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RFJPIA CUP LEVEL 2 Auditing Theory (EASY
QUESTION #1)
The need for assurance services arises
because:
a.There is a consonance of
interests of the preparer and
t h e u s e r o f t h e financial statements.
b.There is a potential bias in providing
information.
c.Economic transactions are less
complex than they were a decade
ago.
d.Most users today have a
ccess to the system that
g e n e r a t e s t h e financial
statements they use
e.None of the above.
QUESTION #2)
Which of the following is explicitly
included in the Auditors
responsibilitysection of the auditor's
report?
a.Reason for modification of opinion.
b.Philippine Financial Reporting
Standards.
c.Philippines Standards on Auditing.
d.Division of responsibility with another
auditor.
e.Management representations.
QUESTION #3)
The measure of variability of a statistical
sample that serves as an estimate of the
population variability is the:
a.Basic precision.
b.Range
.c . M e a s u r e s o f c e n t r a l
tendency.
d.Standard deviation.
e.Interval.

QUESTION #4)
If a control total were to be
computed on each of the following
data items,which would best be
identified as a hash total for a payroll
CBIS application?
a . N e t p a y
b.Department numbers.
c.Hours worked
d.Total debits.
e.Total credits.
QUESTION #5)
When the auditor determine
s that detection risk regardi
n g a f i n a n c i a l statement assertion
for a material account balance or class
of transactions cannotbe reduced to an
acceptable level, the auditor should
express:
a.Qualified or adverse opinion.
b.Unqualified opinion with explanatory
paragraph.
c.Qualified or disclaimer of opinion.
d.Unqualified opinion.
e.Adverse or disclaimer of opinion.
RFJPIA CUP LEVEL 2 Auditing Theory
(AVERAGE QUESTION #1)
Which of the following is not explicitly
referred to in the Code of Ethics
assource of technical standards?
a.Commission on Audit.
b.Auditing and Assurance Standards
Council.c.Securities
and Exchange Commission.
d.Relevant legislation.

This occurs when a firm or a member of
the assurance team, promotes or may
be perceived to promote an assurance
clients position or opinion to the point
that objectivity may or may be
perceived to be compromised. Such
may be the case if a firm or a member
of the assurance team were to
subordinate their judgment to that of
the client.
Answer: Advocacy threat.
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 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 minimum level
e.The auditor cannot reduce the
material effect of the illegal act to an
immaterial one.
A written representation from a client's
management which, among
othermatters, acknowledges responsibili
ty for the fair presentation of financialsta
tements should normally be signed
by the:
a. Chief executive officer and the
chief financial officer.
B.Chief financial officer and the
chairman of the BOD.
c.Chairman of the audit committee
of the BOD.
d. Chief executive officer, the chairman

of the BOD and the client's lawyer.
e. Chief executive officer, chief financial
officer and the chairman of the BOD.
BIS controls are frequently classified as
to general controls and application
controls. Which of the following is an
example of an application control?
A.Programmers may access the comput
er only for testing and "debugging"
programs.
b.All program changes must be fully
documented and approved by the
information systems manager and the
user department authorizing the
change.
c.A separate data control group is
responsible for distributing output, and
also compares input and output on a
test basis.
d.Use of passwords and identification
codes.
e.In processing sales orders, the comput
er compares customer and product
numbers with internally stored lists.
DIFFICULT ROUND
(DIFFICULT QUESTION #1)
In studying a client's internal controls, an
auditor must be able todistinguish
between prevention controls and
detection controls. Of the following
data processing controls, which is the
best detection control?
a.Policy requiring password security.
b.Backup and recovery procedure.
c.Access controls.
d.Use of data encryption techniques.
e.Review of machine utilization logs.

When the auditor encounters
sophisticated computer-based systems,
he or she may need to modify the audit
approach. Of the following conditions,
which one is not a valid reason for
modifying the audit approach?
a.More advanced computer systems pr
oduce less documentation, thusreducin
g the visibility of the audit trail.
b.In complex computerbased systems, computer verification
of data atthe point of input replaces the
manual verification found in lesssophisti
cated data processing systems.
c.Integrated data processing
has replaced the more traditional
separation of duties that existed in
manual and batch processing systems.
d.Real-time processing of transactions
has enabled the auditor toconcentrate
less on the completeness assertion.
In an application of mean per unit
sampling, the following information has
been
obtained:Reported book value P600,000
Point estimate (estimated total value) 59
1,000
Allowance for sampling risk (precision) +
- 22,000 Tolerable error +- 45,000
The appropriate conclusion would be
that the reported book value is:
a.Acceptable only if the risk of incorrect

rejection is at least twice the risk of
incorrect acceptance.
b.Acceptable only if the risk of incorrect
acceptance is at least twice the risk of
incorrect rejection
c.Acceptable only if the risk of
overreliance is at least twice the risk
of under reliance.
d.Acceptable.
e.Not acceptable.
Based on RA 9298, how many years can
a partner who survived the death or
withdrawal of other
partner/s continue to practice
under the partnership name after
becoming a sole practitioner?
Answer: 2 years.
The following procedures may be
performed by CPAs in an engagement:
1.Consideration of internal control
2.Observation
3.Inquiry and analysis
4.Inspection
5.Confirmation
6.Obtaining management
representation letter
Which of the foregoing are normally per
formed in an agreed-uponprocedures
engagement?
Answer: 2, 3, 4 and 5 only.
CLINCHER QUESTIONS
(CLINCHER QUESTION #1)
Which of the following is not a
distinguishing feature of risk-based
auditing?
a.Identifying areas posing the highest
risk of financial statement errors.
b.Analysis of internal control.
c.Collecting and evaluating evidence.
d.Concentrating audit resources in
those areas presenting the highest risk of
financial statement errors.
In conducting a substantive test of an a
ccount balance, an auditorhypothesize
s that no material error exists. The risk
that sample results will support the
hypothesis when a material error
actually does exist is the risk of:
a.Incorrect rejection.
b.Alpha error.
c.Incorrect acceptance.
d.Type I error.
e.Risk of overreliance.
In a distributed data base
(DDB) environment, control tests for
access controladministration can be
designed which focus on:
a.Reconciliation of batch control totals.
b.Hash totals.
c.Examination of logged activity.
d.Prohibition of random access.

e.Analysis of system generated core
dumps.
Which of the following might be detect
ed by an auditor's review of theclient's
sales cut-off?
a.Excessive goods returned for credit.
b.Unrecorded sales discounts
c.Lapping of year end accounts
receivable
d.Inflated sales for the year.
An auditor confirms a representative
number of open accounts receivable as
of December 31, 2010, and investigates
respondents' exceptions and
comments.By this procedure, the audito
r would be most likely to learn of which
of thefollowing?
a.One of the cashiers has been coverin
g a personal embezzlement by lapping.
b.One of the sales clerks has not been
preparing charge slips for credit sales to
family and friends
c.One of the CBIS control clerks has
been removing all sales invoices
applicable to his account from the data
file.
d. The credit manager has
misappropriated remittances from
customers whose accounts have been
written off
.e.The internal control is effective.
FINAL ROUND
EASY QUESTIONS
(AKIC)ACE QUESTION
This exists when other information
contradicts information contained in the
inancial statements.
a.Material inconsistency.
b.Material difference
.c.Material deviation
.d.Material error.
e.None of the choices
(MTIM) JOKER QUESTION
The term "present fairly, in all material
respect", means
a.The financial statements conform to
GAAP.
b.The financial statements may still be
materially misstated because the
auditors may not have discovered
the errors.
c.The financial statements are
accurately prepared.
d.The auditor considers only those
matters that are significant to the users
of the financial statements.
e.Immaterial amounts are omitted from
the financial statements
(SIC)
This occurs when by virtue of a close
relationship with an assurance client, its
directors, officers or employees, a firm or
a member of the assurance team
becomes too sympathetic to the clients
interests. Answer: Familiarity threat.

(PCC)
Which of the following acts is/are
considered fraud?
1.Alteration of records or documents
.2.Misinterpretation of facts.
3.Misappropriation of assets.
4.Recording of transactions without
substance
5.Clerical mistakes.
Answer: 1, 3 and 4 only.
(MVC)
This refers to the communication to the
public of information as to theservice or
skills provided by professional
accountants in public practice with a
viewof procuring professional business.
Answer: Advertising.
(CMU)
Which of the following factors is/are
essential to an effective internal
auditingorganization?
1.Operating responsibility
2.Organizational status
3.Objectivity
Answer: 2 and 3 only.
(COC)
The auditor's report should be dated as
of the date on which the:
a.Field work is completed.
b.Report is delivered to the client
c.Report is submitted to
the audit committee.
d.Fiscal period under audit ends.
e.Review of the working papers

is complete.
(JPI)ACE QUESTION
Which of the following
auditing procedures would the auditor
not apply to a cutoff bank statement?
a.Trace year end outstanding checks
and deposits in transit to the cutoff bank
statement.
b.Reconcile the bank account as of the
end of the cutoff period.
c.Compare dates, payees and
endorsements on returned checks with
the cash disbursements record.
d.Determine that the year- end deposit
in transit was credited by the bankon
the first working day of the following
accounting period.
(BSU) JOKER QUESTION
The most effective means for the
auditor to determine whether a
recorded intangible asset possesses the
characteristics of an asset is to:
a.Vouch the purchase by reference to
underlying documentation.
b.Inquire as to the status
of patent applications.
c.Register the patent at the Patent Offic
e to test its validity andacceptability.
d.Evaluate the future revenueproducing capacity of theintangible
asset.
e.Analyze research and development
expenditures to determine that
onlythose expenditures possessing future
economic benefit have been
capitalized.

(SMC)
The probability of a significant idle
capacity loss increases under which
of the following conditions?
a.Sales and production have increased
significantly during the periodunder
audit.
b.Sales and production have declined
materially during the period under audit.
c.Sales have declined somewhat, but
production has remained constant in
anticipation of a sales recovery in the
following accounting period.
d.The client has increased its overhead
absorption rate effective at the
beginning of the following accounting
period
e.Sales and production remained
constant during the period under audit.
(FSUU)
An audit report contains the following p
aragraph: "Because of theinadequacies
in the company's accounting records
during the year ended June
30,2003, it was
not practicable to extend our
auditing procedures to the
extentnecessary to enable us to obtain
certain evidential matter as it relates toc
lassification of certain items in
the consolidated statements of
operations." This paragraph most likely
describes
a.A material departure from GAAP
requiring a qualified audit opinion.
b.An uncertainty that should not lead to
a qualified opinion.
c.A matter that requires an

adverse opinion.
d.A matter that the auditor wishes to
emphasize and that does not lead to a
qualified audit opinion.
e.A material scope restriction requiring
a qualification of the audit opinion.
(XU)
Under which of the following
circumstances would a disclaimer of
opinion not be appropriate?
a.The financial statements fail to contain
adequate disclosureconcerning related
party transactions.
b. The client refuses to permit its attorne
y to furnish informationrequested in a
letter of audit inquiry.
c. The auditor is engaged after fiscal
year-end and is unable to
observephysical inventories or applies al
ternative procedures to verify theirbalan
ces.
d. The auditor is unable to determine
the amounts associated with illegal acts
committed by the client's management.
e.Under no circumstances.
(IIT)
Morgan, CPA, is the principal auditor
for a multi-national corporation.
AnotherCPA has examined and reporte
d on the financial statements of a signifi
cantsubsidiary of
the corporation. Morgan is satisfied
with the independence and
professional reputation of the other
auditor, as well as the quality of the
other auditor's
examination. With respect to Morgan's

report on the consolidated financial
statements, taken as a whole, Morgan
a.Must not refer to the examination of
the other auditor.
b.Must refer to the examination of the
other auditor.
c.May refer to the examination of the
other auditor.
d.May refer to the examination of the
other auditor, in which case
Morganmust include in the auditor's rep
ort on the consolidated financialstatem
ents a qualified opinion with respect to
the examination of the other auditor.
e.May refer only if the other auditor
consents.
(SFXC)
In which of the following reports should
a CPA not express negative or limited
assurance?
a. A standard compilation report on
financial statements of a non-public
entity.
b. A standard review report on financial
statements of a non-public entity.
c. A standard review report on interim
financial statements of a public entity.
d.A standard comfort letter on financial
information included in aregistration
statement of a public entity.
e. All of the above.
RJPIA CUP LEVEL 2 Auditing Theory
(LDCU)
Comfort letters are ordinarily signed by

the
a.Client.
b.Independent auditor.
c.Internal auditor.
d.Independent auditor and client.
e.Independent auditor and internal
auditor.
(LC)ACE QUESTION
The engagement team for the
2010 audit of the financial
statements of Sarimanok Company is
composed of the following:
Partner: Jose Marquez Senior associate:
Asserina Tamayo Manager:
Shirley Cordova
Audit associates: Cristy Espenilla, Jona
Lee Following Philippine Standards on
Auditing, who among the above would
be considered as the auditor?
a.Jose Marquez only.
b.Jose Marquez and Asserina
Tamayo only.
c.Jose Marquez, Asserina Tamayo and
all the audit associates only.
d.Jose Marquez, Asserina Tamayo and
Shirley Cordova only.
e.All of them.
(NFJPIA) JOKER QUESTION
The following statements relate to CPA
examination ratings. Which of the
following is incorrect?
a.To pass the examination, candidates
should obtain a general weighted
average of 75% and above, with no
rating in any subject less than 65%.
b.Candidates who obtain a rating of 75

% and above in at least foursubjects
shall receive a conditional credit for
the subjects passed.
c.Candidates who
failed in four complete examinations
shall no longer be allowed to take the
examinations the fifth time.
d.Conditioned candidates shall take an
examination in the remainingsubjects
within two years from the preceding
examination.
(CTKC)
Which statement is incorrect regarding
the nature of tests of controls?
a.As the planned level of assurance
increases, the auditor seeks more
reliable audit evidence.
b.Those controls subject to testing by
performing inquiry combined with
inspection or reperformance ordinarily p
rovide more assurance than
those controls for which the audit
evidence consists solely of inquiry
and observation.
c.The absence of misstatements detecte
d by a substantiveprocedure provides
audit evidence that controls related to
the
assertion being tested are effective.
d.A material misstatement detected by
the auditors procedures that was not
identified by the entity ordinarily is
indicative of the existence of a material
weakness in internal control.

(SPUS)
The assessment of the risks of material m
isstatement at the financialstatement le
vel is affected by the auditors understa
nding of the controlenvironment. Weak
nesses in the control environment ordina
rily will lead the auditor to:
a.Have more confidence in internal con
trol and the reliability of auditevidence
generated internally within the entity.
b.Conduct some audit procedures at
an interim date rather than at period
end.
c.Decrease the number of locations to
be included in the audit scope.
d.Withdraw from the engagement.
e.Modify the nature of audit procedures
to obtain more persuasive audit
evidence.
(LSU)
Which of the following is least likely a
procedure that would be performed by
the auditor near the auditors report
date?
a.Reading the minutes of the meetings o
f shareholders, theboard of directors an
d audit executive committees heldthrou
ghout the audit year.
b.Reading the entitys latest available
interim financial statements.
c.Inquiring of the clients legal counsel
concerning litigations and claims.
d.Reviewing the procedures that
management has established to ensure
that subsequent events are identified.
e.All are performed near the auditors
report.

(STC)
Which of the following statements is not
true regarding the competence of audit
evidence?
a.Relevance is enhanced by
an effective information system.
b.To be competent, evidence must be
both valid and relevant.
c.Validity is related to the quality of the
clients information system.
d.Relevance must always relate to audit
objectives.
(FCC)
Which one of the following, if present,
would support a finding of
constructivefraud on the part of a CPA?
a.Privity of contract.
b.Intent to deceive.
c.Reckless disregard.
d.Ordinary negligence.
(SEC)
An auditor compares 2010 revenues an
d expenses with those of the prioryear
investigating all changes exceeding
10%. By this procedure the auditor
would-be most likely to learn that:
a.An increase in property tax rates has
not been recognized in the clients
accrual.
b. The 2010 provision for uncollectible
accounts is inadequate, because
of worsening economic conditions.
c.Fourth quarter payroll taxes were not
paid.
d.The
client changed its capitalization policy f
or small tools in2010.
e.All of the above.
(MSUM)
Experience has shown that certain cond
itions in an organization aresymptoms of
possible management fraud. Which of
the following conditions would not be
considered an indicator of possible
fraud?
a.Managers regularly assuming
subordinates' duties.
b.Managers dealing in matters outside
their profit center's scope.
c.Managers not complying with
corporate directives and procedures.
d.Managers subject to formal
performance reviews on a regular basis.
(MU)
Given the increasing use of
microcomputers as a means for
accessing databases, along with on-line
real-time processing, companies face a
serious challenge relating to data
security. Which of the following is not an
appropriate means for meeting this
challenge?
a. Institute a policy of strict identification
and password controls housed in the
computer software that permit only
specified individuals to access the
computer files and perform a given
function.
b.Limit terminals to perform only certain
transactions.
c.Program software to produce a log of

transactions showing date, time, type of
transaction, and operator.
d.Prohibit the networking
of microcomputers and do not permit
users to access centralized data bases.
e.All are appropriate measures for
maintaining data security.

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RFJPIA CUP LEVEL 2 Auditing Theory (EASY

RFJPIA CUP LEVEL 2 Auditing Theory (EASY

RFJPIA CUP LEVEL 2 Auditing Theory

d. Chief executive officer, the chairman

RFJPIA CUP LEVEL 2 Auditing Theory

a.Acceptable only if the risk of incorrect

d.Prohibition of random access.

RFJPIA CUP LEVEL 2 Auditing Theory

e.Review of the working papers

RFJPIA CUP LEVEL 2 Auditing Theory

c.A matter that requires an

examination. With respect to Morgan's

Comfort letters are ordinarily signed by

b.Candidates who obtain a rating of 75

RFJPIA CUP LEVEL 2 Auditing Theory

RFJPIA CUP LEVEL 2 Auditing Theory

c.Program software to produce a log of

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