Documente Academic
Documente Profesional
Documente Cultură
Which of the following would not be a consideration of a CPA firm in deciding whether to
accept a new client?
a. The client’s probability of achieving an unqualified opinion.
b. The client’s financial ability.
c. The client’s relations with its previous CPA firm.
d. The client’s standing in the business community.
2. After accepting an audit engagement, a successor auditor should make specific inquiries
of the predecessor auditor regarding:
a. The predecessor’s evaluation of matters of continuing accounting significance.
b. Disagreements which the predecessor had with the client concerning auditing
procedures and accounting principles.
c. The client’s ability to pay the fee for this engagement.
d. The predecessor’s assessments of inherent risk and judgments about materiality.
3. The objective and scope of the audit and the extent of the auditor’s responsibilities to the
client are best documented in a(n):
a. Client’s representation letter.
b. Audit engagement letter.
c. Independent auditor’s report.
d. Management letter.
4. Which of the following is not a valid reason why an auditor sends to his client an
engagement letter?
a. Avoid misunderstanding with respect to the engagement.
b. Confirms the auditor’s appointment.
c. Discloses the objective and scope of the audit.
d. Assures CPA’s compliance to PSAs.
6. Which of the following statements is correct? Statement 1. The engagement letter will
include identification of significant dates throughout the engagement. Statement 2. The
engagement letter will inform the client about the audit procedures to be performed.
a. Statement 1 only.
b. Statement 2 only.
c. Both statements.
d. None of the above.
9. Which of the following statements is correct? Statement 1. Materiality judgments are made
in light of surrounding circumstances and necessarily involve both quantitative and
qualitative judgments. Statement 2. An auditor’s consideration of materiality is influenced
by the auditor’s perception of the needs of a reasonable person who will rely on the
financial statements.
a. Statement 1 only.
b. Statement 2 only.
c. Both statements.
d. None of the above.
10. Which of the following statements is correct? Statement 1. Analytical procedures are
required to be used in planning a financial statement audit. Statement 2. Analytical
procedures are required to be used all throughout the audit.
a. Statement 1 only.
b. Statement 2 only.
c. Both statements.
d. None of the above.
11. Which of the following statements is correct? Statement 1. In a financial statement audit,
audit risk represents the probability that internal controls fail and the failure is not
detected by the auditor’s procedures. Statement 2. Audit risk may be eliminated by 100%
testing of the items in the population.
a. Statement 1 only.
b. Statement 2 only.
c. Both statements.
d. None of the above.
13. The following statements describe components of internal control. Which one describes
risk assessment process?
a. This includes the governance and management functions and the attitudes, awareness,
and actions of those charged with governance and management concerning the
entity’s internal control and its importance in the entity.
b. The process for identifying business risks relevant to financial reporting objectives and
deciding about actions to address those risks, and the results thereof.
c. The classes of transactions in the entity’s operations that are significant to the financial
statements.
d. The policies and procedures that help ensure that management directives are carried
out.
14. Which of the following is correct? Statement 1. The auditor assesses detection risk because
it affects the level of control risk that the auditor may accept. Statement 2. The auditor
assesses control risk because it affects the level of detection risk that the auditor may
accept.
a. Statement 1 only.
b. Statement 2 only.
c. Both statements.
d. None of the above.
15. Which of the following would not be a method used to conduct tests of controls?
a. Inquiry and observation.
b. Re-performance.
c. Inspection.
d. Analytical procedures
16. As the auditor plans to rely more on the client’s internal control structure,
a. Substantive tests should increase.
b. Substantive tests should decrease.
c. Tests of controls should increase.
d. Tests of controls should decrease.
17. Which of the following statements is correct? Statement 1. Audit evidence comprises all
the information available to the auditor during an audit engagement. Statement 2.
Accounting records, on their own, constitute sufficient appropriate evidential matter.
a. Statement 1 only.
b. Statement 2 only.
c. Both statements.
d. None of the above.
19. Which of the following statements is correct? Statement 1. An auditor should recognize
that the application of auditing procedures may produce evidential matter indicating the
possibility of errors and irregularities and therefore should not depend on internal
accounting control features that are designed to prevent or detect errors or irregularities.
Statement 2. Inquiries of the client’s internal audit staff, held in private, constitute one of
the most reliable sources of evidence in testing the rights and obligations assertion related
to land and buildings.
a. Statement 1 only.
b. Statement 2 only.
c. Both statements.
d. None of the above.
20. Which of the following is an example of fraud?
a. Client personnel make mistakes in gathering or processing accounting data from which
financial statements are prepared.
b. Client personnel alter accounting records from which financial statements are
prepared.
c. Client personnel overlook or misinterpret facts, causing accounting estimates to be
incorrect.
d. Client personnel make mistakes in the application of accounting principles.
21. Which of the following situations are applicable to fraud as well as error?
a. Mistakes in gathering or processing accounting data.
b. Suppression of the recording of accounting transactions.
c. Misinterpretation of facts, causing the classification of leases to be incorrect.
d. Misapplication of accounting policies.
22. Which of the following best describes a portion of the auditor’s responsibility regarding
illegal acts by clients?
a. The auditors have a responsibility to discover all material illegal acts.
b. If audit procedures reveal illegal acts, the auditors should take appropriate actions.
c. If the auditors suspect that illegal acts have been performed, they should conduct a
legal audit of the company.
d. The auditor’s responsibility for the detection of all illegal acts is the same as their
responsibility regarding material errors and irregularities.
23. Which of the following is not generally included in the working papers file?
a. Documentation of the auditor’s understanding of the accounting and internal control
systems.
b. Copy of the internal auditor’s audit program.
c. Analyses of significant ratios and trends.
d. An indication as to who performed the audit procedures and when they were
performed.
25. When restrictions that materially limit the scope of the audit are imposed by the client,
the auditor generally should issue which of the following opinions?
a. “Except for”.
b. Unqualified.
c. Adverse.
d. Disclaimer.
28. In which of the following paragraphs can you find the phrase “Philippine Financial
Reporting Standards”?
I. Opening paragraph.
II. Management responsibility paragraph.
III. Auditor’s responsibility paragraph.
IV. Opinion paragraph.
a. I only.
b. II and III only.
c. II and IV only.
d. II, III and IV only.
29. This means the application of audit procedures to less than 100% of items within an
account balance or class of transactions, where all sampling units have a chance of being
selected for testing.
a. Audit sampling.
b. Haphazard testing.
c. Selecting specific items.
d. Statistical sampling.
30. A sample in which every possible combination of items in the population has an equal
chance of constituting the sample is a
a. Random sample.
b. Judgment sample.
c. Statistical sample.
d. Representative sample.
31. Which of the following statements is correct? Statement 1. The documentary evidence
which physically represents the sampling units in a given population, is known as sampling
form. Statement 2. Error that arises from an isolated event that has not recurred other
than on specifically identifiable occasions and is therefore not representative of errors in
the population is known as projected error.
a. Statement 1 only.
b. Statement 2 only.
c. Both statements.
d. None of the above.
34. Which of the following comments best illustrates the concept of non-sampling risk?
a. A randomly chosen sample may not be representative of the population as a whole on
the characteristic of interest.
b. An auditor may select audit procedures that are not appropriate to achieve the specific
objective.
c. An auditor uses attributes sampling instead of variables sampling.
d. The documents related to the chosen sample may not be available for inspection.
35. At times a sample may indicate that the auditor’s assessed level of control risk for a given
control is reasonable when, in fact, the true compliance rate does not justify the “less than
high” level. This situation illustrates the risk of
a. Assessing control risk too low.
b. Incorrect rejection.
c. Assessing control risk too high.
d. Incorrect acceptance.
36. The consequence of assessing control risk too high relates to the
a. Efficiency of the audit. c. Preliminary estimates of materiality
levels.
b. Effectiveness of the audit. d. Allowable risk of tolerable error.
37. The likelihood of assessing control risk too low is the risk that the sample selected to
test controls:
A. Does not support the auditor’s planned assessed level of control risk when the
true operating effectiveness of the control structure justifies such an
assessment.
B. Contains misstatements that could be material to the financial statements when
aggregated with misstatements in other account balances or transactions
classes.
C. Contains proportionately fewer deviations from prescribed internal control
structure policies or procedures than exist in the balance or class as a whole.
D. Supports the auditor’s planned assessed level of control risk when the true
operating effectiveness of the control structure does not justify such an
assessment.
38. While performing a substantive test of details during an audit, the auditor determined
that the sample results supported the conclusion that the recorded account balance
was materially misstated. It was, in fact, not materially misstated. This situation
illustrates the risk of
A. Incorrect rejection. C. Assessing control risk too low.
B. Incorrect acceptance. D. Assessing control risk too high.
41. S1 Statistical sampling may be applied to test controls when a client’s control
procedures leave an audit trail as evidence of compliance.
S2 For purposes of audit sampling in tests of controls, errors refer to misstatements.
A. True, true B. False, false C. True, false D. False, true
42. A decrease in the expected population deviation rate will cause the sample size to:
A. Increase C. Remain unchanged
B. Decrease D. Cannot be determined.
43. This is the deviation rate that an auditor will permit in the population and would still
be willing to reduce the assessed level of control risk:
A. Population deviation rate. C. Sample deviation rate.
B. Tolerable misstatement. D. Tolerable deviation rate.
44. Which of the following sampling methods is used to estimate a numerical measurement
of a population, such as a peso value?
A. Attribute sampling. C. Variables sampling.
B. Stop-or-go sampling. D. Random-number sampling.
45. When selecting samples, a decrease in the tolerable misstatement will cause the
sample size to:
A. Increase C. Remain unchanged
B. Decrease D. Cannot be determined.
46. This is the misstatement that the auditor finds in the sample, adjusted to estimate the
misstatement in the population.
A. Tolerable misstatement. C. Projected misstatement.
B. Sample misstatement. D. Anticipated misstatement.
47. When performing a test of a control with respect to control over cash receipts, an
auditor may use a systematic sampling technique with a start at any randomly selected
item. The biggest disadvantage of this type of sampling is that the items in the
population
A. Must be systematically replaced in the population after sampling.
B. May systematically occur more than once in the sample.
C. Must be recorded in a systematic pattern before the sample can be drawn.
D. May occur in a systematic pattern, thus destroying the sample randomness.
48. S1 A method of sampling in which all items in the population are divided into two
or more sub-population is known as systematic sampling.
S2 One of the disadvantages of haphazard sampling is the risk of conscious bias in the
selection of samples.
A. True, true B. False, false C. True, false D. False, true
50. Which of the following procedures should an auditor most likely perform regarding
subsequent events?
A. Comparing the financial statements being reported on with those of the prior
period.
B. Investigating changes in accounting department personnel occurring after the date
of the financial statements.
C. Confirming a sample of material accounts receivable established after the date of
the financial statements.
D. Inquiring as to whether any unusual adjustments were made after the date of the
financial statements
51. After the date of the audit report but before the financial statements are issued, the
auditor becomes aware of a material subsequent event which requires adjustment in
the financial statements. If management does not amend the financial statements,
the audit opinion to be issued would be:
A. Unqualified opinion with explanation C. Adverse opinion
B. Qualified opinion or adverse opinion D. Qualified opinion
52. When obtaining evidence regarding litigation against a client, the CPA would be least
interested in determining:
A. The period in which the underlying causes of litigation occurred.
B. An estimate of when the matter will be resolved.
C. An estimate of the potential loss.
D. The probability of an unfavorable outcome.
53. The secondary source of information to be reported about litigation, claims, and
assessments is the
A. Client’s lawyer C. Client’s management
B. Court records D. Independent auditor
54. Which of the following statements extracted from a client’s lawyer’s letter concerning
litigation, claims and assessments most likely would cause the auditor to request
clarification?
A. “I believe that the company will be able to defend this action successfully.”
B. “The possible liability to the company is nominal in amount.”
C. “This case against the company is without merit!”
D. “The action can be settled for less than the damages claimed.”
56. Audit inquiries with the client’s legal counsel should cover cases up to:
A. The balance sheet date C. The date when the letter was
written
B. The date of the audit report D. Cannot be determined
57. The primary objective of analytical procedures used in the final review of an audit is
to
A. Obtain evidence from details tested to corroborate particular assertions.
B. Identify areas that represent specific risks relevant to the audit.
C. Assist the auditor in determining the reasonableness of the financial statements.
D. Satisfy doubts when questions arise about a client’s ability to continue in existence.
58. The responsibility for the identification and disclosure of related parties and related
party transactions rests with the:
A. External auditor. C. Internal audit department head
B. Entity management D. Controller
59. Which of the following events most likely indicates the existence of related parties?
A. Discussing terms of merger with a company that is a major competitor.
B. Making a loan with scheduled terms for repayment
C. Borrowing a large sum of money at a very low interest rate.
D. Selling real estate at a price that differs significantly from its carrying value.
60. An auditor searching for related party transactions should obtain an understanding of
each subsidiary’s relationship to the total entity because:
A. This may permit the audit of intercompany account balances to be performed as
of concurrent dates.
B. The business structure may be deliberately designed to obscure related party
transactions.
C. This may reveal whether particular transactions would have taken place if the
parties had not been related.
D. Intercompany transactions may have been consummated on terms equivalent to
arms’ length transactions.
62. The responsibility to evaluate the client’s assessment of an entity’s ability to continue
as a going concern rests with:
A. The auditor C. The BOA
B. The entity’s management D. The financial statement users
63. Which of the following conditions or events most likely would cause an auditor to have
substantial doubt about an entity’s ability to continue as a going concern?
A. Cash flows from operating activities are positive.
B. Share dividends replace annual cash dividends.
C. Significant related party transactions are pervasive.
D. Interest payable in arrears for several months.
64. Travis, CPA, believes there is substantial doubt about the ability of Alice Co. to continue
as a going concern for a reasonable period of time. In evaluating Alice Co.’s plans for
dealing with the adverse effects of future conditions and events, Travis most likely
would consider, as a mitigating factor, Alice Co.’s plans to:
A. Postpone or cancel research and development projects related to future products
B. Accumulate treasury stock at prices favorable to Alice Co.’s historic price range
C. Purchase equipment and production facilities currently being leased
D. Negotiate increases in required dividends being paid on preference shares
66. Which of the following documentation is required for an audit in accordance with
Philippine Standards on Auditing (PSAs)?
A. An internal control questionnaire. C. A client engagement letter.
B. A planning memorandum or checklist. D. A management representation
letter.
70. Management’s refusal to furnish a written representation letter on a matter, which the
auditor considers essential, may lead the auditor to choose between the issuance of:
A. Unqualified or qualified opinion C. Adverse opinion or disclaimer of
opinion
B. Qualified opinion or Adverse opinion D. Qualified opinion or disclaimer of
opinion
73. Which of the following services would be most likely to be structured as an attest
engagement?
a. Advocating a client’s position in tax matter.
b. A consulting engagement to develop a new data-base system for the revenue
cycle.
c. An engagement to issue a report addressing an entity’s compliance with
requirements of specified laws. (x)
d. The compilation of client’s forecast information.
75. The Constitution of the Philippines requires this Office to “keep the general accounts
of the Government and for such period as may be provided by law, preserve the
vouchers pertaining thereto”
a. National Accounting Office
b. Ministry of Finance
c. Auditing units to each bureau or office.
d. Commission on Audit. (x)
76. Which of the following is not required by PSA 200, which states that professional
competence and due care is one of the ethical responsibilities of an auditor in an audit
engagement?
a. observance of the relevant Philippine Standards on Auditing
b. critical review of the audit work performed at every level of supervision
c. degree of skill commonly possessed by others in the profession
d. responsibility for losses because of errors of judgment (x)
78. An auditor is unable to obtain absolute assurance that misstatements due to fraud will
be detected for all of the following except
a. Employee collusion.
b. Falsified documentation.
c. Need to apply professional judgment in evaluating fraud risk factors.
d. Professional skepticism. (x)
80. All of the following organizations are represented in both the Financial Reporting
Standards Council (FRSC) and the Auditing and Assurance Standards Council (AASC),
except:
a. Professional Regulatory Board of Accountancy
b. Bangko Sentral ng Pilipinas
c. Bureau of Internal Revenue (x)
d. Commission on Audit
81. PSAs include standards on reporting. Which of the following is not one of the focus of
PSA 700, the Auditor’s Report on Financial Statements?
a. adequacy of informative disclosures
b. circumstances when GAAP are not consistently followed
c. whether statements were prepared in accordance with GAAP
d. sufficient appropriate evidence is to be obtained to support the audit
conclusions (x)
82. Because external auditors are paid fees by their clients, external auditors
a. are absolutely independent and may conduct audits
b. may be sufficiently independent to conduct audits (x)
c. are never considered to be independent
d. must receive approval of the SEC before conducting audits
83. Which of the following situations best illustrates the application of professional
skepticism?
a. G, CPA, is engaged in discussions with J, the client’s controller. G obtains
several oral representations from J, which the former readily accepts without
further work or support from other audit procedures.
b. G, CPA has decided to continue with the audit of FLS Company. Throughout
the course of the audit, G does not believe any of the representations made
by J, controller.
c. G, CPA, is discussing several audit issues with J, a member of top
management. Throughout the meeting with J, G neither assumes that J is
dishonest, nor assumes unquestioned honesty in J’s oral representations. (x)
d. G, CPA is engaged in discussions with J, the client’s controller, regarding
several audit issues. Throughout the meeting with J, J neither assumes that
G is dishonest, nor assumes unquestioned honesty in G’s oral
representations.
85. Before accepting an engagement to audit a new client, a CPA is required to obtain
a. An understanding of prospective client’s industry and business.
b. The prospective client’s signature to the engagement letter.
c. A preliminary understanding of the prospective client’s control environment.
d. The prospective client’s consent to make inquiries of the predecessor auditor,
if any. (x)
86. In financial statement audit, audit risk represents the probability that
a. internal control fails and the failure is not detected by the auditor’s procedures
b. the auditor unknowingly fails to modify an opinion on materiality misstated
financial statements (x)
c. inherent and control risk cause errors that could be material to the financial
statements
d. the auditor is not retained to conduct financial statement audit in the
succeeding year
87. If the auditor concludes that there is reasonable justification to change the
engagement and if the audit work performed complies with the PSAs applicable to the
changed engagement, the report issued would be that appropriate for:
a. The original engagement, without reference to the original engagement.
b. The revised terms of engagement, without reference to the original
engagement. (x)
c. The revised terms of engagement, with reference to the original engagement.
d. The original engagement, with reference to the revised engagement.
88. Which of the following services provides the highest level of assurance to third parties
about a company’s financial statements?
a. Audit (x)
b. Review
c. Compilation
d. Write-up work
89. When CPA firms do an audit of historical financial statements, part of the audit usually
consists of identifying operational problems and making recommendations they may
benefit the audit client. The recommendations can be made orally but they are
typically made by use of a
a. Letter of representation
b. Engagement letter.
c. Management letter. (x)
d. Client letter.
90. Which of the following best describes what is meant by the term “fraud risk
factor”?
a. Factors whose presence indicates that the risk of fraud is high.
b. Factors whose presences often have been observed in circumstances where
frauds have occurred. (x)
c. Factors whose presence requires modification of planned audit procedures.
d. Reportable conditions identified during an audit.
92. Which of the following conditions identified during fieldwork of an audit is most likely
to affect the auditor’s assessment of the risk of misstatement due to fraud?
a. Checks for significant amounts outstanding at year end.
b. Computer generated documents.
c. Missing documents. (x)
d. Year-end adjusting journal entries.
93. Which of the following most accurately summarizes what is meant by the term
“material misstatement?”
a. Fraud and direct-effect illegal acts.
b. Fraud involving senior management and material fraud.
c. Material error, material fraud, and certain illegal acts. (x)
d. Material error and material illegal acts.
94. Which of the following is most likely to be a response to the auditor’s assessment
that the risk of material misstatement due to fraud for the existence of inventory is
high?
a. Observe test counts of inventory of certain locations on an unannounced basis.
(x)
b. Perform analytical procedures rather than taking test counts.
c. Request that the inventories be counted prior to year-end.
d. Request that inventory counts at the various locations be counted on different
dates so as to allow the same auditor to be present at every count.
96. In planning an examination, the auditor would consider all of the following matters,
except
a. Anticipated reliance on internal controls
b. Preliminary judgment about materiality levels for audit purposes
c. Financial statements items likely to require adjustment
d. The kind of audit opinion likely to be given (x)
97. In developing the overall audit plan for a new client, a factor not to be considered is
a. The terms of the engagement and any statutory responsibilities
b. The client’s business, including the structure of the organization and accounting
system used
c. The amount of estimated audit fee (x)
d. The audit risks and procedures to be performed to achieve audit objectives
98. A CPA may reduce audit work on a first time audit by reviewing the working papers of
the predecessor auditor. The predecessor should permit the successor to review
working papers relating to matters of continuing significance, such as those that relate
to
a. Extent of reliance on the work of specialists
b. Fee arrangements and summaries of payments
c. Analysis of contingencies (x)
d. Staff hours required to complete the engagement
99. Following PSAs, which of the following is not one of the assertions made in financial
statements by management concerning each major account and class of transactions?
a. Relevance. (x)
b. Existence.
c. Valuation.
d. Presentation and disclosure.
103. Which of the following procedures would an auditor most likely perform in
planning a financial statement audit?
a. Reviewing investment transactions of the audit period to determine whether
related parties were created.
b. Performing analytical procedures to identify areas that may represent specific
risks. (x)
c. Reading the minutes of stockholder and director meeting to discover whether
any unusual transactions have occurred.
d. Obtaining a written representation letter from the client to emphasize
management’s responsibilities.
106. A procedure designed to test for peso errors or irregularities directly affecting
the correctness of financial statement balances is a
a. Substantive test. (x)
b. Compliance test.
c. Test of controls.
d. Definition of peso-unit sampling.
107. The following statements relate to the scope of practice of accountancy. Which
one is correct?
a. Practice in Education/Academe shall constitute in a person in an educational
institution which involve teaching of accounting, auditing, management
advisory services, accounting aspects of finance, business law, taxation, and
other technically-related subjects. (x)
b. Members of the Integrated Bar of the Philippines are the only ones allowed to
teach business law and taxation.
c. In connection with the practice of accountancy in commerce and industry, any
position in any business or company in the private sector which requires
supervising the recording of financial transactions, preparation of financial
statements, coordinating with the external auditors for the audit of such
financial statements and other related functions shall be occupied only by a
duly registered CPA, provided that such business or company must have
authorized capital of at least Five Million Pesos (5,000,000.00) and/or annual
revenue of at least Ten Million Pesos (10,000,000.00).
d. Practice in government shall constitute in a person who holds, or is appointed
to, a position in an accounting professional group in government or in a
government-owned and/or controlled corporation, excluding those performing
proprietary functions, where decision-making requires knowledge in the science
of accounting.
108. The following, except one, are the duties normally performed by the
engagement partner:
a. To manage the firm.
b. To establish contact with clients.
c. To discuss with the client problems that may arise during the audit. (x)
d. To decide on questions of policy.
109. Which of the following is not a power of the Professional Regulatory Board of
Accountancy?
a. To prescribe and adopt the rules and regulations necessary for carrying out the
provisions of RA9298
b. To hold exclusive power to administer oaths in connection with the administration
of RA9298 (x)
c. To issue, suspend, revoke, or reinstate the Certificate of Registration for the
practice of the accountancy profession
d. To monitor the conditions affecting the practice of accountancy and adopt such
measures, including promulgation of accounting and auditing standards, rules
and regulations and best practices, as may be deemed proper for the
enhancement and maintenance of high professional, ethical, accounting and
auditing standards.
110. Which of the following factors or conditions is an auditor least likely to plan
an audit to discover?
a. Financial pressures affecting employees. (x)
b. High turnover of senior management.
c. Inadequate monitoring of significant controls.
d. Inability to generate positive cash flows from operations.
111. Which of the following is the best criterion for evaluating a staff auditor’s work
performance?
a. Quantity of deficiency findings.
b. Ability to get along with clients.
c. Working papers appearance.
d. Fulfillment of objectives set forth in the audit. (x)
112. International Standards on Auditing (ISAs) on which the PSAs are based are
generally applicable to the public sector, including government business enterprises.
However, the applicability of the equivalent PSAs on Philippine public sector entities
has not been addressed by the Auditing Standards and Practices Council (Note: The
ASPC has been replaced by the Auditing and Assurance Standards Council). It is the
understanding of the ASPC that this matter will be addressed by:
a. The Association of CPAs in Public Practice itself in due course.
b. The Commission on Audit itself in due course. (x)
c. The Professional Regulation Commission of the Philippines itself in due course.
d. The Professional Regulatory Board of Accountancy itself in due course.
114. Which one of the following statements is correct concerning the concept of
materiality?
a. Materiality is determined by reference to guidelines established by the
Philippine Institute of CPAs.
b. Materiality depends only on the peso amount of an item relative to other fees
in the financial statements.
c. Materiality depends on the nature of an item rather than the peso amount.
d. Materiality is a matter of professional judgment. (x)
115. Pirma and Lang, CPAs, is doing the 2006 audit of SAN MIGUEL BEEF. The
partner assigned to the engagement, Mr. Pirma, works at the Manila office of the firm.
Which of the following audit firm personnel should obtain a sufficient understanding of
San Miguel Beef and its environment, including its internal control?
a. Assistants assigned to the Manila Office of Pirma and Lang, CPAs.
b. The whole team assigned to the San Miguel Beef audit engagement. (x)
c. All firm professionals, regardless of their involvement in the engagement.
d. Only Mr. Pirma, since is he is the one to sign the audit report for San Miguel
Beef’s 2006 financial statements.
118. Which of the following best describes the interrelated components of internal
control?
a. Organizational structure, management philosophy, and planning.
b. Control environment, risk assessment, control activities, information and
communication systems, and monitoring. (x)
c. Risk assessment, backup facilities, responsibility accounting and natural laws.
d. Legal environment of the firm, management philosophy and organizational
structure.
119. An auditor should obtain sufficient knowledge of an entity’s information system
relevant to financial reporting to understand the
a. Safeguards used to limit access to computer facilities
b. Process used to prepare significant accounting estimates (x)
c. Procedures used to assure proper authorization of transactions
d. Policies used to detect the concealment of fraud
122. Experience has shown that certain conditions in an organization are symptoms
of possible management fraud. Which of the following conditions would not be
considered indicators 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. (x)
126. An auditor who has been invited to submit a proposal for an audit engagement
is a
a. Predecessor auditor.
b. Successor auditor. (x)
c. Principal auditor.
d. Interim auditor.
127. JM, CPA, requested permission to communicate with the predecessor auditors
of a prospective client. The prospective client’s refusal to permit this will bear directly
on JM’s decision concerning the
a. Adequacy of the preplanned audit program
b. Ability to establish consistency in application of accounting principles between
years.
c. Apparent scope limitation.
d. Integrity of management. (x)
128. The auditors will not ordinarily initiate discussion with the audit committee
concerning the
a. Extent to which the work of internal auditors will influence the scope of the
examination.
b. Extent to which change in the company’s organization will influence the scope
of the examination.
c. Details of potential problems which the auditors believe might cause a qualified
opinion.
d. Details of the procedures which the auditors intend to apply. (x)
130. According to the IRR, how many representatives of the Quality Review
Committee will come from the accredited national professional organization of CPAs?
a. Five members (x)
b. Four members
c. Six members
d. Seven members
132. The following fraud risk factors relate to industry conditions, except:
a. New accounting, statutory or regulatory requirements that could impair the
financial stability or profitability of the entity.
b. A high degree of competition or market saturation, accompanied by declining
margins.
c. Unusually rapid growth or profitability, especially compared with that of other
companies in the same industry. (x)
d. A declining industry with increasing business failures and significant declines in
customer demand.
133. If there is a risk of material misstatement resulting from fraud that may involve
or result in improper revenue recognition, which of the following is the most
appropriate course of action for the auditor to take?
a. Review the entity’s inventory records to help identify locations, areas or items
for specific attention during or after the physical inventory count.
b. Confirm with customers certain relevant contract terms and the absence of side
agreements. (x)
c. Perform tests of non-standard journal entries affecting long-term liabilities to
confirm that they are adequately supported and reflect the underlying events
and transactions.
d. Request the assistance of an expert, taking care to ensure that the expert’s
assumptions, methods or findings have also been reviewed by the auditor.
135. According to the Implementing Rules and Regulations, which portion of RA9298
embodies the legislative intent in enacting the Philippine Accountancy Act of 2004?
a. Short title.
b. Objectives.
c. Declaration of policy (x)
d. Scope of practice.
137. The following statements pertain to the rules and regulations on the
accreditation of individual CPAs, firms and partnerships of CPAs engaged in the public
practice of accountancy. Which one is correct?
a. Within sixty days from the effective date of the revised rules and regulations,
individual CPAs, firms, and partnerships of CPAs who/which are not yet
registered shall register with the Board and the Commission in the manner
provided for in the Implementing Rules and Regulations of the Philippine
Accountancy Act of 2004.
b. The registration shall be valid for a period of two years.
c. Renewal of registration shall be made every three years on or before November
30 on the year of expiry upon compliance with the requirements set forth in
the Implementing Rules and Regulations.
d. The registration of applicants approved during any month of the year shall
expire on the third year following its approval. (x)
138. Individual CPAs, firms, and partnerships of CPAs organized after the effective
date of the revised rules and regulations set forth in Annex A of the IRR shall register
with the board and the commission and:
a. Shall not commence the practice of public accountancy until a valid Certificate
of Registration has been issued. (x)
b. Shall not commence the practice of public accountancy until a valid Certificate
of Commissioning has been issued.
c. Subject to favorable recommendation of the Board, shall be issued the
corresponding certificate of registration to practice public accountancy, with
such certificate being valid for two years.
d. Subject to favorable recommendation of the Commission, shall be issued the
corresponding certificate of registration to practice public accountancy, with
such certificate being valid for three years.
140. In performing MAS engagement, CPAs should not take any positions that might
a. Constitute advice and assistance.
b. Provide technical assistance in implementation.
c. Result in new organizational structure.
d. Impair their objectivity. (x)
141. The overall attitude and awareness of an entity’s board of directors concerning
the importance of the internal control structure usually is reflected in its
a. computer-based controls
b. system of segregation of duties
c. control environment (x)
d. safeguards over access to assets
143. The following statements relate to the Philippine Institute of Certified Public
Accountants (PICPA). Which one is incorrect?
a. A director can only represent a sector in a region if he/she has been a member
in good standing in such sector in the region for at least two years at the time
of his/her nomination.
b. There shall only be fourteen national directors, unless there is a valid reason to
have additional representation. (x)
c. The national directors shall be apportioned according to sectors in the four
geographic sectors based on the ratio of latest available number of members
in good standing from those areas.
d. It shall have a full-time career Executive Director who shall implement the
policies promulgated by the PICPA Board of Directors and shall have direct
supervision over the PICPA Secretariat.
145. The following except one, are examples of the type of information that may
come to the auditor’s attention that may indicate that noncompliance with laws or
regulations has occurred:
a. Investigation by government departments or payment of fines or penalties.
b. Payments for unspecified services or loans to consultants, related parties,
employees or government employees.
c. Purchasing at prices approximating market price. (x)
d. Existence of an accounting system which fails, whether by design or by
accident, to provide an adequate audit trail or sufficient evidence.
146. Eugene, CPA is planning the audit of Ghostfighter Corporation’s 2006 financial
statements. In documenting the terms of engagement, which of the following
statements is most likely to appear in Eugene’s engagement letter?
a. “Fees for our services are based on our regular per diem rates, plus travel and
other out-of pocket expenses and a certain percentage of the tax savings as a
result of audit adjustments to net income.”
b. “Because of the test nature and other inherent limitations of an audit, together
with the inherent limitations of any accounting and internal control system,
there is an unavoidable risk that even some material misstatements may
remain undiscovered.” (x)
c. “During the course of our audit, we may observe opportunities for economy in,
or improved controls over your operations.”
d. “In addition to our report on the financial statements, we expect to provide you
with a separate letter concerning any material weaknesses in accounting and
internal control systems which did not come to our notice.”
147. The following statements pertain to audit planning and materiality. Which one
is incorrect?
a. The extent of planning will vary according to the size of the entity, the auditor’s
experience with the entity and knowledge of the business, and the complexity
of the audit engagement.
b. Materiality provides a threshold or cut-off point rather than being a primary
qualitative characteristic which information must have if it is to be useful.
c. Materiality is most useful in assessing the scope of an auditor’s program relating
to various amounts.
d. An overall audit program is first prepared, followed by the development of the
overall audit plan and the establishment of an overall audit strategy. (x)
148. The auditor’s duty of confidentiality would ordinarily preclude the reporting of
fraud or error to a third party. However, in certain circumstances, the duty of
confidentiality is justifiably overridden by the following, except:
a. Law.
b. Statute.
c. Courts of law.
d. Pressure from a competitor of the audit client. (x)
150. The audit procedures deemed necessary in the circumstances to achieve the
objective of the audit refer to:
a. Audit program
b. Audit objective
c. Substantive procedures
d. Scope of an audit (x)