1
Q
The primary source of information to be reported about litigation, claims, and assessments is
A. Independent auditor
B. Client’s management
C. Court records
D. Client’s lawyer
A
B
2
Q
The primary reason an auditor requests that letters of inquiry be sent to a client’s attorneys is to provide the auditor with
A. A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.
B. The attorneys’ opinions of the client’s historical experiences in recent similar litigation.
C. Corroboration of the information furnished by management about litigation, claims, and assessments.
D. The probable outcome of asserted claims and pending or threatened litigation.
A
C
3
Q
The letter of audit inquiry should be
A. Prepared and sent by the auditor.
B. Prepared by management and sent by the auditor.
C. Prepared and sent by management.
D. Prepared by the auditor and sent by management.
A
B
4
Q
The refusal of a client’s lawyer to provide a representation on the legality of a particular act committed by the client is ordinarily
A. Proper grounds to withdraw from the engagement.
B. Insufficient reason to modify the auditor’s report because of the lawyer’s obligation of confidentiality.
C. Considered to be a scope limitation.
D. Sufficient reason to issue a “subject to” opinion.
A
C
5
Q
Management’s refusal to give the auditor permission to communicate with the entity’s legal counsel is most likely to lead to
A. An adverse opinion.
B. A qualified opinion or an adverse opinion
C. An unmodified opinion.
D. A qualified opinion or a disclaimer of opinion.
A
D
6
Q
In which of the following circumstances would an auditor most likely meet with the client’s legal counsel to discuss the likely outcome of the litigation and claims?
I. The auditor determines that the matter is a significant risk.
II. There is a disagreement between management and the entity’s legal counsel.
III. The subject matter of the litigation is complex.
A. I and II only.
B. Il and III only.
C. I and III only.
D. I, II, and III.
A
D
7
Q
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 action can be settled for less than the damages claimed.” - we need the bust atimate
B. “I believe that the company will be able to defend this action successfully.”.
C. “I believe that the plaintiff’s case against the company is without merit.”
oF the amount
D. “I believe that the possible liability to the company is nominal in amount.”
Remote.
A
A
8
Q
The auditor should consider the status of legal matters up to the
A. Balance sheet date.
B. Date of the auditor’s report.
C. Date of approval of the financial statements.
D. Date of issuance of the financial statements.
A
B
9
Q
Analytical procedures used in the overall review stage of the audit generally include
A. Retesting controls that appeared to be ineffective during the assessment of control risk.
B. Considering unusual or unexpected account balances that were not previously identified.
C. Gathering evidence concerning account balances that have not changed from the prior year.
D. Performing tests of transactions to corroborate management’s financial statement assertions.
A
B
10
Q
Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that
A. The communication with the audit committee should be revised.
B. Irregularities exist among the relevant account balances.
C. Additional substantive tests of details are required.
D. Internal control activities are not operating effectively.
A
C
11
Q
The responsibility for the identification and disclosure of related parties and transactions with such parties rests with the
A. Auditor.
B. Entity’s management.
C. Financial Reporting Standards Council (FRSC).
D. Securities and Exchange Commission (SEC).
A
B
12
Q
The auditor should review information provided by those charged with governance and management identifying
I. The names of all known related parties.
II. Related party transactions.
A. I only.
B. II only.
C. Both I and II.
D. Neither I nor II.
A
C
13
Q
Which of the following events most likely indicates the existence of related parties?
A. Making a loan without scheduled terms for repayment of the funds.
B. Discussing merger terms with a company that is a major competitor.
C. Selling real estate at a price that differs significantly from its book value.
D. Borrowing a large sum of money at a variable rate of interest.
A
A
14
Q
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
B. This may reveal whether particular transactions would have taken place if the parties had not been related.
C. The business structure may be deliberately designed to obscure related party transactions.
D. Intercompany transactions may have been consummated on terms equivalent to arm’s-length transactions.
A
C
15
Q
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
B. This may reveal whether particular transactions would have taken place if the parties had not been related.
C. The business structure may be deliberately designed to obscure related party transactions.
D. Intercompany transactions may have been consummated on terms equivalent to arm’s-length transactions.
A
A
16
Q
PSA 570 (Going Concern) states that a fundamental principle in the preparation of financial statements is the going concern assumption. Under this assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws and regulations. The responsibility to make an assessment of an entity’s ability to continue as a going concern rests with the
A. Auditor
B. Entity’s management
C. SEC
D. Entity’s creditors
A
B
17
Q
Which of the following statements best describes the auditor’s responsibility concerning the appropriateness of the going concern assumption in the preparation of the financial statements?
A. The auditor’s responsibility is to make a specific assessment of the entity’s ability to continue as a going concern.
B. The auditor’s responsibility is to predict future events or conditions that may cause the entity to cease to continue as a going concern.
C. The auditor’s responsibility is to consider the appropriateness of management’s use of the going concern assumption and consider whether there are material uncertainties about the entity’s ability to continue as a going concern that need to be disclosed in the financial statements.
D. The auditor’s responsibility is to give a guarantee in the audit report that the entity has the ability to continue as a going concern.
A
C
18
Q
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 negative.
B. Stock dividends replace annual cash dividends.
C. Significant related party transactions are pervasive.
D. Research and development projects are postponed
A
A
19
Q
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. Restrictions on the disposal of principal assets are present.
B. Usual trade credit from suppliers is denied.
C. Significant related party transactions are pervasive.
D. Arrearages in principal stock dividends are paid.
A
B
20
Q
Which of the following audit/procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity’s ability to continue as a going concern?
A. Confirmation of bank balances.
B. Confirmation of accounts receivable from major customers.
C. Reconciliation of interest expense with debt outstanding.
D.Review of compliance with terms of debt agreements.
A
D
21
Q
Harold, CPA, believes there is substantial doubt about the ability of Jersamtan Co. to continue as a going concern for a reasonable period of time. In evaluating Jersamtan’s plans for dealing with the adverse effects of future conditions and events, Harold most likely would consider, as a mitigating factor, Jersamtan’s plans to
A. Postpone expenditures for research and development projects.
B. Purchase production facilities currently being leased from a related party.
C. Strengthen internal controls over cash disbursements.
D. Discuss with lenders the terms of all debt and loan agreements.
A
A
22
Q
When an auditor concludes that there is substantial doubt about a continuing audit client’s ability to continue as a going concern for a reasonable period of time, the auditor’s responsibility is to
A. Consider the adequacy of disclosure about the client’s possible inability to continue as a
B. Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial statements.
C. Report to the client’s audit committee that management’s accounting estimates may need to be adjusted.
D. Reissue the prior year’s auditor’s report and add an emphasis of matter paragraph that specifically refers to “substantial doubt” and “going concern.”
A
A
23
Q
As used in PSA 560 (Subsequent Events), the term “subsequent events” refers to
I. Events occurring between the date of the financial statements and the date of the auditor’s report.
II. Facts discovered after the date of the auditor’s report.
A. I only.
B. Il only.
C. Both I and II.
D. Neither I nor II.
A
C
24
Q
Which of the following statements best describes the “date of the financial statements?”
A. The date on which those with the recognized authority assert that they have prepared the
entity’s complete set of financial statements, including the related notes, and that they have taken responsibility for them.
B. The date that the auditor’s report and audited financial statements are made available to third parties.
C. The date of the end of the latest period covered by the financial statements, which is normally the date of the most recent balance sheet in the financial statements subject to audit
D. The date on which the auditor has obtained sufficient appropriate audit evidence on which to base the opinion on the financial statements.
A
C
25
Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?
A. Inquiring as to whether any unusual adjustments were made after the date of the financial statements.
B. Confirming a sampie of material accounts receivable established after the date of the financial statements.
C. Comparing the financial statements being reported on with those of the prior period.
D. Investigating personnel changes in the
A
26
Which of the following statements best expresses the auditor's responsibility with respect to facts discovered after the date of the auditor's report but before the date the financial statements are issued?
A. The auditor should amend the financial statements.
B. If the facts discovered will materially affect the financial statements, the auditor should issue a new report which contains either a qualified opinion or an adverse opinion.
C. The auditor should consider whether the financial statements need amendment, discuss the matter with management, and consider taking actions appropriate in the circumstances.
D. The auditor should withdraw from the engagement.
C
27
After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited financial statements, unless
A. Final determinations or resolutions are made of contingencies that had been disclosed in
the financial statements.
B. Information about an event that occurred after the date of the auditor's report comes to the auditor's attention.
C. The control environment changes after issuance of the report.
D. Information, which existed at the report date and may affect the report, comes to the auditor's attention.
D
28
Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?
A. A technological development that could affect the entity's future ability to continue as a going concern.
B. The entity's sale of a subsidiary that accounts for 30% of the entity's consolidated sales.
C. The discovery of information regarding a contingency that existed before the financial statements were issued.
D. The final resolution of a lawsuit disclosed in the notes to the financial statements.
C
29
The auditor is required to obtain audit evidence that management
I. Acknowledges its responsibility for the fair presentation of the financial statements in accordance with applicable financial reporting framework.
II. Has approved the financial statements.
A. I only.
B. Il only.
C. Both I and lI
D. Neither I nor II.
C
30
When an audit is made in accordance with generally accepted auditing standards, the auditor should always mandatory
A. Observe the taking of physical inventory on the balance sheet date.
B. Obtain certain written representations from management.
C. Employ analytical procedures as substantive tests to obtain evidence about specific assertions related to account balances.
D. Document the understanding of the client's internal control and the basis for all conclusions about the assessed level of control risk for financial statement assertions.
B
31
When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations
A. Constitute sufficient appropriate audit evidence to support the assertion when considered in combination with a sufficiently low assessed level of control risk.
B. Are not part of the audit evidence considered to support the assertion.
C. Replace a low assessed level of control risk as audit evidence to support the assertion.
D. Complement, but do not replace, substantive tests designed to support the assertion.
D
32
A written representation from a client's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements, should normally be signed by the
A. Chief financial officer and the chair of the board of directors.
B. Chief executive officer and the chief financial officer.
C. Chief executive officer, the chair of the board of directors, and the client's lawyer.
D. Chair of the audit committee of the board of directors.
B
33
The date of the management representation letter should coincide with the date of the
A. Balance sheet
B. Latest related party transaction
C. Auditor's report
D. Latest interim financial information
C
34
Which of the following statements concerning management representations is incorrect?
A. Representations by management can be a substitute for other audit evidence that the auditor could reasonably expect to be available.
B. If the auditor is unable to obtain sufficient appropriate audit evidence regarding a matter, which has, or may have, a material effect on the financial statements and such audit evidence is expected to be available, this will constitute a limitation in the scope of the audit, even if a representation from management has been received on the matter.
C. If a representation by management is contradicted by other audit evidence, the auditor should investigate the circumstances and, when necessary, reconsider the reliability of other representations by management.
D. The auditor's working papers would ordinarily include a summary of oral discussions with management or written representations from management.
A
35
What type of opinion should be expressed if the client's management refuses to provide a representation that the auditor considers necessary?
A. Qualified opinion or a disclaimer of opinion.
B. Qualified opinion or an adverse opinion.
C. Adverse opinion or a disclaimer of opinion
D. Unmodified opinion.
A
36
All the information used by the auditor in arriving at the conclusion on which the audit opinion is based. It includes the information contained in the accounting records underlying the financial statements (underlying accounting data) and other information (corroborating information).
A. Audit Evidence
B. Audit risk
C. Audit opinion
D. Audit program
A
37
Which of the following best describes the primary purpose of audit procedures?
A. To detect fraud
B. To verify the accuracy of account balances
C. To comply with generally accepted accounting principles
D. To gather corroborative evidence to support the audit opinion
D
38
The appropriateness of evidence available to an auditor is Least likely to be affected by the
A. Relevance of such evidence to the financial statement assertion being investigated.
B. Relationship of the preparer of such evidence to the entity being audited.
C. Timeliness of such audit evidence.
D. Sampling method employed by the auditor to obtain a sample of such evidence.
D
39
Which of the following statements concerning evidential matter is true?
A. Appropriate evidence supporting management's assertions should be convincing rather
than merely persuasive.
B. Effective internal control contributes little to the reliability of the evidence created within
C. The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained.
D. A client's accounting records cannot be considered sufficient evidence to support the financial statements.
D
40
Which of the following is an example of "other information" that could be used by an auditor as evidential matter supporting the financial statements?
A. Worksheets supporting cost allocations.
B. Confirmation of accounts receivable.
C. Special journals.
D. Accounting manuals.
B
41
Which of the following types of audit evidence provides the least assurance of reliability?
A. Receivable confirmations received from the client's customers.
B. Prenumbered receiving reports completed by the client's employees. galing calabas
C. Prior months' bank statements obtained from the client.
D. Municipal property tax bills prepared in the client's name.
B
42
Which of the following procedures would provide the most reliable audit evidence?
A. Inquiries of the client's internal audit staff held in private
B. Inspection of prenumbered client purchase orders filed in the vouchers payable department
C. Analytical procedures performed by the auditor on the entity's trial balance
D. Inspection of bank statements obtained directly from the client's financial institution
D
43
Which of the following is not a basic procedure used in an audit?
A. Risk assessment procedures.
B. Substantive test procedures.
C. Tests of controls.
D. Tests of direct evidence.
D
44
Audit procedures may be classified as risk assessment procedures and further audit procedures. Which of the following does not describes further audit procedures?
A. These procedures test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.
These procedures are used to detect material misstatements at the assertion level.
C. These are procedures for obtaining an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement at the financial statement and assertion levels.
D. These procedures include tests of details of classes of transactions, account balances, and disclosures and analytical procedures.
C
45
Which of the following statements appropriately describes inquiry?
A. Physical examination of the assets.
B. Consists of looking at a process or procedures being performed by others.
C. Examining records or documents, whether internal or external, in paper form, electronic form, or other media.
D. Consists of seeking information from knowledgeable persons, both financial and
nonfinancial, within the entity or outside the entity.
D
46
Observation is considered a reliable audit procedure but one that is limited in usefulness. However, it is used in a number of different situations. Which of the following statements is true regarding observation as an audit technique?
A. It is the most effective audit methodology to use in filling out internal control questionnaires.
B. It is the most persuasive methodology to learn how transactions are really processed during the period under audit.
C. It is the most persuasive audit technique for determining if fraud has occurred.
D. It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place.
D
47
Which of the following is a false statement about audit objectives?
There should be a one-to-one relationship between audit objectives and procedures.
A. There should be a one- to one relationship between audit objectives and procedures.
B. Audit objectives should be developed in light of management assertions about the financial
C. Selection of tests of financial statement assertions should depend upon the understanding of internal control.
D. The auditor should resolve any substantial doubt about any of management's relevant financial statement assertions.
A
48
Which of the following is not an assertion relating to classes of transactions?
A. Accuracy.
C. Cutoff.
B. Occurrence.
D. Consistency.
D
49
Which of the following is a management assertion regarding account balances at the period end?
A. Transactions and events that have been recorded have occurred and pertain to the entity.
B. Transactions and events have been recorded in the proper accounts.
C. The entity holds or controls the rights to assets, and liabilities are obligations of the entity.
D. Amounts and other data related to transactions and events have been recorded appropriately.
C
50
Which of the following might be detected by an auditor's review of the client's sales cut-off?
A. Excessive goods returned for credit.
B. Unrecorded sales discounts.
C. Lapping of year-end accounts receivable.
D. Inflated sales for the year.
D
51
Which of the following should be considered by the auditor in deciding which means (or combination of means) to use in selecting items for testing?
I. The risk of material misstatement related to the assertion being tested.
II. Audit efficiency.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
C
52
Which of the following statements about specific item testing is false?
A. It is selective.
B. It does not constitute sampling.
bans
C. It can be an efficient means of gathering audit evidence.
D. The results of audit procedures applied to items selected in this way can be projected to the entire population.
D
53
According to PSA 530, selecting specific items may include selecting the following, except:
A. All items over a certain amount
B. Low value or non-key items
C. Items to obtain information
D. Items to test control
B
54
It will be appropriate to audit all the items that make up a class of transactions or account balance (100% examination), except
A. When the class of transactions or account balance consists of a large number of small
B. When the class of transactions or account balance consists of a small number of large
C. When there is a significant risk of misstatement and other selection methods do not provide sufficient appropriate audit evidence.
D. When the repetitive nature of a calculation or other process performed automatically by the client's computer information system (CIS) makes a 100% examination cost effective
A
55
Audit sampling involves the
A. Selection of all items over a certain amount
B. Application of audit procedures to all items that comprise a class of transactions or an account balance
C. Application of audit procedures to all items over a certain amount and those that are unusual or have a history of error
D. Application of audit procedures to less than 100% of items within a class of transactions or an account balance such that all items have a chance of selection
D
56
Confirmation is "the process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions." Two assertions for which confirmation of accounts receivable balances provides primary evidence are
A. Completeness and valuation
B. Existence and completeness
C. Valuation and rights and obligations
D. Rights and obligations and existence
D
57
Who signs the confirmation requests?
A. The audit partner
B. The CEO/CFO of the client
C. The appropriate level of management
D. Both management and the auditor
C
58
When the recipient has accomplished the confirmation request, replies should be:
A. Sent directly to the auditor
B. Sent directly to the client, after which the client gives the replies to the auditor
C. Sent directly to the auditor, with another copy of the reply going to the client
D. Not sent back since a confirmation request does not necessitate replies
A
59
Which of the following sets of information does an auditor confirm on one form?
A. Accounts payable and purchase commitments.
B. Cash in bank and collateral for loans.
C. Inventory on consignment and contingent liabilities.
D. Accounts receivable and accrued interest receivable.
B
60
In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?
A. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.
B. A substantial number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.
C. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to a few major customers.
D. A small number of accounts may be in dispute and the accounts receivable balance arises from sales to many customers with small balances.
D
61
Positive confirmation request is not used when:
A. A large number of small balances are involved.
The entity's information systems and internal controls are unreliable or ineffective
C. The information available to corroborate management's assertions) is only available outside the entity
D. Specific fraud risk factors, such as risk of management override of internal controls, prevent the auditor from relying on evidence from the entity.
A
62
The return of positive accounts receivable confirmation without an exception attests to the
A. Collectibility of the accounts receivabie.
B. Accuracy of the aging of accounts receivable.
C. Accuracy of the receivables balance.
D. Accuracy of the allowance for bad debts.
C
63
Which of the following statements is correct concerning the use of negative confirmation requests?
A. Unreturned negative confirmation requests rarely provide significant explicit evidence.
B. Negative confirmation requests are effective when detection risk is low.
C. Unreturned negative confirmation requests indicate that alternative procedures are necessary.
D. Negative confirmation requests are effective when understatements of account balances are suspected.
A
64
The blank form of accounts receivable confirmations may be less efficient than the positive form because
A. Shipping documents need to be inspected.
B. Recipients may sign the forms without proper investigation.
C. More non responses to the requests are likely to occur.
D. Subsequent cash receipts need to be verified.
C
65
Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests?
A. Review the cash receipts journal for the month prior to year-end.
B. Intensify the study of internal control concerning the revenue cycle.
C. Increase the assessed level of detection risk for the existence assertion.
D. Inspect the shipping records documenting the merchandise sold to the debtors.
D
66
Which of the following audit procedures is best for identifying unrecorded trade accounts payable?
A. Reviewing cash disbursements recorded subsequent to the reporting date to determine whether the related payables apply to the prior period.
B. Investigating payables recorded just prior to and just subsequent to the reporting date to determine whether they are supported by receiving reports.
C. Examining unusual relationships between monthly accounts payable balances and recorded cash payments.
D. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the reporting date.
A
67
S1: The primary source of information to be reported about litigation, claims, and assessments is the client's management.
S2: The primary source for evidence to corroborate the existence of pending litigation is attorney confirmations.
A. True, true
B. False, false
C. True, faise
D. False, true
A
68
The auditor considers the status of legal matters up to
A. The date of the audit report.
C. The issuance of financial statements.
B. The reporting date.
D. The date of receipt of letter from lawyers.
A
69
Which of the following procedures might be useful in discovering a contingent liability for a lawsuit that management is intentionally neglecting to disclose?
A. Inquiries (orally and in writing) of management.
B. Analyzing legal expense and review invoices and statements from outside legal counsel.
C. Reviewing current and previous years' internal revenue agent reports.
D. Obtaining a letter of representation from management that it is aware of no undisclosed contingent liabilities.
B
70
Which of the following is an audit procedure that an auditor most likely would perform concerning litigation, claims, and assessments?
A. Request the client's lawyer to evaluate whether the client's pending litigation, claims, and assessments indicate a going concern problem.
B. Examine the legal documents in the client's lawyer's possession concerning litigation, claims, and assessments to which the lawyer has devoted substantive attention.
C. Discuss with management its policies and procedures adopted for evaluating and accounting for litigation, claims, and assessments.
D. Confirm directly with the client's lawyer that all litigation, claims, and assessments have been recorded or disclosed in the financial statements.
C
71
A lawyer's refusal to respond to a letter of audit inquiry normally requires the auditor to:
A. Issue a qualified opinion or a disclaimer of opinion.
B. Issue an unqualified opinion with an explanatory paragraph.
C. Issue a qualified or adverse opinion.
D. Issue an unqualified opinion.
A
72
Which of the following statements is incorrect about accounting estimates?
A. Management is responsible for making accounting estimates included in the financial statements.
B. When evaluating accounting estimates, the auditor should pay particular attention to assumptions that are objective and are consistent with industry patterns.
C. The risk of material misstatement is greater when accounting estimates are involved.
D. The evidence available to support an accounting estimate will often be more difficult to obtain and less conclusive than evidence available to support other items in the financial statements.
B
73
In evaluating the assumptions on which the estimate is based, the auditor would need to pay particular attention to assumptions which are
A. reasonable in light of actual results in prior periods.
B. consistent with those used for other accounting estimates.
C. consistent with management's plans which appear appropriate.
D. subjective or susceptible to material misstatement.
D
74
Which of the following is least likely to be an approach followed when auditing the fair values of assets and liabilities?
A. Review and test management's process of valuation.
B. Confirm valuation with audit committee members.
C. Independently develop an estimate of the value of the account.
D. Review subsequent events relating to the account.
B
75
Which of the following procedures would an auditor ordinarily perform first in evaluating management's accounting estimates for reasonableness?
A. Obtain an understanding of how management developed its estimates.
B. Develop independent expectations of management's estimates.
C. Consider the appropriateness of the key factors in developing the estimates.
D. Test the calculations used by management in developing the estimates.
A
76
Which of the following would an auditor generally perform to obtain assurance that accounting estimates are properly accounted for and disclosed?
A. Inquiry of management
B. Make an independent estimate for comparison with client's estimate
C. Review subsequent events
D. Obtain knowledge about the applicable financial reporting standards related to the accounting estimate
D
77
An auditor's working papers serve mainly to
A. Provide the principal support for the auditor's report.
B. Satisfy the auditor's responsibilities concerning the Code of Ethics.
C. Monitor the effectiveness of the CPA firm's quality control procedures.
D. Document the level of independence maintained by the auditor.
A
78
Under the requirements of PSA 230, audit documentation must contain sufficient information to allow what type of auditor to understand the nature, timing, extent, and results of procedures performed?
A. An experienced audit team member.
B. An experienced auditor having no previous connection with the engagement.
C. Any certified public accountant.
D. An auditor qualified as a peer review specialist.
B
79
Audit documentation may be recorded on paper or on electronic or other media. The following are examples of audit documentation, except
A. Audit programs
B. Letters of confirmation and representation
C. Correspondence (including e-mail) concerning significant matters
D. The entity's accounting records
D
80
The current file of the auditor's working papers generally should include
A. A flowchart of the internal controls
B. A copy of the financial statements
C. Organization charts
D. Copies of bond and note indentures
B
81
The permanent file portion of the auditor's working papers generally should include
A. A copy of the engagement letter.
B. A copy of key customer confirmation.
C. Names and addresses of audit staff personnel on the engagements.
D. Time and expense reports.
A
82
The following are ordinarily excluded from audit documentation:
1. Superseded drafts of working papers and financial statements
2. Notes that reflect incomplete or preliminary thinking
3. Previous copies of documents corrected for typographical or other errors
4. Duplicates of documents.
A. Yes, Yes, Yes , Yes
B. No, Yes, Yes, No
C. No, No, Yes, Yes
D. Yes, No, Yes, No
A
83
The completion of the assembly of the final audit file after the date of the auditor's report does not ordinarily involve
A. The performance of new audit procedures or the drawing of new conclusions.
B.Sorting, collating and cross-referencing working papers.
C. Deleting or discarding superseded documentation.
D. Signing off on completion checklists relating to the file assembly process.
A
84
The primary reason auditors cross-index their working papers is to
A. Give the working papers a professional appearance.
B. Explain the use of tick marks.
C. Provide an explanation of the audit steps performed.
D. Provide a trail for the auditor and the reviewer.
D
85
S1: Working papers are the property of the auditor.
S2: Although portions of or extracts from the working papers may be made available to the entity at the discretion of the auditor, they may be substitute for the entity's accounting records.
A. Only statement one is correct
B. Only statement two is correct
C. Both statements are correct
D. Both statements are incorrect
A
86
A major purpose of the auditor's report on financial statements is to
A. Assure investors of the complete accuracy of the financial statements.
B. Enhance the degree of confidence of intended users in the financial statements.
C. Deter creditors from extending loans in high-risk situations.
D. Describe the specific auditing procedures undertaken to gather evidence for the opinion.
B
86
To distinguish it from report that might be issued by others, such as by officers of the entity, the board of directors, or from the reports of other auditors who may not have to abide by the same ethical requirements as the independent auditor, the auditor's report should have an appropriate
A. Addresses
B. Title
C. Signature
D. Opinion
B
87
The auditor's report should be addressed
A. Only to the shareholders of the entity whose financial statements are being audited
B. Only to the board of directors of the entity whose financial statements are being audited
C. Either to the shareholders or the board of directors of the entity whose financial statement are being audited
D. Either to the shareholders or the board of directors, or both, of the entity whose statements are being audited
D
87
The first section of the auditor's report shall have the heading
A. Responsibilities for the Financial Statements.
B. Opinion.
C. Auditor's Responsibilities for the Audit of the Financial Statements.
D. Basis for Opinion.
B
88
Which of the following sections in the auditor's report shall be placed immediately after the Opinion section?
A. Management's Responsibilities for the Financial Statements.
B. Auditor's Responsibilities for the Audit of the Financial Statements.
C. Basis for Opinion.
D. Other Reporting Responsibilities.
C
89
The Basis for Opinion section of the auditor's report shall
A. State that the financial statements have been audited.
B. State that the objective of the auditor is to issue an auditor's report that includes the auditor's opinion.
C. Describe management's responsibility for preparing the financial statements in accordance with the applicable financial reporting framework.
D. State that the audit was conducted in accordance with Philippine Standards on Auditing (PSAS).
D
90
Which of the following management's responsibilities shall be described in the Responsibilities for the Financial Statements section the auditor's report?
A. Responsibility for preparing the financial statements in accordance with the applicable financial reporting framework.
B. Responsibility for obtaining reasonable assurance about whether the financial statements as a whole are free from material misstatement.
C. Responsibility to exercise professional judgment and maintain professional skepticism throughout the audit.
D. Responsibility to identify and assess the risks of material misstatement of the financial statements.
A
91
The description of the auditor's responsibilities for the audit of the financial statements shall be included
I. Within the body of the auditor's report.
II. Within an appendix to the auditor's report.
III. By a specific reference within the auditor's report to the location of such a description on
a website of an appropriate authority.
A. I only.
B. Il only.
C. I or I1 only.
D. I, II, or III
D
92
An auditor should disclose the substantive reasons for expressing an adverse opinion in the Basis for Adverse Opinion section
A. Following the opinion section.
B. Preceding the opinion section.
C. Following the Auditor's Responsibility section.
D. Within the notes to the financial statements.
A
93
What is the appropriate opinion to express when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework?
A. Unmodified opinion.
B. Qualified opinion.
C. Adverse opinion.
D. Disclaimer of opinion.
A
94
PSA 705 (Revised), Modification to the Opinion in the Independent Auditor's Report, prohibits the auditor from communicating key audit matters when the auditor expresses a/an
A. Unmodified opinion.
B. Qualified opinion.
C. Adverse Opinion
D. Disclaimer of opinion.
D
95
The following statements relate to the date of the auditor's report. Which is false?
A. The auditor should date the report as of the completion date of the audit.
B. The date of the auditor's report should not be earlier than the date on which the financial statements are signed or approved by management.
C. The date of the auditor's report should not be later than the date on which the financial statements are signed or approved by management.
D. The date of the auditor's report should always be later than the date of the financial statements (i.e., the balance sheet date).
C
96
An independent auditor discovers that a payroll supervisor of the company being audited has misappropriated P50,000. The company's total assets and income before tax are P70 million and P15 million, respectively. Assuming no other issues affect the report, the auditor's report will most likely contain a/an (immaterial)
A. Unmodified opinion
B. Disclaimer of opinion
C. Adverse opinion
D. Scope qualification
A
97
A note to the financial statements of the Prudent Bank indicates that all of the records relating to the bank's business operations are stored on magnetic disks, and that no emergency backup systems or duplicate disks are stored because the bank and its auditors consider the occurrence of a catastrophe to be remote. Based upon this note, the auditor's report should express
A. A qualified opinion
B. An unmodified opinion
C. An adverse opinion
D. A "subject to" opinion
B
98
Which of the following terms is used in the standard to describe the effects on the financial statements of misstatements or the possible effects on the financial statements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence?
A. Persuasive
B. Pervasive
C. Material
D. Extensive
B
99
A limitation on the scope of the audit may arise from
I. Circumstances beyond the control of the entity.
II. Circumstances relating to the nature and timing of the auditor's work.
III. Limitations imposed by management.
A. I and II only
C. I and III only
B. II and III only
D. I, II, and III
D
100
An auditor may express a qualified opinion under which of the following circumstances?
Lack of sufficient appropriate evidence I Restriction on the scope of the audit.
A. NO, NO
B. NO, YES
C. YES, NO
D. YES, YES
D
101
Which of the following should be included in the Qualified Opinion section when an auditor expresses a qualified opinion?
When read in conjunction with Note X I With the foregoing explanation
A. Yes, No
B. No, Yes
C. No, No
D. Yes, YeS
C
102
In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?
A. The auditor wishes to emphasize an unusually important subsequent event.
B. The financial statements fail to disclose information that is required by Philippine Financial
Reporting Standards.
C. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.
D. The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures.
B
103
Which of the following phrases would an auditor most likely include in the auditor's report when expressing a qualified opinion because of inadequate disclosure?
A. Do not present fairly in all material respects.
B. Except for the omission of the information included in the Basis for Qualified Opinion paragraph.
C. With the foregoing explanation of these omitted procedures.
D. Subject to the departure from generally accepted accounting principles, as described above.
B
104
Which of the following best describes key audit matters (KAM):
I. Those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current period.
II. Selected from matters communicated with those charged with governance.
III. A substitute for disclosure, expressing a modified opinion, material uncertainty reporting
requirements (PSA 570) and includes a separate opinion for the KAM
A. I only
B. Il only
C. Both I and Il
D. I, Il, and Ill
C
105
Which of the following statements concerning communication of key audit matters in the auditor's report is incorrect?
A. Communicating key audit matters in the auditor's report enhances the communicative value of the auditor's report by providing greater transparency about the audit that was performed.
Communicating key audit matters provides additional information to intended users of the financial statements to assist them in understanding those matters that, in the auditor's professional judgment, were of most significance in the audit of the financial statements of the current and prior period/s.
C. Communicating key audit matters may assist intended users in understanding the entity and areas of significant management judgment in the audited financial statements.
D. The auditor's determination of key audit matters is limited to those matters of most significance in the audit of the financial statements of the current period, even when comparative financial statements are presented.
B
106
Communicating key audit matters in the auditor's report is
1. A substitute for disclosures in the financial statements.
2. A substitute for the auditor's expression of a modified opinion
3. A substitute for reporting in accordance with PSA 570 (Revised) when a material uncertainty exists relating to the entity's ability to continue as a going concern.
4. A separate opinion on individual matters.
A. YES, YES, NO, YES
B. YES, NO, YES, YES
C. NO, NO, YES, NO
D. NO, NO, NO, NO
D
107
When audited financial statements are presented in a document (e.g., annual report) containing other information, the auditor
A. Should read the other information to consider whether it is inconsistent with the audited financial statements.
B. Has no responsibility for the other information because it is not part of the basic financial statements.
C. Has an obligation to perform auditing procedures to corroborate the other information.
D. Is required to express a qualified opinion if the other information has a material misstatement of fact.
A
108
PSA 720 states, "If, on reading the other information, the auditor identifies a material inconsistency, the auditor should determine whether the audited financial statement or the other information needs to be amended". What type of opinion should be expressed if the client refuses to make the necessary amendment in the financial statements?
A. Disclaimer of opinion
B. Qualified opinion or disclaimer of opinion
C. Unqualified opinion with an emphasis of matter paragraph describing the material inconsistency
D. Qualified or adverse opinion
D
109
There are two broad financial reporting frameworks for comparatives: the corresponding figures and the comparative financial statements. Which of the following statements is correct concerning these reporting frameworks?
A. Under the corresponding figures framework, the corresponding figures for the prior period(s) are integral part of the current period financial statements.
B. Under the corresponding figures framework, the corresponding figures for the prior periods) are considered separate financial statements.
C. Under the comparative financial statements framework, the comparative financial statements for the prior period(s) are intended to be read in conjunction with the amounts and other disclosures relating to the current period.
D. Under the comparative financial statements framework, the amounts and other disclosures for the prior periods) form part of the current period financial statements.
A
110
The following statements relate to the auditor's reporting responsibilities regarding comparatives. Which is incorrect?
I. For corresponding figures, the auditor's report only refers to the financial statements of the current period.
II. For comparative financial statements, the auditor's report refers to each period that
financial statements are presented.
A. I only
B. Il only
C. Both I and II
D. Neither I nor Il
D
111
According to PSA 710, the incoming auditor may refer to the predecessor auditor's report on the corresponding figures in the incoming auditor's report for the current period. The incoming auditor's report should indicate
I. That the financial statements of the prior period were audited by another auditor.
II. The type of report issued by the predecessor auditor.
III. The date of the predecessor auditor's report.
A. I and II only.
B. II and Ill only.
C. I and Ill only.
D. I, II, and III
D
112
J, CPA, audited JST Company's prior-year financial statements. These statements are presented with those of the current year for comparative purposes without J's auditor's report, which expressed a qualified opinion. In drafting the current year's auditor's report, S, CPA, the incoming auditor, should
I. Not name J as the predecessor auditor.
II. Indicate the type of report issued by ].
III. Indicate the substantive reasons for J's qualification.
IV. Indicate the date of J's auditor's report.
A. I, II, and IV only.
B. II, III, and IV only.
C.I, II, and Ill only.
D. I, II, II, and IV.
D
113
The predecessor auditor, who is satisfied after properly communicating with the incoming auditor, has reissued his/her auditor's report on prior year financial statements. The predecessor auditor's report should
A. Refer to the work of the incoming auditor in the scope and opinion paragraphs
B. Refers to the report of the incoming auditor only in the scope paragraphs
C. Refer to both the work and the report of the incoming auditor only in the opinion paragraph
D. Not refer to the report or the work of the incoming auditor
D
114
Financial statements prepared in accordance with a financial reporting framework designed to meet the financial information needs of specific users are referred to as
A. Special purpose financial statements
C. General purpose financial statements
B. Special purpose framework
D. Specific purpose financial statements
A
115
An auditor's report on financial statements prepared in accordance with the financial reporting provisions of a contract (that is, a special purpose framework) to comply with the provisions of that contract should include all of the following, except
A. An opinion as to whether the financial statements are presented fairly, in all material respects, in accordance with the financial reporting provisions of the contract.
B. A statement that indicates the basis of accounting used.
C. An opinion as to whether the basis of accounting used is appropriate under the circumstances.
D. Reference to the note to the financial statements that describes the basis of presentation.
C
116
A CPA is permitted to accept a separate engagement (not in conjunction with an audit of financial statements) to audit an entity's
Schedule of A/R I Schedule of Profit Participation
A. YES, NO
B. NO, YES
C. YES, YES
D. YES, NO
C
117
An auditor may express an opinion on an entity's accounts receivable balance even if the auditor has disclaimed an opinion on the financial statements taken as a whole provided the
A. Report on the accounts receivable is presented separately from the disclaimer of opinion on the financial statements.
B. Auditor also reports on the current asset portion of the entity's statement of financial position.
C. Use of the report on the accounts receivable is restricted.
D. Report on the accounts receivable discloses the reason for the disclaimer of opinion on the financial statements.
A
118
In the auditor's report on summary financial statements that are derived from an entity's audited financial statements, a CPA should indicate that the
A. CPA has audited and expressed an opinion on the complete financial statements.
B. CPA expresses limited assurance that the financial statements are presented in accordance with PFRS.
C. Summary financial statements are not fairly presented in all material respects.
D. Summary financial statements are prepared in accordance with special purpose financial reporting framework
A
119
The following are special purpose audit engagements, except:
A. Compilation of financial statements.
B. Audits involving statements prepared in accordance with a comprehensive basis of accounting other than generally accepted accounting principles in the Philippines.
C. Audits of specified accounts, elements of accounts, or items in a financial statement.
D. Audits of compliance with contractual agreements.
A
120
Other comprehensive financial reporting frameworks may include the following, except:
A. The Philippine Financial Reporting Framework
B. That used by an entity to prepare its income tax return
C. The cash receipts and disbursements basis of accounting
D. The financial reporting provisions of a government regulatory agency
A
121
RIEL Company prepared its financial statements on an accounting basis prescribed by a government agency solely for filing with that agency. The practitioner believes that the financial statements are not presented fairly in conformity with the prescribed basis. The practitioner should issue a(n)
A. Unqualified report
B. Standard audit report
C. Disclaimer of opinion
D. Adverse opinion
D
122
Audits of components of financial statements:
A. Must be undertaken as a separate, stand-alone engagement.
B. Must be performed in conjunction with an audit of the entity's financial statements.
C. May be undertaken as a separate engagement or in conjunction with an audit of the entity's financial statements.
D. Are not allowed since it is tantamount to expressing a piecemeal opinion on the accounts subjected to the audit.
C
123
The following statements relates to audit of specific components of financial statements. Which is incorrect?
A. This type of engagement may be undertaken as a separate engagement or in conjunction with an audit of the entity's financial statements.
B. The auditor needs to consider financial statement items that are interrelated and which could materially affect the information on which the audit opinion is to be expressed.
C. The auditor's examination will ordinarily be less extensive than if the same component were to be audited in connection with a report on the entire financial statements. (no rutrictim
D. When an adverse opinion or disclaimer of opinion on the entire financial statements has been expressed, the auditor may report on components of the financial statements only if those components are not so extensive as to constitute a major portion of the financial statements.
C
124
Republic Act 9298 is known as the
A. Revised Accountancy Law.
B. Code of Ethics for Professional Accountants.
C. Philippine Accountancy Act of 2004.
D. Philippine Accountancy Law of 2004.
C
125
Which of the following is not an objective of the Philippine Accountancy Act of 2004?
A. The standardization and regulation of accounting education.
B. The examination for registration of certified public accountants.
C. The supervision, control, and regulation of the practice of accountancy in the Philippines.
D. The development and improvement of accounting standards that will be generally accepted
D
126
The practice of Accountancy includes
I. Practice of Public Accountancy
II. Practice in Commerce and Industry III. Practice in Education/Academe
IV. Practice in the Government
A. I, II, and IV only
B. II, III, and IV only
C. I, II, and III only
D. I, II, III, and IV
D
127
A CPA is in public accounting practice when he/she
A. Represents his/her employer before government agencies on tax and other matters related to accounting.
B. Represents his/her clients before government agencies on tax and other matters related to accounting.
C. Teaches accounting, auditing, management advisory services, accounting aspect of finance, business law, taxation, and other technically related subjects.
D. Holds, or is appointed to a position, in an accounting professional group in government or in a government-owned and/or controlled corporation where decision making requires professional knowledge in the science of accounting.
B
128
Section 4 of the Rules and Regulations Implementing RA 9298 (IRR) provides that 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 should be occupied by a duly registered CPA. It provides further that
A. The business or company where such position exists has a paid-up capital of at least
P5,000,000 and/or annual revenue of at least P10,000,000.
B. The business or company where such position exists has a paid-up capital of at least
P10,000,000 and/or annual revenue of at least P5,000,000.
C. The section applies to all incumbents to the position.
D. The section applies only to persons to be employed after the effectivity of the Code of Ethics for Professional Accountants in the Philippines.
A
129
Section 5 of the Accountancy Act of 2004 states that the Board of Accountancy shall be composed of a Chairman and
A. 2 members
B. 6 members
C. 7 members
D. 8 members
B
130
The members of the Professional Regulatory Board of Accountancy shall be appointed by the
A. Philippine Institute of CPAs (PICPA).
B. Professional Regulation Commission (PRC).
C. President of the Philippines
D. Association of CPAs in Public Practice (ACPAPP).
C
131
Who has the power to suspend or remove any member of the Board of Accountancy?
A. The Chairman of the FRSC
B. The Chairman of the PRC
C. The Chairman of the AASC
D. The President of the Philippines
D
132
The following statements relate to the submission of nominations to the Board of Accountancy. Which is correct?
A. The Accredited National Professional Organization of CPAs (APO) shall submit its nominations to the president of the Philippines not later than sixty (60) days prior to the expiry of the term of an incumbent chairman or member.
B. The APO shall submit its nominations to the PRC not later than thirty (30) days prior to the expiry of the term of an incumbent chairman or member.
C. If the APO fails to submit its own nominee(s) to the PRC within the required period, the PRC in consultation with the Board of Accountancy shall submit to the president of the Philippines a list of five (5) nominees for each position.
D. There should be adequate documentation to show the qualifications and primary field of professional activity of each nominee.
D
133
The following statements relate to the qualifications of a member of the Board of Accountancy.
Which is incorrect?
A. He/she must be of good moral character
and must not have been convicted of crimes
involving moral turpitude.
B. He/she must be a duly registered CPA with at least ten (10) years of work experience in the practice of public accounting.
C. He/she must be a natural-born citizen and a resident of the Philippines.
D. He/she must not be a director or officer of the APO at the time of his/her appointment.
B
134
The following statements relate to the term of office of the chairman and members of the Board of Accountancy (BOA). Which is false?
A. The Chairman and members of the BOA shall hold office for a term of three (3) years.
B. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the term only.
C. No person who has served two successive complete terms as Chairman or member shall be eligible for reappointment until the lapse of two (2) vears. Cycar
D. Appointment to fill up an unexpired term is not to be considered as a complete term.
C
135
Which of the following is a function of the Board of Accountancy?
I. To prescribe and adopt the rules and regulations necessary for carrying out the provisions of the Philippine Accountancy Act of 2004.
II. To supervise the regulation, licensure, and practice of accountancy in the Philippines.
To issue, suspend, revoke, or reinstate the certificate of registration for the practice of the accountancy profession.
A. I and II only
B. Il and III only
C. I and Ill only
D. I, I, and III
D
136
The Board of Accountancy has the power to conduct an oversight into the quality of audits of financial statements through a review of the quality control measures instituted by auditors in order to ensure compliance with the accounting and auditing standards and practices. This power of the BOA is called
A. Quality assurance review
B. Peer review
C. Appraisal
D. Quality control
A
137
The Board of Accountancy shall submit to the PRC the ratings obtained by each candidate within
_ days after the examination, unless extended for just cause.
A. 10
B. 5
С. 3
D. 2
A
138
Which of the following shall be issued to examinees who pass the CPA licensure examination?
A. Certificate of registration only.
B. Professional identification card only.
C. Certificate of registration and professional identification card.
D. Certificate of participation and professional identification card.
C
139
Which of the following statements concerning the issuance of Certificates of Registration and Professional Identification Cards to successful examinees is correct?
A. The Certificate of Registration issued to successful examinees is renewable every three
B. The Professional Identification Card issued to successful examinees shall remain in full force and effect until withdrawn, suspended or revoked in accordance with RA 9298.
C. The BOA shall not register and issue a Certificate of Registration and Professional Identification Card to any successful examinee of unsound mind.
D. The BOA may, after the expiration of three (3) years from the date of revocation of a Certificate of Registration, reinstate the validity of a revoked Certificate of Registration.
C
140
Acceptance of CPD undertaking for the renewal of PRC ID is extended until
A. December 31, 2026.
B. December 31, 2027.
C. June 30, 2027.
D. June 30, 2026
D
141
Which of the following statements concerning ownership of working papers is incorrect?
A. All working papers made by a CPA and his/her staff in the course of an examination remain the property of such CPA in the absence of a written agreement between the CPA and the client to the contrary.
B. Working papers include schedules and memoranda prepared and submitted by the client
C. Working papers include reports submitted by a CPA to his/her client.
D. Working papers shall be treated confidential and privileged unless such documents are required to be produced through subpoena issued by any court, tribunal, or government regulatory or administrative body.
C
142
Any person who shall violate any of the provisions of the Accountancy Act or any of its implementing rules and regulations promulgated by the Board of Accountancy subject to the approval of the PRC, shall, upon conviction, be punished by
A. A fine of not more than P50,000.
B. Imprisonment for a period not exceeding two years.
C. A fine of not less than P50,000 or by imprisonment for a period not exceeding two years or both.
D. Lethal injection.
C
143
The Board of Accountancy may reinstate the validity of a revoked Certificate of Registration after the expiration of how many years from the date of revocation?
A. 5
B. 3
C. 2
D. 1
C
144
All registered CPAs shall obtain and use a seal which shall be circular in form with a smaller circle within bearing the registrant's name, registration number and title. Which of the following is correct?
A. Engraved in the lower portion of the space between the circles is the CPA's name.
B. Engraved in the middle of the smaller circle are the letters "CPA"
C. Engraved in the middle of the smaller circle are the CPA's name and registration number.
D. Engraved in the middle of the smaller circle is the CPA's name.
B
145
Which of the following statements concerning the use of firm or partnership name is incorrect?
A. In the case of an individual CPA, he/she shall do business under his/her registered name
Puruntong, CPA).
with the BOA and the PRC and as printed in his/her CPA certificate (for example, Juan
B. In the case of a firm, it shall do business under its duly registered and authorized firm name appearing in the registration documents issued by the Department of Trade and Industry (DTI) and other government offices and such firm name shall include the real name of the sole proprietor as printed in his/her CPA certificate (for example, Arnulfo Gumamela and Associates).
C. In the case of a registered partnership, it shall do business under its name as indicated in its current Articles of Partnership and Certificate of Registration issued by the Securities and Exchange Commission (SEC) (for example, Tanya, 5am, and Jervi, CPAs).
D. A CPA shall practice only under an individual, firm, or partnership name in accordance with Philippine laws and shall not include any fictitious name but may indicate specialization.
D
146
A partner surviving the death or withdrawal of all the other partners in a partnership may continue to practice under the partnership name for a period of not more than _ after becoming a sole proprietor.
_ years
A. 4
В. 3
C. 2
D. 1
C
147
The death or disability of an individual CPA and/or the dissolution and liquidation of a firm or partnership of CPAs shall be reported to the BOA not later than _ days from the date of such death, dissolution or liquidation.
A. 90
B. 60
C. 30
D. 15
C
148
Which of the following statements concerning a CPA's disclosure of confidential client information is ordinarily correct?
A. Disclosure may be made to any party on consent of the client.
B. Disclosure should not be made even if such disclosure will protect the CPA's professional interests in legal proceedings.
C. Disclosure should be made only if there is a legal or professional duty to make the disclosure.
D. Disclosure may be made to any government agency without subpoena.
A
149
Listed below are names of four CPA firms and pertinent facts relative to each firm. Unless otherwise indicated, the individuals named are CPAs and partners, and there are no other partners. Which is a violation of the Implementing Rules and Regulations of RA 9298?
A. Tin, Ton and Tan, CPAs (Tin died about five years ago; Ton and Tan are continuing the firm.)
B. Pol and Bon, CPAs (The name of Cua, a third partner, is omitted from the partnership name.)
2 Uran any parint .
C. Joni and Jona, CPAs (Joni died about three years ago: Jona is continuing the firm as a sole proprietor.)
D. Elias and Co., CPAs (The firm has ten other partners who are all CPAs).
C
150
The following statements relate to some of the provisions of RA 9298. Which is correct?
A. Audit working papers are generally the property of the company whose financial statements were audited.
B. After three (3) years, subject to certain conditions, the Board of Accountancy may order the reinstatement of a CPA whose certificate of registration has been revoked.
C. The penal provision (Sec. 36) of RA 9298 applies orly to the violation of any of the provisions of RA 9298 because its Implementing Rules and Regulations are unenforceable.
D. It shall be the primary duty of the PRC and the BOA to effectively enforce the provisions of RA 9298.
D
151
Audit sampling involves the
A. Selection of all items over a certain amount.
B. Application of audit procedures to less than 100% of items within a class of transactions or an account balance such that all items have a chance of selection.
C. Application of audit procedures to all items that comprise a class of transactions or an account balance.
D. Application of audit procedures to all items over a certain amount and those that are unusual or have a history of error.
B
152
Population, as defined in PSA 530, means the entire set of data from which a sampie is selected and about which the auditor wishes to draw conclusions. It is important for the auditor to ensure that the population is
I. Appropriate to the objective of the audit procedure.
II. Complete.
A. I only
B. II only
C. Both I and II
D. Neither I nor Il
C
153
An advantage of statistical over nonstatistical sampling methods in tests of controls is that: the statistical methods
A. Afford greater assurance than a nonstatistical sample of equal size.
B. Provide an objective basis for quantitatively evaluating sampling risks.
C. Can more easily convert the sample into a dual-purpose test useful for substantive testing.
D. Eliminate the need to use judgment in determining appropriate sample sizes.
B
154
The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the
A. Effectiveness of the audit.
B. Efficiency of the audit.
C. Preliminary estimates of materiality levels.
D. Tolerable misstatement.
A
155
The likelihood of assessing control risk too high is the risk that the sample selected to test
A. Does not support the auditor's planned assessed level of control risk when the true operating effectiveness of internal control justifies such an assessment.
B. Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances of transactions classes.
C. Contains proportionately fewer deviations from prescribed internal controls than exist in the balance or class as a whole.
D. Does not support the tolerable misstatement for some or all of management's assertions.
A
156
While performing a 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
B. Incorrect acceptance
C. Assessing control risk too low
D. Assessing control risk too high
A
157
Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account?
Expected Error I Tolerable Error
a. No, No
b. Yes, Yes
c. No, Yes
d. Yes, NoB
158
An underlying feature of random-based selection of items is that each
A. Stratum of the accounting population be given equal representation in the sample.
B. Item in the accounting population be randomly ordered.
C. Item in the accounting population should have an opportunity to be selected.
D. Item must be systematically selected using replacement.
C
159
Which of the following best illustrates the concept of 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 may fail to recognize errors in the documents examined for the chosen sample.
D. The documents related to the chosen sample may not be available for inspection.
A
160
Which of the following statistical selection techniques is least desirable for use by an auditor?
A. Systematic selection
B. Stratified selection
C. Block selection
D. Sequential selection
C
161
The expected population deviation rate of client billing errors is 3%.
The auditor has established a tolerable rate of 5%. In the review of client invoices the auditor should use
A. Stratified sampling
B. Variable sampling
C. Discovery sampling
D. Attribute sampling
D
162
Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a peso value?
A. Attributes sampling
B. Stop-or-go sampling
C. Variables sampling
D. Random-number sampling
C
163
Which of the following statements is correct concerning statistical sampling in tests of controls?
A. Deviations from control procedures at a given rate usually result in misstatements at a higher rate.
B. As the population size doubles, the sample size should also double.
C. The qualitative aspects of deviations are not considered by the auditor.
D. There is an inverse relationship between the sample size and the tolerable rate.
D
164
Which of the following statistical sampling plans does not use a fixed sample size for tests
A. Attributes sampling
B. Sequential sampling
C. PPS sampling
D. Variables sampling
B
165
If certain forms are not consecutively numbered
A. Selection of a random sample probably is not possible.
B. Systematic sampling may be appropriate.
C. Stratified sampling should be used.
D. Random number tables cannot be used.
B
166
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.
D
167
In testing accounts receivable, an auditor sends out positive confirmation requests to 100 randomly selected customers. A customer returns the confirmation indicating that the balance is correct when, in fact, the balance is overstated. This is an example of:
A. Projected misstatement
B. Sampling error
C. Standard error
D. Nonsampling error
D
168
An auditor is testing internal control procedures that are evidenced on an entity's vouchers by matching random numbers with voucher numbers. If a random number matches the number of a voided voucher, that voucher ordinarily should be replaced by another voucher in the random sample if the voucher
A. Constitutes a deviation.
B. Has been properly voided.
C. Cannot be located.
D. Represents an immaterial peso amount.
B
169
n auditor plans to examine a sample of 20 purchase orders for proper approvals as prescribed by the client's internal control procedures. One of the purchase orders in the chosen sample cannot be found, and the auditor is unable to use alternative procedures to test whether that purchase was properly approved. The auditor should
A. Choose another purchase order to replace the missing purchase order in the sample.
B. Consider this test of control invalid and proceed with substantive tests since internal control cannot be relied upon.
C. Treat the missing purchase order as a deviation for the purpose of evaluating the sample.
D. Select a completely new set of 20 purchase orders.
C
170
The tolerable rate of deviations for a test of a control is generally
A. Lower than the expected rate of errors in the related accounting records.
B. Higher than the expected rate of errors in the related accounting records.
C. Identical to the expected rate of errors in the related accounting records.
D. Unrelated to the expected rate of errors in the related accounting records.
B
171
Which of the following is a sampling risk that is associated with the efficiency of an audit?
A. Risk of assessing control risk too high.
B. Risk of incorrect acceptance.
C. Inherent risk.
D. Detection risk.
A
172
If the auditor is concerned that a population may contain exceptions, the determination of a sample size sufficient to include at least one such exception is a characteristic of
A. Discovery sampling
B. Variables sampling
C. Random sampling
D. PPS sampling
A
173
An auditor discovers that an account balance believed not to be materially misstated based on an audit sample was materially misstated based on the total population of the account balance. This is an example of which of the following types of sampling risks?
A. Incorrect rejection.
B. Incorrect acceptance.
C. Assessing control risk too low.
D. Assessing control risk too high.
B
174
Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements?
A. Set the tolerable rate of deviation at a lower level than originally planned.
B. Stratify the cash disbursements population so that the unusually large disbursements are selected.
C. Increase the sample size to reduce the effect of the unusually large disbursements.
D. Continue to draw new samples until all the unusually large disbursements appear in the sample.
B
175
While performing a test of details during an audit, an 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. Assessing control risk too high
B. Assessing control risk too low
C. Incorrect rejection
D. Incorrect acceptance
C
176
For which of the following audit tests would an auditor most likely use attribute sampling?
A. Making an independent estimate of the amount of FIFO inventory.
B. Examining invoices in support of the valuation of fixed asset additions.
C. Selecting accounts receivable for confirmation of account balances.
D. Inspecting employee time cards for proper approval by supervisors.
D
177
An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1% risk of assessing control risk too low (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2 ½% of the sales invoices lacked approval. A sampie of 200 invoices was examined and seven of them were lacking approval. The auditor then determined the achieved upper precision limit to be 8%.
In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the
A. Tolerable rate (7%) was less than the achieved upper precision limit (8%).
B. Expected deviation rate (7%) was more than the percentage of errors in the sample (3 1/2)
C. Achieved upper precision limit (8%) was more than the percentage of errors in the sample (3 ½%).
D. Expected deviation rate (2 ½%) was less than the tolerable rate (7%).
The allowance for sampling risk was
A. 5 1/2
B. 4 1/2 %
C. 3 ½%
D. 1%.
A & B
178
In addition to evaluating the frequency of deviations in tests of controls, an auditor should also consider certain qualitative aspects of the deviations. The auditor most likely would give broader consideration to the implications of a deviation if it was
A. The only deviation discovered in the sample.
B. Identical to a deviation discovered during the prior year's audit.
C. Caused by an employee's misunderstanding of instructions.
D. Initially concealed by a forged document.
D
179
When the auditor goes through a population and selects items for the sample without regard to their size, source, or other distinguishing characteristics, it is called
A. Block selection
B. Systematic selection
C. Haphazard selection
D. Random selection
C
180
When an auditor has chosen a random sample and is using nonstatistical attributes sampling, that auditor
A. Need not consider the risk of assessing control risk too low.
B. Has committed a nonsampling error.
C. Will have to use discovery sampling to evaluate the results.
D. Should compare the deviation rate of the sample to the tolerable deviation rate.
D
181
An error that arises from an isolated event that has not recurred other than on specificaly identifiable occasions and is therefore not representative of similar errors in the population
A. Anomalous error
B. Isolated error
C. Individual error
D. Non-recurring error
A
182
If all other factors specified in an attributes sampling plan remain constant, decreasing the tolerable rate and decreasing the risk of assessing control risk too low would have what effect on sample size?
A. Increase.
B. Remain the same.
C. Decrease.
D. Indeterminate, depends upon exact change being made.
A
183
Which of the following statements is correct about the sample size in statistical sampling when testing internal controls?
A. The auditor should consider the tolerable rate of deviation from the controls being tested in determining sample size.
B. As the likely rate of deviation decreases, the auditor should increase the planned sample size.
C. The allowable risk of assessing control risk too low has no effect on the planned sample size.
D. Of all the factors to be considered, the population size has the greatest effect on the sample size.
A
AUDITING
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