Auditing Theory - Preboard # 1

50 Questions I Created By cpama2ster2010 - 1066 days ago

This is a MOCK BOARD Exam composed of 50 questions. Please assess
yourself truthfully. Take this quiz only once so that you will not be banned
from taking again. Provide as your fullname and school so that we could
give proper commendations. Thank you and Good Luck!
1. Which of the following best describes high level of assurance?

A.
It refers to the professional accountant having obtained evidence based
on procedures agreed upon between the practitioner and the intended
users to be satisfied that findings be reported to the intended users.
B.
It refers to the professional accountant having obtained sufficient
external and internal appropriate evidence to be satisfied that the
subject matter is plausible in the circumstances.
C.
It refers to the professional accountant having obtained sufficient
appropriate evidence to conclude that the subject matter conforms in all
material respects with identified suitable criteria.
D.
It refers to the professional accountant having obtained sufficient
evidence to conclude that he has no knowledge of any required
modifications to be made in the financial statements in order for them to
conform of prescribed criteria.
2. Which statement is incorrect regarding an engagement to perform
agreed-upon procedures?

A.
An auditor is engaged to carry out those procedures of an audit nature
to which the auditor and the entity and any appropriate third parties
have agreed and to report on factual findings.
B.
The recipients of the report must form their own conclusions from the
report by the auditor.
C.
The report is restricted to those parties that have agreed to the
procedures to be performed.
D.
The report on factual findings is expressed in the form of negative
assurance.
3. Which of the following engagements provides third parties the
highest level of assurance about the clients financial statements?

A. Audit
B. Review
C. Agreed-upon procedures
D. Compilation
4. In which of the following situations can third parties assume
responsibility of the auditor regarding association with financial
information?

A. When the auditor attaches a report to that information.
B.
When the auditor consents to the use of the auditor's name in a
professional connection.
C. Either a or b.
D. Neither a nor b.
5. Which statement is incorrect regarding assurance engagement risk?

A.
Engagement risk is the risk that the practitioner will express an
inappropriate conclusion that the subject matter conforms in all material
respects with suitable criteria.
B.
All components of the engagement risk model will be significant for all
assurance engagements.
C.
The extent to which the practitioner considers the relevant components
of engagement risk will be affected by the engagement circumstances.
D.
Business risk is not part of engagement risk and does not affect the
application of Philippine Standard on Assurance Engagements.
6. A concept relating to the accumulation of the audit evidence
necessary for the auditor to conclude that there are no material
misstatements in the financial statements taken as a whole.

A. Reasonable assurance
B. Positive assurance
C. Moderate assurance
D. Negative assurance
7. Which statement is incorrect regarding the external auditors
consideration of the work of internal auditing?

A.
The external auditor should consider the activities of internal auditing
and their effect, if any, on external audit procedures.
B.
The external auditor should obtain a sufficient understanding of internal
audit activities to assist in planning the audit and developing an
effective audit approach.
C.
During the course of planning the audit, the external auditor should
perform a preliminary assessment of the internal audit function when it
appears that internal auditing is relevant to the external audit of the
financial statements in specific audit areas.
D.
When the external auditor intends to use specific work of internal
auditing, the external auditor need not evaluate and test that work to
confirm its adequacy for the external auditor's purposes.

8. The independent auditor lends credibility to clients financial
statements by

A.
Maintaining a clear-cut distinction between managements
representations and the auditors representation.
B. Testifying under oath about clients financial statements.
C.
Stating in the auditors management letter that the examination was
made in accordance with generally accepted auditing standards.
D. Attaching an auditors opinion to the clients financial statements.
9. Which of the following is responsible for the fairness of
representations made in financial statements?

A. The independent auditor.
B. The internal auditor.
C. The client's management.
D. The audit committee.
10. The exposure period allowed for each exposure draft of PSA to be
considered by the organizations and persons to whom it is sent for
comment is generally

A. Four months
B. Three months
C. Two months
D. Six months
11. Which statement is incorrect regarding the pronouncements of
ASPC?

A.
The PSAs and Interpretations may also have application, as
appropriate, to other related activities of auditors.
B.
PSAs contain basic principles and essential procedures (identified in
bold type black lettering) together with related guidance in the form of
explanatory and other material.
C. PSAs need only be applied to material matters.
D. The Interpretations have the same authority as the PAPSs.
12. The following should be occupied only by a duly registered CPA,
except

A.
Any position in any business or company in the private sector which
requires supervising the recording of financial transactions.
B.
Any position in any business or company in the private sector which
requires preparation of financial statements.
C. Any position in any business or company in the private sector which
requires coordinating with the internal auditors for the audit of financial
statements.
D.
The position of the dean that supervises the BSA program of an
educational institution.
13. Which of the following is not represented in the Auditing and
Assurance Standards Council?

A. Board of Accountancy
B. Bangko Sentral ng Pilipinas
C. Bureau of Internal Revenue
D. Securities and Exchange Commission
14. A study, appraisal, or review by the BOA or its duly authorized
representatives, of the quality of audit of financial statements
through a review of the quality control measures instituted by an
Individual CPA, Firm or Partnership of CPAs engaged in the
practice of public accountancy.

A. Peer review
B. Quality review
C. Analytical review
D. Administrative review
15. Emong, CPA is applying for renewal of his professional license. He
is exempted from the CPE requirements

A. If he is at least 65 years old.
B.
If he is working abroad and he has been out of the country for at least
two years immediately prior to the date of renewal.
C. Either a or b.
D. Under no circumstances.
16. The following statements relate to RA 9298. Which statement is
true?

A.
The Professional Regulation Commission has the authority to remove
any member of the Board of Accountancy for negligence,
incompetence, or any other just cause.
B. Insanity is not a ground for proceeding against a CPA.
C.
A person shall be considered to be in the professional practice of
accounting if, as an officer in a private enterprise, he makes decisions
requiring professional accounting knowledge.
D.
After three years, subject to certain conditions, the Board of
Accountancy may order the reinstatement of a CPA whose certificate of
registration has been revoked.
17. There is a need for assurance that all services obtained from a
professional accountant are carried out to the highest standards of
performance. This statement relates to

A. Credibility
B. Professionalism
C. Quality of Services
D. Confidence
18. Indicate the normal pattern of development for a professional
accountant. I. A period of work experience. II. High standard of
general education. III. Specific education, training and examination
in professionally relevant subjects

A. I, II, III
B. II, III, I
C. III, II, I
D. II, I, III
19. A partner or employee of the firm serving as an officer or as a
director on the board of an assurance client will most likely create

A. Intimidation threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat
20. Which of the following least likely create a self-review threat?

A.
A former officer, director or employee of the assurance client serve as a
member of the assurance team.
B.
A director, an officer or an employee of the assurance client in a
position to exert direct and significant influence over the subject matter
of the assurance engagement has been a member of the assurance
team or partner of the firm.
C.
Assisting an audit client in matters such as preparing accounting
records or financial statements.
D.
A firm, or network firm, provides internal audit services to an audit
client.
21. This process may include, particularly in the case of large complex
audits, requesting personnel not otherwise involved in the audit to
perform certain additional procedures.

A. Direction
B. Supervision
C. Review
D. All of these
22. Which of the following is least likely a factor that affects the extent
of quality control procedures?

A. The size of the firm.
B. The type of clients that the firm serves.
C. The number of practice offices.
D. The nature of the practice.
23. Which statement is incorrect regarding the auditors responsibility to
consider fraud and error in the audit of financial statements?

A. The auditor is entitled to accept records and documents as genuine.
B.
The auditor is may be held responsible for the prevention of fraud and
error.
C.
The auditor should consider the risk of material misstatements in the
financial statements resulting from fraud or error.
D.
The risk of not detecting a material misstatement resulting from error is
lower than the risk of not detecting a material misstatement resulting
from fraud.
24. Which statement is incorrect regarding fraud risk factors?

A.
Using the auditors knowledge of the business, the auditor may identify
events or conditions that provide an opportunity, a motive or a means to
commit fraud, or indicate that fraud may already have occurred.
B.
A missing document, an out of balance general ledger, or an analytical
procedure that does not make sense may be the result of
circumstances other than fraud.
C.
Fraud risk factors indicate the existence of fraud because they often
have been present in circumstances where frauds have occurred.
D.
The presence of fraud risk factors may affect the auditors assessment
of inherent risk or control risk.
25. Cash receipts from sales on account have been misappropriated.
Which of the following acts would conceal this defalcation and least
likely to be detected by an auditor?

A. Understating the sales journal.
B. Overstating the accounts receivable control account.
C. Overstating the accounts receivable subsidiary ledger.
D. Understating the cash receipts journal.
26. Example of the type of information that may come to the auditor's
attention that may indicate that noncompliance with laws or
regulations has occurred most likely include

A.
Payments for specified services or loans to consultants, related parties,
employees or government employees.
B.
Payments for goods or services made to the country from which the
goods or services originated.
C. Purchasing at prices significantly above or below market price.
D.
Sales commissions or agent's fees that appear reasonable in relation to
those ordinarily paid by the entity or in its industry or to the services
actually received.
27. When the auditor knows that an illegal act has occurred, the auditor
must

A. Issue an adverse opinion.
B. Withdraw from the engagement.
C. Report it to the proper government authorities.
D.
Consider the effects on the financial statements, including the
adequacy of disclosure.
28. Which statement is correct regarding the auditors communications
of audit matters with those charged with governance?

A.
The auditors communications of matters include all audit matters of
governance interest.
B.
An audit of financial statements is designed to identify all matters that
may be relevant to those charged with governance.
C.
The auditors communications with those charged with governance may
be made orally or in writing.
D. None of the above.
29. It is in the interest of both client and auditor that the auditor sends
an engagement letter, preferably before

A. The performance of substantive testing.
B. The commencement of the engagement.
C. The completion of audit.
D. Before the issuance of audit report.
30. When a change in the type of engagement from higher to lower
level of assurance is reasonably justified, the report based on the
revised engagement (choose the incorrect one)

A.
Should not contain a separate paragraph that refers to the original
engagement.
B.
Should not refer to any procedures that may have been performed in
the original engagement.
C. Should qualify the opinion due to scope limitation.
D. Omits reference to the original engagement.
31. A basic tool used by the auditor to control the audit work and review
the progress of the audit.

A. Audit program
B. Progress flowchart
C. Engagement letter.
D. Time and Expense Summary
32. Which of the following is not normally a planning procedure?

A.
Assess the conclusions reached and the evaluation of the overall
financial statement presentation through the use analytical procedures.
B. Consider the risk of the existence of related-party transactions.
C. Consider the nature of the audit reports expected to be rendered.
D. Identify items likely to require adjustments.
33. An understanding of the clients business and industry and
knowledge about the companys operations are essential for doing
an adequate audit. For a new client, most of this information is
obtained

A. From the predecessor auditor.
B. From the SEC.
C. At the clients premises.
D. From the permanent file.
34. The managements assessment of the entitys ability to continue as
a going concern covers a period of:

A. Not longer than 12 months from balance date.
B. At least 12 months from the balance sheet date.
C. Not longer than 12 months from the date of audit report.
D. At least 12 months from the date of audit report.
35. Which of the following would an auditor most likely use in
determining the auditors preliminary judgment about materiality?

A. The results of the internal control questionnaire.
B. The contents of the management representation letter
C. The entitys annualized interim financial statements.
D. The anticipated sample size of the planned substantive tests.
36. How can the audit program best be described at the beginning of
the audit process?

A. Tentative.
B. Comprehensive.
C. Conclusive.
D. Optional.
37. Which of the following is appropriate about risk assessment?

A.
Detection risk is eliminated if an auditor were to examine 100 percent of
the account balance or class of transactions
B.
There is an inverse relationship between detection risk and the
combined level of inherent and control risk.
C.
The assessed level of inherent and control risk can be sufficiently low,
thus resulting to eliminating the need for substantive tests.
D.
Audit risk may be more appropriately determined by assessing inherent
and control risk separately.
38. Which of the following most directly illustrates inherent risk?

A. Inadequate segregation of duties
B.
Confirmation of receivables by an auditor fails to detect a material
misstatement.
C.
ABC Company, a client company, lacks sufficient working capital to
continue operations.
D.
A client fails to discover employee fraud on a timely basis because
bank accounts are not reconciled monthly.
39. Which of the following is a valid statement about the assessment of
control risk?

A.
There is a positive relationship between detection risk and the
combined level of inherent and control risk.
B.
The auditor should consider the assessed levels of inherent and control
risks in determining the nature, timing, and extent of substantive
procedures required to eliminate audit risk.
C.
Misstatements discovered by conducting substantive procedures may
cause the auditor to modify the previous assessment of control risk.
D.
The assessed level of inherent and control risks can be sufficiently low
in order to eliminate the auditors need to perform substantive tests on
some assertions.The assessed level of inherent and control risks can
be sufficiently low in order to eliminate the auditors need to perform
substantive tests on some assertions.
40. The auditor should perform which of the following as risk
assessment procedure?

A. Analytical procedures
B. Confirmation
C. Recalculation
D. Reperformance
41. Which of the following is least likely a potential benefit of
effectiveness and efficiency for an entitys internal control that IT
provides?

A. Enhance the timeliness, availability, and accuracy of information.
B.
Enhance the ability to monitor the performance of the entitys activities
and its policies and procedures.
C. Eliminate the risk that controls will be circumvented.
D.
Consistently apply predefined business rules and perform complex
calculations in processing large volumes of transactions or data.
42. Control environment

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

A. Decrease in the risk of material misstatement.
B. Decrease in the degree of assurance the auditor plans to obtain.
C. Decrease in materiality level.
D. None of the above.
44. The auditor should determine overall responses to address the
risks of material misstatement at the financial statement level. Such
responses most likely include

A. Assigning less experienced staff.
B.
Emphasizing to the audit team the need to maintain professional
skepticism in gathering and evaluating audit evidence.
C. Performing predictable further audit procedures.
D.
Performing substantive procedures at an interim date instead of at
period end.
45. Which statement is incorrect regarding the nature, timing and extent
of tests of controls?

A.
Those controls subject to testing by performing inquiry combined with
inspection or reperformance ordinarily provide more assurance than
those controls for which the audit evidence consists solely of inquiry
and observation.
B.
If the auditor plans to rely on controls that have not changed since they
were last tested, the auditor should test the operating effectiveness of
such controls at least once in every third audit.
C.
The length of time period between retesting controls is a matter of
professional judgment, but cannot exceed three years.
D.
The more the auditor relies on the operating effectiveness of controls in
the assessment of risk, the greater is the extent of the auditors tests of
controls.
46. Which of the following statements is correct regarding the auditors
primary objective in performing procedures to obtain an
understanding of the internal control structure?

A.
The primary objective is to provide the auditor with an evaluation of the
consistency of application of managements policies.
B.
The primary objective is to provide the auditor with knowledge
necessary for audit planning.
C.
The primary objective is to provide the auditor with evidential matter to
use in assessing inherent risk.
D.
The primary objective is to provide the auditor with a basis for modifying
tests of controls.
47. Which of the following would most likely indicate internal control
deficiency for the revenue cycle (including cash receipts)?

A. Credit is granted by a credit department.
B.
Cash receipts received in the mail are received by a secretary with no
recordkeeping responsibility.
C. Cash is deposited weekly.
D.
Cash disbursements over P100,000 does not require two signatures on
the check.
48. The following statements relate directly to test of controls except

A.
May involve comparisons of financial information with nonfinancial
information.
B.
Setting the planned assessed level of control risk at the maximum will
eliminate these tests.
C.
Often performed concurrently with obtaining an understanding of
internal control.
D.
Inquire of the accounts receivable clerk regarding the effectiveness of
the computer program in updating accounts receivable balances.
49. After obtaining an understanding of an entitys internal controls, an
auditor may assess control risk at the maximum for some
assertions because the auditor:

A. Believes internal control activities are unlikely to be effective.
B. Determines that internal control is not well-documented.
C.
Performs tests of controls to restrict detection of risk to an acceptable
level.
D.
Identifies control activities that are likely to prevent material
misstatements.
50. The report of the service organization auditor on the suitability of
design (Type A) will not ordinarily include an opinion by the service
organization auditor that:

A.
The description of the service organization's accounting and internal
control systems, ordinarily prepared by the management of the service
organization is accurate.
B. The systems' controls have been placed in operation.
C.
The accounting and internal control systems are operating effectively
based on the results from the tests of control.
D.
The accounting and internal control systems are suitably designed to
achieve their stated objective