is known as the Philippine Accountancy Act of 2004.

The mission of Board of Accountancy is to implement the Code of Good Governance

of the professionals in the Philippines.

Philippine Standards on Review Engagements are to be applied in the review of

historical financial information.

Auditing is a systematic process of objectively obtaining an evidence regarding

assertions about economic actions and events to ascertain the degree of
correspondence between the assertions and established criteria and communicating the
results to the interested parties.
Compliance Audit involves a review of an organization's procedures to determine
whether the organization has adhered to specific procedures, rules or regulations.

In conducting an audit of financial statements, the overall objective of the auditor is to

obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement , due to fraud or error, thereby enabling the auditor
to express an opinion whether the financial statements are prepared, in all material
respects, in accordance with an applicable financial reporting framework.

Philippine Standards on Assurance Engagements are to be applied in assurance

engagements dealing with subject matters other than historical information.

2023 is the 100th year in the establishment of Accountancy in the Philippines.

The causes of information risk are remoteness of information, biases and motives of
the provider, voluminous data , and complex exchange of transactions.

Audit function operates on the assumption that all data are verifiable.

The latin word for Audit is Audire .

The auditor should always maintain independence with respect to the financial
statements under audit.

The other terms for 'Operation audit' are Performance audit or Management audit
which studies the specific unit of an organization for the purpose of measuring its
performance.

Preconditions for an audit under PSA 210 is to provide the auditor with:
a. Access to all information of which management is aware that is relevant to the
preparation of the financial statements such as records, documentation and other
matters;
b. Additional information that the auditor may request from management for the purpose
of the audit; and
c. Unrestricted access to persons within the entity from whom the auditor determines it
necessary to obtain audit evidence.

Elements of an Assurance Engagement. The following elements of an assurance

engagement are discussed in this section:
(a) A three party relationship involving a Practitioner, a Responsible party, and Intended
users;
(b) An Appropriate subject matter;
(c) Suitable criteria;
(d) Sufficient appropriate evidence; and
(e) A Written assurance report in the form appropriate to a reasonable assurance
engagement or a limited assurance engagement.

PSA 240: The primary responsibility for the prevention and detection of fraud rests with
both those charged with governance of the entity and management.

The objective of the auditor of PSA 210 is to accept or continue an audit engagement
only when the basis upon which it is to be performed has been agreed, through:
(a) Establishing whether the preconditions for an audit are present; and
(b) Confirming that there is a common understanding between the auditor and
management and, where appropriate, those charged with governance of the terms of
the audit engagement.

PSA 240: Misstatements in the financial statements can arise from either fraud or
error. The distinguishing factor between fraud and error is whether the underlying action
that results in the misstatement of the financial statements is intentional or unintentional.

An auditor conducting an audit in accordance with PSAs is responsible for obtaining

reasonable assurance that the financial statements taken as a whole are free from
material misstatement, whether caused by fraud or error.

If management or those charged with governance impose a limitation on the scope

of the auditor’s work in the terms of a proposed audit engagement such that the
auditor believes the limitation will result in the auditor disclaiming an opinion on
the financial statements, the auditor shall not accept such a limited engagement as
an audit engagement, unless required by law or regulation to do so.

PSA 240: It is important that management, with the oversight of those charged with
governance, place a strong emphasis on fraud prevention, which may reduce
opportunities for fraud to take place, and fraud deterrence, which could persuade
individuals not to commit fraud because of the likelihood of detection and punishment.

Code sets out the fundamental ethical principles that all professional accountants are
required to observe, including:
(a) Integrity;
(b) Objectivity;
(c) professional competence and due care;
(d) Confidentiality; and
(e) Professional behavior.

Fraud – An intentional act by one or more individuals among management, those

charged with governance, employees, or third parties, involving the use of deception to
obtain an unjust or illegal advantage.

Audit documentation that meets the requirements of this PSA 230 and the specific
documentation requirements of other relevant PSAs provides:
(a) Evidence of the auditor’s basis for a conclusion about the achievement of the overall
objective of the auditor; and
(b) Evidence that the audit was planned and performed in accordance with PSAs and
applicable legal and regulatory requirements.

Assurance engagement means an engagement in which a practitioner expresses a

conclusion designed to enhance the degree of confidence of the intended users other
than the responsible party about the outcome of the evaluation or measurement of a
subject matter against criteria.

If management or those charged with governance impose a limitation on the scope of

the auditor’s work in the terms of a proposed audit engagement such that the auditor
believes the limitation will result in the auditor disclaiming an opinion on the financial
statements, the auditor shall not accept such a limited engagement as an audit
engagement, unless required by law or regulation to do so.

For purposes of the ISAs, the following terms have the meanings attributed below:
(a) Audit documentation – The record of audit procedures performed, relevant audit
evidence obtained, and conclusions the auditor reached (terms such as “working
papers” or “workpapers” are also sometimes used).
(b) Audit file – One or more folders or other storage media, in physical or electronic
form, containing the records that comprise the audit documentation for a specific
engagement.
(c) Experienced auditor – An individual (whether internal or external to the firm) who
has practical audit experience, and a reasonable understanding of:
(i) Audit processes;
(ii) ISAs and applicable legal and regulatory requirements;
(iii) The business environment in which the entity operates; and
 (iv) Auditing and financial reporting issues relevant to the entity’s Industry

The auditor shall prepare audit documentation on a timely basis.

Preparing sufficient and appropriate audit documentation on a timely basis helps to

enhance the quality of the audit and facilitates the effective review and evaluation of the
audit evidence obtained and conclusions reached before the auditor’s report is finalized.
Documentation prepared after the audit work has been performed is likely to be less
accurate than documentation prepared at the time such work is performed.

PSA 210 - The agreed terms of the audit engagement shall be recorded in an audit
engagement letter or other suitable form of written agreement and shall include:
(a) The objective and scope of the audit of the financial statements;
(b) The responsibilities of the auditor;
(c) The responsibilities of management;
(d) Identification of the applicable financial reporting framework for the preparation of
the financial statements; and
(e) Reference to the expected form and content of any reports to be issued by the
auditor and a statement that there may be circumstances in which a report may differ
from its expected form and content.

The auditor's opinion enhances the credibility of financial statements by providing

a high, but not absolute, level of assurance. Absolute assurance in auditing is not
attainable as a result of such factors as the need for judgment, the use of testing,
the inherent limitations of any accounting and internal control systems and the fact
that most of the evidence available to the auditor is persuasive, rather than
conclusive, in nature.

The objective of a compilation engagement is for the accountant to use accounting

expertise, as opposed to auditing expertise, to collect, classify and summarize financial
information.(PSA 200)

The objectives of the Philippine Accountancy Act of 2004 or known as RA 9298 shall
provide for and govern:
(a) The standardization and regulation of accounting education;
(b) The examination for registration of certified public accountants; and
(c) The supervision, control and regulation of the practice of accountancy in the
Philippines.
This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities in
agreeing the terms of the audit engagement with management and, where appropriate,
those charged with governance. This includes establishing that certain preconditions for
an audit, responsibility for which rests with management and, where appropriate, those
charged with governance, are present. PSA 220 (Redrafted)1 deals with those aspects
of engagement acceptance that are within the control of the auditor.

If the auditor withdraws due to fraud: (i) Discuss with the appropriate level of
management and those charged with governance the auditor’s withdrawal from the
engagement and the reasons for the withdrawal; and (ii) Determine whether there is a
professional or legal requirement to report to the person or persons who made the audit
appointment or, in some cases, to regulatory authorities, the auditor’s withdrawal from
the engagement and the reasons for the withdrawal.

In a compilation engagement, the accountant is engaged to use accounting expertise

as opposed to auditing expertise to collect, classify and summarize financial
information. (PSA 200)

In conducting an audit of financial statements, the overall objective of the auditor is to

report on the financial statements, and communicate as required by Philippine
Standards on Auditing , in accordance with the auditor's findings.

A condition for acceptance of an assurance engagement is that the criteria referred to in

the definition of an assurance engagement are suitable and available to intended users.
Criteria are the benchmarks used to evaluate or measure the subject matter including,
where relevant, benchmarks for presentation and disclosure. Suitable criteria enable
reasonably consistent evaluation or measurement of a subject matter within the context
of professional judgment.

In accordance with PSA 200, the auditor shall maintain an attitude of professional
skepticism throughout the audit, recognizing the possibility that a material misstatement
due to fraud could exist, notwithstanding the auditor’s past experience of the honesty
and integrity of the entity’s management and those charged with governance.

the risk of the auditor not detecting a material misstatement resulting from management
fraud is greater than for employee fraud, because management is frequently in a
position to directly or indirectly manipulate accounting records, present fraudulent
financial information or override control procedures designed to prevent similar frauds
by other employees.
The objective of an audit of financial statements is to enable the auditor to express an
opinion whether the financial statements are prepared, in all material respects, in
accordance with an identified financial reporting framework. (PSA 200)

Assurance engagements, which include audit engagements , may only be accepted

when the practitioner considers that relevant ethical requirements such as
independence and professional competence will be satisfied, and when the
engagement exhibits certain characteristics.

Fraud risk factors – Events or conditions that indicate an incentive or pressure to

commit fraud or provide an opportunity to commit fraud.
In forming the audit opinion, the auditor obtains sufficient appropriate audit evidence to
be able to draw conclusions on which to base that opinion. (PSA 200)

The Auditing and Assurance Standards Council AASC is a ruling body in ensuring
the excellence and uniformity of auditing and assurance related services in the country.
The main objective of the AASC is to adopt the International Auditing and Assurance
Standards Board (IAASB) standards and practice statements to attain uniformity of the
local GAAS with the IAASB pronouncements. This harmonization is expected to
enhance the reliability and acceptability of audited financial statements of Philippine
companies.

In a review engagement , the auditor provides a moderate level of assurance that the
information subject to review is free of material misstatement. This is expressed in the
form of negative assurance. (PSA 200)

The vision of Board of Accountancy is to be a dynamic force towards national

prosperity and excellence with a global perspective.

The objective of the auditor is to implement quality control procedures at the

engagement level that provide the auditor with reasonable assurance that:
(a) The audit complies with professional standards and regulatory and legal
requirements; and
(b) The auditor’s report issued is appropriate in the circumstances. (PSA 220)

Assurance engagements, which include audit engagements, may only be accepted

when the practitioner considers that relevant ethical requirements such as
independence and professional competence will be satisfied, and when the
engagement exhibits certain characteristics.

Audit engagement, the auditor provides a high , but not absolute, level of assurance that
the information subject to audit is free of material misstatement. This is expressed
positively in the audit report as reasonable assurance. (PSA 200)

This Philippine Standard on Auditing (PSA) deals with the auditor's responsibility to
prepare audit documentation for an audit of financial statements. It is to be adapted as
necessary in the circumstances when applied to audits of other historical financial
information.

The auditor shall prepare audit documentation that is sufficient to enable an

experienced auditor, having no previous connection with the audit, to
Understand:
(a) The nature, timing and extent of the audit procedures performed to
comply with the ISAs and applicable legal and regulatory requirements;
(Ref: Para. A6–A7)
(b) The results of the audit procedures performed, and the audit evidence
obtained; and
(c) Significant matters arising during the audit, the conclusions reached
thereon, and significant professional judgments made in reaching those
conclusions. (Ref: Para. A8–A11)

Within the context of the firm’s system of quality control, engagement teams have a
responsibility to implement quality control procedures that are applicable to the audit
engagement and provide the firm with relevant information to enable the functioning of
that part of the firm’s system of quality control relating to independence. (PSA 220)

Preconditions for an audit – The use by management of an acceptable financial

reporting framework in the preparation of the financial statements and the agreement of
management and, where appropriate, those charged with governance to the premise
on which an audit is conducted.

The objectives of the auditor under PSA 240 are: (a) To identify and assess the risks of
material misstatement of the financial statements due to fraud; (b) To obtain sufficient
appropriate audit evidence about the assessed risks of material misstatement due to
fraud, through designing and implementing appropriate responses; and (c) To respond
appropriately to identified or suspected fraud.
The auditor may decide not to send a new audit engagement letter or other written
agreement each period for recurring audits.

This Philippine Standard on Auditing, PSA 230, deals with the auditor’s responsibility to
prepare audit documentation for an audit of financial statements. It is to be adapted as
necessary in the circumstances when applied to audits of other historical financial
information.

Consistent application of the applicable financial reporting framework such as the

Philippine Financial Reporting Standards results in fair presentation of financial
statements.
The causes of information risk are Remoteness of information, biases and motives of
the provider, voluminous data and complex exchange of transactions.

Audit engagement, the auditor provides a high, but not absolute, level of assurance that
the information subject to audit is free of material misstatement. This is expressed
positively in the audit report as reasonable assurance. (PSA 200)

PSA 240: Two types of intentional misstatements are relevant to the auditor
misstatements resulting from fraudulent financial reporting and misstatements resulting
from misappropriation of assets.

The risk of not detecting a material misstatement resulting from fraud is higher than the
risk of not detecting one resulting from error.

Preconditions for an audit is the use by management of an acceptable financial

reporting framework in the preparation of the financial statements and the agreement of
management and, where appropriate, those charged with governance to the premise on
which an audit is conducted.

When the auditor identifies a misstatement, the auditor shall evaluate whether such a
misstatement is indicative of fraud. If there is such an indication, the auditor shall
evaluate the implications of the misstatement in relation to other aspects of the audit,
particularly the reliability of management representations, recognizing that an instance
of fraud is unlikely to be an isolated occurrence.

In a review engagement, the auditor provides a moderate level of assurance that the
information subject to review is free of material misstatement. This is expressed in the
form of negative assurance. (PSA 200)
In a compilation engagement, although the users of the compiled information derive
some benefit from the accountant's involvement, no assurance is expressed in the
report. (PSA 200)

Principal auditor is the auditor with responsibility for reporting on the financial
statements of an entity when those financial statements include financial information of
one or more components audited by another auditor.

Preconditions for an audit is the use by management of an acceptable financial

reporting framework in the preparation of the financial statements and the agreement
of management and, where appropriate, those charged with governance to the premise
on which an audit is conducted.

PSA 450 explains how materiality is applied in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the financial
statements.

The effective date of PSA 260 is December 15, 2015.

It refers to the financial statement assertions by management, explicit or otherwise,

that are embodied in the financial statements.

In an Audit engagement, the auditor provides a high, but not absolute, level of
assurance, expressed positively in the audit report as reasonable assurance, that the
information subject to audit is free of material misstatement.

Audit —The objective of an audit of financial statements is to enable the auditor to

express an opinion whether the financial statements are prepared, in all material
respects, in accordance with an identified financial reporting framework.

Financial Reporting Standards Council (FRSC), formerly the Accounting Standards

Council and the Auditing and Assurance Standards Council (AASC, formerly the
Auditing Standards Practices Council.) as the official standard setting bodies of the
profession.

Audit firm is either a firm or entity providing audit services, including where appropriate
its partners, or a sole practitioner.

For agreed-upon procedures, as the auditor simply provides a report of the factual
findings, no assurance is expressed. Instead, users of the report assess for themselves
the procedures and findings reported by the auditor and draw their own conclusions
from the auditor's work. (PSA 200)

Documentation is the material prepared by and for, or obtained and retained by the
auditor in connection with the performance of the audit.

The effective date of PSA 265 is December 15, 2009.

The auditor and those charged with governance in understanding matters related to the
audit in context, and in developing a constructive working relationship. This relationship
is developed while maintaining the auditor’s independence and objectivity. This PSA
focuses primarily on communications from the auditor to those charged with
governance.

PSA 260 establishes relevant considerations regarding communication with those

charged with governance when all of them are involved in managing the entity.

Performance materiality also refers to the amount or amounts set by the auditor at
less than the materiality level or levels for particular classes of transactions, account
balances or disclosures.

It refers to the financial statements such as balance sheets, income statements or

profit and loss accounts, statements showing either all changes in equity or changes in
equity other than those arising from capital transactions with owners and distributions to
owners, cash flow statements, notes and other statements and explanatory material
which are identified as being part of the financial statements.

PSA 300 deals with the auditor’s responsibility to plan an audit of financial statements.
This PSA is framed in the context of recurring audits.

Absolute assurance in auditing is not attainable as a result of such factors as the need
for judgment, the use of testing, the inherent limitations of any accounting and internal
control systems and the fact that most of the evidence available to the auditor is
persuasive, rather than conclusive, in nature. (PSA 200)

Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated.

Audit risk is a function of the risks of material misstatement and detection risk.

Auditor is the person with final responsibility for the audit.

Compilation engagement refers to the accountant engaged to use accounting

expertise as opposed to auditing expertise to collect, classify and summarize financial
information.

Assertions refer to representations by management, explicit or otherwise, that are

embodied in the financial statements.
An auditor conducting an audit in accordance with PSAs is responsible for obtaining
reasonable assurance that the financial statements taken as a whole are free from
material misstatement, whether caused by fraud or error.

The objective of an audit of financial statements is to enable the auditor to express an

opinion whether the financial statements are prepared, in all material respects, in
accordance with an identified financial reporting framework. (PSA 200)

Audit engagement, the auditor provides a high, but not absolute, level of assurance that
the information subject to audit is free of material misstatement. This is expressed
positively in the audit report as reasonable assurance. (PSA 200)
Jun Cuaresma is the current AASC Chairman.

[Audit risk] is the risk that the auditor gives an inappropriate audit opinion when the
financial statements are materially misstated.

The Philippine Institute of Certified Accountants or PICPA is the accredited professional

organization (APO) of CPAs by the Professional Regulation Commission (PRC) and has
been awarded twice as PRC most outstanding APO from among other professional
organizations. PICPA was founded in November 1929 by a group of illustrious pioneers
in the accounting profession: Enrique Caguiat, Santiago de la Cruz, Francisco Dalupan,
Jaime Hernandez, Felipe Ollada, Ramon del Rosario, Antonio Sanchez, Jose Torres,
Artemio Tulio, Clemente Uson and Jesus Zulueta. W. W. Larkin, holder of CPA
Certificate No. 1, was its first president.

Preparing sufficient and appropriate audit documentation on a timely basis helps to

enhance the quality of the audit and facilitates the effective review and evaluation of the
audit evidence obtained and conclusions reached before the auditor’s report is finalized.

Audit documentation – The record of audit procedures performed, relevant audit

evidence obtained, and conclusions the auditor reached (terms such as “working
papers” or “workpapers” are also sometimes used).

This Philippine Standard on Auditing (PSA) 210 deals with the auditor’s responsibilities
in agreeing the terms of the audit engagement with management and, where
appropriate, those charged with governance.

Preconditions for an audit is the use by management of an acceptable financial

reporting framework in the preparation of the financial statements and the agreement of
management and, where appropriate, those charged with governance to the premise on
which an audit is conducted.
The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis after the date
of the auditor’s report.

Audit file – One or more folders or other storage media, in physical or electronic form,
containing the records that comprise the audit documentation for a specific
engagement.

If management or those charged with governance impose a limitation on the scope of

the auditor’s work in the terms of a proposed audit engagement such that the auditor
believes the limitation will result in the auditor disclaiming an opinion on the financial
statements, the auditor shall not accept such a limited engagement as an audit
engagement, unless required by law or regulation to do so.

Agreed-upon procedures engagement refers to the engagement to perform

agreed-upon procedures, an auditor is engaged to carry out those procedures of an
audit nature to which the auditor and the entity and any appropriate third parties have
agreed and to report on factual findings.

Assurance engagements, which include audit engagements , may only be accepted

when the practitioner considers that relevant ethical requirements such as
independence and professional competence will be satisfied, and when the
engagement exhibits certain characteristics.

Experienced auditor – An individual (whether internal or external to the firm) who has
practical audit experience, and a reasonable understanding of: (i) Audit processes; (ii)
PSAs and applicable legal and regulatory requirements; (iii) The business environment
in which the entity operates; and (iv) Auditing and financial reporting issues relevant to
the entity’s industry.

PSA 210 includes establishing that certain preconditions for an audit, responsibility for
which rests with management and, where appropriate, those charged with governance,
are present. PSA 220 deals with those aspects of engagement acceptance that are
within the control of the auditor .

Principal auditor is the auditor with responsibility for reporting on the financial
statements of an entity when those financial statements include financial information of
one or more components audited by another auditor.
This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities in
agreeing the terms of the audit engagement with management and, where appropriate,
those charged with governance.

A condition for acceptance of an assurance engagement is that the criteria referred to in

the definition of an assurance engagement are suitable and available to intended users.
Criteria are the benchmarks used to evaluate or measure the subject matter including,
where relevant, benchmarks for presentation and disclosure. Suitable criteria enable
reasonably consistent evaluation or measurement of a subject matter within the context
of professional judgment .

Error refers to an unintentional mistake in financial statements.

Risk of material misstatement is the product of inherent risk and control risk.

Effective internal control system reduces the possibility of material misstatements of

the financial statements.

Audit risk is the risk that the auditor mistakenly give a 'clean' or unqualified opinion on
financial statements that are materially misstated.