CH 1 2 5 6 7 8 9 Exercises From Book Accp301

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CH 1 2 5 6 7 8 9 exercises from book ACCP301
Bachelor of Science in Accountancy (University of the Assumption)
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tuesday next week dec 7 prelim exam ch 1, 2
1-1 true or false

T 1. Sufficiency and appropriateness of evidence are interrelated factors and, as such, are considered complements.
F 2. The determination of materiality is a mathematical exercise which is a vital process in planning the nature, timing
and extent of assurance engagement procedures.
T 3. Inherent risk refers to the susceptibility of the subject matter information to misstatements before consideration of
controls.
F 4. A practitioner may consider a procedure not applicable if it would entail high level of costs to the assurance service.
T 5. The more the practitioner intends to exhibit the attitude of professional skepticism, the more engagement
procedures will be required.
6. A practitioner is not expected to be an expert in the verification of authenticity of documentation of audit evidences.
T 7. Generally, evidence that is generated internally is more reliable than those from independent sources when the
related controls are effective.
F 8. Only limited procedures are performed by the practitioner on limited assurance engagements as a basis for a
negative form of conclusion.
T 9. Audits and reviews are assurance-based engagements as both the subject matter information and the
practitioner's assurance report are available to the intended users.
F 10. The three-party relationship still exists in non-assurance engagements which includes the practitioner, the
responsible party and the public.
T 11. IAASB sets high-quality international standards for assurance engagements and enhances quality control that
promote public confidence to the accountancy profession.
12. Engagement standards are issued to provide interpretative guidance and practical assistance to professional
accountants that promote good practice in performing assurance engagements.
T 13. The report issued on non-assurance engagements must be expressed in a negative form.
14. Procedures to be done in performing audits and reviews are exclusively determined by the auditor.
F 15. Only a moderate level of assurance is provided in management advisory services.
1-3 MULTIPLE CHOICE QUESTIONS
1. Assurance engagement
A. Is an engagement in which a practitioner is engaged to issue, or does issue, a written communication that expresses
a conclusion about the reliability of a written assertion that is the responsibility of another party.
B. is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic
actions and events to ascertain the degree of correspondence between those assertions and established criteria and
communicating the results to interested users.
C. Is an engagement in which the auditor provides a moderate level of assurance that the information subject to the
engagement is free of material misstatement.
D. Is an engagement intended to enhance the credibility of information about a subject matter by evaluating whether
the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the
information will meet the needs of an intended user.
2. Assurance services can be best described as
A. Engagement designed to enable an independent practitioner to express an opinion as to the fairness of historical
financial information.
B. Processes that measures and communicates financial data to intended users.
C Independent professional services intended to enhance the credibility of information to meet the needs of an
intended user.
D. Is broader than attestation but lesser in scope than audit.

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3. Assurance engagement include the following, except

A. An engagement conducted to provide a high level of assurance that the subject matter conforms in all material
respects with identified suitable criteria.
B. An engagement conducted to provide a moderate level of assurance that the subject matter is plausible in the
circumstances.
C. An engagement in accordance with the Philippine Standard on Assurance Engagement(s) issued by the Auditing
and Assurance Standard Council as approved by the Board of Accountancy/Professional Regulation Commission.
D. An engagement to perform agreed-upon procedures.
4. The three types of attestation services are:
A. Audits, review, and compilations

B. Audits, compilations, and other attestation services
C. Reviews, compilations, and other attestation services
D. Audits, reviews, and other attestation services
5. Which of the following is not an assurance engagement?
A. Audit of prospective financial statements

B. Review of interim historical financial statements
C. Comprehensive audit
D. Preparation of tax returns that use estimates
6. The single feature that most clearly distinguishes auditing, attestation, and assurance is
A. Type of service
B. Scope of services
C. CPA's approach to the service
D. Training required to perform the service
7. Unlike consulting services, assurance services:

A. Make recommendations to management
B. Report on how to use information
C. Report on quality information
D. Are two-party contracts
8. All, except one, are elements of an assurance engagement.
A. Subject matter
B. Written report
C. Sufficient appropriate evidence
D. Independence
9. In a financial statement audit, which is not an element of assurance engagement?
A. Independent auditor, audit client management, audit client shareholders and/or directors
B. Philippine Standards on Auditing
C. Independent auditor's report
D. Financial statements and the assertions
10. Which of the following is not included in the three-party relationship in an assurance engagement?

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A. Auditor
B. Practitioner
C. Responsible party
D. Intended users
11. Which of the following is not a suitable criterion in the context of audit?
A. PSA
B. IFRS
C. GAAP
D. PFRS for SME
12. Characteristics of suitable criteria do not include
A. Relevance
B. Neutrality
C/Comparability
D. Understandability
13. One of the elements of an assurance engagement is appropriate subject matter. For the subject matter to be
considered appropriate,
I. Should be identifiable, and capable of consistent evaluation or it measurement against the identified criteria.
II. Can be subjected to procedures for gathering sufficient appropriate evidence to support a reasonable assurance or
limited assurance conclusion, as appropriate
A. I only
B. Il only
C. Both I and II
D. Neither I nor II
14. "Subject matter information" as used in the Framework to Assurance Engagement shall mean
A. The subject which is to be measured against suitable criteria.

B. Outcome of the evaluation or measurement of a subject matter.
C. The assertion of the responsible party.
D. Any data relating to the subject matter to be measured against the criteria.
15. Which of the following can be subject matter?
A. Financial and non-financial performance or condition

B. Behavior
C. Physical characteristics (e.g. capacity)
D. All of the above can be subject matter
1. Criteria that are embodied in laws or regulations or issued by authorized bodies of expert are called
A. Legal criteria
B. Suitable criteria
C. established criteria
D. specifically-developed criteria
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2. The measure of the quality of evidence
A. Appropriateness
B. Sufficiency
C. relevance
D. reliability
3. The measure of the quantity of evidence
A. Appropriateness
B. Sufficiency
C. Relevance
D. Reliability
4. It refers to the level of auditor's satisfaction as to the reliability of an assertion being made by one party for use by
another party.
a. Confidence level
B. Assurance level
C. Reliability level
D. tolerable level
5. Which of the following is not a component of engagement risk?
a. Control risk
b. Inherent risk
C. Business risk
D. Detection risk
6. The form of conclusion in an assurance engagement are
A. Positive and negative

B. High, medium; low
C. High and low
D. Reasonable and limited
7. The two levels of conclusion in an assurance engagement are
A. Positive and negative

B. High, medium; low
C. High and low
D. Reasonable and limited
8. These refers to assurance engagements in which the evaluation or measurement of the subject matter is performed
by the responsible party, and the subject matter information is in the form of an assertion by the responsible party that
is made available to the intended users.
A. Assertion-based engagement
B. Direct reporting engagement
C. Indirect reporting engagement
D. Reasonable assurance engagement
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9. These refers to assurance engagements in which the practitioner either directly performs the evaluation or
measurement of the subject matter, or obtains a representation from the responsible party that has performed the
evaluation or measurement that is not available to the intended users in the assurance reports.
A. Assertion-based engagement
B. Direct reporting engagement
C. Indirect reporting engagement
D. Reasonable assurance engagement
10. Agreed-upon procedures engagement provides what level of assurance?
A. None
B. Absolute
C. High
D. Moderate
11. Practitioners who perform assurance engagements is governed by the following, except
A. The Framework to Assurance Engagements

B. Code of ethics for Professional Accountants in the Philippines
C. Philippine Standards on Quality Control
D. Philippine Financial Reporting Standards
12. An engagement conducted to provide: (a) a high level of assurance that the subject matter conforms in all material
respects with identified suitable criteria; or (b) a moderate level of assurance that the subject matter is plausible in the
circumstances.
A. Audit engagement
B. Review engagement
C. Reasonable assurance
D. Assurance engagement
13. Assurance service engagements:
A. Do not require independence

B. Require application of all attestation standards and GAAS
C. Are performed currently without professional standards
D. Do not require evidence
14. Which of the following may be under the scope of the Framework for Assurance Engagement?
A. Agreed-upon procedures engagements and compilation of financial and other information.

B. Preparation of tax returns where no conclusion conveying assurance is expressed.
C. Consulting (or advisory) engagements, such as management and tax consulting.
D. Preparation of tax returns where a conclusion conveying assurance is expressed.
15. Which of the following is incorrect regarding the "three-party relationship" element of assurance engagements?
A. Professional accountants are those persons who are members of an IFAC member body, which should be in public
practice.
B. The responsible party and the intended user will often be from separate organizations but need not be.
C. The responsible party is the person or persons, either as individuals or representatives of an entity, responsible for
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the subject matter.

D. The intended user is the person or class of persons for whom the professional accountant prepares the report for a
specific use or purpose.
1. Which of the following is incorrect regarding the practitioner?
A. The term practitioner is broader than the term auditor.

B. The practitioner is governed by ethical requirements (i.e. professional competence) regarding the conduct of the
engagements.
C. The practitioner must be independent to the responsible party but not necessarily to the intended users.
D. The practitioner is responsible for determining the nature, timing or extent of procedures required by the
engagement.
2. Which is incorrect regarding the responsible party?
A. The responsible party and the intended party should not be from the same entity
B. The responsible party may be one of the intended users and may or may not be the engaging party
C. The responsible party ordinarily provides the practitioner with a written representation
D. The responsible party may be responsible for the subject matter information and may also be responsible for the
subject matter
3. The following relates to intended users, choose the exception:
A. Intended users are the person/s for whom the practitioner prepares the assurance report
B. Intended users may be identified by agreement between the practitioner and the responsible party or engaging party,
or by law
C Intended users may include either the practitioner or the responsible party.
D. In case of broad range of interests by the readers of assurance report, intended user may be limited to major
stockholders with significant and common interests.
4. The Framework of Philippine Standards on Auditing provides that financial statements needed to be prepared in
accordance with one, or a combination of the following, except:
A. Accounting standards generally accepted in the Philippines

B. Philippine Accounting Standards.
C. Another authoritative and comprehensive financial reporting framework designed for use in financial reporting and is
identified in the financial statements.
D. Accounting standards developed by the accountant of the business enterprise herself/ himself
5. The following cannot be a suitable criterion for an assurance engagement, except?
A. Practitioner's own expectations

B. Practitioner's judgment
C. Practitioner's experience
D. Agreement between the responsible party and the intended users
6. According to the framework for assurance engagement, the criteria must be
A. Sufficient and appropriate

B. Sufficient or appropriate
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C. Suitable and available to intended users

D. Suitable or available to intended users
7. The following factors could affect the quantity and quality of available evidence that are attributable to the
circumstance of the engagement. Which is the exception?
A. The fact that the subject matter information is prospective.

B. The timing of the practitioner's appointment.
C. An entity's document retention policy.
D. Restriction imposed by the responsible party.
8. Which is incorrect concerning evidence?
A. The higher the risk of material misstatement is involved; the more is required.
B. The better the quality, the less is required.
C. The volume of evidence can compensate for its poor quality.
D. The reliability of evidence is influenced by its source and its nature.
9. Select the incorrect statement from the following generalization on the ed reliability of evidence.
A. Evidence is more reliable when it is obtained from independent sources outside the entity.
B. Evidence that is generated internally is more reliable when the related controls are effective. C. Evidence obtained
directly by the practitioner is more reliable than when obtained indirectly, even if the source is not competent.
D. Evidence provided by original documents is more reliable than evidence provided by photocopies or facsimiles.
10. Which is incorrect?
A. Consistent evidence obtained from nature is more reliable various sources or of different
B. It is generally more difficult to obtain assurance about subject matter information at a point in time than about subject
matter information covering a period of time.
C. When it cost prohibitive or difficult to obtain an evidence, the auditor may shift to obtain from other alternatives.
HITIUM
D. The practitioner considers the relationship between cost of obtaining the evidence and the usefulness of the
information.
11. Which is correct concerning the concept of professional skepticism
A. An assumption that the responsible party is dishonest

B. A critical assessment, with a questioning mind on the validity of evidence obtained
C. An assumption that responsible party is trustworthy
D. Disregarding contradicting information against several of consistent evidence
12. Which of the following statements is false regarding the consideration of materiality?
A. It is taken into consideration in the context of both qualitative and quantitative factors
B. It is a matter of professional judgment
C. It requires understanding and assessment of the factors that might influence the decision of the intended users
D. It is defined as a certain percentage (e.g., 5% of total asset, 1% of gross sales)
13. 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

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A. Moderate level of assurance

B. High level of assurance
C. Absolute assurance
D. No assurance
14. Which of the fundamental principles in the Code of Ethics are required in the performance of non-assurance
engagements?
1. Professional competence and due care
II. Independence
III. Confidentiality
A. I and II only
B. I and III only
C. II and III only
D. I, II and III
15. In an agreed-upon engagement, which of the following statements is incorrect?
A. Management, the auditor and any appropriate third-party user agree on the procedures to be performed.
B. Although procedures required are of an audit nature, independence is not required.
C. No assurance is rendered in the report.
D. The report is provided to a wide range of users for decision making.
1. Evidence more is reliable when it is obtained from
A. Internal sources within the entity

B. Independent sources outside of the entity
C. Internal sources outside of the entity
D. Independent sources inside the entity
2. Which of the following primarily refers to the relevance and reliability of evidence?
A. Sufficiency
C. Appropriateness
D. Suitability
B. Adequacy
3. A professional accountant is required to be independent in which of the following engagements?

1. Audit of historical financial information
II. Review of historical financial information
III. Agreed-Upon Procedures
A. I only
B. I and II only
€. II and III only
D. I, II, and III
4. Which of the following statements is/are correct?

1. Audit is an assurance engagement while review is not. *
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II. More procedures are performed by a practitioner in a review than in an audit
A. I only
C. Both I and II
D. Neither I nor II
5. Which of the following is true about assurance services?
A. All assurance services are financial statement audits

B. An assurance engagement must have five fundamental elements
C. A fundamental element for an assurance engagement is engagement fee
D. A review of historical financial statements is not an assurance service

1. Responsible parties and intended users may be from the same entity.
ll. Responsible parties and intended users may be from the different entities.
A. I only
C. Both I and II
B. Il only
D. Neither I nor II
7. The is the outcome of the evaluation or measurement of a (an).
A. Subject matter; subject matter information

B. Subject matter information; subject matter
C. Subject matter; evidence
D. Evidence; subject matter
8. Classify the following subject matter:

I. Internal controls
II. Facility capacity
A. Physical characteristics, systems and processes

B. Systems and processes, physical characteristics
C. Behavior, physical characteristics
D. Physical characteristics, behavior

1. Reliability of evidence is influence by its source and nature
II. Generalizations about reliability of evidence can be made without exceptions
A. I only
C. Both I and II
D. Neither I nor II
10. Which of the following types of evidence is most reliable?
A. Original copy of the Omnibus Loan and Credit Agreement

B. Photocopy of the Omnibus Loan and Credit Agreement
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C. Scanned copy of the Omnibus Loan and Credit Agreement

D. Faxed copy of the Omnibus Loan and Credit Agreement
11. ____is obtained from consistent evidence from different sources or of a different nature than from items or evidence
considered individually.
A More assurance
B. Less assurance
C. No assurance
D. Little assurance
12. Which of the following is an example of a formal criterion(a)?

1. Philippine Public Sector Accounting Standards
II. Number of times a committee meets in a year
C. Both I and II
A I only
B. Il only
13. Which refers to reliability of criteria?
A. Contribute to conclusions that assist decision making by users

B. Allow reasonably consistent evaluation or measurement of subject matter
C. Contribute to conclusions that are clear, comprehensive, subject to significantly different interpretations
D. Contribute to conclusions that are free from bias
14. Which is true about assurance engagement risk?
A. It is more specific than audit risk, since it encompasses audits, reviews and compilation.
B. It is wider in scope than audit risk, since it encompasses audits, reviews and other assurance engagements.
C. It is more specific than audit risk, since it encompasses audits, reviewsm and other assurance engagement.
D. It is wider in scope than audit risk, since it encompasses audits, reviews and compilations. and not
15. Evaluate the following statement as to (1) level of assurance and (2) form of conclusion:
"In our opinion internal control is effective, in all material respects, based on the COSO Framework."
A. (1) Positive; (2) Reasonable

C. (1) Negative; (2) Limited
B. (1) Reasonable; (2) Positive
D. (1) Absolute; (2) Positive
1. Which of the following statements is/are incorrect?

I. Financial statements audit are assurance services
II. Review of historical financial statements are assurance services
A. I only
C. Both I and II
B. Il only
D. Neither I nor II

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2. Which of the following is a distinguishing characteristic of attest engagements over direct reporting engagements?
A. Assertions
B. Assurance
C. Written report
D. Independence of the practitioner
3. Who is responsible for determining the nature, timing, extents of assurance procedures?
A. Practitioner
B. Practitioner and Responsible Party
C. Practitioner and Intended User
D. Practitioner, Responsible Party, and Intended User

1. Whenever practical, the assurance report is addressed to all the intended users
II. In certain cases, intended users may be limited to major stakeholders with significant and common interests.
A. I only
B. Il only
C. Both I and II
D. Neither I nor II
5. Which of the following statements best describes the logical relationship among audits, attest engagements, and
assurance engagements?
A. All attest engagements are audits, but not all audits involve attestation.
B. All assurance engagements, including review, involve attestation.
C. An audit provides assurance, but does not involve attestation.
D. All audits are attest engagements, but not all attest engagements are audit.
6. Which of the following statements is incorrect?
A. Intended users refer to the person, persons, or class of persons for whom the practitioner prepares the assurance
report.a
B. Responsible party pertains to the person or persons who in a direct reporting engagement, is responsible for the
subject matter; or in an assertion-based engagement, is responsible for the subject matter information (the assertion),
and may be responsible for the subject matter.
C. Criteria represent the benchmarks used to evaluate or measure the sub matter, ding where relevant, benchmarks for
presentation and disclosure.
D. Assertions pertain to All information gathered by the practitioner in evaluating the subject matter against criteria, on
which the conclusion is
2-1 TRUE OR FALSE
T 1. Auditors serve numerous parties, but most importantly is the public, as exemplified by investors, creditors and
other stakeholders.
F 2. External auditors enhance credibility of information by helping the management in preparing the financial
statements and designing and implementing internal controls.
T 3. Assertions are representations made by an audit client, explicit or otherwise, about economic actions and events.
F 4. Providers of external audits and internal audits are both independent from the management which allows them to
perform financial statements audit.
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F 5. The overall objective of the auditor in financial statements audit is to have an opinion on whether the financial
statements are prepared, in all material respects, in accordance with the criteria.
T 8. Financial statements should not favor one user over another, as such, the interest of the users must have no
conflicts.
T 9. External audit benefits the public by lending credibility to the items presented in the financial statements.
F 10. Financial information is more reliable when the internal controls of the are effective, as such, external auditors
also express an opinion over the effectiveness of these controls. entity
2-2 TRUE OR FALSE
F 1. The auditor is expected to detect both fraud and error during the course of performing external audits.
T 2. The financial statements must be adequately supported by records and documents to be considered an
appropriate subject matter.
T 3. The applicable financial reporting framework used as criteria in performing the audit is driven by the information
needs of its users.
T 4. The opinion to be expressed by the auditor depends on the materiality of non-compliance from the framework and
pervasiveness of the related effects of such non-compliance.
F 5. Depending on the magnitude of audit procedures, the level of assurance provided by auditors ranges from high to
absolute level.
6. The accumulation of persuasive evidences leads to the establishment of conclusive evidences in detecting material
misstatements.
F 7. Inherent limitations of an audit arise due to the auditor's exposure to inherent risks, control risks and detection
risks.
T 8. External audits provide value to organizations through reduction of information risk that may lead to lower cost of
capital.
F 9. The high demand for audit is present because it is required by law.
T 10. One of the ways to reduce information risk is to share such risk with the preparer of the information.
T 11. The auditor is not, and cannot, be held responsible for fraud and error.
F 12. The audit of financial statements relieves the management and/or those charged with governance of their
responsibilities with the financial statements.
T 13. An audit, when carried out, may act as a deterrent for fraud and error.
F 14. When the auditor is unable to gather sufficient appropriate evidence, he or she ordinarily selects between
qualified and adverse opinion.
F 15. An auditor may provide an absolute level of assurance in extremely rare circumstances.
2-3 MULTIPLE CHOICE QUIZZERS

1. Which of the following statements refers to the definition of auditing?
A. A service activity which function is to provide quantitative information primarily financial in nature about economic
entities that is intended to be useful in making economic decisions.
B. The art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and
events which are in part at least of a financial character and interpreting the results thereof.
C. The process of identifying, measuring and communicating economic information to permit informed judgment and
decisions by users of the information.
D. A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions
and events to ascertain the degree of correspondence between these assertions and established criteria and
communicating the results thereof.
2. Which of the following types of auditing is performed most commonly by CPAS on a contractual basis?
A. Internal auditing
B. Government auditing
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C. BIR auditing
D. External auditing
3. This type of audit involves a review of an organization's procedures and methods for the purpose of evaluating
efficiency and effectiveness of operations, identifying areas for improvement, recommendations to improve
performance. and making
A. Financial statement audit

C. Compliance audiT
B. Operational audit
D. Internal audit
4. An objective of operational audit is to assess whether
A. Specific units of the entity are functioning effectively and efficiently

B. Financial statements fairly reflect the results of operations
C. An organization's procedures adhere to specific procedures, rules or regulations set by an authoritative body
D. Internal control structure is designed and implemented
5. An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is
classified as a(n):
A. Audit of financial statements.

B. Compliance audit.
C. Operational audit.
D. Production audit.
6. The internal auditing profession is believed to have advanced primarily as a consequence of
A. Increased interest by graduating students and experienced auditors

B. The limitation of external audit scope
C. Job qualification specifications that include added emphasis on background knowledge and skills
D. Increased complexity and sophistication of business operations
7. The internal audit staff has been asked to conduct audit of the purchasing department. Top management feels that
there have been some production bottlenecks recently because of out-of-stock situations. What is the primary objective
of the auditors in this assignment?
A. To appraise the economy with which resources are employed.

B. To review the means of safeguarding assets and verifying the existence of such assets.
C. To ascertain whether results are consistent with established objectives and whether operations are being carried out
as planned.
D. To review the reliability and integrity of financial and operating information.
8. Which is incorrect regarding internal auditing?
A. It encompasses both financial and operational auditing.

B. An internal audit department reports to the audit committee management. and senior
C. It provides assistance primarily to management and those charged with governance.
D. It can be performed only by internal auditors.
9.To operate effectively, an internal auditor must be independent of

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A. the line functions of the organizations.

B. the employer-employee relationship which exists for other employees in the organization.
C. the entity.
D. all of the above.
10. The internal auditor typically reports directly to
A. The management of the company.

B. The audit committee and the management of the company.
C. The audit committee and the board of director.
D. The board of director and the external auditor.
11. Which of the following types of audit uses as its criteria laws and regulations
A. Operational audit
e. Compliance audit
B. Financial statement audit
D. Financial audit
12. Which of the following is both true for external financial statements auditor and an internal auditor?
A. They help the entity's employees to perform their functions effectively

B. The focus of the engagement is financial information only
C. They are required to be independent of the entity
D. They ultimately report their findings to the audit committee
13. These audits are similar in most respects.
A. Operational and compliance

C. Financial and compliance
B. Operational and government
D. Financial and operational
14. Which statement is correct regarding the relationship between internal auditing and the external auditor?
A. Some judgments relating to the audit of the financial statements are those of the internal auditor.
B. The external audit function's objectives vary according to management's requirements.
C. Certain aspects of internal auditing may be useful in determining the nature, timing and extent of external audit
procedures.
D. The external auditor is responsible for the audit opinion expressed, however that responsibility may be reduced by
any use made of internal auditing.
15. Which of the following terms best describe the audit of a taxpayer's return by a BIR auditor?
C. Compliance audit
B. Internal audit
D. Government audit
:

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1. Audits of historical financial information are governed

I. Philippine Standards on Auditing
II. Philippine Standards on Assurance Engagements
III. Philippine Standards on Quality Control
A. I and II only
B. I and III only
C. II and III only
D. I, II and III
2. The predominant type of attestation service performed by CPAs is
A. Audit
C. Compilation
B. Review
D. Management consulting
3. Which of the following is an incorrect phrase?
A. Auditing is a systematic process.

B. Auditing objectively obtains and evaluates evidence.
e. Auditing evaluates evidence regarding assurance.
D. Auditing communicates results to interested users.
4. The word auditing comes from the Latin audire, which means:
A. To see
C. To detect
B. To hear
D. To test
5. Which of the following types of audits is performed to determine whether an entity's financial statements are fairly
stated in conformity with accepted accounting principles?
C. Compliance audit
D. Performance audit
B. Financial statement audit
6. The overall objectives of the auditor in conducting an audit of financial statements are
1. To obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether caused by fraud or error.
H. To report on the financial statements.
III. To obtain conclusive rather than persuasive evidence. IV. To detect all misstatements, whether due to fraud or error.
A. I and II only
B. II and IV only
C.1, II and III only
D. I, II, III and IV
7. An auditor's overall objective in a financial statement audit is to

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A. Determine that all individual accounts and footnotes are fairly presented.
B. Employ the audit risk model.
C. Express an opinion on the fair presentation of the financial statements in accordance with generally accepted
accounting principles.
D. Detect all errors and fraud.
8. Which of the following best describes the objective of an audit of financial statements?
A. To express an opinion whether the financial statements are prepared in accordance with prescribed criteria.
B. To express an assurance as to the future viability of the entity whose financial statements are being audited.
C. To express an assurance about the management's efficiency or effectiveness in conducting the operations of entity.
D. To express an opinion whether the financial statements are prepared, in all material respect, in accordance with an
identified financial reporting framework.
9. It refers to the level of the auditor's satisfaction as to the reliability assertion being made by one party for the use by
another party.
A. Confidence Level
B. Reasonableness Level
C. Assurance Level
D. Tolerable Level
10. The auditor's opinion
A. Enhances the credibility of the financial statements.

B. Is an assurance as to the future viability of the entity.
C. Is an assurance as to the efficiency with which management has conducted the affairs of the entity, but not
effectiveness.
D. Certifies the correctness of the financial statements.
11. A difference between the amount, classification, presentation, or disclose 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.
A. Non-compliance
B. Misstatement
C. Fraud
D. Error
12. Which does not describe the level of assurance provided in a financial statement audit?
A. High
C. Above average
D. Positive
B. Reasonable
13. Absolute assurance cannot be provided in an audit because of: (Choose the exception)
A. Human errors in judgment
B. The employment of test procedures
C. The need to obtain conclusive evidence
D. Limitations inherent in the client's internal controls

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14. Which of the following statements does not properly describe a limitation of an audit?
A. Many financial statement assertions cannot be audited.

B. Many audit conclusions are made on the basis of examining a sample of evidence.
C. Some evidence supporting peso representations in the financial statements must be obtained by oral or written
representations of management.
D. Fatigue and carelessness can cause auditors to overlook pertinent evidence.
15. Absolute assurance is rare in practice due to limitations of assurance engagement. Which of the following does not
describe such limitation?
A. Use of selective testing

B. Inherent limitation of internal controls
C. The fact that most evidence are merely persuasive
D. The procedures applied to reasonable assurance engagement are usually comprehensive

1. Which of the following statements relating to elements of an audit engagement is incorrect?
A. Parties in an audit engagement only includes the auditor and the client's management.
B. The criteria used is the PFRS or IFRS.
C. The auditor shall obtain sufficient appropriate evidence which will be used as a basis in expressing an opinion.
D. The recipient of the audit report may be restricted.
2. Primary responsibility for the assertions in financial statements rests with the:
A. Audit partner assigned to the engagement

B. Senior auditor in charge of field work
C. Staff auditor who drafts the statements
D. Clients management
3. The term that describes the role of persons entrusted with the supervision, control and direction of an entity is
A. Management
B. Administration
C. Governance
D. Government
4. Which of the following describes the responsibility of the auditor?
A. Preparation and presentation of the financial statements in accordance with the applicable financial reporting
framework
B. Determining the scope of audit in accordance with PSAs and other applicable regulations of professional bodies
C. Prevention and detection of fraud and error
D. Use the audit report which contains the opinion expressed by the auditor
5. Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?
A. An auditor may not draft an entity's financial statements based on information from management's accounting
system.
B. The adoption of sound accounting policies is an implicit part of an auditor's responsibilities.
C. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.
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D. Making suggestions that are adopted about an entity's internal control environment impairs an auditor's
independence.
6. Which of the following accurately depicts the auditor's responsibility with respect to Statements on Auditing
Standards?
A. The auditor is required to follow the guidance provided by the Standards, without exception.
B. The auditor is generally required to follow the guidance provided by Standards with which he or she is familiar, but
will not be held responsible for departing from provisions of which he or she was unaware.
C. The auditor is generally required to follow the guidance provided by the Standards, unless following such guidance
would result in an audit that is not cost-effective.
D. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any
departures.
7. Which of the following factors most likely would influence an auditor's determination of the auditability of an entity's
financial statements?
A. The complexity of the accounting system

B. The adequacy of the accounting records
C. The existence of related-party transactions
D. The operating effectiveness of control procedures
8. Which of the following presumptions is correct about the reliability of audit evidence?
A. Information obtained indirectly from outside sources is the most reliable evidential matter.
B. To be reliable, audit evidence should be conclusive rather than persuasive.
C. Reliability of audit evidence refers to the amount corroborative evidence obtained.
D. An effective internal control structure provides more assurance about the reliability of audit evidence.
9. Third-party users of the audit report expect the auditor to do all of the following except:
A. To evaluate measurements and disclosures made by management

B. To provide a biased evaluation of the FSs
C. To determine whether financial statements are presented in with GAAP
D. To gather sufficient evidence to support their opinion
10. Management of a company is responsible for
A. Hiring the auditor

B. Preparing the financial statements
C. The audit workpapers
D. Independence and obtaining evidence
11. The auditor's responsibility in an audit engagement is limited to:
A. Expression of an opinion on the FSs

B. Expression of an opinion on the FSS and adequacy of the notes to FSs
C. Opinion issued and fairness of presentation of FSS
D. Expression of opinion and inclusion of supplementary information, if necessary

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12. Which of the following statements is not true regarding the appropriateness of audit evidence
A. Relevance is enhanced by an effective information system.

B. To be appropriate, evidence must be both valid and relevant.
C. Validity is related to the quality of the client's information system.
D. Relevance must always relate to audit objectives.
13. Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance to an
absolute assurance. In practice, professional accountants cannot provide absolute assurance because of the following,
except
A. Professional accountants employ testing process

B. The internal control has inherent limitations
C. The use of judgement in gathering evidence and drawing conclusions based on that evidence
D. The lack of expertise of professional accountants in doing a systematic engagement process
14. The independent audit is important to readers of financial statements because it
A. Determines the future stewardship of the management of the company whose financial statements are audited
B. Measures and communicates financial and business data included in financial statements
C. Involves the objective examination of and reporting on management prepared statements
D. Reports on the accuracy of all information in the financial statements
15. Which of the following statements is/are true?

Statement 1: In an audit of financial statements, the auditor may decide to eliminate audit sampling.
Statement 2: The auditor shall obtain conclusive evidence.
Statement 3: All throughout the audit, the auditor shall exercise professional judgment.
A. Only 1 statement is correct

B. Only 2 statements are correct
C. All statements are correct
D. All statements are incorrect

Statement 1: In performing compliance audits, a CPA issues a report on the degree of compliance with the criteria used
for the engagement (e.g. laws, rules or regulations set by the auditor).
Statement 2: Independent auditors are expected by management to be experts who actively participate in management
decision-making. Statement 3: A typical objective of an operational audit is for the auditor to determine whether the
financial statements fairly presents the entity's financial position, results of operations, and cash flows.
A. Only one statement is correct

B. Only two statements are correct
2. Auditors of the Commission on Audit perform the role of
A. Internal auditors.

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C. Independent auditors.
B. Financial consultants.
D. Management accountants.
3. AAA Corp. has engaged a public accounting firm to issue a report on the accuracy of product quality specifications
included in trade sales agreements. This is an example of a (an):
A. Financial statement audit C. Compliance audit
B. Attestation service
D. Operational audit
4. A government auditor evaluates a disbursement to determine if it is necessary, excessive or extravagant in

accordance with existing rules and regulations. What kind of audit is he conducting?
Compliance audit
Yes
Economy audit
ABCD A.
B.
C.
No
Yes
No
Yes
Yes
D.
No
No
5. Operational audits generally have been conducted by internal and COA auditors, but may be performed by certified
public accountants. A primary purpose of an operational audit is to provide A. A measure of management performance
in meeting organizational
goals.

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B. results of internal examinations of financial and accounting matters to a company's top-level management. C. Aid to
the independent auditor, who is conducting the examination of
the financial statements.
D. A means of assurance that internal accounting controls are functioning as planned.
Aim... Believe... Claim...
Page 63
Statement 1: The assumption underlying an audit of financial statements is that they will be used by different groups for
similar purposes. Statement 2: Information risk refers to the risk that the auditor may express
an unqualified opinion on the financial statements when in fact the financial statements are materially misstated.
Statement 3: The biases and motives of the information provider may be a
cause of information risk.
B. Only two statements are correct D. All statements are incorrect
7. Which of the following is a cause of information risk?
A. Voluminous data
B. Remoteness of the information.
C. Bias motives of the provider of information
D. Each of the above is a cause of information risk The need for an independent audit arises due to the following
reasons.
(Choose the expectation)
A. Expertise of auditors
B. Competing interests
C. Remoteness of users
D. Complexity of decision-making
Which of the following statements does not describe a condition that creates
9. a demand for auditing?
A. Conflict between an information preparer and a user can result in biased information.
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B. Information can have substantial economic consequences for a decision
maker.
C. Expertise is often required for information preparation and verification.
D. Users can directly assess the quality of information.
10. Generally, as audit quality increases then
A. The cost of capital increases B. The cost of capital decreases
C. The cost of capital remains the same D. The cost of capital increases in an exponential rage
11. Which of the following is the best reason why audits are necessary? A. Several regulations require financial
statements to be audited
B. So that management and the auditor will share the responsibility for the financial statements
C. So that additional confidence is available to users of financial statements through the audit report
D. So that responsibility for the financial statements is transferred from management to the auditor
8.
12. Which of the following best describes the reason why an independent auditor reports on financial statements?
A. A poorly designed internal control system may be in existence. B. A management fraud may exist and it is more likely
to be detected by
independent auditors. C. Different interest may exist between the company preparing the
statements and the persons using the statements. D. A misstatement of account balances may exist and is generally
corrected
as the result of the independent auditor's work.
13. The need for an independent audit arises due to the following reasons. (Choose the expectation)
A. Expertise of auditors
B. Competing interests
C. Remoteness of users
D. Complexity of decision-making
14. The following may be considered as value-adding characteristics of an FS audit, except for:
A. Audit helps reduce information risk B. Audit reduces management's responsibility to prepare financial
statements
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C. Audit may be used to deter inefficiency and fraud
D. Audit may be used to enhance systems of internal controls
15. As per SRC Rule 68, the following shall submit financial statements audited
by an independent CPA to the SEC, except
A. Stock corporations with total assets or total liabilities greater than or equal to Php 600,000
B. Nonstock corporations with assigned capital greater than or equal to Php
C. Branch offices/representative offices of stock foreign corporations with an assigned capital greater than or equal to
Php 1,000,000 D. Regional operating headquarters of foreign corporations with total revenues greater than or equal to
Php 1,000,000
1. In "auditing" accounting data, the concern is with A. Determining whether recorded information properly reflects the
economic events that occurred during the accounting period. B. Determining if fraud has occurred.
C. Determining if taxable income has been calculated correctly. D. Analyzing the financial information to be sure that it
complies with
government requirements.
9-3
3. Which attribute relating to assumptions would an auditor be concerned when evaluating reasonableness of a client’s
accounting estimate?
a. Consistency w/ prior periods
- In this option, hindi kasi inindicate kung ano dapat yung consistent. One of the assumptions is consistent
with historical patterns, ibig sabihin yung accounting policies should be applied consistently.
b. Susceptibility to bias page 355
- So the correct answer is susceptibility to bias because the auditor need to be concerned kapag may
possibility na may bias yung estimate and nasa page 355 po yung assumptions ng auditor which are..
- On page 355 po kasi, nakalist yung assumptions regarding the reasonableness, isa dyan yun not
susceptible to bias, therefore if there is susceptibility to bias regarding the estimate the auditor should be
concerned
c. Insensitivity to variations
- I think insensitivity to variation do not relate to the assumptions when evaluating reasonableness of acc
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estimate
- Obviously, this is not one of the assumptions to check the reasonableness of an accounting estimate
and hindi naman pwede na maging insensitive sa variations about the estimate kasi it should be
consistent sa pag estimate.
d. Similarity with industry guidelines
- It is not enough na similar lang with the industry guidelines, it should be consistent. That is why
susceptibility to bias is the best answer
9-7
8. Choose the type of audit evidence that is considered most persuasive
a. Prenumbered receiving report forms
- Allows a company to investigate if there are any documents missing
- If a form is not prenumbered, an order can be prepared, and the employee can then take the
money without ringing the order into the cash register, leaving no record of the sale.
b. Management representation letter
- Written by a company’s external auditors, signed by senior company management
- Attests to the accuracy of the f/s
c. Client calculate of cost of goods sold
d. Bank statements submitted by the client
The answer is letter D bank statements submitted by the client because as stated on page 331.... Although
yung bank statements nasa possession ng client, they originated outside of the client and it is the most
persuasive relative to other options kasi ang a,b, and c prepared by the entity. Page 331
5-1 TRUE OR FALSE
1. Audit effectiveness is the primary objective of the auditor in engagement planning which results to the utilization of
least amount of resources.F
2. Audit planning helps the auditor properly organize and manage the audit engagement. T
3. For recurring audits, members of the previous year's engagement team are advised to participate in the planning of
the current year audit.T
4. Audit planning helps in achieving effective and efficient audits which must be completed before the performance of
further audit procedures.F
5. The audit plan sets the scope, timing and direction of the audit which leads to the establishment of the overall audit
strategy.F
6. Risk assessment procedures enable the auditor to understand the entity and its environment and identify and assess
risks of material misstatement.T
7. Risk assessment procedures help in specifically identifying the applicable further audit procedures to respond to
identified risks.T
8. Inquiry consists of seeking both financial and non-financial information from knowledgeable persons within the
entity.F
9. Observation consists of looking at a process or audit procedure.F
10. Physical verification of the entity's premises and plant facilities is considered an inspection procedure.T
5-2 TRUE OR FALSE
1.Analytical procedures enable the auditor to conclude if the fluctuations and relationships in the entity's financial
information make sense.T
2. Preliminary analytical review is only required for new or unusual business transactions entered by the entity during
the period under audit.
3. Industry benchmarks or averages may be used to develop expectations regarding financial statements. T
4. Only planning and concluding analytical review are required to be performed in an audit.
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5. Test of details obtains corroborative evidence for a particular assertion as compared to substantive analytical
procedures which doesn't.F
6. Materiality is an absolute concept as prescribed by the engagement standards.
7. Misstatements, including omissions, are considered to be material if individually they could reasonably be expected
to influence the economic decisions of users.F
8. The determination of materiality is a mathematical exercise with a prescribed formula that differs depending on the
industry of the entity.
9. The auditor should revise the overall materiality should he become aware of information during the audit that would
lead to a different amount.T
10. The identification and assessment of risks of material misstatements are both done at the financial statement and
assertion levels.
11. Detection risk is determined and controlled by the auditor.T
12. The results of preliminary engagement activities are also considered when establishing the overall audit strategy.
13. When the work of an expert is involved in the audit, the auditor's responsibility for the audit opinion is shared with
the expert.F
14. To comply with ethical requirements, the current year auditor shall communicate with the previous auditor for initial
engagements.
15. Establishing overall audit strategy and plan for audits of small entities need to be complex but not time consuming.F

1 Which of the following statements is/are correct?
Statement 1: The client should plan the audit work so that the audit will be performed in an effective manner.
Statement 2: The auditor should conduct the audit with an attitude of professional skepticism.
Statement 3: The auditor should develop and document an overall audit plan describing the scope and conduct of the
audit.
A. Only one statement is correct C. All statements are correct

B. Only two statements are correct D. All statements are incorrect
2. Adequate planning of the audit work helps the auditor of accomplishing the following objectives, except:
A. Gathering of all corroborating audit evidence.

B. Ensuring that appropriate attention is devoted to important areas of the audit.
C. Identifying the areas that need a service of an expert.
D. The audit work is completed efficiently.
3. The extent of planning will vary according to any of the following, except:
A. Size of the audit client.

B. Auditor's experience with the entity and knowledge of the business.
C. The nature and complexity of the audit engagement
D. The assessed level of control risk.
4. Which of the following statements is incorrect?

A. The auditor should plan the audit so that the engagement will be performed in an effective manner.
B. Planning an audit involves establishing the overall audit strategy for the engagement and developing the audit plan,
in order to reduce audit risk to an acceptably low level.
C. Planning involves the engagement partner and other key members of the engagement team to benefit from their
experience and insight and to enhance the effectiveness and efficiency of the planning process.
D. Planning is not a discrete phase of an audit, but rather a continual and iterative process that often begins shortly
after (or in connection with) the completion of the previous audit and continues until the finalization of the audit
program.
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5. The auditors plan should

A B C D
Precede action Y N Y Y
Be static Y N N N
Be cost-beneficial Y Y Y N

Statement 1: Obtaining knowledge of the entity business is an important part of the planning the audit work
Statement 2: The auditor's knowledge of the entity's business assists in the identification of events, transactions and
practices which may have a material effect on the financial statements.
C. Both statements are correct

A Only statement 1 is correct
B Only statement 2 is correct
D. Both statements are incorrect

Statement 1: The overall audit plan and the audit program should not be revised during the course of the audit.
Statement 2: The auditor should develop and document an audit program setting out the nature, timing and extent of
planned audit procedures required to implement the overall audit plan.
A Only statement 1 is correct

Only statement 2 is correct

Statement 1: According to PSA 300, the auditor may discuss elements of planning with those charged with governance
and the entity's management
Statement 2: The audit plan sets the scope, timing and direction of the audit guides the development of the more
detailed overall audit strategy.
Statement 3: The overall audit strategy is more detailed than the audit plan and includes the nature, timing and extent
of audit procedures to be performed engagement team members to obtain sufficient appropriate audit evidence to
reduce audit risk to an acceptably low level.
A Only 1 statement is correct

B. Only 2 statements are correct
9. Which of the following is least likely considered by the CPA when he makes an overall audit plan?
A. Identification of complex accounting areas including those involving accounting estimates

B. The effect of information technology on the audit
C. The content of the representation letters
D. The nature and timing of reports and other communication with the entity that are expected under the engagement
10. In designing audit programs, an auditor should establish specific audit objectives that related primarily to the
A Selected audit techniques

B. timing of audit procedures
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C. Financial statement assertions

D. Cost-benefit gathering evidence
11. Which of the following matters should be considered by the auditor in developing the overall audit strategy?
A. Important characteristics of the entity, its business, its financial performance and its reporting requirements including
changes since the date of the prior audit
B. Conditions requiring special attention, such as the existence of the related parties
C. The setting of materiality level for audit purposes
D. All of the above
12. The element of the audit planning process most likely to be agreed upon with the client before implementation of
the audit strategy is the determination of the
A. Evidence to be gathered to provide a sufficient basis for the auditor's opinion.

B. Procedures to be undertaken to discover litigation, claims, and assessments.
C. Pending legal matters to be included in the inquiry of the client's attorney.
D. Timing of inventory observation procedures to be performed.
13. Which of the following is most likely to require special planning considerations related to asset valuation?
A Inventory is comprised of diamond rings.

B. The client has recently purchased an expensive copy machine.
C. Assets costing less than P25,000 are expensed even when the expected life exceeds one year.
D. Accelerated depreciation methods are used for amortizing the costs of factory equipment.
14. The auditor should document the overall audit strategy and the audit plan, including significant changes made
during the audit engagement. Which of the following statements on documentation is incorrect?
A. Documentation of the overall audit strategy may be made in the form of a memorandum that contains key decisions
regarding the overall scope, timing and conduct of the audit.
B. The auditor may use standard audit programs or audit completion checklists, but such programs and checklists need
to be tailored to the particular client.
C. The auditor's documentation of any significant changes to the originally planned overall audit strategy and to the
detailed audit plan need not include the reasons for the significant changes. D. The form and extent of documentation
depend on such matters as the size and complexity of the entity, materiality, the extent of other documentation, and the
circumstances of the specific engagement.
15. In developing an overall audit strategy, an auditor should consider: precision limit.
A. Whether the allowance for sampling risk exceeds the achieved upper
B. Findings from substantive tests performed at interim dates.
C. Whether the inquiry of the client's attorney identifies any litigation, claims, or assessments not disclosed in the
financial statements.
D. Preliminary evaluations of materiality, audit risk, and internal control.

1. Assertions used by the auditor fall into the following categories, except:
A. Assertions about the faithful representations

B. Assertions about account balances at period end
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C. Assertions about classes of transactions and events

D. Assertions about presentation and disclosure
2. This serves as the set of instructions to assistants involved in the audit and as a means to control and record the
proper execution of the work of the personnel involved in the service.
A. Audit procedures
C. Audit program
D. Audit risk model
B. Audit plan
3. The auditor should design the written audit program, so that:
A. All material transactions will be selected for substantive testing.

B. Substantive tests prior to the balance sheet date will be minimized.
C. The audit procedures selected will achieve specific audit objectives.
D. Each account balance will be tested under either tests of controls or tests of transactions.
4. Audit procedures may be classified as risk assessment procedures and further audit procedures. Which of the
following best describes risk assessment procedures?
A. These procedures test the operating effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
B. These procedures are used to detect material misstatements at the assertion level.
C. These are procedures for obtaining an understanding of the entity and its environment, including its internal control,
to assess the risks of material misstatement at the financial statement and assertion levels.
D. These procedures include tests of details of classes of transactions, account balances, and disclosures and
analytical procedures.
5. One of the primary uses of an audit program is to

A. Provide for a standardized approach to the audit engagement
B. Serve as a tool for planning, directing and controlling the audit work
C. Document an auditor's understanding of the internal control
D. Delineate the audit risk accepted by the auditor
6. The audit program should contain the following, except:

A. Audit objective
B. Time budget for the various audit areas
C. Set of planned audit procedures
D. The combined assessed level of inherent
7. The audit program should set out the

A B C D
Nature of procedures Y N Y Y
Timing of planned procedures Y N N N
Extent of planned procedures Y Y Y N
8. The audit program usually cannot be finalized until the
A. Consideration of the entity's internal control has been completed.

B. Engagement letter has been communicated to the audit committee.
C. Reportable conditions have been communicated to the audit committee.
D. Search for unrecorded liabilities has been performed and documented.
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9. Which of the following is/are correct?

Statement 1: The auditor shall perform risk assessment procedures to provide a basis for the identification and
assessment of risk of material misstatement at financial statement and assertion levels.
Statement 2: Risk assessment procedures by themselves provide sufficient appropriate audit evidence on which to
base the opinion.

A. Only statement 1 is correct
B. Only statement 2 is correct
10. In performing an audit of financial statements, the auditor should obtain a sufficient knowledge of a client's business
and industry to
A. Develop an attitude of professional skepticism concerning management's financial statements assertions.

B. Make constructive suggestion concerning improvements causes the financial statements taken as a whole to be
materially misstated.
C. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be
materially misstated.
D. Understand the events and transactions that may have an effect on the client's financial statements.
11. The primary objective of procedures performed to obtain an understanding of the entity and its environment is to
provide an auditor with:
A. Audit evidence to use in assessing inherent risk.

B. A basis for issuing an opinion on the financial statements.
C. Knowledge necessary for risk assessment and audit planning.
D. An evaluation of the consistency of application of management's policies.
12. Which of the following procedures is not performed as a part of planning an audit engagement?
A. Reviewing working papers of the prior year

B. Performing analytical procedures
C. Designing an audit program
D. Test of controls
13. Which of the following procedures not normally performed as part of obtaining an understanding of the client's
environment?
A. Reading trade publications to gain a better understanding of the client's industry

B. Studying the internal controls over cash receipts and disbursements
C. Confirming customer accounts receivable for existence and valuation
D. Touring the client's facilities
14. Analytical procedures used in planning an audit should focus on
A. Reducing the scope of tests of controls and substantive tests.

B. Providing assurance that potential misstatements will be identified.
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C. Enhancing the auditor's understanding of the client's business.

D. Assuming the adequacy of the available evidential matter.
15. Analytical procedures used in planning an audit should focus on identifying
A. Material weaknesses in the internal control system

B. The predictability of financial data from individual transactions
C. The various assertions that are embodied in the financial statements
D. Areas that may represent specific risks relevant to the audit

1. If the acceptable level of detection risk is determined to be at a low level, the auditor may
A. Plan the timing of substantive tests at year-end
B. Reduce substantive tests based on assessment misstatements
C. Eliminate assessed level of non-sampling risk
D. Lower assessed of control from maximum maximum
2. What is the usual relationship between control risk and detection risk?
A. Direct
B. Same
C. Indirect
D. No relationship
3.Performance materiality would be
A. Established after test of controls but before performance of substantive tests

B. Optional for audits of non-listed entities
C. Different for balance sheet and income statement accounts
D. Normally set at a lower level than financial statement materiality
4. Fraud is highly difficult to detect if it is due to
A. Overstatement of transactions
C. Intercompany transactions
B. Understatement of transactions
D. Fixed assets
5. Which of the following scenarios would be considered an error?
A. Override of controls that appear to be operating effectively

B. Misapplication by management of an accounting policy
C. Concealment of transactions by employees
D. Omission of a transaction to favor a third party
6. Which procedure is least likely to be an audit planning procedure?
A. Signing of the engagement letter

B. Development of the overall audit strategy
C. Development of audit programs
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D. Performance of risk assessment
7. Audit plans are designed so that
A. The auditor's conclusions are supported by audit evidence gathered

B. Major audit procedures can be performed as at interim work
C. Inherent risk is assessed at a sufficiently low level
D. Management letter points can be shared to the client
8. An auditor should establish specific audit objectives relating to
A.Extent of audit procedures

b. Cost-benefit considerations
C. Assertions of financial statements
D. Performance of risk assessment procedures
9. the previous auditor to allow the review of previous audit For new audit clients, the incoming auditor requests the
client to authorize the previous auditor to allow the review of previous audit’s
Engagement Letter Audit Documentation Findings and Observations

A Y Y Y
B N Y Y
C N Y N
D Y N N
10. For continuing audit engagements, the auditor would most likely
A. Opt for a control reliance approach

B. Perform substantive analytical procedures
C. Review prior year audit documentation
D. Set the timing of procedures at year-end
11. In planning an audit, which of the following procedures would an auditor normally perform?
A. Sending of confirmation of transactions and balances to related parties

B. Comparison of anticipated performance to the financial statements
C. Obtaining the entity's inventory count sheet
D. Determination of sample sizes to examine occurrence of sales
12. Which of the following are considered further audit procedures?
Test of Controls Test of Details substantive analytical procedures

A YYY
B NYY
C YNN
D NYN
13. The audit plan would require a modification if
A. There is a key audit matter to be communicated in the auditor's report

B. Results of test of controls differ from initial assessment
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C. A material misstatement has been identified in the accounts

D. The company has a share-based compensation plan
14. What is the purpose of obtaining knowledge about a new client's and its industry? business
A. To be able to extrapolate misstatements noted in samples to the whole population

B. To understand events and transactions affecting the client's financial statements
C. To detect fraudulent financial reporting
D. To obtain information about the latest internal controls in the industry
15. As the acceptable level of detection risk increases, the assurance provided by
A. Substantive tests should decrease

B. Substantive tests should increase
C. Test of controls should increase
D. Test of controls should decrease
1. The audit risk model is used primarily
A. For planning purposes in determining how much evidence to accumulate.

B. While doing tests of controls.
C. To determine the type of opinion to express.
D. To evaluate the evidence which has been gathered.
2. In performing analytical procedures, set the following procedures in proper order.

1. Calculate predictions and compare them to recorded amount
II. Develop an expectation
Ill. Define a significant difference
IV. Investigate significant difference
A. i, ii, iii, iv
B. ii, i, iii, iv
C. i, ii, iv, iii
D. ii, i, iv, iii
3. Which of the following results from analytical procedures might indicate inventory obsolescence?
A. A decline in inventory turnover

B. A decline in the gross margin ratio
C. A decline in days' sales in inventory
D. An increase in operating margin
4. Audit risk has three components: inherent risk, control risk and detection risk. Which of the following statements is
correct?
A. Detection risk is a function of the efficiency of an audit procedure.
B. . Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.
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C. The risk that material misstatement will not prevent or detected on a timely basis by internal control can be reduced
to a zero by effective controls.
D. Levels of inherent risk, control risk and detection risk can be changed at
5. Inherent risk and control risk differ from detection risk in that inherent risk the discretion of the auditor. and control
risk are:
A. Elements of audit risk while detection risk is not.

B. Changes at the auditor's discretion while detection risk is not.
C. Considered at the individual account balance level while detection risk is
D. Functions of the client and its environment while detection risk is not.
6. There is an inverse relationship that exist between the acceptable level of detection risk and the
A. Risk of falling to discover material misstatement

B. Preliminary judgments about materiality levels
C. Assurance provided by substantive tests
D. Risk of misapplying audit process
7. On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control
risk, and therefore the risk of material misstatement, from that originally planned. To achieve an overall audit risk level
that is substantially the same as the planned audit risk level, the auditor would:
A. Increase inherent risk

C. Increase materiality levels
B. Decrease substantive testing
D. Decrease detection risk
8. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about
materiality?
A. The anticipated sample size of the planned substanti

ve tests.
B. The entity's annualized interim financial statements.
C. The results of the internal control questionnaire.one of th
D. The contents of the management representation letter.
9. Which of the following statements is not correct about materiality?
A. The concept of materiality recognizes that some matters are for fair presentation of financial statements in conformity
with GAAP, while other matters are not important. important
B. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that
could be material to any one of the financial statements.
C. Materiality judgments are made in light of surrounding circumstanced and necessarily involve both quantitative and
qualitative judgments.
D. An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person
who will rely on the financial statements.
10. In considering materiality for planning purposes, the auditor believes that misstatements aggregating P100,000
would have material effect on an entity's income statement, but that misstatements would have to aggregate P80,000
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to materially affect the statement of financial position. Ordinarily, it would be appropriate to design auditing procedures
that would be expected to detect misstatements
A. P180,000 that aggregate;

C. P90,000
B. P100,000
D. P80,000
11. Which of the following statements concerning materiality thresholds in incorrect?
A. Materiality thresholds may change between the planning and review stages of the audit. These changes may be due
to quantitative and/or qualitative factors.
B. The smallest aggregate level of errors or fraud that could be considered material to any of the financial statements is
referred to as a materiality threshold.
C/ In general, the more misstatements the auditor expects, the higher should be the aggregate materiality threshold.
D. Aggregate materiality thresholds are a function of the auditor's preliminary judgment concerning audit risk.
12. In connection with the planning phase of an audit engagement, which of the following statements is always correct?
A. Final staffing decisions must be made prior to completion of the planning stage.
B. Observation of inventory count should be performed at year-end.
C. A portion of the audit of a continuing audit client can be performed at interim dates.
D. An engagement should not be accepted after the client's financial year end
13. A retailing entity uses the Internet to execute and record its purchase transactions. The entity's auditor recognizes
that the documentation of details of transactions will be retained for only a short period of time. To compensate for this
limitation, the auditor most likely would:
A. Compare a sample of paid vendors' invoices to the receiving records at year-end.
B. Plan for a large measure of tolerable misstatement in substantive tests.
C. Perform tests several times during the year, rather than only at year
D. Increase the sample of transactions to be selected for cutoff tests. end.
14. Which of the following procedures should be performed by the auditor prior
1. Perform procedures regarding the acceptance of the client relationship to starting an initial audit? and the specific
audit engagement.
11. Communicate with the previous auditor, of auditors, in compliance with relevant ethical requirements. where there
has been a change
A. I only
B. Il only
C. Both I and II
D. Neither I nor II
15. Which of the following activities should be performed by the auditor at the beginning of the current audit
engagement?
1. Perform procedures regarding the continuance of the client relationship and the specific audit engagement.
II. Evaluate compliance with the requirements of the Code of Ethics for Professional Accountants in the Philippines,
including independence.
III. Establish an understanding of
A. I and II only the terms of the engagement.

C. I and III only
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B. II and III only

D. I, II, and III
6-1 TRUE OR FALSE
1.Internal control is effected by those charged with governance, management and other personnel.T
2. Most controls are directed at routine or standard transactions which impose a limitation affecting their effectiveness.
3. Accounting controls promote operational efficiency and adherence to managerial policies.F
4. All controls adopted by management of an entity to assist in achieving management's objectives must be considered
in the audit.
5. A common control is uniformly designed and is implemented consistently across a single entity or location or at
different entities or locations.T
6. Control environment is the basis on which an effective system of internal control is built and operated in an
organization.
7. The tone at the top regarding the relevance of internal control, includingF
8. The organizational structure also establishes the flow of information between levels in an entity. ethical requirements,
is established by management.
9. The auditor shall identify the business risks relevant to financial reporting objectives of the entity and decide on how
to manage those risks.F
10. Communication and information are vital in making all relevant parties understand internal control responsibilities
and
6-2 TRUE OR FALSE
1. Control activities are designed to detect risks at different levels of the organization to ensure the achievement of its
objectives.F
2. At least majority of the five components of internal control must be implemented and be operated effectively to
ensure attainment of objectives.
3. Segregation of duties over cash receipts and recording is an example of anentity-wide control,F
4. After assessing the inherent risk, the auditor may judge to proceed directly in performing substantive procedures
without consideration of internal control.
5. In order to test the controls, their design and implementation are being evaluated.F
6. Business process narratives, process maps, risk and control matrices aresome of the commonly used forms of
control documentation.
7. A gap in internal control may be identified through an effective internal control questionnaire which highlights
strengths and weaknesses of the system through a structured series of questions.T
8. If the results of inquiry of entity personnel show no changes in the entity's processes, the prior year documentation of
controls may be carried forward.
9. Test of controls are designed to obtain sufficient and appropriate evidence as to the operating effectiveness of
relevant controls.T
10. If an understanding of the design and implementation of a control is obtained, its operating effectiveness must
likewise be evaluated.
11. Inquiry alone is not enough to test the operating effectiveness of controls.T
12. If the control risk assessment is set at the maximum level, the auditor is required to document the basis for such
judgment.
13. A material weakness in internal controls is present when a deficiency or combination of deficiencies in internal
control is of sufficient importance to merit the attention of those charged with governance. F
14. If a significant deficiency in internal control has been identified, the auditor shall communicate those in writing to
management or to those
15. OBTAINING AN UNDERSTANDING AS TO THE DESIGN and implementation of controls would lead to a
conclusion as to their operating effectiveness. F

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1. Effectiveness and efficiency of operations Reliability of financial reporting
A. Compliance with applicable laws and regulations A. Internal auditing

C. Business strategy
B. Internal control
D. Accounting process
2. Which of the following best describes an internal control system?
A. 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, orderly and efficient conduct of its business, including adherence to
management policies; safeguarding of assets; prevention and detection of fraud and error; accuracy and completeness
of the accounting records; and timely preparation of reliable financial information.
B. The series of tasks and records of an entity by which transactions are processed as a means of maintaining financial
records. Such systems identify, assemble, analyze, calculate, classify, record, summarize
and report transactions and other events.
C. This includes, but is not limited to, plan of organization and the procedures and records that are concerned with the
decision processes leading to management's authorization of transactions. It promotes operational efficiency and
adherence to managerial policies.
D. This comprises the plan of organization and the procedures and records that are concerned with the safeguarding of
assets and the reliability of financial records. It involves systems of authorization and approval controls over assets,
internal audit and all other financial matters.
3. Which of the following is not one of the essential concepts of internal controls?
A. It is a process
B. It is by those charged with governance, management, and other personnel in an
C. It is a means entity tool management to achieve the entity's
D. It can be expected to provide absolute assurance regarding that the used achievement of the entity's objectives
4. Internal control can only provide reasonable, not absolute, assurance of achieving entity control objectives. One of
the factors limiting the likelihood of achieving those objectives is that:
A. The auditor's primary responsibility is the detection of fraud.

B. The board of directors is active and independent.
C. The cost of internal control should not exceed its benefits.
D. Management monitors internal control.
5. Which of the following is an example of an inherent limitation in a client's internal control system?
A. The effectiveness of procedures depends on the segregation of employee duties.

B. Procedures are designed to assure the execution and recording of transactions in accordance with management's
authorization.
C. In the performance of most control procedures, there are possibilities of errors arising from mistakes in judgment.
D. Procedures for handling large numbers of transactions are processed by information technology (IT) equipment.

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6. An internal control system that is working effectively
A. Eliminates risk and potential loss of to the entity

B. Cannot be circumvented by management
C. Reduces the need for management the review exception reports on a day-to-day basis
D. Is unaffected by changing circumstances and conditions encountered by the entity
7. Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an
entity's internal control?
a. Incompatible duties.
b.. Management override.
C. Mistakes in judgment.
D. Collusion among employees.
8. Which of the following statements best describes "control activities"?
A. The entity's process for identifying business risks relevant to financial reporting objectives and deciding about
actions to address those risks, and the results thereof.
B. The system for transferring information from transaction processing systems to the general ledger or the financial
reporting system.
C. Policies and procedures that help ensure that management directives are carried out.
D. This includes the governance and management functions and the attitudes, awareness, and actions of those
charged with governance and management concerning the entity's internal control and its importance
CHAPTER 7
1. The transaction cycles approach leads to efficient processing of large number of transactions because
A Transaction cycles are easier to computerize

B. A large number of transactions within a given cycle can be categorized into a relatively small number of distinct
types.
C The transaction cycle approach represents the natural order of business
D Transaction cycles are easy to understand
2. What is the major difference between the revenue and the expenditure cycle?
A The revenue cycle includes marketing activities, the expenditure cycle does not
B In the revenue cycle cash is received, in the expenditure cycle cash is paid out
C. The expenditure cycle includes paying employees.
D. The revenue cycle includes the activity of obtaining funds from investors
3. The business owners obtain financing from outside investors, which results in an inflow of cash into the company
This transaction is considered to be part of which cycle?
A The revenue cycle

B The payroll cycle
C The production cycle
D. The financing cycle
4. All transaction cycles feed information directly into the

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A Governmental reports
B Financial statements
C Financing operations
D General ledger and reporting system
5. The overall objective in the audit of the sales and collection cycle is to evaluate whether
A The sales account and the accounts receivable account are free of errors
B. The sales account and the accounts receivable are free of material errors
C. The accounts balances affected by the cycle are fairly presented in accordance with GAAP
D. The sales account and the accounts receivable account are presented fairly in accordance with GAAP
6 Which of the following is not typically included in the sales and collection
A Bad debt expense

B Allowance for uncollectible accounts.
C Sales returns and allowances
D Cash credits from the cash disbursement journal
7 In considering internal control within the revenue/receipt cycle, what is the purpose of a transaction walk through?
A To assure that employees are performing assigned functions accurately

B To confirm the auditor's understanding of the internal control structure.
C. To select documents for detailed tests of controls
D To verify the results of the auditor's sampling plan.
8. Which among the following is a transaction document not found in the "revenue" cycle?
A Sales order
B Requisition form
C Bill of lading
D. Sales invoice
9 Which of the following is not normally considered a step in the credit sales functions?
A Accepting customer orders

C Approving credit
B Shipping the sales orders.
D. Acquiring goods to fill the order
10 Before goods are shipped on account, a properly authorized person must
A Prepare the sales invoice

B Approve the journal entry
C. Approve credit
D Verify that the unit price is accurate
11 To determine whether internal control operates effectively to minimize errors of failure to post invoices to the
customer's accounts ledger, the auditor would select a sample of transactions from the population represented by the
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A Bill of lading file

B Sales invoice file
Customer order file
D Subsidiary customer accounts ledger
12. To test for unsupported entries in the ledger, the direction of audit testing should be from the
a. journal entries
B. ledger entries
C Original source documents
D Externally generated documents
13 Tracing copies of sales invoice to shipping documents provides evidence that
A Shipments were recorded as receivables

B Billed sales were shipped
C Shipments were billed
D Debits to accounts receivable were for sales shipped
14. Which of the following functions is not common to the expenditure/disbursement cycle?
A Resources are acquired from vendors in exchange for obligations to pay

B Obligations to vendors are paid
C Resources are held, used or transformed
D Resources are acquired from employees in exchange for obligations to pay
15 The primary audit objective regarding the purchasing of materials by the client is to
A Ascertain that materials paid for are on hand.

B Observe the annual physical count
C. Investigate the recording of unusual transactions regarding materials
D Determine the reliability of financial reporting by the purchasing function
1. To achieve good internal control, which department should perform the activities of matching shipping documents
with sales orders and preparing daily summaries?
A Billing department
B Shipping department
C Credit department
D Sales order department
2 Which of the following control procedures may prevent the failure to bill customers for some shipments?
A Each shipment should be supported by a pre-numbered sales that is accounted for

B Each sales order should be approved by authorized personnel invoice
C Sales journal entries should be reconciled to daily sales summaries
D Each sales invoice should be supported by a shipping document
3 In the event the customer failed to submit a remittance advice, who among the entity's personnel shall prepare a
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remittance advice?
A Credit manager
B Sales manager
C Receptionist
D. Accounts receivable clerk
4. Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to
maximize sales volume at the expense of high bad debt write-offs?
A Employees responsible for authorizing bad debt write-offs are denied access to cash
B. Employees involved in the credit granting are separated from sales function
C Shipping documents and sales invoices are matched by an employee who does not have authority to write-off bad
debts.
D Subsidiary accounts receivable records are reconciled to the control. account by an employee independent of the
authorization of credit
5. To achieve control when there is no billing department, the billing function should be performed by the
A Accounting department
B. Shipping department
C Sales department
D. Credit and collection department
6. Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances
from the mail room?
A The cashier makes the daily deposit at a local bank

b The cashier prepares the daily deposit
C The cashier endorses the checks
D The cashier posts the receipts to the accounts receivable subsidiary ledger
7. Which of the following fraudulent activities most likely could be perpetrated due to lack of effective control in the
revenue cycle?
A The failure to prepare shipping documents may cause an overstatement of inventory balances.
B. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash.
C Fictitious transactions may be recorded that may cause an
D Claims received from customers for goods returned may be intentionally understatement of revenues and
overstatement of receivables
8. Assuming cash receipts from credit sales have been misappropriated, which of the following is likely to conceal the
misappropriation and unlikely to be detected? recorded in other customer's accounts
A Understating the sales journal

C Overstating the accounts receivable control account
Overstating the accounts receivable subsidiary ledger
D. Overstating the cash receipts journal
9. During the review of a small owner-managed company's internal control the auditor discovers that the accounts
receivable clerk approves the memas and has access to cash. Which of the following controls would offer this
deficiency?
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A The owner reviews errors in billings to customers and posting t subsidiary records.
B. The owner reviews credit memos after they are recorded
C. The controller réconciles the detailed receivables records to the general ledger
D. The controller reviews the monthly bank statement directly and reconciles the checking accounts.
10. Sales invoices may be recorded in the incorrect accounting period computer comparison of the invoice date with
the accounting period when the goods were shipped relates to the
A. Valuation or allocation assertion.

B. Completeness assertion.
C. Existence or occurrence assertion.
D. Existence or occurrence assertion and to the completeness assertion
11: A request by an authorized employee for goods or services is made on the
A. Purchase order.
b. Purchase requisition
C. Debit memo
D. Acquisition transaction file
12. Which of the following is a primary function of the purchasing department?
A. Ensuring the acquisition of goods of a specified quality.

B. Authorizing the acquisition of goods.
C. Verifying the propriety of goods of a specified quality.
D. Reducing expenditures for goods acquired.
13. Internal contral is improved when the quantity of merchandise ordered s omitted from the copy of the purchase
order sent to the
A. Department that initiated the requisition

B. Purchasing agent
C. Receiving department
D. Accounts payable department
14. The purchase order forwarded to the receiving department indicates the vendor's name and the quantities of
materials ordered. This may possibly cause
A. Payment for unauthorized items

B. Overpayment for incomplete deliveries
C. Payment for unauthorized vendors
D. Delay in recording purchases
15. The document which specifies the amount of money owed to the vendor for an acquisition is the
A Receiving report
B. Purchase order
C. Vendor's invoice
D. Accounts payable trial balance

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1. The accounts payable department receives a purchase order form to "accomplish all of the following, except
A Compating invoice price to purchase order price.

B. Ensuring that the purchase had been properly authorized.
C Comparing quantity ordered to quantity purchased.
D. Ensuring that the goods had been received by the party requesting the goods.
2 Matching the suppliers' invoice, the purchase order, and the receiving report normally should be the responsibility of
the
A Receiving department
b.. Accounting function
C. Purchasing department
D. Treasury function
3. What is the reason for ensuring that every copy of a vendor's invoice has a receiving report?
A. To ascertain that merchandise billed by the vendor was received by the company.
B. To ascertain that merchandise received by the company was biled by the vendor.
C. To ascertain that the invoice was correctly prepared.
D. To ascertain that a check was prepared for every invoice.
4. Which of the following controls is not usually performed in the vouchers payable department?
A. Matching the vendor's invoice with the related receiving report.

B. Approving vouchers for payment by having an authorized employee sign the vouchers.
C. Indicating the asset and expense accounts to be debited.
D. Accounting for unused pre-numbered purchase orders and receiving reports.
5 For good internal control, the person who should sign checks is the
A. Person preparing the checks

C. Accounts payable clerk
b. Purchasing agent
D. Treasurer
6. The internal control which requires that "purchase orders, receiving reports, and vouchers are pre-numbered and
accounted for" satisfies the objective of
A. Validity
B. authorization
C. Completeness
D. Valuation

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CHAPTER 8 fr7QZ7
8-3
1 Which ISA deals with the auditor's responsibility relating to fraud in an audit of financial statements?
A. ISA 200
C. ISA 250
B. ISA 240
D. ISA 330
2 The types of intentional misstatements relevant to the auditor arise from
A B C D
Error N Y N Y
Mistake N N N Y
Fraudulent financial reporting N N Y N
Misappropriation of assets N Y Y N
3. The primary responsibility for the prevention and detection of fraud rests with
A Those charged with governance of the entity

B. Management
C. Both A and B
D None of the above
4 An auditor conducting an audit in accordance with PSAs is responsible for
a. Obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement
whether caused by mistake or error
B or error Obtaining reasonable assurance that the financial statements taken as a whole are free from misstatement,
whether caused by fraud or error
C Obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement,
whether caused by fraud or
D Obtaining reasonable assurance that the financial statements taken as a whole are free from misstatement, whether
caused by fraudulent financial reporting or misappropriation of assets or both

I The risk of not detecting a material misstatement resulting from fraud is higher than the risk of not detecting one
resulting from the error.
Il Collusion may cause the auditor to believe that audit evidence is persuasive when it is, in fact, true
III The risk of the auditor not detecting a material misstatement resulting from management fraud is greater than for
employee fraud
A Only one statement is correct

C All statements are correct
B, Only two statements are correct
6. Which of the following statements are true?

I. The level of risk of management override of controls will vary from entity to entity
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II. The risk of management override is present in all entities

III. Management override of controls is a risk due to fraud
IV Management override of controls is a significant risk
A. I, III, IV
B. I, II, III
C. I, II, IV
D. All statements are true
7. Additional responsibilities of the auditor under law, regulation or relevant ethical requirements regarding an entity's
non-compliance with laws and regulations, including fraud, may include the following except
A. Responding to identified or suspected non-compliance with laws and regulations

B. Disclosure of identified or suspected non-compliance, including fraud
C Communicating identified or suspected non-compliance with laws and regulations to other auditors
D Documentation requirements regarding identified or suspected no compliance with laws and regulations
8. The objectives of the auditor relating to fraud in an audit of financial statements include the following except
A To identify and assess the risks of material misstatement of the financial statements due to fraud
B. To obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud
through designing and implementing appropriate responses
C. To establish internal controls that are designed to prevent or detect risks of material misstatement due to fraud
D. To respond appropriately to fraud or suspected fraud identified during the audit
9. The auditor shall make inquiries of management on the following fraud related matters, except
A Management's assessment of the risk that the financial statements may be materially misstated due to fraud,
including the nature extent and frequency of such assessments B Management's process for identifying and
responding to the risks of fraud in the entity, including any specific risks of fraud that management has identified or that
have been brought to its attention, or classes of transactions, account balances, or disclosures for which a risk of fraud
is likely to exist
C Management's communication, if any to those charged with governance regarding its processes for identifying and
responding to the risks of fraud in the entity
D. Management's communication, if any, to customers and suppliers regarding its views on business practices and
ethical behavior
10. in relation to fraud in an audit of financial statements, the following are required to be performed by the auditor
except
A identify and assess the risks of material misstatement due to fraud at the financial statement level
B. Identify and assess the risks of material misstatement due to fraud at the at the assertion level for classes of
transactions, account balances and disclosures
C. Presume that there are risks of fraud in revenue recognition
D Treat risks of material misstatement due to fraud as high risks and obtain an understanding of the entity's related
controls relevant to such risks
11. To determine overall responses to address the assessed risks of material misstatements due to fraud at the
financial statement level, the auditor shall perform the following, except
A. Assign and supervise personnel taking account of the knowledge, skill and ability of the individuals to be given
significant engagement responsibilities and the auditor's assessment of the risks of material misstatement due to fraud
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B. Obtain the general ledger listing of the entity and make selections journal entries exhibiting fraudulent characteristics
C. Evaluate whether the selection and application of accounting policies by the entity may be indicative of fraudulent
financial reporting of resulting from management's effort to manage earnings; and
D. Incorporate an element of unpredictability in the selection of the nature, timing and extent of audit procedures
12. The auditor's responses to address the assessed risks of material misstatement due to fraud at the assertion level
may include changing the nature, timing and extent of audit procedures in the following ways, except
A. The nature of audit procedures to be performed may need to be changed to obtain audit evidence that is more
reliable and relevant
B. The auditor may conclude that performing substantive testing at or near the period end better addresses an
assessed risk
C. The extent may vary by increasing sample sizes
D. The auditor moves away from the use of computer-assisted audit techniques as fraud is, more often than not,
perpetuated manually
13. Management is in a unique position to perpetuate fraud because of their ability to
A B C D
Manipulate accounting records Y N Y N
Override controls that otherwise appear to
be operating effectively Y N Y Y
Set the tone at the top Y Y N N
Create incentives or pressures for employees Y Y N Y
14. The audit procedures designed to address the risks of management override of controls should include the
following, except
A. Test of journal entries

B. Review of accounting estimates
C. Prospective review of management judgments and assumptions
D. Evaluation of significant and unusual business transactions
15. If the auditor's ability to continue the engagement is questioned as a result of a misstatement arising from fraud, the
auditor shall do the following except
A. Determine the applicable professional and legal responsibilities

B. Report the matter to regulatory authorities
C. Consideration of withdrawal from engagement
D. Discuss with the appropriate level of management and those charged

1. Which of the following most accurately summarizes what is meant by the term "material misstatement"?
A. Fraud and direct-effect illegal acts

B. Fraud involving senior management and material fraud
C. Material error, material fraud and certain illegal acts
D. Material error and material illegal acts

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2. Misstatement in the financial statements can arise from the 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
I. Intentional or unintentional
II. Rational or irrational
A. I only
B. II only
C. Both I and II
D. Neither I nor II
3. "Error" includes
A. Engaging in complex transactions that are structured to misrepresent the financial position or financial performance
of the entity.
B. Concealing, or not disclosing, facts that could affect the amounts recorded in the financial statements.
C. An incorrect accounting estimate arising from oversight or misinterpretation of facts.
D. Intentional misapplication of accounting policies relating to amounts, classification, manner of presentation, or
disclosure.
4. Which of the following acts are considered fraud?

I. Changing of records and documents
II. Misinterpretation of facts
III. Misappropriation of assets
IV. Recording of transactions without documentation
V. Clerical mistakes
A. I and II only
B. III only
C. I, III and IV only
D. I, II, III, IV and V
5. The primary responsibility for the prevention and detection of fraud rests with
A. The auditor
B. Management of the entity
C. Those charged with governance of the entity
D. Both those charged with governance of the entity and management
6. Which of the following statements concerning fraud is incorrect?
A. Fraud generally involves incentive or pressure to commit fraud, a perceived opportunity to do so, and some
rationalization of the act.
B. Two types of misstatements relevant to the auditor include material misstatements arising from fraudulent financial
reporting and material misstatements arising from misappropriation of assets.
C. Fraud involves actions of management but excludes the actions of employees third parties.
D. An audit rarely involves the authentication of documentation; thus, fraud may go undetected by the auditor.
7. Which of the following statements is correct?
A. Errors in the financial statements can be ignored because they are intentional.
B. Errors in the financial statements require adjustment of the client's accounting records.
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C. Fraud requires attention of the auditor, but errors do not.

D. Fraud has serious implications only because their monetary effect on the financial statements.
8. Fraudulent financial reporting involves intentional misstatements including omissions of amounts or disclosures in
financial statements to deceive financial statement users. It may be accomplished in a number of ways. including
A. Embezzling receipts.
B. Stealing physical assets or intellectual property
C. Using an entity's assets for personal use.
D. Manipulation, falsification, or alteration of accounting records of supporting documentation from which the financial
statements are prepared.
9. Which of the following statements best describes an auditor's responsibility regarding misstatements?
A. An auditor should obtain absolute assurance that material misstatements in the financial statements will be detected.
B. An auditor should obtain reasonable assurance that the financial statements taken as a whole are free from material
misstatements, whether caused by fraud or error.
C. An auditor is responsible to detect material errors but has no responsibility to detect material fraud that is concealed
through employee collusion or management override of internal control.
D. An auditor's failure to detect a material misstatement resulting from fraud is an indication of noncompliance with the
requirements of the Philippine Standards on Auditing.
10. An auditor should recognize that the application of auditing procedures may produce evidential matter indicating the
possibility of errors or irregularities and therefore should
A. Design audit tests to detect unrecorded transactions.

B. Extend the work to audit most recorded transactions and records of an entity.
C. Plan and perform the engagement with an attitude of professional skepticism.
D. Not depend on internal accounting control features that are designed to prevent or detect errors or irregularities.
11. Because of the risk of material misstatement, an audit of financial statements in accordance with PSAs should be
planned and performed with an attitude of
A. Impartial conservatism.
B. Professional skepticism.
C. Independent integrity.
D. Objective judgment.

Statement 1: The auditor is not and cannot be held responsible for the prevention of fraud and error.
Statement 2: Annual audits carried out may not act as a deterrent of fraud an error.

13. When is the auditor responsible for detecting fraud?
A. When the fraud did not result from collusion.

B. When third parties are likely to rely on the client's financial statements.
C. When the client's system of internal control is judged by the auditor to be inadequate.
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D. When the application of generally accepted auditing standards would have uncovered the fraud.
14. Which of the following conditions or events may create incentive/pressures
A. Inadequate accounting system of authorization and approval of to commit fraud? transactions.

B. Lack of mandatory vacations for employees performing key control functions.
C. Excessive pressure on management or operating personnel to meet financial targets established by those charged
with governance, including sales or profitability incentive goals.
D. Inadequate access controls over automated records.
15. The following are examples of fraud risk factors relating to misstatements arising from misappropriation of assets,
except
A. Inadequate segregation of duties or independent checks.

B. Inadequate physical safeguards over cash, investments, inventory, or fixed asset.
C. Recurring negative cash flows from operating activities while reporting earnings and earnings growth.
D. Adverse relationship between the entity and employees with access to cash or other assets susceptible to theft
created by recent changes made to employee compensation or benefit plans.

1. When obtaining an understanding of the entity and its environment, including its internal control, the auditor may
identify events or conditions that indicate an incentive or pressure to commit fraud or provide a hint of opportunity to
commit fraud. Such events or conditions are referred to as
A. Fraud conditions
B. Fraud risk factors
C. Fraud environment
D. Fraudulent activities
2. Whether the auditor has performed an audit in accordance with PSA is determined by
A. The adequacy of the audit procedures performed in the circumstances and the suitability of the auditor's report
based on the result of these procedures.
B. The absence of material misstatements
C. The absence of material errors
D. The Securities and Exchange Commission
3. Which of the following characteristics most likely would heighten an auditor's concern about risk of intentional
manipulation of financial statements?
A. Turnover of senior accounting personnel is low.

B. Insiders recently purchased additional shares of the entity's stock.
C. Management places substantial emphasis on meeting earnings projections.
D. The rate of change in the entity's industry is slow.
4. When planning the audit, the auditor should make inquiries of management. Such inquiries should address the
following, except
A. Management's assessment of the risk that the financial statements may be misstated due to fraud.
B. Management's process for identifying and responding to the risks of fraud in the entity.
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C. Management's consideration of how an element of unpredictability will be incorporated into the nature, timing, and
extent of the audit procedures to be performed.
D. Management's communication, if any, to those charged with governance regarding its processes for identifying and
responding to the risks of fraud in the entity.
5. When conducting an audit, errors that arouse suspicion of fraud should be given greater attention than other errors.
This is an example of applying the criterion of
A. Reliability of evidence
B. Materiality
C. Risk
D. Dual-purpose testing
6. Opportunities to misappropriate assets increase when there are (select the exception)
A. Large amounts of cash on hand or processed

B. Inventory items that are small in size, of high value, or in high demand
C. Known or anticipated future employee layoffs
D. Easily convertible assets, such as bearer bonds, computer chips or diamonds
7. The regular examination of financial statements is not primarily designed to disclose fraud and other irregularities
although their discovery may result. Normal audit procedures are more likely to detect a fraud arising from:
A. Failure to record cash receipts for services rendered

B. Collusion on the part of several employees
C. Forgeries on company checks
D. Theft of inventories
8. When the auditor's regular examination leading to an opinion on the financial statement discloses specific
circumstances that make him suspect that fraud may exist and he concludes that the results of such fraud, if any, could
not be so material as to affect his opinion, he should ferner
A. Make a note in his working papers of the possibility of a fraud of an immaterial amount so as to pursue the matter
next year.
B. Reach an understanding with the client as to whether the auditor or the client, subject to auditor's review, is to make
the investigation necessary to determine whether fraud has occurred and, if so, the amount thereof.
C. Refer the matter to the appropriate representatives of the clients with the recommendations that is to be pursued to
a conclusion.
D. Immediately extend his audit procedures to determine if fraud has occurred and, if so, the amount thereof.
9. Which of the following statements describes why a properly designed and executed audit may not detect a material
fraud?
A. Audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional
misstatement that is concealed through collusion.
B. An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar
responsibility concerning material fraud. sni buant to main
C. The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a
low risk of unintentional errors in the financial statements.
D. The auditor did not consider factors influencing audit risk for account balances that have pervasive effects on the
financial statements taken as a whole.
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10. Which of the following statements is correct?
A. It is usually easier for the auditor to uncover irregularities than

B. It is usually easier for the auditor to uncover errors than irregularities.
C. It is usually equally difficult for the auditor to uncover errors or errors. irregularities.
D. None of the given statements is correct.
11. When an independent auditor's examination of financial statements discloses special circumstances that make the
auditor suspect that material errors and irregularities may exist, the auditor's initial course of action should be to
A. Recommend that the client pursue the suspected fraud to a conclusion that is agreeable to the auditor.
B. Extend normal audit procedures in an attempt to detect the full extent of the suspected fraud. C. Reach an
understanding with the proper client representative as to whether the auditor or client is to make the investigation
necessary to determine if a fraud has in fact occurred.
D. Decide whether the fraud, if in fact it should exist, might be of such a magnitude as to affect the auditor's report on
the financial statements.
12. Which of the following is correct concerning the required documentation in the working papers of the performance
of the assessment of the risk of material misstatements due to fraud?
A. All risk factors considered should be documented and the response to each documented.
B. Those risk factors identified and the auditor's response to them should be documented.
C. The major categories of risk factors must be identified, but the particular responses to risk factors identified need not
be documented.
D. No specific documentation is required.
13. It refers to acts of omission or commission by the entity being audited, either intentional or unintentional, which are
contrary to prevailing laws or regulations.
A. Noncompliance
C. Deplorable acts
D. Unforgivable acts
B. Illegal acts.
14. A violation of laws or governmental regulations by the audited entity or its management or employees acting on
behalf of the entity is called
A. An error
C. Fraud
B. An illegal act
D. Fraudulent financial reporting
15. The following statements relate to communication of misstatements resulting from fraud to management and to
those charged with governance. Which is false?
A. The auditor need not bring to the attention of those charged with governance, any material weaknesses in internal
control related to the prevention and detection of fraud.
B. If the auditor has identified a fraud, whether or not it results in a material misstatement in the financial statements,
the auditor should communicate these matters to the appropriate level of management on a timely basis, and consider
the need to report such matters to those charged with governance.
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C. If the auditor has obtained evidence that indicates that fraud may exist (even if the potential effect on the financial
statements would not be material), the auditor should communicate these matters to the appropriate level of
management on a timely basis, and consider the need to report such matters to those charged with governance.
D. The auditor's communication with those charged with governance may be made orally or in writing.
1. According to PSA 250, "Consideration of Laws and Regulations in an Audit of Financial Statements", the following
are indications that noncompliance may have occurred, except
A. Investigation by government departments or payment of fines or penalties.

B. Management is dominated by one person or a small group and there is no effective oversight board or committee.
C. Unauthorized transactions or improperly recorded transactions.
D. Purchasing at prices significantly above or below market price.
2. In order to plan the audit, the auditor should obtain a general understanding of the legal and regulatory framework
applicable to the entity and the industry and how the entity is complying with that framework. To obtain this
understanding, the following procedures would ordinarily be considered by the auditor, except
A. Use the existing understanding of the entity's industry, regulatory, and other external factors.
B. Inquire of management concerning the entity's policies and procedures regarding compliance with laws and
regulations.
C. Inquire of management as to the laws and regulations that may be expected to have a fundamental effect on the
operations of the entity.
D. Inspect correspondence with relevant licensing or regulatory
3. When an auditor becomes aware of a possible illegal act by a client, the auditor should obtain understanding of the
nature of the act to
A. Increase the assessed level of control risk.

B. Evaluate the effect on the financial statements.
C. Recommend remedial actions to the audit committee.
D. Determine the reliability of management's representations.
4. If the auditor concludes that the noncompliance has a material effect on the financial statements, and has not been
properly reflected in the financial statements, the auditor should express
A. A disclaimer of opinion
B. A qualified or an unqualified opinion
C. A qualified opinion or an adverse opinion
D. A qualified opinion or a disclaimer of opinion
5. An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's
financial statements, most likely would withdraw from the engagement if
A. The illegal act is a violation of generally accepted accounting principles.

B. The client does not take the remedial action that the auditor considers necessary.
C. The illegal act was committed during a prior year that was not audited.
D. The auditor has already assessed control risk at the maximum level.
6. An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed.
The auditor should withdraw from the engagement if
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A. Auditor is precluded from obtaining sufficient competent evidence

about the illegal act.
B. Illegal act has an effect on the financial statements that is both material and direct.
C. Auditor cannot reasonably estimate the effect of the illegal act on the financial statements.
D. Client refuses to accept the auditor's report as modified for the illegal act.
7. According to PSA 260, those matters that arise from the audit of financial statements and, in the opinion of the
auditor, are both important and relevant to those charged with governance in overseeing the financial reporting and
disclosure process are called
A. Auditor's findings
B. Significant audit matters interest
C. audit matters of governance interest
D. Material misstatements in the statements
8. Which of the following statements relating to communication of audit matters of governance interest is incorrect?
A. Audit matters of governance interest include only those matters that have come to the attention of the auditor as a
result of the performance of the audit.
B. In an audit in accordance with PSAS, the auditor should design audit procedures for the specific purpose of
identifying matters of governance interest.
C. The auditor should identify relevant persons who are charged with governance and with whom audit matters of
governance interest are to be communicated.
D. The auditor's communications with those charged with governance may be made orally or in writing.
9. Which of the following matters an auditor is required to communicate to the entity's audit committee?
A. The basis for assessing control risk below the maximum.

B. The auditor's preliminary judgments about materiality levels.
C. The justification for performing substantive procedures at interim dates.
D. The process used by management in formulating sensitive accounting estimates.
10. Should an auditor communicate the following matters to an audit committee of a public entity?
A B C D
Significant audit adjustments recorded by the entity Y Y N N
Management's consultation with other accountants
about significant accounting matters Y Y Y N
11. The auditor's communication with those charged with governance may be made orally or in writing. The auditor's
decision whether to communicate orally or in writing is affected by factors except:
A. The nature, sensitivity and significance of the audit matters of governance interest to be communicated.
B. The arrangements made with respect to periodic meetings of audit matters of governance interest. s or reporting
C. The size, operating structure, legal structure and communications processes of the entity being audited.
D. The amount of past contact and dialogue the auditor has with those

Statement 1: The auditor should communicate audit matters of governance interest arising from the audit of financial
statements with those charged with governance of an entity.
Statement 2: The auditor should determine the relevant persons who are charged with governance and with whom
audit matters of governance interest are communicated.
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A. Only statement 1 is correct B. Only statement 2 is correct

C. Both statements are correct D. Both statements are incorrect
13. Under PSA 260, "Communications of Audit Matters with Those Charged with Governance", the effectiveness of
communications is enhanced by developing a constructive working relationship between the auditor and those charged
with governance. This relationship is developed while maintaining an attitude of
A. Objectivity and confidentiality

B. Professional independence and confidentiality
C. Loyalty and objectivity
D. Professional independence and objectivity
14. Fraud includes all of the following except:
A. Recording of transactions without substance

B. Suppression or omission of the effects of transactions from records or documents
C. Mathematical or clerical mistakes in the underlying records and accounting data
D. Misappropriation of assets
15. Which of the following is not an example of an error?
A. Entity personnel make mistakes in gathering or processing accounting data from which financial statements are
prepared.
B. Entity personnel alter accounting records from which financial statements are prepared.
C. Entity personnel overlook or misinterpret facts, causing accounting estimates to be incorrect.
D. Entity personnel make mistakes in the application of accounting principles.

1. Fraud involving one or more members governance is referred to as
A. Management fraud
C. Employee fraud
D. Misappropriation of assets
B. Fraudulent financial reporting

Statement 1: The responsibility for the prevention and detection of and error rests with the auditor through the
implementation of accounting and fraud internal control systems.
Statement 2: The accounting and internal control systems eliminate the possibility of fraud and error.


3. Which of the following is least likely a category of fraud risk factors that relate to misstatements, resulting from
fraudulent financial reporting?
A. Incentive or pressure
B. Rationalization of the act
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C. Opportunity to commit the act

D. Susceptibility of assets to misappropriation
4. Opportunities to misappropriate assets increase when
A. Known or anticipated future employee layoffs. there are

B. Promotions, compensation, or other rewards inconsistent with expectations.
C. Recent or anticipated changes to employee compensation or benefit plans,
D. Inventory items that are small in size, of high value, or in high demand.
5. If the auditor has determined that there may be fraud that may have material effect on the financial statements, all of
the following should be done except
A. Consider the implications for other aspects of the audit.
B. Discuss the matter with the level of management where fraud might have occurred.
C. Try to obtain evidence to determine whether the fraud is material what its effect will be on the financial statements.
and
D. If appropriate, suggest that the client consult with legal counsel on matters of law.
6. When the auditor believes that some of those charged with governance are involved in the non-compliance, what
should s/he do?
I. Inform the audit committee and supervisory board, if any,
II. Seek legal advice
A. I only
B. Il only
C. Both I and II
D. Neither I nor II
7. The most likely explanation why the auditor's examination cannot reasonably be expected to bring all illegal acts by
the client to the auditor's attention is that
A. Illegal acts are perpetrated by management override of internal control.

B. Illegal acts by clients often relate to operating aspects rather than accounting aspects.
C. The client's internal control may be so strong that the auditor performs only minimal substantive testing.
D. Illegal acts may be perpetrated by the only person in the client's organization with access to both assets and the
accounting records.
8. Which of the following statements is correct concerning an auditor's required communication with an entity's audit
committee?
A. This communication should include disagreements with management about significant audit adjustments, whether or
not satisfactorily resolved.
B. If matters are communicated orally, it is necessary to repeat the communication of recurring matters each year.
C. If matters are communicated in writing, the report is required to be distributed to both the audit committee and
management.
D. This communication is required to occur before the auditor's report on the financial statements is issued.
9. The auditor shall obtain written representations from management and, where appropriate, for the following except
A. They acknowledge their responsibility for the design, implementation and maintenance of internal control to prevent
and detect fraud
B. They have disclosed to the auditor the results of management's assessment of the risk of material misstatement due
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to fraud
C. They have disclosed to the auditor their knowledge of fraud, or suspected fraud analy
D. All of the above

1. The auditor shall include in the audit documentation communications about fraud to management and those charged
with governance
II. The auditor shall document the reasons for rebutting the presumption of risk due to fraud on revenue recognition
III. The overall responses to the assessed risks due to fraud shall be documented

B. Only two statements are correct
11. The auditor shall communicate with those charged with governance if he has identified or suspects fraud involving
the following, except
A. Management
B. Those charged with governance
C. Employees with significant roles in internal control
D. Others where the fraud results in a material misstatement
12. The auditor shall the document the following in relation to fraud of financial statements
I. The significant decisions reached during the discussion among the engagement team regarding fraud
II. The identified and assessed risks of material misstatement due to fraud at the financial statement level only
A. I only
B. Il only
C. Both I and II
D. Neither I nor II
13. If the auditor has identified or suspects a fraud, the auditor shall determine whether law, regulation or relevant
ethical requirements prescribe the following:
1. Require the auditor to report to an appropriate authority outside the entity.
II. Establish responsibilities under which reporting to an appropriate authority outside the entity may be appropriate in
the circumstances.
A. I only
B. Il only
C. Both I and II
D. Neither I nor II
14. Fraud, whether fraudulent financial reporting or misappropriation of assets, involves the following except
A. High performance indicators

C. Perceived opportunity to do so
B. Incentive or pressure to commit
D. Rationalization of the act
15. Fraudulent financial reporting may be accomplished by the following, except

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A Manipulation, falsification, alteration of accounting records

B. Misrepresentation of intentional omission of disclosures or other information
C. Forgery of supporting documentation
D. Misapplication of accounting principles in an audit

1. Which of the following is not an assertion relating to account balances?
A. Completeness
B. Valuation
C. Existence
D. Classification
2. Which statement is considered always true in relation to the appropriateness of audit evidence?
A. Supporting documentation obtained from outside the entity is reliable

B. Original documents are more relevant than copies of it
C. Evidence should be both valid and relevant to be appropriate
D. Oral representations are not considered audit evidence
3. Which attribute relating to assumptions would an auditor be concerned when evaluating reasonableness of a client's
accounting estimate?
A. Consistency with prior periods

B: Susceptibility to bias
C. Insensitivity to variations
D. Similarity with industry guidelines
4. In achieving the existence objective of the auditor for an asset, the most likely population of audit interest is
A. Underlying accounting records to the supporting documentation.

B. Financial statements to the related disclosure notes
C. Process documents to accounting records
D. Third party data to data logs
5. The below actions are all considered analytical procedures, except
A. Determining asset turnover by dividing sales by the average assets

B. Developing current year sales based on the trend of units sold in the last three years
C Projecting an error rate by comparing the results of a statistical sample to the actual population
D. Estimating interest expense by multiplying the interest rate to for a particular period
6. This is an analytical procedure that an auditor will most likely use when there are plausible relationships between a
particular variable and a test variable which serves as a basis of expectation the recorded balance.
A. Ratio analysis
B. Risk analysis
C. Regression analysis
D. trend analysis

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7. Predictability of relationships is an essential factor in the use of analytical procedure. Which of the following accounts
involve transactions that are highly likely to lead to highest level of evidence?
A. Cash and cash equivalent

B. Loans payable
c. Cost of goods sold
D. Trend analysis
8. What is the objective of the auditor in performing test of details?
A. To comply with Philippines Standards on Auditing

B. To obtain reasonable assurance as to the effectiveness of relevant controls
C. To detect material misstatements in the financial statements
D. To evaluate the business rationale of unusual business transactions
9. Tests for possible understatement will most likely be performed for
A. Income
B. Equity
C. Expenses
D. Assets
10. These sets of information are normally confirmed in one confirmation firm?
A. Accounts payable and contingent liabilities

B. Inventory in third-party warehouses and purchase commitments
C. Accounts receivable and short-term investments
D. Cash in bank and loan collaterals
11. Which statement relating to the use of negative confirmation requests is true?
A. Negative confirmation requests are suitable when detection risk is low

B. Non-replies to negative confirmation requests rarely provide significant explicit evidence
C. Unreturned negative confirmation requests would require alternative procedures
D. When understatements of account balances are suspected, negative confirmation requests are effective
12. In achieving the valuation objective of the auditor for inventory, the auditor would mostly likely
A. Test the entity's computation of standard overhead rates

B. Obtain confirmation inventories pledged as collateral
C. Review shipping and receiving cutoff procedures for inventories
D. Trace test counts to the entity's inventory listing
13. Which account is least likely to be evaluated by the auditor to obtain evidence relating to retirement of property?
A. Insurance expense
C. Purchase returns and allowances
B. Accumulated depreciation
D. Loss on retirement
14. Which is the least likely approach for auditing fair values of assets and allowances liabilities?
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A. Review of management's model used in arriving at the fair value on

B. Evaluation of management's assumptions incorporated in the model
C. Review of subsequent events
D. Confirmation of valuation with those charged with governance
15. In which matter is the auditor's written management representation be required?
A. Cost-benefit justification for not correcting significant deficiencies in internal control

B. Knowledge of future plans that may affect share price
C. Acknowledgement of responsibility for employees' violations of laws
D. Compliance with contractual agreements that are relevant to the financial statements

1. Audit procedures may be classified as risk assessment procedures and further audit procedures. Which of the
following does not describes further audit procedures?
A. These procedures test the operating effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
B. These procedures are used to detect material misstatements at the assertion level.
C. These are procedures for obtaining an understanding of the entity and its environment, including its internal control,
to assess the risks of material misstatement at the financial statement and assertion levels.
D. These procedures include tests of details of classes of transactions, account balances, and disclosures and
analytical procedures.
2. Financial statement assertions are:
A. Directly related to PSAS

B. Directly related to GAAP
C. Indirectly related to PSAS
D. Indirectly related to GAAP
3. Which of the following statements appropriately describes inquiry?
A. Physical examination of the assets.

B. Consists of looking at a process or procedures being performed by others.
C. Examining records or documents, whether internal or external, in paper form, electronic form, or other media.
D. Consists of seeking information from knowledgeable persons, both financial and nonfinancial, within the entity or
outside the entity.
4. Management assertions are:
A. Stated in the footnotes to the financial statements

B. Explicitly expressed representations about the financial
C. Implied or express representations about the accounts in the
D. Provided to the auditor in the assertions letter, but are not disclosed in the financial statements of the entity.
5. Assertions about account balances at the period-end include completeness, which means that
A. Assets, liabilities and equity interest exist.

B. All assets, liabilities and equity interests that should have been recorded
C. Assets, liabilities and equity interests are included in the financial statements at appropriate amounts and any
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resulting valuation or allocation adjustments are appropriately recorded.

D. The entity holds or controls the rights to assets, and liabilities are the obligations of the entity.
6. The assertion of accuracy means that:
A. Transactions and events have been recorded in the proper accounts

B. All transactions and events that should have been recorded are recorded
C. Transactions and events have been recorded in the correct accounting period
D. Amounts and other data relating to recorded transactions and events have been recorded appropriately
7. Which description refers to the classification and understandability assertion?
A. All disclosures that should have been included in the financial statements have been included.
B. Disclosed events, transactions and other matters have occurred and pertain to the entity.
C. Financial information is appropriately presented and described, and disclosures are clearly expressed.
D. Financial and other information are disclosure fairly and at appropriate amounts.
8. Which of the following statements appropriately describes analytical procedures?
A. The process of obtaining a representation of information or of an existing condition directly from third party. It is a
specific type of inquiry.
B. Auditor's independent execution of procedures or controls that were originally performed as part of the entity's
internal control.
C. Evaluation of financial information made by study of plausible relationships among both financial and non-financial
data.
D. Consists of checking the mathematical accuracy of documents or records.
9. Which of the following is the best explanation of the difference, if any, between audit objectives and audit
procedures?
A. Audit procedures and audit objectives are essentially the same.

B. Audit objectives are tailor-made for each assignment, audit procedures are generic in application.
C. Audit procedures establish broad general goals, audit objectives specify the detailed work to be performed.
D Audit objectives define specific desired accomplishments; audit procedures provide the means of achieving audit
objectives.
10. Confirming proper title to equipment supports which of the following assertions?
A. Insurance coverage
B. Rights and obligations
C. Existence or occurrence
D. Presentation and disclosure
11. The auditor notices that a client's cash-basis financial statements are prepared with accrual basis financial titles.
This situation bears on which financial statement assertion?
A. Completeness
C. Rights and obligations
D. Presentation and disclosure
B. Valuation or allocation
12. In determining whether transactions in the general journal are valid, the direction of the audit testing should be from
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the
A. Adjusted trial balance

C. General ledger balances
B. General journal entries
D. Original source documents
13. Physical examination of tangible assets is not a sufficient form of evidence when the auditor wants to determine the
asset's:
A. Existence
C. Condition or quality
B. Ownership
D. Quantity and description
14. Which of the following methods is considered the best combination in obtaining audit evidence assuming
documentary evidence is not available to the auditor?
A. Inquiry and inspection

B. Observation and inquiry
C. Inspection and re-performance
D. Inquiry and analytical procedures
15. "Physical examination" is the inspection or count by the auditor of assets such as:
A. Cash or inventory only

B. Cash, inventory, cancelled checks, and sales documents
C. Cash, inventory, securities, notes receivable, and tangible
D. Cash, inventory, cancelled checks, and tangible fixed assets
9-5
1. Which of the following most likely would give the most assurance concerning the presentation and disclosure
assertion of accounts receivable?
A. Inquiring about receivables pledged under loan agreements.

B. Assessing the allowance for uncollectible accounts for reasonableness.
C. Vouching amounts in the subsidiary ledger to details on shipping documents.
D. Comparing receivable turnover ratios with industry statistics for reasonableness.
2. To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely
would vouch
A. Inventory tags noted during the auditor's observation to items listed in the inventory listing schedule.
B. Inventory tags noted during the auditor's observation to items listed in receiving reports and vendors' invoices.
C. Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets.
D. Items listed in receiving reports and vendors' invoices to the inventory listing schedule.
3. In testing for lower-of-cost-or-net realizable value, the auditor is gathering evidence to support which of the following
assertions?
A. Pricing
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B. Accuracy
C. Valuation
D. Rights and obligations
4. When there are numerous property and equipment transactions during the year, an auditor who plans to assess
control risk at a low level usually performs
A. Tests of controls and extensive tests of property and equipment balances at the end of the year.
B. Tests of controls and limited tests of current year property and equipment transactions.
C. Analytical procedures for current year property and equipment transactions.
D. Analytical procedures for property and equipment balances at the end of the year.
5. Tests of controls are least likely to be omitted with regard to
A. Accounts believed to be subject to ineffective controls

B. Accounting representing many transactions
C. Accounts representing few transactions
D. Subsequent events
6. All the information used by the auditor in arriving at the conclusion on which the audit opinion is based. It includes the
information contained in the accounting records underlying the financial statements (underlying accounting data) and
other information (corroborating information).
A. Audit Evidence
B. Audit risk
C. Audit opinion
D. Audit program
7. Which of the following best describes the primary purpose of audit procedures?
A. To detect fraud
B. To verify the accuracy of account balances
C. To comply with generally accepted accounting principles
D. To gather corroborative evidence to support the audit opinion
8. Which of the following should be considered by the auditor in deciding which means (or combination of means) to
use in selecting items for testing?
1. The risk of material misstatement related to the assertion being tested.
II. Audit efficiency.
A. I only
B. Il only
C. Both I and II
D. Neither I nor II
9. All of the following are underlying accounting data, except:
A. Worksheets supporting cost allocations

B. Confirmation of accounts receivable
C. Special journals
D. Accounting manuals.

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10. Other information that the auditor may use as audit evidence least likely includes
A. Minutes of meetings.
B. Confirmations from third parties.
C. Adjustments to the financial statements that are not reflected in formal journal entries.
D. Information obtained by the auditor from such audit procedures as inquiry, observation, and inspection.
11. Which of the following procedures would provide the most reliable audit evidence?
A. Inquiries of the client's internal audit staff held in private

B. Inspection of prenumbered client purchase orders filed in the vouchers payable department
C. Analytical procedures performed by the auditor on the entity's trial balance
D. Inspection of bank statements obtained directly from the client's financial institution
12. Which of the following statements relating to the competence of evidential matter is always true?
A. Evidence gathered by auditors must be both valid and relevant to be considered competent.
B. Properly designed analytical procedures will detect material misstatements.
C. Evidential matter gathered by an auditor from outside a client is reliable.
D. Oral representations made by management are not valid.

Statement 1: Audit evidence comprises source documents and accounting records, underlying financial statements and
corroborating information from other sources.
Statement 2: Audit evidence is obtained to form an appropriate mix of tests of control and substantive procedures.
Statement 3: The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions
on which to base the audit opinion.
A. Statements 1 and 2 only

B. Statements 2 and 3 only
C. Statements 1 and 3 only
D. All statements are correct
14. The most reliable form of documentary evidence are those documents that are:
A. Pre-numbered
B. Easily duplicated
C. Internally generated
D. Authorized by a responsible official
15. Which of the following types of audit evidence provides the least assurance of reliability?
A. Receivable confirmations received from the client's customers

b. Prenumbered receiving reports completed by the client's employees
C. Prior months' bank statements obtained from the client
D. Municipal property tax bills prepared in the client's name
9-6
1. As the acceptable level of detection risk decreases, an auditor may change
A. Timing of substantive tests by performing them at an interim date rather than at year-end the
B. Nature of substantive tests from a less effective to a more effective
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C. Timing of tests of controls by performing them at several dates rather than procedure
D. Assessed level of inherent risk to a higher amount

1. What is the objective of the auditor relating to audit evidence?
a. To evaluate the sufficiency and appropriateness of audit evidences gathered during the audit of the financial
statements
B. 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
C. To request from management the necessary underlying information that serve as the basis of financial statements
and to obtain evidence as to its accuracy and completeness
D. To evaluate the appropriateness of the expert's work as audit evidence for the relevant assertion to which such work
relates
2. When using information produced by the entity (PBE), the auditor performs the following, except
A. Evaluate whether the information is sufficiently reliable for the auditor's purposes
B. Obtaining audit evidence about the accuracy and completeness of the information
C. Evaluating whether the information is sufficiently precise and detailed for the auditor's purposes.
D. All of the above
3. The following are some of the generalizations about the reliability of audit evidence except
A. Reliability of audit evidence is increased when it is obtained from

b. Reliability of audit evidence that is generated internally is increased independent sources when the related controls
are effective as compared to those externally
C. Audit evidence obtained directly by the auditor is more reliable than obtained
D. Audit evidence in documentary form is more reliable than evidence
4. PSA 501 prescribes specific considerations for the following selected items, except for
A. Existence and condition of inventory

B. Existence and condition of property and equipment
C. Completeness of litigation and claims involving the entity
D. Presentation and disclosure of segment information
5. Which of the following is least likely to be performed by the auditor during the attendance at physical inventory
counting?
A. Evaluate management's instructions and procedures for recording and controlling count results
B. Observe the performance of management's count procedures
C. Inspect the inventory
D. Count all items of inventory
6. What is the most appropriate action if the auditor is unable to attend the physical inventory counting?
A. Make or observe some physical counts on an alternative date

B. Consider the inventory balance as a non-significant balance
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C. Assess control risk at maximum level

D. Rely on the results of the client's physical inventory count
7. Which of the following procedures the auditor may perform if inventory is under the custody and control of a third
party?
1. Request confirmation of quantity and condition of inventory
II. Perform inspection or other procedures
A. I only
B. Il only
C. Both I and II
D. Neither I nor II
8.Choose the type of audit evidence that is considered most presuasive
A. Prenumbered receiving report forms

B. Management representation letter n
C. Client calculation of cost of goods sold
D. Bank statements submitted by the client
9. This is not a common procedure used to in audit.
A. Risk assessment procedures.

B. Substantive procedures.
C. Tests of controls.
D. Tests of indirect evidence.
10. When auditing the fair value of an asset or liability, valuation issues ordinally arises at the point of
Initial recording subsequent to initial recording
A Y Y
B Y N
C N Y
D N N
11. In evaluating the assumptions on which the estimate is based, the audit would need to pay particular attention to
assumptions which are
A. reasonable in light of actual results in prior periods.

B. consistent with those used for other accounting estimates.
C. consistent with management's plans which appear appropriate.
D. subjective or susceptible to material misstatement.
12. Which of the following is least likely to be an approach followed when auditing the fair values of assets and
liabilities?
A. Review and test management's process of valuation.

B. Confirm valuation with audit committee members.
C. Independently develop an estimate of the value of the account.
D. Review subsequent events relating to the account.
13. Which of the following would an auditor ordinarily perform first in evaluating management's accounting estimates for
reasonableness?
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A. Develop independent expectations of management's estimates.

B. Consider the appropriateness of the key factors or assumptions used in preparing the estimates.
C. Test the calculations used by management in developing the estimates.
D. Obtain an understanding of how management developed its estimates.
14. Which of the following would an auditor generally perform to obtain assurance that accounting estimates are
properly accounted for and disclosed?
A. Inquiry of management
B. Make an independent estimate for comparison with client's estimate
C. Review subsequent events
D. Obtain knowledge about the applicable financial reporting standards
15. Which is the least likely audit procedure to obtain evidence regarding the presentation and disclosure of segment
information?
A. Obtaining an understanding of the methods used by management in related to the accounting estimate determining
segment information
B. Evaluating whether methods are likely to result in disclosure in accordance with the applicable financial reporting
framework
C. Testing the application of methods, where appropriate
D. Sending of confirmation to the heads or senior executive of the reported segment

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CH 1 2 5 6 7 8 9 exercises from book ACCP301

Bachelor of Science in Accountancy (University of the Assumption)

Studocu is not sponsored or endorsed by any college or university

tuesday next week dec 7 prelim exam ch 1, 2

1-1 true or false

1-3 MULTIPLE CHOICE QUESTIONS

2. Assurance services can be best described as

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3. Assurance engagement include the following, except

4. The three types of attestation services are:

A. Audits, review, and compilations

5. Which of the following is not an assurance engagement?

A. Audit of prospective financial statements

7. Unlike consulting services, assurance services:

8. All, except one, are elements of an assurance engagement.

9. In a financial statement audit, which is not an element of assurance engagement?

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12. Characteristics of suitable criteria do not include

A. The subject which is to be measured against suitable criteria.

15. Which of the following can be subject matter?

A. Financial and non-financial performance or condition

1-4 MULTIPLE CHOICE QUESTIONS

2. The measure of the quality of evidence

3. The measure of the quantity of evidence

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

6. The form of conclusion in an assurance engagement are

A. Positive and negative

7. The two levels of conclusion in an assurance engagement are

A. Positive and negative

10. Agreed-upon procedures engagement provides what level of assurance?

A. The Framework to Assurance Engagements

13. Assurance service engagements:

A. Do not require independence

A. Agreed-upon procedures engagements and compilation of financial and other information.

the subject matter.

1-5 MULTIPLE CHOICE QUESTIONS

1. Which of the following is incorrect regarding the practitioner?

A. The term practitioner is broader than the term auditor.

2. Which is incorrect regarding the responsible party?

3. The following relates to intended users, choose the exception:

A. Accounting standards generally accepted in the Philippines

5. The following cannot be a suitable criterion for an assurance engagement, except?

A. Practitioner's own expectations

6. According to the framework for assurance engagement, the criteria must be

A. Sufficient and appropriate

C. Suitable and available to intended users

A. The fact that the subject matter information is prospective.

8. Which is incorrect concerning evidence?

10. Which is incorrect?

11. Which is correct concerning the concept of professional skepticism

A. An assumption that the responsible party is dishonest

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A. Moderate level of assurance

15. In an agreed-upon engagement, which of the following statements is incorrect?

1-6 MULTIPLE CHOICE QUESTIONS

1. Evidence more is reliable when it is obtained from