ICCT Colleges Foundation Inc.
V.V Soliven Ave. II, Cainta, Rizal
ACCOUNTING INTEGRATION PART 4
AUDITING MODULE
1. Which of the following best describes the reason why an
independent auditor reports on financial statements?
A. A management fraud may exist and it is more likely to be
detected by independent auditors
B. Different interests may exist between the company
preparing the statement is and the persons using the
statements
C. A misstatement of account balances may exist and is
generally corrected as a result of the independent
auditor's work
D. A poorly designed internal control system may be in
existence
2. Operational auditing refers to the study of business
operations for the purpose of making recommendations for
which of the following?
A. Economic and efficient use of resources
B. Compliance with rules and regulations
C. Attesting to the fairness of the financial statements
D. All of the above
3. The accuracy of information that is included in the footnotes
that accompany the audited financial statements of a
company whose shares are traded on a stock exchange is
the primary responsibility of the:
A. stock exchange officials
B. management
C. lead engagement partner
D. Securities and Exchange Commission
4. When the professional accountant has obtained sufficient
appropriate evidence to be satisfied that the subject matter is
plausible in the circumstances, he or she can provide what
level of assurance?
A. Positive
B. High
C. Moderate
D. Absolute
5. The auditor's responsibility in an audit engagement is limited
to:
A. expression of an opinion on the financial statements.
B. expression of an opinion on the financial statemnts and
adequacy of summary of accounting policies and other
notes.
C. opinion issued and fairness of presentation of financial
statements.
D. expression of opinion and inclusion of supplementary
information, if necessary.
6. The existence of audit risk is recognized by the statement in
the scope paragraph --- auditor's responsibility of the auditor's
standard report that the
A. Auditor is responsible for expressing an opinion on the
financial statements.
B. financial statements are presented fairly, in all material
respects, inconformity with PFRS
C. audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements
D. auditor obtains reasonable assurance about whether the
financial statement is are free of material misstatements
7. Which of the following is explicitly cited in the Revised
Accountancy Law (RA 92981?
AUDITING.MODULE.1.2019
RBR BACAY, CPA, MBA
A. The Professional Regulation Commission has the
authority to replace any member of the Board of
Accountancy for negligence incompetence, or any other
just cause.
B. Insolvency is a ground for proceedings against a CPA
C. A person shall be considered to be in the professional
practice accounting- if, as on officer in a private
enterprise, he makes decisions requiring professional
accounting knowledge.
D. After three years, subject to certain conditions, the Board
of Accountancy may order the reinstatement of a CPA
whose certificate of registration has been revoked
8. Which of the following is not a requisite in applying for the
CPA licensure examinations?
A. Natural-born citizen of the Philippines
B. Good moral character
C. Holder of the degree of Bachelor of Science in
Accountancy
D. Has not been convicted of any criminal offense involving
moral turpitude
9. Individual CPAs. Firms or Partnerships of CPAs, including
partners and staff members thereof shall register with the
BOA and the PRC. If the application for registration of
Amaldo & Associates, CPAs was approved on May 10. 2006,
the registration will expire on
A. September 30, 2008
B. December 31, 2008
C. December 31, 2009
D. May 10, 2009
10. Which of the following was a modification made to the IFAC
Code to consider Philippine regulatory requirements and
circumstances?
A. The period for rotation of the lead engagement partner
was changed from seven to five years
B. Advertising and solicitation by individual professional
accountants in public practice is allowed in the
Philippines.
C. When a professional accountant performs services in a
country other than the home country, the professional
accountant should always adhere to the ethical
requirements of the country in which services are being
performed.
D. When a professional accountant performs services in a
country other than the home country, the professional
accountant should always adhere to the ethical
requirements of the home country.
11. To which principle does the following relate?
“The intended user needs to have confidence that the
profession accountant has no interest that creates an
unacceptable risk of bias with respect to the subject matter.”
A. Confidentiality
B. Integrity
C. Professional competence and due care
D. Objectivity
12. Which of the following is most likely a violation of the Code of
Ethics?
A. The professional accountant in public practice bills a
client a fee, lower than what previously has been
charged for similar services.
B. The professional accountant makes a representation that
specific professional services in the current or future
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 periods will performed for a stated fee if it is likely at the
time of representation that such fee will be substantially
increased
C. The professional accountant in public practice is the one
who determines the appropriate billing rates of each
professional staff engaged in performing services.
D. The professional accountant agrees to the client's
proposal for a professional fee that is dependent to the
number of service hours rendered.
13. Which of the following acts may potentially create a self-
review threat?
A. Providing advices on accounting principles for audit
clients.
B. Determining journal entries without obtaining the
approval of the audit client.
C. Assisting an audit client in resolving account
reconciliation.
D. Drafting the notes to the financial statements for audit
client.
14. Which of the following types of loan granted to a member of
the assurance term by an assurance client that is a bank is
mostly a potential threat to independence?
A. Car loan
B. Credit card balance
C. Clean loan
D. Home-mortgage loan
15. The criteria are the standards or benchmarks used to
evaluate the subject matter of an assurance engagement.
Among the following criteria, which one is the least objective?
A. Philippine financial reporting standards governing the
preparation of financial statements
B. Specific agreements in a contract
C. Control policies and procedures
D. Effectiveness and efficiency in carrying out operating
procedures
16. How is the auditor's report on the financial statements that
require final approval by stockholders before such financial
statements are issued publicly dated?
A. The auditor's report should be dated coinciding the date
of approval of the financial statements by the
stockholders
B. The auditor's report should be dated after the date of
approval of the financial statements by the stockholders
C. The date of the auditor's report coincides the date of
approval of the financial statements by the board of
directors
D. The audit report should be dual dated, the first date
coinciding financial the approval by the board of directors
and the second date to coincide with the approval by the
stockholders
17. In pursuing its quality control objectives with respect to
independence, a CPA firm may use policies and procedures
such as
A. Emphasizing independence in mental attitude in firm
training programs and in supervision and review of work
B. Prohibiting employees from owning shares of stock of
publicly traded companies
C. Suggesting that employees conduct their banking
transactions with banks that do not maintain accounts
with client firms
D. Assigning employees who may lack independence to
research positions that do not require participation in field
audit work
18. Which of the following is an element of a CPA firm's quality
control system that should be considered in establishing its
quality control policies and procedures?
A. Complying with laws and regulations
B. Using statistical sampling techniques
C. Assigning personnel to engagements
AUDITING.MODULE.1.2019
D. Considering audit risk and materiality
19. Before the practitioner rely on the work of the expert, he
should obtain sufficient appropriate evidence that the work of
the expert is adequate by considering the following, except
A. the reasonableness and significance of the expert's
findings in relation to the objective of the engagement
and the conclusion on the subject matter
B. the professional competence, experience and objectivity
of the expert.
C. the findings of the expert support the assertion issued by
the party responsible to the subject matter.
D. the reasonableness of the assumptions, methods and
source data used by the expert.
20. Which of the following is an invalid reason why an auditor
cannot issue an absolute assurance?
A. Most audit evidences are conclusive rather than being
persuasive
B. The inherent limitations of any accounting and internal
control system.
C. Audit is based on testing
D. Audit procedures that are effective in detecting ordinary
misstatements are ineffective in detecting intentional
misstatements
21. 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
22. In which of the following would the judgment of the auditor be
most critical?
A. Verification of the authenticity of the transfer certificate of
title
B. Classifying whether a liability is current or long-term
C. Verification of the cut-off of transactions
D. Assessing the reasonableness of the estimates made by
management
23. Which of the following does not require the auditor to send a
new engagement letter?
A. An indication that the client misunderstands the objective
and scope of the audit
B. A change of engagement from higher to lower level of
C. A recent change in the lead engagement partner
D. Legal requirements and other government agencies
24. An auditor who agreed for a change in the type of
engagement from higher to lower level of assurance should
issue the report based on the revised engagement.
A. but should discuss in a separate paragraph the reason
for the change.
B. and should always refer to any procedures that should
have been performed in the original engagement
C. and should qualify the opinion due to scope limitation.
D. and should omit reference to the original engagement.
25. Which of the following is an appropriate reason why the
auditor considers the professional competence of assistants
whom the work will be delegated?
A. To assure that the assistants will be objective
B. To have reasonable assurance that such work will be
performed with due care by the audit assistant
C. To effectively reduce the working paper documentation
D. To eliminate detection risk
26. Detection of noncompliance, regardless of materiality,
requires considerations of the following:
I. Integrity of management.
II. Possible effect on other aspects of the audit
III. Legal determination of the act of non-compliance.
A. A. B, C
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 B. A, B
C. A, C
D. С organizational objectives are to be achieved
27. The auditor should perform the following risk assessment
procedures to obtain an understanding of the entity and its
environment, including its internal control, except:
A. inquiries of management and others within the entity.
B. inquiries of the entity’s extremely legal counsel or of
valuation experts that the entity has used.
C. analytical procedures
D. observation and inspection.
28. Which of the following distinction between general audit
objectives and specific audit objectives for each account
balance is correct?
A. The general audit objectives are applicable to every
account balance on the financial statements
B. The specific audit objectives are applicable to every
account balance on the financial statements
C. The general audit objectives are stated in terms tailored
to the engagement
D. The specific audit objectives are stated in terms tailored
to the engagement
29. The risk that the audit will fail to uncover a material
misstatement is eliminated
A. if a client has strong internal controls.
B. if a client follows Philippine Financial Reporting
Standards (PFRS)
C. when the auditor has complied with Generally Accepted
Auditing Standards (GAAS)
D. under no circumstances.
30. What is the relationship between materiality and the level of
control risk?
A. Direct
B. Parallel
C. Inverse
D. Positive
31. Which of the following statements about internal control is
correct?
A. Internal control system refers to all the policies and
procedure adopted by the management of an entity to
assist in eliminating material errors but not fraud
B. A strong environment, by itself, ensures the effective of
the internal control system
C. The internal control system is confined to those matters.
Which relate directly to the functions of the accounting
system
D. In the audit of financial statements, the auditor is only
concerned with those policies and procedures within the
accounting and internal control systems that are relevant
to the financial statements
32. When obtaining an understanding of the accounting and
internal control system the auditor may trace a few
transactions through the accounting system. This technique
is:
A. internal control review.
B. test of transactions.
C. walk-through test
D. validity test.
33. Which of the following least likely affects the nature, timing,
and extent of the procedures performed by the auditor to
obtain an understanding of the accounting and internal
control systems of an audit client?
A. Materiality considerations
B. The expected level of detection risk
C. The auditor's assessment of inherent risk
D. The complexity of the accounting process
34. Which of the following is incorrect about internal control?
AUDITING.MODULE.1.2019
A. Accounting and internal control system provides the
management with reasonable assurance that
B. One of the inherent limitations of accounting and Internal
control systems is that the possibility that the procedures
may become inadequate due to changes in conditions,
and compliance with procedures may deteriorate
C. Most infernal controls tend to be directed at routine
transactions
D. Management should not consider the costs of the
accounting and internal control systems because such a
consideration makes the system ineffective.
35. Which statement is incorrect regarding the nature of tests of
control?
A. As the planned level of assurance increases, the auditor
seeks more reliable audit evidence
B. Those controls subject to testing by performing inquiry
combined with inspection or re-performance ordinarily
provide more assurance than those controls for which
the audit evidence consists solely of inquiry and
observation
C. The absence of misstatements detected by a substantive
procedure provides audit evidence that controls related
to the assertion being tested are effective
D. A material misstatement detected by the auditor's
procedures that was not identified by the entity ordinarily
is indicative of the existence of a material weakness in
internal control
36. Which statement is incorrect regarding the extent of tests of
controls?
A. The auditor designs tests of controls to obtain sufficient
appropriate audit evidence that the controls operated
effectively throughout the period of reliance
B. The more the auditor relies on the operating
effectiveness of controls in the assessment of risk, the
lesser is the extent of the auditor's tests of controls
C. If the rate of expected deviation is too high, the auditor
may determine that tests of controls for a particular
assertion may not be effective
D. Because of the inherent consistency of IT processing,
the auditor may not need to increase the extent of testing
of an automated control
37. When would an auditor typically not perform additional tests
of a computer systems controls?
A. When the assessed level of control risk is at a minimum
B. when computer controls appear to be strong and risk is
at a minimum
C. When controls appear to be weak
D. When inherent risk is at a maximum
38. The evaluation of deviations that were observed upon
completing the tests of controls:
A. may require the need for doing more extensive
understanding of control.
B. may require more extensive tests of controls
C. may not require modification of the nature, timing and
extent of the planned substantive procedures
D. requires a documentation of the basis of assessment of
control risk if the assessed level of control risk is
assessed at the maximum.
39. Which of the following statement is true?
A. If the auditor assesses the level of control risk at the
maximum, no documentation of the reason is necessary
B. If the auditor assesses the level control risk at less than
maximum, no documentation of the reason is necessary
C. If the auditor assesses the: level of control risk at the
maximum. documentation of the reason is necessary
D. All of the given choices
40. Which of the following is appropriate about risk assessment?
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 A. The assessed level of inherent and control risk can be
sufficiently low, thus resulting to eliminating the need for
substantive tests
B. There is an inverse relationship between detection risk
and the combined level of inherent and control risks
C. Audit risk may be more appropriately determined by
assessing inherent and control risk separately
D. Detection risk is eliminated if an auditor were to examine
100 percent of the account balance or class of
transactions
41. The audit risk model consists of
AR = IR x CR x DR
The detection risk is the dependent variable. What is the
acceptable level of detection risk if the assessed level of
Inherent risk is Medium and the Control risk is Low?
A. Highest
B. Lower
C. Medium
D. Higher
42. Which of the following should the auditor not consider of
having specialized CIS skills in an audit?
A. The auditor needs to obtain a sufficient understanding of
the accounting and internal control system affected by
the CIS environment
B. The auditor needs to determine the effect of the CIS
environment on the assessment of overall risk and of risk
at the account balance and class of transactions level
C. The need of the auditor to make analytical procedures
during the completion stage of the audit
D. Design and perform appropriate tests of controls and
substantive procedures
43. Which of the following characteristics of CIS environment
should the auditors be least concerned?
A. Lack of segregation of functions
B. Cost-benefit relationships
C. Lack of transaction trails
D. Access control
44. Which of the following is least likely a risk characteristic
associated with CIS environment?
A. Error embedded in an application's program logic maybe
difficult to manually detect on a timely basis
B. The separation of functional responsibilities diminishes in
a computerized environment
C. initiation of changes in the master file is exclusively
handed by respective users
D. The potential unauthorized access to data or to alter
them without visible evidence e maybe greater
45. Which of the following is not one of the auditor’s major
concerns when he has to make a documentation of the
internal control in a computerized environment?
A. The organizational structure of the client’s CIS activities
B. The access controls
C. The significance and complexity of computer processing
in each significant accounting application
D. The use of software packages instead of customized
software
46. Which of the following is not an advantage of a computerized
accounting system?
A. Computers process transactions uniformity
B. Computers help alleviate human errors
C. Computers can process many transactions quickly
D. Computers leave a thorough audit trail which can be
easily followed
47. A common difficulty in auditing a computerized accounting
system is
A. Data can be erased from the computer with no visible
evidence
AUDITING.MODULE.1.2019
B. Because of the lack of an audit trait, computer systems
have weaker controls and more substantive testing is
required
C. Because of the uniform nature of transaction processing
computer systems have strong controls und less
substantive testing is required
D. The large dissemination of entry points into the computer
system leads to weak overall reliance on information
generated by computer
48. Which of the following should the auditor least consider in
determining the significance of service organization to the
client and its relevance to the audit?
A. The control policies and procedures of the client in
requiring that all the payments for the goods and services be
supported by the receiving reports
B. The client’s internal controls that are applied to the
transactions processed by the service organization
C. The material financial statement assertions that are
affected by the use service organization
D. Terms of contract and relationship between the client and
the service organization
49. When the auditor considers that the service organization
activities are significantly relevant to the audit and he
concludes that it would be efficient to obtain audit evidence
from tests of controls, such evidence may be obtained by,
except
A. visiting the service organization
B. performing tests of the client's control over activities of
the service organization.
C. reviewing the service contract between the client and the
service organization.
D. obtaining a service organization auditor's report that
expresses an opinion as to the operating effectiveness of
the service organization’s accounting and internal control
systems for the processing applications relevant to the
audit.
50. Which of the following statements about h existence and
completeness objectives are not true?
A. The existence and completeness objectives emphasize
opposite audit concerns
B. Existence deals with overstatements and completeness
deals with understatements
C. Existence deals with understatements and completeness
deals with overstatements
D. The completeness objective deals with unrecorded
transactions
51. In testing for cutoff, the objective is to determine
A. whether all of the current period's transactions are
recorded
B. that no transactions from the prior period are included in
the current period's balances
C. that no transactions of the current period have been
delayed and recorded in a future period
D. whether the transactions are recorded in the proper
period
52. The determination of the appropriate sample size based on
the tolerable deviation rate in a test of control procedure
relates to
A. sufficiency
B. relevance
C. validity
D. appropriateness
53. Which of the following least likely affect the sufficiency of the
appropriate audit evidence?
A. Nature of the accounting and internal control systems
B. Materiality of the item being examined
C. Source and reliability of information available
D. The type of sampling approach-statistical or judgmental
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54. Which of the following statements that relates to the
persuasiveness of audit evidence is invalid?
A. The audit evidence obtained directly by the auditor is
more reliable than that one provided by the client
management
B. The oral representation by the client management is
evidence
C. The effectiveness of accounting and internal control adds
to the reliability of internal audit evidence
D. While internal audit evidence is considered to be
acceptable, the auditor usually prefers audit evidence
form external sources
55. The following statements are discussions about financial
assertions and audit evidence. Which of them is are correct?
I. When substantial doubt as to a material financial
statement assertion exists, the auditor likely attempts to
obtain sufficient appropriate audit evidence to remove
such doubt
II. The difficulty and cost involved are valid basis for
omitting a necessary procedure
III. In obtaining audit evidence, the auditor needs to
consider the relationship between the cost of obtaining it
and its usefulness
IV. When there are inconsistent evidences provided by two
different sources, the auditor may need to modify his
audit opinion
A. II, III, IV
B. I, III
C. II, IV
D. I, III, IV
56. The three major categories of documentary audit evidence
are:
I. Documentary audit evidence created by third parties and
held by the client entity
II. Documentary audit evidence created and held by third
parties.
III. Documentary audit evidence created and held by the
client entity
What is the order of their degree of persuasiveness?
A. 1, 3, 2
B. 3, 1, 2
C. 2, 1, 3
D. 2, 3, 1
57. The inspection of property and equipment primarily relates to
which financial assertion?
A. Ownership
B. Valuation
C. Completeness
D. Existence
58. If the reported sales for 2007 erroneously include sales that
occurred in 2008, the assertion that caused misstatements on
the 2007 financial statements would be:
A. occurrence
B. valuation or allocation.
C. completeness.
D. presentation and disclosure
59. The completeness assertion would be violated it
A. fictitious sales transactions were included in accounts
receivable
B. the allowance for doubtful accounts was understated
C. unbilled shipments had occurred during the period
D. disclosures in the statements of pledged receivables
were inadequate
60. According to Philippine Standards on Auditing, the auditor's
responsibility for failure to detect fraud arises
A. where such failure clearly results from failure to comply
with generally accepted auditing standards.
B. whenever the amounts involved are material
AUDITING.MODULE.1.2019
C. only when the examination was specifically designed to
detect fraud.
D. only when such failure clearly results from negligence so
gross as to sustain an inference of fraud on the part of
the auditor.
61. If on auditor believes a client may hove committed illegal
acts, which of the following actions should the auditor take?
A. Consult with that the client's counsel and the auditor's
counsel to determine how the suspected illegal acts will
be communicate to the stockholders
B. Extend auditing procedures to determine whether the
suspected illegal acts have a material effect on the
financial statements
C. Make inquiries of the client's management and obtain an
understanding of the circumstances underlying the acts
and of other evidence to determine the effects of such
acts on the financial statements
D. Notify each member of the audit committee of the board
of directors about the nature of the acts and request that
they advise an approach lo be taken by the auditor
62. An audit program should be sufficiently detailed to provide all
of the following except:
A. Evidential support for the audit opinion
B. An outline of the work to be done
C. A record of the work performed.
D. A basis for controlling the audit
63. The primary purpose of the audit working papers is to:
A. Provide an evidence of compliance with auditing
standards.
B. Provide management with an independent copy of
financial records.
C. Provide a protection against ligation.
D. Document the deficiencies in client's policies and
procedures
64. Early substantive testing of account balances is done only
when
A. the client has a natural business year
B. evidence indicates effective control policies and
procedures.
C. Internal control structure is weak.
D. The primarily substantive approach is taken
65. Test of details of balances generally tend to be the
A. most costly. and least effective audit procedures.
B. most costly, and most effective audit procedures.
C. least costly, yet most effective audit procedures.
D. D, least costly, and least effective audit procedures.
66. Which of the following analytical procedures, might highlight a
possible overstatement or understatement of ơ balance in an
expense account? Compare:
A. gross margin percentage with previous year
B. individual expenses with previous year
C. inventory turnover ratio with previous year
D. individual asset and liability balances with previous year
67. The test of details of balances, when applied by the auditor to
examine rent and lease expense for capitalized leases, would
satisfy the audit objective of
A. Existence
B. detail tie-in
C. presentation and disclosure
D. classification
68. Negative confirmation of accounts receivable is less effective
than positive confirmation of accounts receivable because
A. A majority of recipients usually lack the willingness to
respond objectively
B. Some recipients may report incorrect balances that
require extensive follow-up
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 C. The auditor cannot infer that all non-respondents have
verified their account information
D. Negative confirmations do not produce evidential matter
that is statistically quantifiable.
69. Which of the following circumstances would most likely cause
auditor to suspect that material fraud exists in a client's
financial statements?
A. Properly and equipment items are usually sold at a loss
before being fully depreciated.
B. Significantly fewer responses to a positive confirmation
requests are received than what is expected.
C. Monthly bank reconciliations usually include several in-
transit items.
D. Clerical errors are listed on an CBIS generated exception
report.
70. Auditors examine invoices for accounts such us repairs and
maintenance primarily to determine whether
A. expenditures tor fixed assets have been recorded in the
proper period
B. expenditures have been improperly authorized
C. noncapitalized expenditures have been properly
expensed
D. expenditures that were expensed should have been
capitalized
71. When auditing contingent liabilities, which of the following
procedures would be least effective?
A. Reading the minutes of the board of directors' meetings.
B. Reviewing the bank confirmation letter.
C. Examining customer confirmation replies.
D. Examining invoices for professional services.
72. When obtaining an evidence regarding litigation against a
client, the CPA would be least interested in determining
A. An estimate of when the matter will be resolved.
B. The period in which the underlying cause of the litigation
occurred.
C. The probability of an unfavorable outcome.
D. An estimate of the potential loss.
73. Banaue Company is an affiliate of the audit client and is
audited by another firm of auditors. Which of the following is
most likely to be used by the auditor to obtain assurance that
all guarantees of the affiliate's indebtedness have been
detected?
A. Send the standard bank confirmation request to all the
client's lender banks
B. Review count minutes and obtain a representation letter
C. Examine supporting documents for all entries in
intercompany accounts
D. Obtain written confirmation of indebtedness from the
auditor of the affiliate
74. Which of the following subsequent events will be least likely
to result in an adjustment to the financial statements
A. Culmination of events affecting the realization of
accounts receivable owned as of the balance sheet date.
B. Culmination of events affecting the realization of
inventories owned as of the balance sheet date
C. Material changes in the settlement of liabilities which
wore estimated us of the balance sheet date.
D. Material changes in the quoted market price of listed
investment securities since the balance sheet date
75. An auditor is concerned with completing various phases of
the examination after the balance sheet date. This
"subsequent period" extends to the date of the:
A. auditor's report.
B. B final review of the audit working papers.
C. issuance of the financial statements to the users.
D. delivery of the auditor's report lo the client.
AUDITING.MODULE.1.2019
76. Which of the following material events occurring subsequent
to the balance sheet date would require an adjustment to the
financial statements?
A. Sale of long term debt or capital stock
B. Loss of a plant as a result of a flood.
C. Major purchase of a business which is expected to
double the sales volume
D. Settlement of litigation, in excess of the recorded liability
77. Selena, CPA, is preparing an audit program for the purpose
of ascertaining the occurrence of subsequent events that may
require adjustment or disclosure essential to a fair
presentation of the financial statements in conformity with the
Philippine financial reporting standards. Which one of the
following procedures would be least appropriate for this
purpose?
A. Confirm as of the completion of the fieldwork, those
accounts receivable that have increased significantly
from the year-end date
B. Read the minutes of the board of directors' meetings.
C. Inquire of management concerning events which may
have occurred
D. Obtain a lawyer's letter as of the completion of fieldwork.
78. An auditor's decision concerning whether or not to "dual date"
the audit report is based upon the auditor's willingness to
A. extend auditing procedures.
B. accept responsibility for subsequent events.
C. permit inclusion of a footnote captioned event
(unaudited) subsequent to the date of the auditor's
report.
D. assume responsibility for events subsequent to the
issuance of the auditor's report.
79. As part of an audit, a CPA often requests a representation
letter from the client. Which one of the following is not a valid
purpose of such a letter?
A. To provide audit evidence.
B. To emphasize to the client the auditor's responsibility for
the fairness of the financial statements.
C. To satisfy himself by means of other auditing procedures
when certain customary auditing procedures are not
performed.
D. To provide possible protection to the CPA against a
charge of knowledge in cases where fraud is
subsequently discovered have existed in the accounts.
80. The risk that the auditor gives an unqualified audit opinion
when the financial statements are materially misstated refers
to
A. Audit risk
B. Inherent risk
C. Detection risk
D. Control risk
81. A measure of uniformity in the form and content of the
auditor's report is desirable because:
A. It helps the auditors avoid legal liability.
B. It helps the readers understand the report.
C. It helps the auditor identify the usual circumstances that
are expected to occur
D. It makes the auditors more informed of their
responsibilities with respect to audit report.
82. The auditor's report may be appropriately addressed to the
client’s
Board of Stockholders Audit
Directors Committee
A. Yes Yes Yes
B. Yes No Yes
C. Yes Yes No
D. Yes No No
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83. Which of the following is not 'explicitly included in the scope
paragraph of the auditor's report?
A. Financial reporting framework
B. Reasonable assurance
C. Generally accepted auditing standards
D. Assessment of accounting estimates
84. The term "present fairly, in all material respect," means
A. The financial statements conform with PFRS
B. The auditor considers only those matters that are
material lo the financial statements
C. The financial statements may still be materially misstated
because the auditors may not have discovered the
errors.
D. The financial statements are accurately prepared.
85. When the auditor concludes that the financial statements are
presented fairly in all material respects, in accordance with
identified financial reporting framework, he should issue:
A. Standard unqualified opinion
B. Qualified opinion
C. Disclaimer of opinion
D. Unqualified opinion with explanatory paragraph
86. In which of the following situations does an auditor need to
issue an unqualified opinion?
A. A significant doubt about the ability of the company to
continue as a going concern: such concern is adequately
disclosed by the entity in the notes to financial
statements.
B. A limitation of the scope of the audit the possible effect of
which is material to the financial statements.
C. The auditor has disagreement with management
regarding the acceptability of the accounting policies, the
effect of which is material.
D. The omission of significant information in the financial
statement.
87. Which of the following disagreements with the management
may potentially cause the auditor to disclaim his opinion
A. Acceptability of accounting policies.
B. Method of application of accounting principles.
C. Omission of certain required disclosures in the financial
statements.
D. Refusal of the client management for the auditor's
observation of physical inventory count.
88. When the client does not disclose restrictions of future cash
dividends and the CPA discloses the omitted information in
the separate paragraph of the audit report, the opinion should
be:
A. Qualified due to scope limitation.
B. Qualified due to inadequate disclosure.
C. Adverse.
D. Unqualified opinion with an explanatory paragraph.
89. When the financial statements ol the prior period were
audited by another CPA, the incoming auditor's report
indicate:
I. The dates and periods covered by prior years’ financial
statement
II. That the financial statements of the prior periods, were
audited by another CPA
III. The type of opinion issued by another CPA and if
modified, the reason thereof.
A. Yes Yes Yes
B. Yes Yes No
C. No Yes No
D. Yes No No
90. When the auditor's report on the prior period, as previously
included a modified opinion, the auditor's report should refer
to the corresponding figures:
AUDITING.MODULE.1.2019
A. though the matter which gave rise to the modification of
the audit report had been subsequently resolved
B. it the matter that gave rise to the modification of the
previous auditor's report is unresolved and results in a
modification of the auditor's report regarding the current
figures
C. only when the mater that gave rise to the modification is
unresolved and results to a modification of the auditor's
report regarding the current figures
D. in all cases where the matter which gave rise to the
modification of the previous audit report was satisfactorily
resolved and properly dealt with in the financial
statements, the current report would not refer to the
previous modification
91. In which of the following circumstances would a modification
of the auditor's report on the current period not necessary?
A. If the prior period financial statements had been revised
and reissued with a new auditor's report
B. If the prior period financial statements had not been
revised and reissued but the matter that gave rise to the
modification, though material to the current period, is
resolved
C. If the matter that gave rise to the modification of the
previous audit report was related to an unresolved
beginning balance of property accounts.
D. the audit report of the prior period was issued by a
continuing auditor.
92. They are not presented as complete financial statements
capable of standing alone, but are an integral part of the
current period.
A. Comparative financial statements
B. Corresponding figures
C. Notes of financial statements
D. Supplementary report
93. Which of the following statements applies to consultancy
service engagement
A. A practitioner should obtain an understanding of the
internal control structure to assess control risk.
B. A practitioner is not permitted to compile a financial
forecast
C. A practitioner should obtain sufficient relevant data to
complete the engagement
D. A practitioner is to maintain an appearance of
independence.
94. Prospective financial statements are for
A. general use
B. limited use only
C. either general or limited use
D. use by internal management only
95. Given one of more hypothetical assumptions, a responsible
party may prepare, to the best of its knowledge and belief, an
entity’s expected financial position, results of operations, und
changes in financial position. Such prospective financial
statements are most commonly known as
A. special purpose financial statements
B. financial projections
C. partial presentations
D. financial forecasts
96. When reporting on financial statements prepared on a
comprehensive basis of accounting other thon Philippine
financial reporting standards, the independent auditor should
include in the report a paragraph that
A. states that the financial statements are not intended to
be in conformity with Philippine financial reporting
standards.
B. states that the financial statements were not examined in
accordance with generally accepted auditing standards
C. refers to the authoritative pronouncements that explain
the comprehensive basis of accounting being used
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 D. justifies the comprehensive basis of accounting being
used
97. The objective of a review of interim financial information is to
provide the CPA with a basis for
A. expressing a limited opinion that the financial information
is presented in conformity with Philippine Financial
Reporting Standards.
B. expressing a compilation opinion on the financial
statements.
C. reporting whether material modifications should be made
to such information to make it conform with Philippine
Financial Reporting Standards
D. reporting limited assurance to the board of directors only.
98. Audit reports issued in connection with which of the following
are generally not considered to be special reports or special-
purpose reports?
A. Specified elements, accounts, or items of a financial
statement.
B. Compliance with aspects of contractual agreements
related to audited financial statements.
C. Financial statements prepared in conformity with the
price-level basis of accounting
D. Compiled financial statements prepared in accordance
with appraised liquidation values.
99. The party that is responsible for the assumptions identified in
the preparation of prospective financial statements is usually
A. A third-party lending institution.
B. The client's management,
C. The reporting accountant.
D. The client's independent auditor.
100. In extreme cases such as situation involving multiple
uncertainties that are significant to the financial statements,
the auditor
A. may consider to express a disclaimer of opinion
B. may qualify his opinion instead of issuing an unqualified
opinion with emphasis of matter paragraph
C. may issue an adverse opinion because of their
significance
D. may issue a "'subject to" opinion because the situations
related to Uncertainties
101. Which of the following activities performed by a department
supervisor most likely would help in the prevention or
detection of a payroll fraud?
A. Distributing paychecks directly to department employees
B. Setting the pay rate for departmental employees.
C. Hiring employees and authorizing them to be added to
payroll.
D. Approving a summary of hours each employee worked
during the pay period.
102. In establishing the existence and ownership of long-term
Investments in the form of publicly-traded stock, an auditor most
likely would inspect the securities or
A. Correspond with the investee company to verify the
number of shares owned.
B. Confirm the number of shares owned that are held by an
independent custodian
C. Apply analytical procedures to the dividend income and
investments accounts
D. Inspect the cash receipts journal for amounts that could
represent the sale of securities.
103. Which of the following statements ordinarily is not included
among the written client representations made by the chief
executive officer and the chief financial officer?
A. "Sufficient evidential matter has been made available to
the auditor to permit the issuance of an unmodified
opinion."
AUDITING.MODULE.1.2019
B. There are no unasserted claims or assessments that our
lawyer has advised us are probable of assertion and
must be disclosed."
C. "We have no plans or intentions that may materially
affect the carrying value or classification of assets and
liabilities."
D. "No events have occurred subsequent to the balance
sheet date that would require adjustment to, or
disclosure in, the financial statements."
104. Accepting an engagement to examine an entity's financial
projection most likely would be appropriate If the projection
were to be distributed to
A. All employees who work for the entity.
B. Potential shareholders who request a prospectus or a
registration statement.
C. A bank with which the entity is negotiating for a loan.
D. All shareholders of record as of the report date.
105. Which of the following represents an inherent limitation of
internal controls?
A. Bank reconciliations are not performed on a timely basis.
B. The CEO can request a check with no purchase order.
C. Customer credit checks are not performed.
D. Shipping documents are not matched to sales invoices.
106. An auditor would use variables sampling to
A. Determine the total estimated value of ending
merchandise inventory
B. Determine the number of inventory items improperly
costed.
C. Determine how often credit sales of a certain magnitude
were not approved.
D. Estimate how often sales invoices were not verified for
mathematical accuracy
107. Auditors usually trace the details of the test counts made
during the physical inventory observation to the final priced
inventory, a procedure that is done to provide evidence that
items observed by the auditor at the physical inventory count
date are
A. Owned by the client.
B. Not obsolete
C. Physically present at the time the final priced inventory is
prepared
D. Included in the final priced inventory
108. A purpose of a management representation letter is to
reduce
A. Audit risk to an aggregate level of misstatement that
could be considered material.
B. An auditor's responsibility to detect material
misstatements only to the extent that the letter is relied
on.
C. The possibility of a misunderstanding concerning
management's responsibility for the financial statements.
D. The scope of an auditor's procedures concerning related
party transactions and subsequent events.
109. A retailing entity uses the Internet to execute and record its
purchase transactions. The entity's auditor recognizes that
the documentation of details of transactions will be retained
for only a short period of time. To compensate for this
limitation, the auditor most likely would:
A. Compare a sample of paid vendors' invoices to the
receiving records at year-end.
B. Plan for a large measure of tolerable misstatement in
substantive tests.
C. Perform tests several times during the year, rather than
only at year-end
D. Increase the sample of transactions to be selected for
cutoff tests.
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110. Equipment acquisitions that are misclassified as
maintenance expense most likely would be detected by an
internal control procedure that provides for
A. Segregation of duties of employees in the accounts
payable department
B. Independent verification of invoices for disbursements
recorded as equipment acquisitions.
C. Investigation of variances within a formal budgeting
system.
D. Authorization by the board of directors of significant
equipment acquisitions.
111. Controls should be designed to provide reasonable
assurance that
A. Organizational objectives and goals will be achieved
economically and efficiently.
B. Management's plans have not been circumvented by
worker collusion.
C. The internal audit activity's guidance and oversight of
management's performance is accomplished
economically and efficiently
D. Management's planning, organizing, and directing
processes are properly evaluated.
112. Which of the following procedures would an auditor most
likely perform in obtaining evidence about subsequent
events?
A. Examine changes in the quoted market prices of
investments purchased since the year end.
B. Compare the latest available interim financial information
with the financial statements being reported upon
C. Apply analytical procedures to the details of the balance
sheet accounts that were tested at interim dates
D. Inquire about payroll checks that were recorded before
the year end but cashed after the year end.
113. A "proof of cash" used by an auditor
A. Proves that the client's year-end balance of cash is fairly
stated
B. Confirms that the client has properly separated the
custody function from the recording function with respect
to cash.
C. Validates that the client's bank did not make an error
during the period being examined.
D. Determines if there were any unauthorized
disbursements or unrecorded deposits for the given
period.
114. To achieve audit efficiency and effectiveness with a personal
computer, the two crucial requirements are selecting
A. The appropriate audit tasks for personal computer
applications and the appropriate software to perform the
selected audit tasks.
B. The appropriate software to perform the selected audit
tasks and data that can be accessed by the auditor's
personal computer
C. Company data that can be accessed by the auditor's
personal computer and the appropriate audit tasks for
personal computer applications
D. The appropriate sample of company data to test with the
auditor's personal computer and the appropriate software
to perform the selected audit tasks.
115. Which of the following conditions most likely would pose the
greatest risk in accepting a new audit engagement?
A. Staff will need to be rescheduled to cover this new client.
B. There will be a client-imposed scope limitation
C. The firm will have to hire an expert in one audit area.
D. The client's financial reporting system has been in place
for 10 years.
116. A client decides not to make an auditor's proposed
adjustments that collectively are not material, and wants the
auditor to issue the report based on the unadjusted numbers.
AUDITING.MODULE.1.2019
Which of the following statements is correct regarding the
financial statement presentation?
A. The financial statements are free from material
misstatement, and no disclosure is required in the notes
to the financial statements
B. The financial statements do not conform with the
requirements of the PFRS
C. The financial statements contain unadjusted
misstatements that should result in a qualified opinion
D. The financial statements are free from material
misstatement, but disclosure of the proposed
adjustments is required in the notes to the financial
statements.
117. In the audit of which of the following types of profit-oriented
enterprises would the auditor be most likely to place special
emphasis on tests of controls for proper classifications of
payroll transactions?
A. A manufacturing organization.
B. A retailing organization
C. A wholesaling organization
D. A service organization.
118. Prior to commencing field work, an auditor usually discusses
the general audit strategy with the client's management.
Which of the following details do management and the
auditor usually agree upon at this time?
A. The specific matters to be included in the communication
with the audit committee
B. The minimum amount of misstatements that may be
considered to be reportable conditions.
C. The schedules and analyses that the client's staff should
prepare.
D. The effects that inadequate controls may have over the
safeguarding of assets
119. Analytical procedures
A. Are intended to detect material misstatements in financial
statement accounts.
B. Are evaluations of financial information made by a study
of plausible relationships among both financial and non-
financial data.
C. Are concerned with how internal control policies or
procedures are applied.
D. Are procedures that lend hindsight to amounts and
information disclosed in financial statements as of the
balance sheet date.
120. Which of the following procedures would an accountant most
likely perform during an engagement to review the financial
statements of an entity?
A. Review the predecessor accountant's working papers.
B. Inquire of management about related party transactions.
C. Corroborate litigation information with the entity's
attorney.
D. Communicate internal control deficiencies to senior
management
121. Which of the following auditing procedures most likely would
assist an auditor in identifying related party transactions?
A. Retesting ineffective internal, control procedures
previously reported to the audit committee.
B. Sending second requests for unanswered positive
confirmations of accounts receivable.
C. Reviewing accounting records for nonrecurring
transactions recognized near the end of the reporting
period
D. Inspecting communications with law firms for evidence of
unreported contingent liabilities.
122. The marketing department's proposal was finally accepted
and the marketing employees attended a class in using the
mainframe report writer. Soon, marketing analysts found that
it was easier to download the data and manipulate it on their
own microcomputers than to perform all the data
9 of 16
 manipulation with the mainframe report writer directly. One
analyst became highly skilled at downloading and wrote
downloading command sequences for the other employees.
When the analyst left the company for a better job, the
department had problems making modifications to these
command sequences. The department's problems are most
likely due to inadequate
A. Documentation.
B. Program and data backup.
C. Program testing.
D. Anti-virus software.
123. To avoid misunderstandings between a practitioner and
client, engagement arrangements are written in
A. A legal letter.
B. An engagement letter.
C. A client representation letter
D. A letter on significant deficiencies in internal control.
124. Before expressing an opinion concerning the results of
operations, the auditor would best proceed with the audit of
the income statement by
A. Applying a rigid measurement standard designed to test
for understatement of net income.
B. Analyzing the beginning and ending balance sheet
inventory amounts.
C. Making net income comparisons to published industry
trends and ratios.
D. D: Auditing income statement accounts concurrently with
the related balance sheet accounts.
125. An auditor generally obtains from a client a formal written
statement concerning the accuracy of inventory. This
particular letter of representation is used by the auditor to
A. Reduce the scope of the auditor's physical inventory
work but not the other inventory audit work that is
normally performed.
B. Confirm in writing the valuation basis used by the client
to value the inventory at the lower of cost or net
realizable value.
C. Lessen the auditor's responsibility for the fair
presentation of balance sheet inventories.
D. Remind management that the primary responsibility for
the overall fairness of the financial statements rests with
management and not with the auditor
126. If a company employs a capital stock registrar and/or transfer
agent, the registrar or transfer agent should be requested to
confirm directly to the auditor the number of shares of each
class of stock
A. Surrendered and canceled during the year
B. Authorized at the end of the reporting period
C. Issued and outstanding at the end of the reporting
period.
D. Authorized, issued, and outstanding during the year.
127. Which of the following procedures most likely would give the
greatest assurance that securities held as investments are
safeguarded?
A. There is no access to securities between the year end
and the date of the auditor's security count.
B. Proceeds from the sale of investments are received by
an employee who does not have access to securities
C. Investment acquisitions are authorized by a member of
the Board of Directors before execution.
D. Access to securities requires the signatures and
presence of two designated officials.
128. Which of the following payroll control activities would most
effectively ensure that payment is made only for work per-
formed?
A. Require all employees to record arrival and departure by
using the time clock.
B. Have a payroll clerk recalculates all time cards.
C. Require all employees to sign their time cards.
AUDITING.MODULE.1.2019
D. Require employees to have their direct supervisors
approve their time cards.
129. Using laptop computers in conducting financial statement
audits may affect the methods used to review the work of
staff assistants because
A. Supervisory personnel may not have an understanding of
the capabilities and limitations of computers.
B. Working paper documentation may not contain readily
observable details of calculations,
C. The overall audit objectives may differ.
D. Documenting the supervisory review may require
assistance of management services personnel.
130. Which of the following factors would least likely affect the
extent of the auditor's consideration of the client's internal
controls?
A. The amount of time budgeted to complete the
engagement
B. The size and complexity of the client.
C. The nature of specific relevant controls.
D. The auditor's prior experience with client operations.
131. Assume an auditor's interim consideration of internal control
in the expenditure/disbursement cycle reveals that control risk
can be assessed below the maximum and detection risk
above the minimum for certain assertions. Which of the
following is true about substantive tests applied to accounts
payable?
A. The auditor is more apt to confirm payables balances.
B. The auditor is less apt to perform substantive tests at the
balance sheet date only.
C. The auditor is more apt to increase the extent of
substantive tests.
D. The auditor is more apt to ignore the risk of incorrect
acceptance when sampling accounts payable.
132. Analytical procedures performed during an audit indicate that
accounts receivable doubled since the end of the prior year.
However, the allowance for doubtful accounts as a
percentage of accounts receivable remained about the same.
Which of the following client explanations would satisfy the
auditor?
A. A greater percentage of accounts receivable are listed in
the "more than 120 days overdue" category than in the
prior year
B. Internal control activities over the recording of cash
receipts have been improved since the end of the prior
year.
C. The client opened a second retail outlet during the cur-
rent year and its credit sales approximately equaled the
older outlet.
D. The client tightened its credit policy during the current
year and sold considerably less merchandise to
customers with poor credit ratings.
133. Tracing copies of computer-prepared sales invoices to
copies of the corresponding computer-prepared shipping
documents provides evidence that
A. Shipments to customers were properly billed.
B. Entries in the accounts receivable subsidiary ledger were
for sales actually shipped.
C. Sales billed to customers were actually shipped.
D. No duplicate shipments to customers were made.
134. An auditor compares annual revenues and expenses with
similar amounts from the prior year and investigates all
changes exceeding 10%. This procedure most likely could
indicate that
A. Fourth quarter payroll taxes were properly accrued and
recorded, but were not paid until early in the subsequent
year.
B. Unrealized gains from increases in the value of available-
for-sale securities were recorded in the income account
for trading securities.
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 C. The annual provision for uncollectible accounts expense
was inadequate because of worsening economic
conditions.
D. Notice of an increase in property tax rates was received
by management, but was not recorded until early in the
subsequent year.
135. Which of the following audit procedures would allow an
auditor to test whether receiving department procedures are
applied properly?
A. Test a sample of receiving documents.
B. Observe receiving procedures on a surprise basis.
C. Review procedures manuals
D. Interview receiving department personnel.
136. An adequate system of internal controls is most likely to
detect a fraud perpetrated by a
A. Group of employees in collusion.
B. Single employee.
C. Group of managers in collusion.
D. Single manager.
137. An auditor is testing sales transactions. One step is to trace
a sample of debit entries from the accounts receivable
subsidiary ledger back to the supporting sales invoices. What
would the auditor intend to establish by this step?
A. All sales have been recorded.
B. Debit entries in the accounts receivable subsidiary ledger
are properly supported by sales invoices.
C. All sales invoices have been properly posted to customer
accounts.
D. Sales invoices represent bona fide sales.
138. IT, Inc. has changed from a conventional to a computerized
payroll clock card system. Factory employees now record
time in and out with magnetic cards, and the computer
system automatically updates all payroll records. Because of
this change
A. The auditor must conduct the audit using computer-
assisted auditing techniques.
B. The internal control has improved.
C. Part of the audit trail has been lost.
D. The potential for payroll-related fraud has beén
diminished.
139. All of the following are examples of substantive tests to verify
the valuation of net accounts receivable except the
A. Recomputation of the allowance for bad debts.
B. Inspection of accounts for current versus noncurrent
status in the statement of financial position.
C. Inspection of the accounts receivable aging schedule.
D. Comparison of the allowance for bad debts with past
periods.
140. Which of the following explanations best describes why an
auditor may decide to reduce tests of details for a particular
audit objective?
A. The audit is being performed soon after the balance
sheet date.
B. Audit staffs are experienced in performing the planned
procedures
C. Analytical procedures have revealed no unusual or
unexpected results,
D. There were many transactions posted to the account
during the period.
141. An auditor concludes that there is a material inconsistency in
the other information in an annual report to shareholders
containing audited financial statements. The auditor believes
that the financial statements do not require revision, but the
client is unwilling to revise or eliminate the material
inconsistency in the other information. Under these
circumstances, what action would the auditor most likely
take?
AUDITING.MODULE.1.2019
A. Consider the situation closed because the other
information is not in the audited financial statements
B. Issue an '"except for" qualified opinion after discussing
the matter with the client's audit committee.
C. Disclaim an opinion on the financial statements after
explaining the material inconsistency in a separate "other
matter" paragraph
D. Revise the auditor's report to include a separate "other
matter paragraph describing the material inconsistency
142. Internal control should provide reasonable (but not
necessarily absolute) assurance that the entity's objectives
concerning reliability of financial reporting, effectiveness and
efficiency of operations, and compliance with laws and
regulations will be achieved. This means that
A. Internal control is management's, not the auditor's
responsibility
B. An assurance engagement about management's internal
control assertions may not necessarily detect all
significant internal control deficiencies.
C. The cost of installing and implementing control activities
should not exceed the benefits.
D. There is always a risk that significant deficiencies in
internal control may result in material financial statement
misstatements
143. After testing a client's internal control activities, an auditor
discovers a number of significant deficiencies in the operation of a
client's internal controls. Under these circumstances the auditor
most likely would
A. Issue a disclaimer of opinion about the internal controls
as part of the auditor's report.
B. Increase the assessment of control risk and increase the
extent of substantive tests
C. Issue a qualified opinion of this finding as part of the
auditor's report.
D. Withdraw from the audit because the internal controls are
ineffective.
144. Which of the following describes how the objective of a
review of financial statements differs from the objective of a
compilation engagement?
A. The primary objective of a review engagement is to test
the completeness of the financial statements prepared
but a compilation tests for reasonableness
B. The primary objective of a review engagement is to pro-
vide positive assurance that the financial statements are
fairly presented, but a compilation provides no such
assurance.
C. c. In a review engagement, accountants provide limited
assurance, but a compilation expresses no assurance.
D. In a review engagement, accountants provide
reasonable or positive assurance that the financial
statements are fairly presented, but a compilation
provides limited assurance.
145. An auditor believes that there is substantial doubt about an
entity's ability to continue as a going concern for a reasonable
period of time. In evaluating the entity's plans for dealing with
the adverse effects of future conditions and events the
auditor most likely would consider, as a mitigating factor, the
entity's plans to:
A. Repurchase the entity's stock at a price below its book
value.
B. B: Issue stock options to key executives.
C. Lease rather than purchase operating facilities.
D. Accelerate the due date of an existing mortgage.
146. An auditor should design the written audit program so that
A. All material transactions will be selected for substantive
testing
B. Substantive tests prior to the balance sheet date will be
minimized.
C. The audit procedures selected will achieve specific audit
objectives.
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 D. Each account balance will be tested under either tests of
controls or tests of transactions.
147. A departure from Philippine Financial Reporting Standards
(PFRS) is disclosed in a note to the financial statements. The
auditor should
A. Issue an unmodified opinion, but emphasize the matter in
an emphasis of matter paragraph.
B. Issue an unmodified opinion, with no Emphasis of Matter
paragraph, since the departure from PFRS is disclosed.
C. Issue a qualified opinion.
D. Disclaim an opinion.
148. Which of the following questions would most likely be
included in an internal control questionnaire concerning the
completeness assertion for purchases?
A. Is an authorized purchase order required before the
receiving department can accept a shipment or the
vouchers payable department can record a voucher?
B. Are purchase requisitions prenumbered and
independently matched with vendor invoices?
C. Is the unpaid voucher file periodically reconciled with
inventory records by an employee who does not have
access to purchase requisitions?
D. Are purchase orders, receiving reports, and vouchers
prenumbered and periodically accounted for?
149. In evaluating an entity's accounting estimates, one of an
auditor's objectives is to determine whether the estimates are
A. Not subject to bias.
B. Consistent with industry guidelines.
C. Based on objective assumptions.
D. Reasonable in the circumstances.
150. As a result of tests of controls, an auditor assessed control
risk too low and decreased substantive testing. This
assessment occurred because the true deviation rate in the
population was
A. Less than the risk of assessing control risk too low based
on the auditor's sample.
B. Less than the deviation rate in the auditor's sample.
C. More than the risk of assessing control risk too low,
based on the auditor's sample.
D. More than the deviation rate in the auditor's sample.
151. Which of the following statements best describes the
auditor's responsibility to detect conditions relating to financial
stress of employees or adverse relationships between a
company and its employees?
A. The auditor is required to plan the audit to detect these
conditions on all audits.
B. These conditions relate to fraudulent financial reporting,
and an auditor is required to plan the audit to detect
these conditions when the client is exposed to a risk of
misappropriation of assets.
C. The auditor is required to plan the audit to detect these
conditions whenever they may result in misstatements
D. The auditor is not required to plan the audit to discover
these conditions, but should consider them if he or she
becomes aware of them during the audit.
152. Which of the following is an inherent limitation in internal
control?
A. Incompatible duties
B. Lack of segregation of duties.
C. Faulty human judgment.
D. Lack of an audit committee.
153. An auditor's engagement letter most likely would include a
statement that
A. Lists potential significant deficiencies discovered during
the prior year's audit.
B. Explains the analytical procedures that the auditor
expects to apply
AUDITING.MODULE.1.2019
C. Describes the auditor's responsibility to evaluate going
concern issues.
D. Limits the auditor's responsibility to detect errors and
fraud.
154. When considering internal control, an auditor should be
aware of the concept of reasonable assurance, which
recognizes that
A. Internal control may be ineffective due to mistakes in
judgment and personal carelessness.
B. Adequate safeguards over access to assets and records
should permit an entity to maintain proper accountability
C. Establishing and maintaining internal control is an
important responsibility of management.
D. The cost of an entity's internal control should not exceed
the benefits expected to be derived
155. In planning an audit, the auditor's knowledge about the
design of relevant controls should be used to
A. Identify the types of potential misstatements that could
occur
B. Assess the operational efficiency of internal control.
C. Determine whether controls have been circumvented by
collusion.
D. Document the assessed level of control risk.
156. An audit supervisor reviewed the work performed by the staff
to determine if the audit was adequately performed.
The supervisor accomplished this by primarily reviewing which of
the following?
A. Checklists
B. Working papers
C. Analytical procedures
D. Financlal statements
157. Under which, of the following circumstances would the
expression of a disclaimer of opinion be inappropriate?
A. The auditor is unable to obtain the audited financial
statements of a consolidated investee.
B. Management does not provide reasonable justification
for a change in accounting principles
C. The company failed to make a count of its physical
inventory during the year and the auditor was unable to
apply alternative procedures to verify inventory
quantities.
D. Management refuses to allow the auditor to have access
to the company's canceled checks and bank statements
158. In which of the following circumstances is substantive testing
of accounts receivable before the balance sheet date most
appropriate?
A. The client has a new sales incentive program in place.
B. Internal controls during the remaining period are
effective.
C. There is a high turnover of senior management.
D. It is a first engagement of a new client.
159. When companies use information technology (IT)
extensively, evidence may be available only in electronic
form. What is an auditor's best course of action in such
situations?
A. Assess the control risk as high.
B. Use audit software to perform analytical procedures.
C. Use generalized audit software to extract evidence from
client databases.
D. Perform limited tests of controls over electronic data.
160. Which of the following matters is an auditor required to
communicate to those charged with governance?
A. Adjustments that were suggested by the auditor and
recorded by management that have a significant effect
on the entity's financial reporting process.
B. The auditor's consideration of risk factors in assessing
the risk of material misstatement arising from the misap-
propriation of assets.
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 C. The results of the auditor's analytical procedures
performed in the review stage of the engagement that
indicate significant variances from expected amounts.
D. Changes in the auditor's preliminary judgment about
materiality that were caused by projecting the results of
statistical sampling for tests of transactions
161. Before applying principal substantive tests to an entity's
accounts receivable at an interim date, an auditor should
A. Consider the likelihood of assessing the risk of incorrect
rejection too low.
B. Project sampling risk at the maximum for tests covering
the remaining period.
C. Ascertain that accounts receivable are immaterial to the
financial statements.
D. Assess the difficulty in controlling the incremental audit
risk.
162. Which of the following procedures would a CPA most likely
perform in the planning stage of a financial statement audit?
A. Obtain representations from management regarding the
availability of all financial records.
B. Communicate with those charged with governance
concerning the prior year's audit adjustments.
C. Make inquiries of the client's attorney regarding pending
and threatened litigation and assessments
D. Compare recorded financial information, with anticipated
results from budgets and forecasts.
163. Which of the following strategies most likely could improve
the response rate of the confirmations of accounts
receivable?
A. Restrict the selection of accounts to be confirmed to
those customers with large balances.
B. Include a list of items or invoices that constitute the
customers' account balances.
C. Explain to customers that discrepancies will be
investigated by an independent third party.
D. Ask customers to respond to the confirmation requests
directly to the auditor by fax.
164. Which of the following business functions is associated with
the revenue/receipt cycle?
A. Obligations are paid to vendors and employees.
B. Resources are distributed to outsiders in exchange for
promises of future payments.
C. Resources are used, held, or transformed.
D. Capital funds are received from investors and creditors.
165. Which of the following would prevent a paid disbursement
from being paid a second time?
A. Individuals responsible for signing checks should prepare
vouchers.
B. Disbursements should be approved by at least two
responsible officials.
C. The disbursement date should be within a few days of
the date the voucher is presented for payment.
D. The official signing the check should cancel the
supporting documents.
166. When a client engages in transactions involving derivatives,
the auditor should
A. Develop an understanding of the economic substance of
each derivative.
B. Confirm with the client's broker whether the derivatives
are for trading purposes
C. Notify the audit committee about the risks involved in
derivative transactions.
D. Add an emphasis-of-matter paragraph to the auditor's
report describing tie risk associated with each derivative
167. Unlike consulting services, assurance services
A. make recommendation to management
B. report on how to use information.
C. report on the quality of the information.
AUDITING.MODULE.1.2019
D. Are two-party contract
168. Assuming cash receipts from credit sales have been
misappropriated. Which of the following is likely to conceal
the misappropriation and unlikely to be detected.
A. Understating the sales journal.
B. overstating the accounts receivable control account
C. overstating the accounts receivable subsidiary ledger
D. overstating cash receipts journal
169. Which of the following factors would most likely influence an
auditor's consideration of the reliability of data when
performing analytical procedures.
A. Whether the data were developed in a computerized or a
manual accounting system
B. Whether the data were prepared on the cash basis or in
conformity with PFRS
C. Whether the data were developed under a system with
adequate controls
D. Whether the data were processed in an online system or
a batch entry system
170. When an auditor tests the internal controls of a computerized
accounting system, which of the following is true of the test
data approach?
A. Test data are coded to a dummy subsidiary so they can
be extracted from the system under actual operating
conditions.
B. Test data programs need not be tailor-made by the
auditor for each client's computer applications.
C. Test data programs usually consist of all possible valid
and invalid conditions regarding compliance with internal
controls.
D. Test data are processed with the client's computer and
the results are compared with the auditor's
predetermined results
171. The best argument against the use of negative accounts
receivable confirmations is
A. The cost-per-response is excessively high.
B. B: There is no way of knowing if the intended recipients
received them.
C. Recipients are likely to feel that in reality the confirmation
is a subtle request for payment.
D. The inference drawn from receiving no reply may not be
correct.
172. The CPA reviews an entity's payroll procedures. An example
of an internal control weakness is to assign to a department
supervisor the responsibility for
A. Distributing payroll checks to subordinate employees.
B. Reviewing and approving time reports for subordinates.
C. Interviewing applicants for subordinate positions prior to
hiring by the personnel department.
D. Initiating requests for salary adjustments for subordinate
employees
173. A client is a defendant in a patent infringement lawsuit
against a major competitor. Which of the following items
would least likely be included in the attorney's response the
auditor's letter of inquiry?
A. A description of potential litigation in other matters or
related to an unfavorable verdict in the patent
infringement lawsuit.
B. A discussion of case progress and the strategy current in
place by client management to resolve the lawsuit,
C. An evaluation of the probability of loss and a statement
of the amount or range of loss if an unfavorable outcome
is reasonably possible
D. An evaluation of the ability of the client to continue as a
going concern if the verdict is unfavorable and maximum
damages are awarded.
174. On March 1, Guanzon, CPA, expressed an unmodified
opinion on the financial statements of Apex Co. On July 1,
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 Guanzon's internal inspection program discovered that
engagement personnel failed to observe Apex's physical
inventory: Guanzon believes that this omission impairs
Guanzon's ability to support the unmodified opinion. If Apex's
creditors are currently relying on Guanzon's opinion,
Guanzon should first:
A. Request Apex's management to communicate to its
creditors that Guanzon's opinion should not be relied on.
B. Reissue Guanzon's auditor's report with an "other
matter" paragraph describing the departure from PSAs.
C. Undertake to apply the alternative procedures that would
provide a satisfactory basis for Guanzon's opinion
D. Advise Apex's board of directors to disclose this
development in its next interim report.
175. Which of the following procedures is ordinarily performed by
an accountant during an engagement to compile the financial
statements of an entity?
A. Make inquiries of the employees and senior
management regarding transactions with related parties.
B. Determine whether there is substantial doubt about the
entity's ability to continue as a going concern.
C. Scan the entity's records for the period just after the
balance sheet date to identify subsequent events
requiring disclosure.
D. Consider whether the financial statements are free from
obvious material mistakes in the application of
accounting principles.
176. In assessing the competence of internal auditors, an
independent CPA most likely would obtain information about
the
A. Influence of management on the scope of the internal
auditors' duties.
B. Policies limiting internal auditors from communicating
with the audit committee.
C. Quality of the internal auditors' working paper
documentation
D. Entity's ability to continue as a going concern for a
reasonable period of time.
177. The primary purpose of an independent financial statement
audit is to
A. Provide a basis for assessing management's
performance.
B. Comply with government regulatory requirements.
C. Assure management that the financial statements are
unbiased and free from material misstatement
D. Provide users with an unbiased opinion about the
fairness of information reported in financial statements.
178. An internal control objective in the revenue cycle is to insure
that recorded sales are valid and documented. Which
evidence is least likely to satisfy that objective?
A. Bills of lading exist for all invoices.
B. Customer purchase orders support invoices.
C. Shipping documents exist for all invoices.
D. Credit sales have been approved by the credit
department.
179. A client's purchasing system ends with the assumption of a
liability and the eventual payment of the liability. Which of the
following best describes the auditor's primary concern with
respect to liabilities resulting from the purchasing system?
A. Accounts payable are not materially understated.
B. Authority to incur liabilities is restricted to one designated
person
C. Acquisition of materials is not made from one vendor or
one group of vendors.
D. Commitments for all purchases are made only after
established competitive bidding procedures are followed.
180. At the conclusion of an audit, an auditor is reviewing the
evidence gathered in support of the financial statements. With
regard to the valuation of inventory, the auditor concludes
AUDITING.MODULE.1.2019
that the evidence obtained is not sufficient to support
management's representations. Which of the following
actions is the auditor most likely to take?
A. Consult with the audit committee and issue a disclaimer
of opinion.
B. Consult with the audit committee and issue a qualified
opinion.
C. Obtain additional evidence regarding the valuation of
inventory
D. Obtain a statement from management supporting their
inventory valuation.
181. For which of the following audit tests would a CPA most
likely use attribute sampling?
A. À. Identifying entries posted to incorrect accounts.
B. Estimating the amount in an expense account.
C. Evaluating the reasonableness of depreciation expense.
D. Selecting receivables for confirmation of account
balances.
182. Which of the following circumstances would permit an
independent auditor to accept an engagement after the close
of the fiscal year?
A. Issuance of a disclaimer of opinion as a result of inability
to conduct certain tests required by PSAs due to the
timing of acceptance of the engagement.
B. Assessment of control risk below the maximum level
C. Receipt of an assertion from the preceding auditor that
the entity will be able to continue as a going concern.
D. Remedy of limitations resulting from accepting the
engagement after the close of the end of the year, such
as those relating to the existence of physical inventory.
183. During an audit of a publicly held company, the auditor
should obtain written confirmation regarding debenture
transactions from the
A. Debenture holders
B. Client's attorney.
C. Internal auditors.
D. Trustee.
184. Why is it less common for auditors to perform extensive tests
of controls over investments in debt and equity securities?
A. It is customary to assess control risk at the maximum
level for these accounts.
B. Physical custody of securities is often vested in outside
trustees
C. The volume of transactions is not often large enough to
justify the cost of tests of controls.
D. These transactions are not supported by extensive
documentation.
185. A client maintains a large data center where access is limited
to authorized employees. How may an auditor best determine
the effectiveness of this control activity?
A. Inspect the policy manual establishing this control
activity.
B. Ask the chief technology officer about known problems
C. Observe whether the data center is monitored
D. D: Obtain a list of current data center employees.
186. An entity's financial statements were misstated over a period
of years due to large amounts of revenue having been
recorded in journal entries that involved debits and credits to
an illogical combination of accounts. The auditor could most
likely have been alerted to this irregularity by
A. Scanning the general journal for unusual entries.
B. Performing cutoff tests at year end.
C. Tracing a sample of journal entries to the general ledger.
D. Examining documents supporting sales returns and
allowances recorded after year end.
187. Which of the following procedures would an auditor most
likely perform prior to the balance sheet date?
A. Review subsequent events.
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 B. Perform search for unrecorded liabilities.
C. Send inquiry letter to client's legal counsel.
D. Review detail and test significant travel and
entertainment expenses.
188. A practitioner's report on agreed-upon procedures that is in
the form of procedures and findings should contain:
A. Negative assurance that the procedures did not
necessarily disclose all reportable conditions
B. An acknowledgment of the practitioner's responsibility for
the sufficiency of the procedures.
C. A statement of restrictions on the use of the report.
D. A disclaimer of opinion on the entity's financial
statements
189. The online data entry control called preformatting is
A. A program initiated prior to regular input to discover
errors in data before entry so that the errors can be
corrected.
B. A check to determine if all data items for a transaction
have been entered by the terminal operator.
C. A series of requests for required input data that requires
an acceptable response to each request before a
subsequent request is made.
D. The display of a document with blanks for data items to
be entered by the terminal operator.
190. If an auditor is certain a fraud has a material effect on
financial statements and the client agrees to adjust the
statements accordingly, the auditor should
A. Withdraw from the engagement.
B. Issue a qualified opinion.
C. Disclaim an opinion on the financial statements taken as
a whole.
D. Issue an unmodified opinion.
191. The expenditure/disbursement cycle begins with requisitions
from user departments and ends with the receipt of materials
and the recognition of a liability. An auditor's primary
objective in reviewing the cycle is to
A. Obtain an understanding of the client's prescribed
policies and procedures sufficient to plan the audit.
B. Investigate the handling and recording of unusual
acquisitions.
C. Consider the need to increase substantive tests of
purchases and accounts payable
D. Assure that materials ordered, received, and paid for are
actually on hand.
192. Which of the following statements best describes an auditor's
responsibility to detect fraud?
A. The auditor is responsible for failing to detect fraud when
the failure clearly results from not performing audit
procedures described in the engagement letter
B. The auditor must extend auditing procedures to search
actively for fraud.
C. The auditor must assess the risk that material fraud may
exist
D. The auditor is responsible for failing to detect fraud only
when an unmodified opinion is issued.
193. The tolerable rate of occurrence in statistical sampling plan is
A. A statistical measure, at a specified reliability level, of the
maximum rate of occurrence of an attribute.
B. The percentage of items in a sample that possess a
particular attribute.
C. The percentage of items in a population that possess 'a
particular attribute
D. The maximum rate of exception that the auditor would be
willing to accept in the population without altering the
planned reliance on the attribute
194. VGR Corporation has numerous customers. A customer file
is kept on disk. Each customer file contains name, address
credit limit, and account balance. The auditor wishes to test
AUDITING.MODULE.1.2019
this file to determine whether credit limits are being exceed
ed. The best procedure for the auditor to follow would be to
A. Develop test data that would cause some account
balances to exceed the credit limit and determine if the
system properly detects, such situation
B. Develop program to compare credit limits with account
balances and print out the details of any account with a
balance exceeding its credit limit.
C. Request a printout of all account balances so they can
be manually checked against the credit limits.
D. Request a printout of a sample account balances so they
can be individually checked against the credit limits
195. Assuming the tolerable deviation rate is 5 percent, the
expected population deviation rate is 3 percent, and the
allowance for sampling risk is 2 percent. What should an
auditor conclude if tests of 100 randomly chosen documents
reveal 4 deviations?
A. Accept the sample results as support for assessing
control risk below the maximum level because the
tolerable deviation rate less the allowance for sampling
risk equals the expected population deviation rate.
B. Assess control risk at the maximum level because the
sample deviation rate plus the allowance for sampling
risk exceeds the tolerable deviation rate.
C. Assess control risk at the maximum level because the
tolerable deviation rate plus the allowance for sampling
risk exceeds the expected population deviation rate
D. Accept the sample result as support for assessing control
risk below the maximum because the sample deviation
rate plus the allowance for sampling risk exceeds the
tolerable rate.
196. Which of the following statements most likely would be
included in an engagement letter from an auditor to a client?
A. The CPA firm will provide absolute assurance about
whether the financial statements are free of material
misstatement.
B. The CPA firm is responsible for ensuring that the client
complies with applicable laws.
C. The CPA firm will involve information technology experts
in the performance of the audit.
D. The CPA firm will adjust the financial statements to
correct misstatements before issuing a report.
197. Which of the following prospective financial statements is
(are) appropriate for general use?
Financial forecast Financial projection
A. Yes Yes
B. Yes No
C. No Yes
D. No No
198. An auditor's tests of controls for completeness for the
revenue cycle usually include determining whether
A. Each receivable is collected subsequent to the year end.
B. An invoice is prepared for each shipping document.
C. Each invoice is supported by a customer purchase order.
D. Each credit memo is properly approved.
199. In verifying a November 30 sales cutoff date, an auditor
would be most concerned with comparing records of
A. November cash receipts with December bank deposits
B. November purchases with December shipments.
C. November accounts receivable with November sales.
D. November sales with November shipping documents.
200. In a financial statement audit, inherent risk is evaluated to
help an auditor assess which of the following?
A. The internal audit department's objectivity in reporting a
material misstatement of a financial statement assertion
it detects to the audit committee
B. The risk that the internal control system will not detect a
material misstatement of a financial statement assertion.
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 C. The risk that the audit procedures implemented will not
detect a material misstatement of, a financial statement
assertion.
D. The susceptibility of a financial statement assertion to a
material misstatement assuming there are no related
controls.

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