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REVIEW SCHOOL OF ACCOUNTANCY AUDITING THEORY

AUDITING THEORY A. A poorly designed internal control structure may be in existence.


B. A management fraud may exist and it is more likely to be detected by independent
Overview of auditing auditors.
1. What are the three (3) most commonly sought assurance services? C. Different interests may exist between the company preparing the statements and the
A. Audits, review and compilations. persons using the statements.
B. Audits, reviews and other assurance services. D. A misstatement of account balances may exist and is generally corrected as the result of
C. Audits, compilations and other assurance services. the independent auditor's work.
D. Reviews, compilations and other assurance service.
8. An external audit:
2. The "hallmark" of auditing is A. Complements an internal audit C. Contradicts an internal audit
A. available audit technology C. materiality and audit risk B. Confirms an internal audit D. Overlaps an internal audit
B. generally accepted auditing standards D. professional judgment
9. This type of audit is performed in order to determine the degree of adherence to specific
3. Auditing is based on the assumption that financial data and statements are procedures and rules set down by some higher authority.
A consistently applied. C. presented fairly. A. Compliance audit C. Internal audit
B. in conformity with appropriate criteria. D. verifiable. B. Financial statement audit D. Operational audit

4. An audit of financial statements is conducted to determine if the 10. Which of the following BEST describes the operational audit?
A. client's internal control is functioning as intended. A. It concentrates on implementing financial and accounting control in a newly organized
B. organization is operating efficiently and effectively. company.
C. auditee is following specific procedures or rules set down by some higher authority. B. It attempts and is designed to verify the fair presentation of a company's results of
D. overall financial statements are stated in accordance with an applicable financial operations.
reporting framework. C. It concentrates on seeking out aspects of operations in which waste would be reduced
by the introduction of controls.
5. Which of the following methods is MOST commonly used to reduce information risk? D. It requires the constant review by internal auditors of the administrative controls as they
A. Allow users to verify information. relate to operations of the company.
B. Have the financial statements audited.
C. Allow all users to prepare the statements. 11. What are the two (2) most important qualities for an operational auditor?
D. Users share information risk with management. A. Personality and appearance
B. Independence and competence
6. The purpose of an audit of financial statements is to C. Competence and technical training
A. enhance the knowledge and skills of external auditors D. Academic background and sufficient experience
B. enhance understanding of the stakeholders of the company
C. provide government agencies, such as BIR with basis for assessments 12. Which of the following types of audits are MOST similar?
D. enhance the degree of confidence of intended users of the financial statements A. Operational audits and compliance audits.
B. Internal audits and independent financial statement audits.
7. Which of the following best describes the reason why independent auditors report on financial C. Independent financial statement audits and operational audits.
statements? D. Compliance audits and independent financial statement audits.

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The professional practice of accountancy Professional responsibilities


13. According to the IAASB Glossary of Terms, this refers to a professional accountant in public 19. A CPA who is engaged to prepare an income tax return has a duty to prepare it in such a
practice. manner that the tax is
A. Auditor C. Professional A. the legal minimum
B. Practitioner D. Public accountant B. not subject to change upon audit
C. supported by the client's audited financial statements
14. The person or persons who in a direct reporting engagement, is responsible for the subject D. computed in conformity with generally accepted accounting principles
matter; or in an assertion-based engagement, is responsible for the subject matter
information (the assertion), and may be responsible for the subject matter. Quality Standards
A. Audit committee C. Intended users 20. This is a review that provides an objective evaluation of the significant judgments made by
B. General public D. Responsible party the engagement team and the conclusions reached in formulating the report.
A. Peer review.
15. These are the benchmarks used to evaluate or measure the subject matter including, where B. System of quality control.
relevant, benchmarks for presentation and disclosure. C. Engagement quality control review.
A. Assertions C. Engagement process D. Engagement judgment review procedures.
B. Criteria D. GAAP
21. The inspection of a selection of completed engagements is ordinarily performed on a cyclical
16. An auditor should NOT render a report on basis. Engagements selected for inspection include at least
A. client internal control C. quarterly financial information A. one engagement for each firm over an inspection cycle.
B. management performance D. the achievability of forecasts B. two engagements for each firm over an inspection cycle.
C. one engagement for each engagement partner over an inspection cycle.
17. Which of the following BEST describes risk assessment services? D. two engagements for each engagement partner over an inspection cycle.
a. An engagement which identifies a set of risks that affect the client organization. It
involves the study of the link between risks and the organization's vision, mission, Accountancy Law
objectives and strategies and the development of new and relevant measures. 22. The following are among the powers and functions of the Board of Accountancy, EXCEPT:
b. An engagement which provides assurance about whether financial and non-financial A. To conduct an oversight into the quality of audits of financial statements.
information being reported from the entity's performance measurement system is B. To prescribe and/or adopt a Code of Ethics for the practice of accountancy.
reliable. C. To prescribe and adopt the rules and regulations necessary for implementing RA 9298.
c. An engagement which involves the evaluation of the quality of health care, medical D. To ensure, in coordination with the Department of Education, that all higher educational
services and looks into the health care delivery system. instruction and offering of accountancy comply with prescribed policies, standards and
d. None of the answers requirements of the course.

18. Which of the following matters is NOT included under "regulatory environment"? 23. The following are grounds for suspension or removal of members of the Board of
A. Accounting principles and industry specific practices. Accountancy. EXCEPT:
B. General level of economic activity (for example, recession, growth). A. Neglect of duty or incompetence.
C. Legislation and regulation that significantly affect the entity's operations. B. Pending case on a crime involving moral turpitude
D. Government policies currently affecting the conduct of the entity's business. C. Manipulation or rigging of the CPA licensure examination results.

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D. Violation or tolerance of any violation of RA 9298 and its 1RR, or the Code of Ethics and A. 25 days C. 60 days
technical and professional standards of practice for CPAs. B. 30 days D. 90 days

24. The Chairpersons of the FRSC and the AASC shall be appointed by the 30. Which of the following names illustrates a firm name, as contrasted to the name of an
A. Professional Regulation Commission. individual CPA and a partnership name?
B. President of the Republic of the Philippines. A. Juan S. Sanchez C. Sanchez & Reyes
C. Professional Regulatory Board of Accountancy. B. Juan S. Sanchez and Associates D. Sanchez & Reyes & Co.
D. Philippine Institute of Certified Public Accountants.
31. Unless otherwise specified by law, engagement documentation is owned by the
25. The Board of Accountancy, subject to the approval of the PRC, may revise or exclude any of A. The Board of Accountancy C. The client and the Firm
the subjects and their syllabi, and add new ones as the need arises, provided that the change B. The client D. The Firm
shall NOT be more often than:
A. Every two years. C. Every four years. 32. Contingent fees are widely used for certain types of non-assurance engagements. They
B. Every three years. D. Every five years. may, however, give rise to threats to compliance with the fundamental principles, especially
the principle of
26. The following are grounds for the refusal to issue a certificate of registration and professional A. objectivity
identification card (select the EXCEPTION): B. confidentiality
A. Unsound mind. C. professional behavior
B. Conviction for a political offense. D. professional competence and due care
C. Guilty of immoral or dishonorable conduct.
D. Conviction of a criminal offense involving moral turpitude. 33. The CPA shall be required to indicate which of the following numbers on the documents
he/she signs, uses or issues in connection with the practice of the profession?
27. A CPA whose certificate has been revoked A. Professional tax receipt.
A. has committed a crime involving moral turpitude B. Professional Identification Card
B. can no longer be reinstated as a Certified Public Accountant C. CPA Certificate of Registration number.
C. is required to take the CPA Board Licensure examinations before reinstatement D. All of the choices are required to be indicated.
D. may be reinstated by the BOA after the expiration of 2 years from the date of revocation
34. The normal retention period for audit engagement documentation is no shorter than _____
28. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members from the date of the audit report.
thereof shall register with the Board of Accountancy and the Professional Regulation A. two years C. five years
Commission. If the application for registration of A,& A, CPAs, was approved on July 19, B. four years D. seven years
2013, it shall file for renewal on or before
A September 30, 2015 C. July 19, 2016 35. Original paper documentation may be scanned and stored electronically for practical reasons.
B. December 31, 2015 D. September 30, 2016 After scanning, the original paper document
A. shall be kept on file for future reference.
29. The death or disability of an Individual CPA and/or the dissolution and liquidation of a Firm or B. shall be discarded following established principles on waste disposal.
Partnership of CPAs shall be reported to the BOA not later than ___ from the date of such C. shall be considered for retention or disposal depending on legal or regulatory
death, dissolution or liquidation. requirements and other factors.

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D. none of the choices D. A certificate of accreditation shall be issued to certified Dublic accountants in public
practice only upon showing, that such registrant has acquired a maximum of three (3)
36. May a CPA give a brochure to a non-client? years meaningful experience in any of the areas of public practice including taxation.
A. Yes. if the non-client has made an unsolicited request
B. No, because this is a violation of the revised rules in advertising 41. The policy for accreditation covers CPAs involved in teaching of accounting and related
C. Yes, since this is acceptable under the revised rules in advertising subjects in the
D. No, unless the non-client becomes a client within 10 days from receipt of the brochure A. primary level only
B. primary and secondary levels only
37. Which of the following CANNOT be mentioned by an author in publicizing a book in C. secondary and tertiary levels only
accounting? D. primary, secondary, tertiary and graduate level
A. Name
B. Qualifications 42. All of the following are requirements for accreditation of Accounting Teachers , EXCEPT:
C. Services that the author's firm provides A. Possession of relevant Master's Degree
D. Membership in professional organization B. A total of three years' meaningful experience in actual accounting work
C. Completion of 12 units of relevant education subjects from CHED recognized schools
38. Alex, CPA, is the dean of the College of Accountancy in the University of St. Jones. Related D. Proof that the CPA has undergone continuing professional education equivalent to 75
to this, which of the following statements is INCORRECT? units
A. Alex is considered to be in the practice of his profession.
B. Alex is practicing accountancy in the education sector (academe). 43. The accreditation granted for accounting teachers is valid for
C. Alex is not considered in the practice of his profession because he occupies an A. one year C. three years
administrative position. B. two years D. four years
D. The position of the dean or the department chair or its equivalent that supervises the BS
Accountancy program of an educational institution must be a duly registered CPA. Code of Ethics
44. Which fundamental principle may be threatened when the CPA in public practice is asked to
39. At present, the Accredited Professional Organization referred to under the IRR of the provide a second opinion on the application of professional standards or principles to specific
Philippine Accountancy Act is the circumstances or transactions by, or on behalf of a company or entity that is not an existing
A. Board of Accountancy client?
B. Professional Regulations Commission A. Integrity
C. Association of CPAs in Public Practice B. Confidentiality
D. Philippine Institute of Certified Public Accountants C. Professional behavior
D. Professional competence and due care
40. Which of the following statements is INCORRECT?
A. The SEC shall not register any corporation organized for the practice of public 45. A CPA should maintain objectivity and free of conflicts of interest when performing
accountancy. A. all professional services.
B. Meaningful experience, as mentioned by RA 9298, is explained in details under Section B. audits, but not any other professional services.
28A of the Implementing Rules and Regulations. C. all attestation services, but not other professional services.
C. Single practitioners and partnerships for the practice of public accountancy shall be D. all attestation and tax services, but not other professional services.
registered Certified Public Accountants in the Philippines.

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46. The following are the fundamental principles of professional ethics, EXCEPT fundamental premise that the organization and conduct of the CPA and the services
A. independence. C. objectivity. provided to clients are well planned, controlled and managed.
B. integrity. D. professional competence and due care.
52. The Code of Ethics would be violated if a CPA represents that specific consulting services
47. Ultimately, the decision about whether or not an auditor is independent must be made by the will be performed for a stated fee and it is apparent at the time of the representation that the
A. auditor. C. PRC. A. fee was a competitive bid.
B. client D. public B. CPA would not be independent.
C. actual fee would be substantially higher.
48. Because an external auditor is paid a fee by a client company, he or she D. actual fee would be substantially lower than the fees charged by other professional
A. is never considered to be independent accountants for comparable services
B. may be sufficiently independent to conduct an audit
C. is absolutely independent and may conduct an audit 53. A CPA in public practice should not pay or receive a referral fee or commission, unless the
D. must seek approval from the Securities and Exchange Commission prior to conducting CPA in public practice has established
an audit A. internal controls designed to scientifically compute the referral fee or commission.
B. safeguards to eliminate or reduce threats to fundamental principles to an acceptable
49. The fundamental principle of integrity requires a CPA to level.
A. be straightforward and honest in performing professional services. C. another company as recipient, whose name does not include the name of the CPA in
B. perform professional services with due care, competence and diligence. public practice.
C. be fair and should not allow prejudice or bias, conflict of interest or influence of others to D. that explicit approval to pay or receive commissions has been obtained from the
override objectivity. Securities and Exchange Commission.
D. act in a manner consistent with the good reputation of the profession and refrain from
any conduct which might bring discredit to the profession. 54. When a CPA in business is pressured to become associated with misleading information or
to become associated with misleading information through the actions of others, what kinds
50. An inadvertent violation of the Code of Ethics, depending on the nature and significance of of threats might arise?
the matter, may not compromise compliance with the fundamental principles provided, once A. Familiarity and self-review threats C. Self-interest and self-review threats
the violation is discovered, B. Self-interest and intimidation threats D. Self-review and advocacy threats
A. the CPA withdraws from the specific professional service involved.
B. a disclaimer of opinion is issued to the client as a result of the violation. 55. The receipt of gifts and hospitality from a client may create threats to fundamental principles.
C. the engagement is promptly transferred to another, non-violating professional Which of the following is a correct combination of threat and fundamental principle created by
D. the violation is corrected promptly and any necessary safeguards are applied. this situation?
A. Intimidation threat- integrity
51. In which situation would a CPA be in violation of the rules of professional ethics in B. Advocacy threat - objectivity
determining professional fees? C. Self-interest threat - objectivity
A. A fee that is based on 10% of the client's adjusted net income for the current year. D. Self-interest threat - professional competence and due care.
B. A fee which is lower compared to the fee charged in the prior year for similar services.
C. A fee based on appropriate rates per hour or per day for the time of each person PSAs
engaged in performing professional services. 56. Philippine Standards on Auditing (PSAs) should be looked upon by practitioners as
D. A fee based on appropriate rates per hour, where the appropriate rate is based on the A. ideals to strive for, but which are not achievable.

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B. maximum standards which denote excellent work. C. Insiders recently purchased additional shares of the entity's stock.
C. benchmark to be used on all audits, reviews, and compilations. D. Management places substantial emphasis on meeting earnings projections.
D. minimum standards of performance which must be achieved on each audit engagement.
62. When an identified misstatement may be indicative of fraud, the auditor considers the
Client acceptance & continuance implications of the misstatement in relation to other aspects of the audit, particularly the
57. The following are considered by a CPA firm in deciding whether to accept a new client, A. reliability of management representations.
EXCEPT the client’s B. adequacy of financial statement disclosures.
A. financial ability. C. opinion presented in the financial statements.
B. relations with its previous CPA firm. D. amount of audit fees documented in the engagement letter.
C. standing in the business community.
D. probability of achieving an unqualified opinion. 63. The most difficult type of cash defalcation for the auditor to detect is that which occurs
A. in amounts under P 100.
58. One of the first things that the auditor will do after accepting a new client is B. before the cash is recorded.
A. tour the client's facilities C. out of the balance kept in the cash register.
B. study client's internal control structure D. after cash is recorded but before it goes to the bank.
C. communicate with predecessor auditor
D. contact client's attorney to discover legal obligations 64. 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
59. A client seeking a second opinion does not permit the CPA to communicate with the existing A. illegal acts are perpetrated by management override of internal accounting controls.
accountant. In such cases, the CPA should B. illegal acts by clients often relate to operating aspects rather than accounting aspects.
A. communicate the client's refusal directly to the existing accountant. C. the client's system of internal accounting control may be so strong that the auditor
B. issue a disclaimer of opinion due to a significant client-imposed scope limitation. performs only minimal substantive testing.
C. consider whether, taking all the circumstances into account, it is appropriate to provide D. illegal acts may be perpetrated by the only person in the client's organization with access
the opinion sought. to both assets and the accounting records.
D. consider whether to issue a qualified opinion or disclaimer of opinion due to a significant
client-imposed scope limitation. 65. If the auditor suspects that members of senior management, including members of the board
of directors, are involved in noncompliance to laws as regulations, and he believes his report
Error, fraud & illegal acts may not be acted upon, he would
60. The primary responsibility for the prevention and detection of fraud and error rests with A. do nothing.
A. the company's management B. issue a disclaimer of opinion.
B. those charged with governance C. consider seeking legal advice.
C. the company's management and those charged with governance D. make special investigation in order to fully determine the extent of client's
D. the external auditor, the company's management, and those charged with governance noncompliance.

61. Which of the following characteristics MOST likely would heighten an auditor's concern about 66. An auditor concludes that a client has committed an illegal act that has not been properly
the risk of intentional manipulation of financial statements? accounted for or disclosed. The auditor should withdraw from the engagement if the
A. Turnover of senior accounting personnel is low. A. client refuses to accept the auditor's report as modified for the illegal act.
B. The rate of change in the entity's industry is slow B. illegal act has an effect on the financial statements that is both material and direct.

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C. auditor is precluded from obtaining sufficient competent evidence about the illegal act. B. changed at the auditor's discretion while detection risk is not.
D. auditor cannot reasonably estimate the effect of the illegal act on the financial C. functions of the client and its environment while detection risk is not.
statements. D. considered at the individual account-balance level while detection risk is not.

67. An auditor who finds that the client has committed an illegal act would be most likely to 73. What are the different levels of risk assessment?
withdraw from the engagement when the A. "High" and "Low". C. "High" and "Less than High".
A. illegal act has received widespread publicity. B. "Higher" and "Lower". D. ''Maximum" and "Minimum".
B. illegal act has material financial statement implications.
C. illegal act affects auditor's ability to rely on management representations. 74. The acceptable level of detection risk (ADR) and the combined level of inherent risk (IR) and
D. auditor cannot reasonably estimate the effect of the illegal act on the financial control risk (CR) are ________ related.
statements. A. directly C. not
B. inversely D. proportionately
Planning & risk assessment
68. The senior auditor responsible for coordinating the field work usually schedules a pre-audit 75. Inherent risk is reduced when the likelihood of defalcations is low. This would be true for an
conference with the audit team primarily to account such as
A. provide an opportunity to document staff disagreements regarding technical issues. A. Accounts receivable. C. Held for trading securities.
B. give guidance to the staff regarding both technical and personnel aspects of the audit. B. Cash. D. Property, plant and equipment.
C. discuss staff suggestions concerning the establishment and maintenance of time
budgets. 76. When setting a preliminary judgment about materiality
D. discuss staff suggestions concerning the establishment and maintenance of time A. there is no relationship between it and the peso amount of evidence needed.
budgets. B. the same amount of evidence is required for either low or high peso amounts.
C. less evidence is required for a low peso amount than for a high peso amount.
69. The audit risk model is used primarily D. more evidence is required for a low peso amount than for a high peso amount.
A. while doing tests of controls.
B. to determine the type of opinion to express. 77. When the auditors allocate the preliminary judgment about materiality to account balances,
C. to evaluate the evidence which has been gathered. the materiality allocated to any given account balance is referred to as
D. for planning purposes in determining how much evidence to accumulate. A. The error range. C. Tolerable materiality.
B. The materiality range. D. Tolerable misstatement.
70. Auditors appear NOT to exhibit due audit care if there was a
A. high audit risk C. low control risk 78. In considering materiality for planning purposes, an auditor believes that misstatements
B. high inherent risk D. low detection risk aggregating P 10,000 would have a material effect on an entity's profit, but that
misstatements would have to aggregate P 20,000 to materially affect the statement of
71. Inherent risk and control risk collectively are known as the financial position. Ordinarily, it would be appropriate to design auditing procedures that would
A. dependent variables of risk C. risk of information dissemination be expected to detect misstatements that aggregate
B. dual risk team D. risk of material misstatement A. P 10.000 C. P 20,000
B. P 15,000 D. P 30,000
72. Inherent risk and control risk differ from detection risk in that inherent risk and control risk are
A elements of audit risk white detection risk is not. 79. Regardless of how the allocation of the preliminary judgment about materiality was done,

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when the audit is complete the auditor must be confident that the combined errors in all C. key ratios and operating statistics.
accounts are D. employee performance measures and incentive compensation policies.
A. Equal to the preliminary judgment.
B. Less than the preliminary judgment. Planning – other strategic issues
C. More than the preliminary judgment. 84. In which of the following situations would an expert be LEAST likely contracted by a CPA?
D. Less than or equal to the preliminary judgment. A. Valuations of certain types of assets like land and buildings.
B. Determination of fair values using specialized statistical techniques.
80. After beginning an audit of a new client, Syd, CPA, discovers that the professional C. Application of accounting methods in computing inventory balances.
competence necessary for the engagement is lacking. Sydney informs management of the D. Legal opinions concerning interpretations of engagements, statutes and regulations.
situation and recommends another CPA, and management engages the other CPA. Under
these circumstances Internal Control Concepts
A. Syd's lack of competence should be considered to be a violation of generally accepted 85. A reason to establish internal control is to
auditing standards. A. have a basis for planning the audit.
B. Syd may request compensation from the client for any professional services rendered to B. encourage compliance with organizational objectives.
it in connection with the audit. C. ensure the accuracy, reliability and timeliness of information.
C. Syd's request for a commission from the other CPA is permitted because a more D. provide reasonable assurance that the objectives of the organization are achieved.
competent audit can now be performed.
D. Syd may be indebted to the other CPA since the other CPA can collect from the client 86. What is the relationship between an entity's objectives and the controls it implements to
only the amount the client originally agreed to pay Syd. provide reasonable assurance about their achievement?
A. Adverse C. Direct
81. If a change in the type of engagement from higher to lower level of assurance is reasonably B. Cannot be determined D. Inverse
justified, the report based on the revised engagement
A. omits reference to the original engagement. 87. An operating committee of a company's board of directors that is in charge of overseeing
B. should qualify the opinion due to a scope limitation. financial reporting and disclosure.
C. should refer to the original engagement in a separate paragraph preceding the opinion A. Audit committee C. Governance
paragraph. B. Control environment D. Management
D. should always refer to any procedures that may have been performed in the original
engagement. 88. These are policies and procedures designed to eliminate or to reduce threats to fundamental
principles to an acceptable level.
82. Cost-benefit considerations are part of audit planning. In relation to this, which of the A. Control activities C. Safeguards
following audit procedures is usually the LEAST costly to perform? B. Internal controls D. Segregation of duties
A. Analytical procedures. C. Tests of balances.
B. Substantive tests of transactions. D. Tests of controls. 89. The following are components of internal control
A. Control environment C. Organizational structure
83. Examples of matters an auditor may consider under measurement and review of the entity's B. Legal environment of the firm D. Risk assessment process
financial performance, include the following, EXCEPT
A. competitor analysis. 90. Which of the following descriptions pertain to physical controls?
B. use of information technology. A. The assignment of incompatible functions to different people.

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B. Controls performed to check accuracy, completeness, and authorization of transactions. B. different individual should handle custody, authorization and record-keeping.
C. physical security of assets, including adequate safeguards such as secured facilities C. an individual authorizing a transaction maintain custody of the asset that resulted from
over access to assets and records. the transaction.
D. Control activities that include reviews and analyses of actual performance versus D. an individual maintaining custody of an asset be entitled to access the accounting
budgets, forecasts, and prior period performance. records for the asset.

91. An entity's ongoing monitoring activities often include 97. What is an example of specific transaction authorization?
A. reviewing the purchasing function. A. Establishment of sales prices.
B. periodic audits by the audit committee. B. Setting of automatic reorder points.
C. the audit of the annual financial statements. C. Establishment of a customer's credit limits.
D. control risk assessment in conjunction with quarterly reviews. D. Approval of a construction budget for a new warehouse.

92. A process implemented by management to assess the effectiveness of internal control 98. For good internal control, which function should be assigned to the company's accounting
performance over time. department?
A. Monitoring of controls C. Risk assessment procedures A. Signing payroll checks
B. Quality control system D. Tests of controls B. Preparing financial reports
C. Recording financial transactions
93. Which of the following would be preventive controls? D. Reconciling accounting records with existing assets
A. The use of batch totals.
B. Preparation of bank reconciliation. 99. When a compensating control exists, a weakness in the system
C. Requirement that two persons open mail. A. is reduced but is not removed; therefore, it is still of concern to the auditor
D. Reconciling the accounts receivable subsidiary file with the control account. B. could cause a material loss, so it must be tested using substantive procedures
C. is magnified and must be removed from the sampling process and examined in its
94. Which of the following conditions supports strong internal control? entirety
A. An economic downturn. D. is no longer a concern because the potential for misstatement has been sufficiently
B. Strict monitoring by the Bureau of Internal Revenue. reduced
C. The existence of related parties and related party transactions.
D. Pressure by the financial community to improve earnings performance. 100. After obtaining a sufficient understanding of internal control, the auditor
A. assesses the need to apply GAAS.
95. An effective internal control structure B. determines the preliminary assessment of control risk.
A. cannot be circumvented by management. C. determines the assessed levels of detection risk and inherent risk.
B. eliminates risk and potential loss to the organization. D. assesses detection risk to determine the acceptable level of inherent risk.
C. reduces the need for management to review exception reports on a day-to-day basis.
D. is unaffected by changing circumstances and conditions encountered by the Study & evaluation of internal control
organization. 101. In an audit of financial statements, an auditor's primary consideration regarding a control is
whether it
96. A proper segregation of duties requires that A. affects management's financial statement assertions.
A. an individual authorizing a transaction should record it also. B. enhances management's decision-making processes.

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C. provides adequate safeguards over access to assets. C. Are two or more authorized signatures required on checks that repay notes payable?
D. reflects management's philosophy and operating style. D. Are assets that collateralize note payable critically needed for the entity's continued
existence?
102. An auditor would most likely be concerned with internal control policies and procedures that
provide reasonable assurance about 108. If the auditor anticipates reliance on the client's internal controls, the auditor would
A. methods of assigning production tasks to employees. A. eliminate the need for performance of substantive tests.
B. the efficiency of management's decision-making process. B. perform tests of controls and increase the amount of substantive tests.
C. appropriate prices the entity should charge for its products. C. no longer perform tests of controls and proceed immediately to substantive tests.
D. the entity's ability to process and summarize financial data. D. test controls and use the results of testing as a basis for determining the nature, extert
and timing of substantive tests.
103. If no changes have occurred since the controls were last tested, a CPA should
A. rely entirely on the performance of substantive audit procedures. 109. Tests of controls are used to test whether controls are
B. test the operating effectiveness of such controls at least once in every third audit. A. operating effectively
C. test the operating effectiveness of such controls at least once in every fourth audit. B. properly documented by the client.
D. rely on the prior year audit's assessment of internal controls and use this assessment in C. placed in operation or implemented.
the current year. D. properly incorporated in the financial statements.

104. If the auditors do NOT perform tests of controls of certain assertions: 110. Which of the following is ordinarily a test of internal control procedures?
A. they must issue a qualified opinion. A. Count and list cash on hand.
B. they have performed a substandard audit. B. Sending confirmation letters to banks.
C. they must assess control risk at the MAXIMUM level for those assertions. C. Examination of signatures on checks.
D. they arc not required to communicate reportable conditions relating to those accounts to D. Obtain or prepare reconciliation statements of bank accounts as of the balance sheet
management. date.

105. It is most appropriate that tests of controls be applied to transactions and controls 111. Audit evidence concerning segregation of duties ordinarily is best obtained by
A. at the balance sheet date. C. at each quarterly interim period. A. developing audit objectives that reduce control risk.
B. at the beginning of the fiscal period. D. for the entire period under audit. B. observing the employees as they apply specific controls.
C. obtaining a flowchart of activities performed by available personnel.
106. Tests of controls are LEAST likely to be omitted with regard to: D. performing tests of transactions that corroborate management's financial statement
A. subsequent events assertions.
B. accounts representing few transactions
C. accounts representing many transactions 112. Tests of controls, for efficiency, are frequently done at the same time as
D. accounts believed to be subject to ineffective control activities A. analytical procedures C. substantive tests of balances
B. compliance tests D. substantive tests of transactions
107. Which of the following questions would an auditor most likely include on an internal control
questionnaire for notes payable? 113. The objective of dual-purpose tests is to
A. Are direct borrowings on notes payable authorized by the board of directors? A. evaluate whether internal controls are operating effectively.
B. Are the proceeds from notes payable used for the purchase of noncurrent assets? B. detect material misstatements in the client's financial statements.

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C. identify unusual trends or patterns in comparative financial statements Other cycles
D. test internal controls; as well as transactions and balances using the same test 118. When no independent stock transfer agents are employed and the corporation issues its own
procedures. stocks and maintains stock records, cancelled stock certificates should
A. be destroyed to pi-event fraudulent reissuance.
114. When the auditor identifies an area of the accounting system with missing controls (i.e., B. be defaced and sent to the Corporate Secretary.
material weakness), this would lead to a modification of the audit program in that area that C. be defaced to prevent reissuance and attached to their corresponding stubs.
would D. not be defaced but segregated from other stock certificates and retained in a canceled
A. eliminate the need for a test of controls. certificates file.
B. increase the amount of tests of controls.
C. increase the reliance on tests of controls. Communication & reporting
D. cause the issuance of a qualified or adverse opinion. 119. Which of the following statements concerning material weaknesses and reportable conditions
is CORRECT?
115. The development of constructive suggestions to clients for improvements in internal control is A. All material weaknesses are reportable conditions.
A. a desirable by-product of an audit engagement. B. All reportable conditions are material weaknesses.
B. addressed by the Auditor only during a special engagement. C. An auditor should identify and communicate material weaknesses separately from
C. a requirement of the auditor's consideration of internal control. reportable conditions.
D. as important as establishing a basis for reliance upon the internal control structure. D. An auditor should report immediately material weaknesses and reportable conditions
discovered during an audit.
COSO
Financing & treasury cycle 120. The auditors who become aware of an internal control reportable condition are required to
Revenue cycle communicate this to the
116. Which of the following control procedures may prevent the failure to bill customers for some A. audit committee.
shipments? B. internal auditors.
A. Each sales order should be approved by authorized personnel C. board of directors and internal auditors.
B. Each sales invoice should be supported by a shipping document. D. audit committee and client's legal counsel.
C. Sales journal entries should be reconciled to daily sales summaries.
D. Each shipment should be supported by a pre-nurnbered sales invoice that is accounted 121. Significant deficiencies in internal control are to be communicated
for. a. in writing c. orally or in writing
b. orally, but may also be in writing d. under no circumstances
117. When accounts receivable is considered uncollectible, the person who generally authorizes
the write-off is the Internal auditing
A. accountant C. sales manager 122. Internal auditing can be best described as a(n)
B. credit manager D. treasurer A. accounting function C. compliance function
B. activity primarily to detect fraud D. control function
Production cycle
Property, plant & equipment cycle 123. The overall objective of internal auditing is to
Expenditure cycle – purchasing A. ascertain that controls are costs-justified.
Expenditure cycle – payroll B. attest to the efficiency with which resources are employed.

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C. provide assurance that financial data have been accurately recorded. circumstances
D. assist the members of the organization in the effective discharge of their responsibilities. D. all procedures are dependent on the adequacy of the controls and me results of the tests
of controls
124. Which of the following statements is NOT a distinction between independent auditing and
internal auditing? 129. The primary emphasis in most tests of details of balances is on the
A. Internal auditors are employees of the auditee, whereas external auditors are A. balance sheet accounts. C. income statement accounts.
independent contractors. B. cash flow statement accounts. D. all of these
B. The internal auditor's span of coverage goes beyond financial auditing to encompass
operational and performance auditing. 130. Which of the following income statement accounts is LEAST likely to be verified in
C. Independent auditors represent third party users external to the auditee entity, whereas conjunction with the audit of a balance sheet account?
internal auditors report directly to management. A. Depreciation expense C. Travel and entertainment
D. Although independent auditors strive for both validity and relevance of evidence, internal B. Interest expense D. Uncollectible accounts expense
auditors are concerned almost exclusively with validity.
131. If the auditor wants to perform more effective substantive tests, the auditor will perform
Audit objectives, evidence & procedures A. neither test of details nor analytical procedures
125. Broadly defined, the subject matter of any audit consists of B. test of details and analytical procedures in equal proportion
A. assertions C. financial statements C. more analytical procedures and less test of details (transactions and balances)
B. economic data D. operating data D. more test of details (transactions and balances) and less analytical procedures

126. Management assertions drive the auditor's quest for audit evidence. These assertions are 132. Complete the statement: "The evidence gathering technique of observation
A. directly related to generally accepted auditing standards. A. is rarely sufficient by itself."
B. indirectly related to generally accepted auditing standards. B is limited to what the auditor sees."
C. directly related to generally accepted accounting principles. C. is useful in most parts of the audit."
D. indirectly related to generally accepted accounting principles. D. requires the gathering of corroborative evidence."

127. Which of the following pieces of evidence is LEAST likely to be examined by the auditor 133. The strongest criticism of the reliability of audit evidence that the auditor physically observes
examines to determine whether operations are in compliance with the internal control is that
structure? A. the client may conceal items from the auditor
A. Cancelled supporting documents. B. such evidence is too costly in relation to its reliability.
B. Signatures on authorization forms. C. the observation must occur at a specific time, which is often difficult to arrange
C. Confirmations of accounts receivable. D. the auditor may net be qualified to evaluate the items which he or she is observing.
D. Records documenting usage of IT programs.
134. Which one of the following types of procedures will aid the auditor in obtaining evidence
128. Which one of the following statements is true? In deciding on substantive tests of regarding the mathematical accuracy of accounting records and other information?
transactions A. Confirmation C. Inspection.
A. the materiality of the item will not influence the choice of procedures used B. Inquiry. D. Recalculation
B. results obtained in the prior year's audit will not affect the procedures used this year
C. some procedures are commonly employed on every audit regardless of the 135. The following are descriptions of assertions about classes of transactions and events for the

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period under audit. Which of the following statements refers to cut-off?
A. Transactions and events have been recorded in the proper accounts. 141. The test for recorded sales for which there were no actual shipments, the auditor traces from
B. Transactions and events have been recorded in the correct accounting period. the
C. Transactions and events that have been recorded have occurred, and pertain to the A. bill of lading to the sales journal
entity. B. sales journal to the bill of lading
D. Amounts and other data relating to recorded transactions and events have been C. sales journal to the accounts receivable subsidiary ledger
recorded appropriately. D. bill of lading to the supporting customer order and sales order

136. Which of the following statements is NOT a reason for utilizing analytical review procedures? 142. To test the possibility of a shipment to a fictitious customer, the auditor traces from the
A. To assess the entity" s ability to continue as a going concern A. bill of lading to the credit authorization
B. To determine the magnitude of errors in the financial statements. B. credit authorization to the bill of lading
C. To identify areas with no unusual fluctuations so that fewer detailed tests may be C. accounts receivable ledger to the bill of lading
performed on those accounts. D. sales journal to the accounts receivable ledger
D. To highlight changes from the prior year to the current year so that trends can be
identified which will influence audit planning. 143. An effective procedure to test for unbilled shipments is to trace from the
A. sales journal to the shipping documents
137. For which of the following account balances are substantive tests of details LEAST likely to B. shipping documents to the sales journal
be performed unless analytical procedures indicate the need to extend detail testing? C. sales journal to the accounts receivable ledger
A. Legal expense C. Payroll expense D. sales journal to the general ledger sales account
B. Marketable securities D. Research and development costs
144. An auditor usually examines receiving reports to support entries in the
138. A confirmation request letter should always be sent under the control of A. check register and sales journal.
A. the auditor C. the recipient B. voucher register and sales journal.
B. the client D. both the auditor and the recipient C. sales journal and sales returns journal.
D. voucher register and sales returns journal.
139. Where no response is received to a positive confirmation request, the auditor should
A. contact the recipient/respondent in order to force a response from such recipient. 145. The two most important considerations the auditor should keep in mind in the verification of
B. issue a qualified opinion or a disclaimer of opinion on grounds of a scope limitation. the write-off of individual uncollectible accounts are
C. issue a qualified opinion or an adverse opinion, depending on the materiality involved. A. cut-off and authorization C. validity and authorization
D. contact the recipient to elicit a response; and perform alternative procedures as B. cut-off and completeness D. validity and completeness
necessary.
146. Which of the following auditing techniques is used by an auditor to detect kiting between
140. Negative confirmation requests may be used when intercompany banks?
A. a substantial number of errors is expected. A. Review subsequent bank statements
B. a large number of small balances is involved. B. Prepare a year-end bank reconciliation
C. the assessed levels of inherent and control risks are HIGH. C. Prepare a schedule of the bank transfers
D. the auditor has reason to believe that respondents will disregard negative confirmation D. Review composition of authenticated deposit slips
requests.

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147 The most reliable form of evidence, other than test of subsequent cash receipts, concerning B. Client's accounting and production managers
the validity of a note receivable balance is a(n) C. Public accounting firm's consulting and tax experts
A. bill of lading C. external confirmation reply D. Public accounting firm's audit team on the engagement
B. customer purchase order D. sales invoice
Audit sampling
148. The physical count of inventory of a retailer was higher than shown by the perpetual records. 153. Which of the following comments BEST illustrates the concept of sampling risk?
Which of the following could explain the difference? A. The documents related to the chosen sample may not be available for inspection.
A. Credit memos for several items returned by customers had not been recorded. B. An auditor may fail to recognize errors in the documents examined for the chosen
B. No journal entry had been made on the retailer's books for several items returned to its sample.
suppliers. C. An auditor may select audit procedures that are not appropriate to achieve the specific
C. An item purchased "F.O.B. shipping point" had not arrived at the date of the inventory objective.
count and had not been reflected in the perpetual records. D. A randomly chosen sample may not be representative of the population as a
D. Inventory items had been counted but the tags placed on the items had not been taken whole on the characteristic of interest.
off the items and added to the inventory accumulation sheets.
154. One of the causes of non-sampling risk is
Audit documentation A. failure to draw a random sample.
149. The audit program usually CANNOT be finalized until the B. failure to draw a representative sample.
A. engagement letter has been signed by the auditor and the client. C. the use of inappropriate or ineffective audit procedures.
B. consideration of the entity's internal control has been completed. D. the use of attributes sampling instead of variables sampling.
C. search for unrecorded liabilities has been performed and documented.
D. reportable conditions have been communicated to the audit committee. 155. Which of the following involves audit sampling?
A. Analytical procedures. C. Testing controls that leave no audit trail.
150. An auditor should be able to collect and evaluate documentary evidence. When evaluating B. Risk assessment procedures D. None of the choices.
and interpreting evidence, the auditor must be on guard against the possibility of drawing
unwarranted conclusions. An example of a valid conclusion is 156. What is a sample whose characteristics are the same as those of the population'?
A. client ownership determined from third-party inquiries about consigned goods. A. A representative sample. C. A variable sample
B. correct inventory valuation as determined from observation of the physical count. B. A random sample. D. An attributes sample.
C. proper accounts payable cut-oft at reporting date as determined by a review of raw
materials requisitions. 157. For purposes of audit sampling in tests of controls, "error" refers to:
D. existence of a company travel vehicle determined from the examination of the paid A. deviations C. irregularities
invoice for the said vehicle. B. inconsistencies D. misstatements

151. Which of the following is NOT required by the Philippine Standards on Auditing? 158. For purposes of audit sampling in substantive tests, "error" refers to:
A. Attorney letter C. Management letter A. deviations C. irregularities
B. Engagement letter D. Management representation B. inconsistencies D. misstatements

152. Which of these persons generally does not participate in writing the management letter? 159. The risk of assessing control risk too high and the risk of incorrect rejection relate to the:
A. Client's outsourced attorneys A. allowable risk of tolerable error. C. efficiency of the audit.

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B. effectiveness of the audit. D. materiality levels. 166. The tolerable rate of deviation for tests of controls necessary to justify a control risk
assessment depends primarily on which of the following?
160. The risk of assessing control risk too low and the risk of incorrect acceptance relates to the A. The cause of errors.
A. allowable risk of tolerable error. C. efficiency of the audit. B. The amount of any substantive errors.
B. effectiveness of the audit D. materiality levels. C. The limit used in audits of similar clients.
D. The extent of reliance to be placed on the procedures.
161. One of the ways to reduce sampling risk is to
A. increase the sample size. Basic EDP concepts
B. carefully design the audit procedures to be used. 167. This component of an IT system refers to the electronic devices or equipment used to
C. use variables sampling rather than attribute sampling. accomplish each IT function (input, processing, storage, output).
D. provide proper supervision and instruction of the audit team. A. Application software C. Dataware
B. Computer software D. System software
162. An advantage of statistical sampling over non-statistical sampling is that statistical sampling
helps the auditor to 168. This refers to the computer programs designed to perform specific data processing tasks
A. eliminate the risk of non-sampling errors. such as payroll, billing, or inventory processing.
B. minimize the failure to detect errors and irregularities. A. Application software C. Dataware
C. measure the sufficiency of the evidential matter obtained. B. Computer software D System software
D. reduce the level of audit risk and materiality to a relatively low amount.
169. It is a state implying data has certain attributes: completeness, soundness, purity, and
163. Should errors in the sample be projected to the population? veracity.
A. No, because the sample misstatement is equal to the total misstatement. A. Data integration. C. Data statement.
B. No, because the sample misstatement is larger than the total misstatement. B. Data integrity. D. Data verification.
C. Yes, because the misstatement in the sample is not necessarily the total misstatement.
D. Yes, because projection of errors is required by generally accepted accounting Internal control in an EDP environment
standards. 170. What are controls that are designed to assure that the information processed by the
computer is valid, complete, and accurate?
164. One of the ways to control non-sampling risk is through A. General controls C. Output controls
A. proper supervision and instruction of the audit team. B. Input controls D. Processing controls
B. proper supervision and instruction of the client's employees.
C. the use of attributes sampling rather than variables sampling. 171. Which of the following employees in a company's computer department should be
D. controls which ensure the sample drawn is random and representative. responsible for designing new or improved data processing procedures?
A. Control group head C. Programmer
165. The tolerable rate of deviations for a compliance test is generally B. Flowchart editor D. System analyst
A. identical to the expected rate of errors in the related accounting records.
B. lower than the expected rate of errors in the related accounting records. 172. The detection and correction of errors in the of data should be the responsibility of the
C. higher than the expected rate of errors in the related accounting records. A. data processing manager. C. IT department control group.
D. unrelated to the expected rate of errors in the related accounting records. B. independent public accountant D. operator.

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173. Which of the following is a general IT control that would MOST likely assist an entity whose A. Maintain a listing of entity passwords with the network manager.
system analysts left the entity in the middle of a major project? B. Develop an auxiliary power supply to provide uninterrupted electricity.
A. Check digit verification. C. Translate data for storage puiposes with a cryptographic secret code.
B. Systems and documentation. D. Store duplicate copies of critical files in a location away from the computer center.
C. Input and output validation routines.
D. Grandfather-father-son record retention. Study & evaluation of EDP controls
180. Internal control is ineffective when computer department personnel
174. Echo check is BEST described as A. originate changes in master files.
A. two units that provide read-after-write and dual-read capabilities. B. provide physical security for program files.
B. a component that signals the control unit that an operation has been performed. C. design documentation for computerized systems.
C. double writing of the CPU and peripheral unit from communicating with the CPU at the D. participate in computer software acquisition decisions.
same time.
D. none of the choices describes an echo check. 181. Auditing by testing the input and output of an IT system instead of the computer program
itself will
175. Which of the following is a computer test made to ascertain whether a given characteristic A. provide the auditor with the same type of evidence.
belongs to a group? B. detect all program errors, regardless of the nature of the output.
A. Echo check. C. Parity check. C. not detect program errors which do not show up in the output sampled.
B. Limit check. D. Validity check. D. not provide the auditor with confidence in the results of the auditing procedures.

176. Totals of amounts in computer-recorded data fields, which are not usually added but are used 182. Tests of controls in an advanced computer system
only for data processing control purposes are called A. is inadvisable because it may distort the evidence in master files.
A. field totals C. hash totals B. can be performed using actual transactions or simulated transactions.
B. Haas-Larzen Totals D. record totals C. can be performed using only actual transactions since testing of simulated transactions
is of no consequence.
177. Which of the following computer documentation would an auditor MOST LIKELY utilize in D. is impractical since many procedures within the computer activity leave no visible
obtaining an understanding of an entity's internal control structure? evidence of having been performed.
A. Program listings C. Record layouts
B. Record counts D. System flowcharts 183. Using parallel simulation, are processed using
A. live transactions, live programs C. test transactions, live programs
178. Which of the following controls MOST likely would assure that an entity can reconstruct its B. live transactions, test programs D. test transactions, test programs
financial records?
A. Backup CDs of critical files which are stored away from originals. Completing the audit
B. Personnel who are independent of data input perform parallel simulations. 184. Which one of the following factors is NOT a good indicator of potential financial failure?
C. Hardware controls are built into the computer by the computer manufacturer. A. Client is constantly short of cash and working capital.
D. System flowcharts provide accurate descriptions of input and output operations B. Client has had increasing net losses for several years.
C. Client's retained earnings were reduced by half as a result of a large dividend payout.
179. Which of the following procedures would an entity MOST likely include in its computer D. Client relies heavily on debt financing, especially by financing permanent assets with
disaster recovery plan? short-term loans.

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B. items, which have high probability of being resolved to the client's detriment.
185. Subsequent events, in the context of PSA 560, refer to: C. legal matters subject to unsettled points of law, uncorroborated information, or other
A. facts discovered after the date of the auditor's report. complex judgments.
B. events occurring between the period end and the date of the auditor's report D. matters to which the attorney has given substantive attention in the form of legal
C. events occurring between the week immediately before the end of the period and the consultation or representation.
date of the auditor's report.
D. events occurring between the period end and the date of the auditor's report and facts 191. The audit inquiry letter to the client's legal counsel should be mailed only by the
that become known to the auditor after the date of the auditor's report. A. client after review by the auditor's attorney.
B. client after the auditor has reviewed it for appropriate content.
186. What or who is the primary source of information to be reported about litigation, claims, and C. auditor after preparation by the client and review by the auditor.
assessments? D. auditor's attorney after preparation by the client and review by the auditor.
A. Client's lawyer C. Court records
B. Client's management D. Independent auditor 192. The appropriate date for the client to specify as the effective date in the audit inquiry to a
lawyer is
187. Regarding litigation, the auditor's primary means of obtaining corroboration of management's A. the balance sheet date.
information is a B. the date of the audit inquiry itself.
A. letter of audit inquiry to the client's lawyer. C. the expected date of the completion of audit field work.
B. confirmation of claims and assessments from the other parties to the litigation. D. seven working days after the request is received by the lawyer.
C. letter of corroboration from the auditor's lawyer upon review of the legal documentation
D. confirmation of claims and assessments from an officer of the court presiding over the 193. Written client representation letters are normally signed by the
litigation A. treasurer and the internal auditor.
B. president and the chairperson of the board.
188. The primary objective of analytical procedures used in the final review of an audit is to C. chief executive officer and the chief financial officer.
A. identify areas that represent specific risks relevant to the audit. D. corporate counsel and the audit committee chairperson.
B. assist the auditor in assessing the validity of the conclusions reached.
C. obtain evidence from details tested to corroborate particular assertions. 194. Management representation letters should be dated as of the date of the:
D. satisfy doubts when questions arise about a client's ability to continue in existence. A. auditor's report. C. latest interim financial statements.
B. balance sheet D. latest related party transaction.
189. If a lawyer refuses to furnish corroborating information regarding litigation, claims, and
assessments, the auditor should: 195. Prior to the audit report release date, auditors have a responsibility to management's
A. honor the confidentiality of the client-lawyer relationship. disclosure of subsequent events until the
B. disclose this fact in the notes to the financial statements. A. audit report release date C. following year's balance sheet date
C. consider the refusal to be tantamount to a scope limitation. B. auditors' report date D. year-end balance sheet date
D. seek to obtain the corroborating information from management,
Representation letter
190. An attorney responding to an auditor as a result of the client's letter of audit inquiry may 196. A representation letter issued by a client:
appropriately limit the response to A. is a substitute for testing.
A. asserted claims and pending or threatened litigation. B. does not reduce the auditor's responsibility

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C. is essential for the preparation of the audit program. A. Fair presentation framework
D. reduces the auditor's responsibility only to the extent that it is relied upon. B. General-purpose framework
C. Philippine Standards on Auditing
197. The main purpose of management representations is to: D. Financial reporting rules and regulations
A. shift responsibility for financial statements from the management to auditors
B. impress on management its ultimate responsibility for the financial statements and 202. The auditor's report shall have a title that clearly indicates
disclosures A. the name of the client audited.
C. provide a substitute source of audit evidence for substantive procedures that auditors B. when the audit was completed.
would otherwise perform C. that it is the report of an independent auditor.
D. provide management an opportunity to make assertions about the quantity and valuation D. the period covered by the financial statements.
of physical inventory
203. The expression "financial statements, taken as a whole" applies
198. Which of the following expressions is LEAST likely to be included in a client's representation A. only to a complete set of financial statements.
letter? B. equally to each item in each financial statement.
A. Management has made available all financial statements and the related data. C. equally to each material item in each financial statement.
B. Management acknowledges responsibility for illegal actions committed by employees. D. equally to a complete set of financial statements and to an individual financial statement.
C. No events have occurred subsequent to the balance sheet date that require adjustment
to, or disclosure in. the financial statements. 204. The phrase used to express the auditor's opinion is
D. The company has complied with all aspects of contractual agreements that would have a A. "present fairly, in all material respects"
material effect on the financial statements in the event of noncompliance. B. "provide reasonable but not absolute assurance"
C. "absence of material and pervasive misstatements in the financial statements"
199. When considering the use of management's written representations as audit evidence about D. AII of these choices are acceptable phrases to express the auditor's opinion.
the completeness assertion, an auditor should understand that such representations
A. are not parts of the evidential matter considered to support the assertion. 205. The opinion expressed by the auditor when the auditor concludes that the financial
B. complement, but co not replace, substantive test designed to support the assertion. statements are prepared, in all material respects, in accordance with the applicable financial
C. replace reliance on internal accounting controls as evidence to support the assertion. reporting framework.
D. constitute sufficient evidence to support the assertion when considered in combination A. Modified opinion C. Unmodified opinion
with reliance on internal accounting controls. B. Standardized statement D. Unqualified explanation

200. Which of the following is ordinarily performed LAST in the audit examination? 206. An auditor's report should be dated no earlier than the date
A. Performing final test of control A. the report is delivered to the entity audited.
B. Performing a review of subsequent events B. of the balance sheet for the latest period reported on.
C. Obtaining signed management representation C. a letter of audit inquiry is received from the entity's attorney of record.
D. Securing a signed engagement letter from the client D. the auditor has obtained sufficient, appropriate audit evidence on which to base the
opinion.
Standard audit report
201. A financial reporting framework designed to meet the common financial information needs of 207. The auditor's address is also presented in the auditor's report. The address is normally the
a wide range of users. A. principal place of business of the audit client.

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B. exact location where the auditor's report was signed.
C. address of the majority shareholder of the audit client. 213. The phrase "Except for the possible effects of the matters...the financial statements present
D. location in the jurisdiction where the auditor practices. fairly in all material respects the financial position, results of operations, and cash flows in
conformity with GAAP" indicates
208. The partner or other person in the firm who is responsible for the group audit engagement A. a disclaimer of opinion C. an adverse opinion
and its performance, and for the auditor's report on the group financial statements that is B. a qualified opinion D. an unqualified opinion
issued on behalf of the firm.
A. Group engagement partner C. Lead partner 214. An auditor who concludes that a material (but not pervasive) uncertainty is not adequately
B. Joint engagement partner D. Managing partner disclosed in the financial statements should issue a(n):
A. disclaimer of opinion C. adverse opinion
209. An auditor used the services of an expert during the audit of a client's financial statements. B. qualified opinion D. unqualified opinion
When issuing an unmodified auditor's report, the auditor should:
A. mention the expert and justify the use of the expert's services. 215. An auditor may not express a qualified opinion when
B. not mention the expert as this might mislead financial statement users. A. the auditor's report refers to the work of a specialist.
C. not mention the expert in the opinion and instead disclose the expert in the notes. B. the auditor lacks independence with respect to the audited entity.
D. mention the expert in both the auditor's report and the notes to the financial statements. C. circumstances prevent the auditor from completing an important audit procedure.
D. an accounting principles at variance with generally accepted accounting principles is
210. In which of the following situations would the auditor appropriately issue a standard used.
unqualified report with no emphasis of a matter paragraph concerning consistency?
A. A change in the percentage used to calculate the provision for warranty expense. 216. An auditor has concluded that hand or error has a material effect on the financial statements.
B. Correction of a mistake in the application of a generally accepted accounting principle. The fraud/error has not been corrected and reflected in the financial statements. In this case,
C. A change from an accounting principle that is not generally accepted to one that is the pervasiveness of the effect of fraud and error will determine the opinion. Accordingly, the
generally accepted. auditor should issue a(n):
D. A change in the method of accounting for specific subsidiaries that comprise the group of A. qualified or adverse opinion.
companies for which consolidated statements are presented. B. adverse or disclaimer of opinion.
C. qualified or disclaimer of opinion.
211. If an amendment to other information in a document containing audited financial statements D. unqualified opinion with emphasis of matter.
is necessary and the entity refuses to make the amendment, the auditor would consider
issuing 217. If management fails to provide adequate justification for a change from one generally
A. qualified or adverse opinion. accepted accounting principle to another, the auditor should
B. adverse or disclaimer of opinion. A. disclaim an opinion because of uncertainty.
C. qualified or disclaimer of opinion. B. neither modify the opinion nor disclose the matter because both principles are generally
D. unqualified opinion with emphasis of a matter paragraph accepted.
C. disclose the matter in a separate emphasis of a matter paragraph(s) but not modify the
Departures from unqualified opinion opinion paragraph.
212. A qualified opinion, an adverse opinion, or a disclaimer of opinion are known as: D. add a basis for modification paragraph and express a qualified or an adverse opinion for
A. modified opinions C. unqualified explanations lack of conformity with the applicable financial reporting framework.
B. standardized statements D. unmodified opinions

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218. An auditor is unable to determine the amounts associated with illegal acts committed by a
client. The auditor would most likely issue: Review & compilation
A. an adverse opinion. 223. Which of the following is an objective of a review engagement?
B. a disclaimer of opinion. A. Expressing a limited assurance to users who have agreed as to procedures that will be
C. either a qualified opinion or an adverse opinion. performed by the CPA.
D. either a qualified opinion or a disclaimer of opinion. B. Expressing a positive opinion that the financial information is presented in conformity
with generally accepted accounting principles.
219. When management prepares financial statements on the basis of a going concern and the C. Reporting that the financial statements, in all material respects, fairly present the
auditor believes the company may not continue as a going concern, the auditor should issue financial position and operating results of the client.
a(n): D. Reporting whether material modifications should be made to such financial statements to
A. adverse opinion. make them conform with generally accepted accounting principles.
B. qualified opinion.
C. disclaimer of opinion. 224. Accountants are permitted to express "negative assurance" in which of the following reports?
D. unqualified opinion with explanatory paragraph. A. Review report on unaudited financial statements
B. Compilation report on unaudited financial statements
220. When the auditors are associated with the financial statements of a public company, but have C. Adverse opinion report on audited financial statements
NOT audited the financial statements, they should: D. Standard unqualified audit report on audited financial statements
A. issue a compilation report C. issue a qualified report
B. issue a disclaimer of opinion D. not issue any report 225. Which of the following results in a modification of a review report?
A. A significant uncertainty
221. If the summary financial statements (FS) are not consistent, in all material respects, with or B. A change in accounting estimates
are not a fair summary of the audited FS. In accordance with the applied criteria, and C. A change in accounting principles
management does not agree to make the necessary changes, the auditor shall D. A departure from financial reporting standards
A. express an adverse opinion on the summary FS.
B. withdraw from the engagement since management refuses to make amendments to the 226. When accountants are not independent, which of the following reports can nevertheless be
summary FS. issued?
C. express a qualified opinion on the summary FS, with a basis for modification paragraph A. Compilation report
describing the lack of consistency. B. Examination report on a forecast
D. express an unqualified opinion on the summary FS, with an emphasis of a matter C. Standard unqualified audit report
paragraph describing the lack of consistency. D. Examination of internal control over financial reporting

Reports on comparative statements 227. Compilation services are intended to enable a CPA firm to compete with:
Reports on other information A. bookkeeping firms C. management advisory service firms
222. This section of the auditor's report is applicable when the auditor addresses other reporting B. computer service businesses D. tax preparation businesses
responsibilities that are in addition to the auditor's responsibility under PSAs to report on the
financial statements. 228. The accountant's compilation report should be dated as of the date of
A. Basis for modification C. Other matters paragraph A. completion of field work
B. Opinion paragraph D. Other reporting responsibilities B. completion of the compilation

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C. transmittal of the compilation report
D. the latest subsequent event referred to in the notes to the financial statements 234 These refer to prospective financial information prepared on the basis of hypothetical
assumptions about future events and management actions which are not necessarily
229. In the report accompanying compiled financial statements, which of the following statements expected to take place; and a mixture of best-estimate and hypothetical assumptions.
should NOT be included? A. Budget. C. Projection.
A. "Management is responsible for these financial statements." B. Forecast. D. Prospective financial statements.
B. "We have not audited or reviewed these financial statements and accordingly express no
assurance thereon." 235. Winch of the following is a prospective financial statement for general uses upon which an
C. "A compilation is substantially less extensive in scope than an examination in accountant may appropriately report?
accordance with generally accepted auditing standards." A. Financial forecast C. Partial presentation
D. "On the basis of information provided by management, we have compiled, in accordance B. Financial projection D. Pro forma financial statement
with the Philippine Standard on Related Services 4410..."
236 These refer to prospective financial information prepared on the basis of assumptions as to
230. Which of the following does NOT result in a modification of a compilation report? future events which management expects to take place and the actions management expects
A. A departure from financial reporting standards to take as of the date the information is prepared.
B. A lack of independence on the part of the auditors A. Budget. C. Projection.
C. A lack of adequate disclosure in the financial statements B. Forecast. D. Prospective financial statements.
D. A lack of consistent application of financial reporting standards
237. When a CPA is associated with a forecast, all of the following should be disclosed, EXCEPT
Special reports with
231. In determining the acceptability of the special-purpose financial reporting framework applied, A. sources of information
the key factor is B. probability of achieving estimates
A. global acceptance of the special-purpose framework. C. character of the work performed by the CPA
B. the financial information needs of the intended users. D. major assumptions in the preparation of the forecast
C. cost-benefit considerations in applying the framework.
D. ease in auditing the financial statements produced under the special-purpose framework. 238. What is the main distinction between a forecast and a projection?
A. projections are frequently non-quantitative in nature
232. If the special-purpose financial statements is NOT suitably titled or the basis of accounting is B. only forecasts are based on management's planned course of action
NOT adequately disclosed, the auditor should C. forecasts are predictions with a shorter time horizon than projections
A. withdraw from the engagement. D. a projection is based on assumptions that include hypotheses which may be different
B. issue an appropriately modified report. from management's opinion of the most likely set of events
C. reword the title of the financial statements.
D. request for an additional representation in the management representation letter. 239. Which of the following is NOT a currently acceptable form of association with prospective
financial statements?
233. Which of the following types, of services is MOST likely to result in limited distribution A. Agreed-upon procedures C. Examination
reports? B. Compilation D. Review
A. Agreed-upon procedures C. Examination
B. Compilation D. Review Government auditing

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240. Who appoints the members of the Commission on Audit?
A. The Commissioner of the Professional Regulation Commission
B. The Chairman of the Auditing and Assurance Standards Council
C. The Chairman of the Professional Regulatory Board of Accountancy
D. The President, with the concurrence of the Commission on Appointments

241. In government auditing, what are the (3) three elements of expanded scope auditing?
A. Pre-audit, post audit, internal audit.
B. Goal analysis, audit of operations, audit of systems.
C. Financial and compliance, economy and efficiency, program results.
D. National government audit, local government audit, corporation audit.

242. Which of the following government auditing standards is NOT observed by independent
CPAs in the private sector?
A. An evaluation shall be made of the system of internal control.
B. A review shall be made of compliance with legal and statutory requirements
C. The audit is to be adequately planned and assistants are to be properly supervised.
D. Sufficient competent evidential matter shall be obtains through inspection, observation,
inquiries and confirmations.

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