Comprehensive Reviewer Set 1 [REDSIRUG]

Question 1

An independent financial statement audit is important to financial statements users because it:

a. Objectively examines and reports on special-purpose financial statements.
b. It reduces cost of capital
c. Objectively examines and reports on general-purpose financial statements.
d. Objectively reports on the accuracy of information in the financial statements.

Answer 1

C

Question 2

In relation to auditing, which of the following is a correct phrase?

a. Auditing communicates results to management.
b. Auditing involves obtaining evidence regarding action and events.
c. Auditing evaluates assertions regarding evidence.
d. Auditing subjectively obtains and evaluates evidence.

Answer 2

B

Question 3

Which of the following is not an output of an independent audit engagement?
a. Management letter.
b. Audit report.
c. Engagement letter.
d. Audited financial statements.

Answer 3

C

Question 4

The best description of the auditor’s responsibility with respect to audited financial statement is:

a. The auditor’s responsibility on fair presentation of financial statements is limited only up to
the date of the audit report.
b. The auditor is responsible for detecting misstatements on the financial statements.
c. The responsibility over the financial statements rests with the management.
d. The auditor’s responsibility is limited to the expression of opinion on the financial
statements.

Answer 4

D

Question 5

When a CPA expresses an opinion on the financial statements, his responsibilities extend to

a. The underlying wisdom of the client’s management decision.
b. Active participation in the implementation of the advice given to the client.
c. An ongoing responsibility for the client’s solvency.
d. Whether the results of the client’s operating decisions are fairly presented in the financial statements.

Answer 5

D

Question 6

The accuracy of information 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

a. The stock exchange officials.
b. The company’s management.
c. The independent auditor.
d. The Securities and Exchange Commission.

Answer 6

B

Question 7

The responsibility for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the financial statements rests

a. With management
b. With the independent auditor
c. Equally with management and the auditor
d. With the internal audit department.

Answer 7

A

Question 8

Audit standards require an auditor to:
a. Perform procedures that are designed to detect all instances of fraud.
b. Provide reasonable assurance that the financial statements are not materially misstated.
c. Issue an unqualified opinion only when the auditor is satisfied that no instances of fraud have occurred.
d. Design the audit program to meet financial statement users’ expectations concerning fraud.

Answer 8

B

Question 9

Generally, the decision to notify parties outside the client’s organization regarding an illegal act is the responsibility of the

a. Outside legal counsel.
b. Independent auditor.
c. Management.
d. Internal auditors

Answer 9

C

Question 10

If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is

a. Independent because the financial interest is immaterial and, therefore, may issue a review report.
b. Not independent and, therefore, may not issue a review report.
c. Not independent and, therefore, may not be associated with the financial statements.
d. Not independent and, therefore, may issue a review report, but may not issue an auditor’s opinion.

Answer 10

B

Direct financial interest will impair an covered member from independence regardless of its materiality.

Question 11

Solicitation consists of the various means that CPA firms use to engage new clients. Which one-of the following would not be an example of solicitation?

a. Advertisements in the yellow pages of a phone book.
b. Accepting new clients that approach the firm.
c. Taking prospective clients to lunch.
d. Offering seminars on current tax law changes to potential clients.

Answer 11

B

Question 12

Which of the following activities is not prohibited for the CPA firm’s attestation service clients?

a. Referral fees on audit jobs.
b. Competitive bidding on audit jobs.
c. Contingent fees on audit jobs.
d. Commissions for obtaining client services on audit jobs.

Answer 12

B

Question 13

Family and personal relationships between a member of the assurance team and a director, an officer or certain employees, depending on their role, of the assurance client, least likely create

a. Self-review threat.
b. Self-interest threat.
c. Intimidation threat.
d. Familiarity threat

Answer 13

A

Question 14

A director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement has been a member of the assurance team or partner of the firm. This situation least likely create

a. Self-interest threat.
b. Advocacy threat.
c. Intimidation threat.
d. Familiarity threat.

Answer 14

B

Question 15

A former officer, director or employee of the assurance client serves as a member of the assurance team. This situation will least likely create

a. Self-interest threat.
b. Self-review threat.
c. Familiarity threat.
d. Intimidation threat

Answer 15

D

Question 16

Which of the following will least likely impair independence?

a. A partner or employee of the firm serves as an officer or as a director on the board of an assurance client.
b. An immediate family member of a member of the assurance team is a director, an officer or an
employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement.
c. A partner or employee of the firm or a network firm serves as Company Secretary for an audit client, the duties and functions undertaken are limited to those of a routine and
formal administrative nature as such as the preparation of minutes and maintenance of
statutory returns.
d. A member of the assurance team participates in the assurance engagement while knowing, or having reason to believe, that he or she is to, or may, join the assurance client some time in the future.

Answer 16

C

Question 17

When a CPA firm is requested to provide a written or oral opinion on the application of accounting principles or the type of audit opinion that would be issued for a specific or hypothetical transaction relating to an audit client of another CPA firm, primary among the requirements set forth is that

a. Client is entitled to confidentiality, so the consulting CPA firm is forbidden from communicating with
the CPA firm which does the audit.
b. Client is not entitled to confidentiality under these circumstances, so the existing auditors should share all information with the consulting CPA firm.
c. The consulted CPA firm should communicate with the entity’s existing auditors to
ascertain all the available facts relevant to forming a professional judgment on the matters the firm has been requested to report on.
d. Client is entitled to confidentiality, so the CPA firm which does audit should refuse to share any information with the consulting CPA firm under any circumstances.

Answer 17

C

Question 18

A professional accountant has a professional duty or right to disclose confidential information in each of the following, except:

a. To disclose to BIR fraudulent scheme committed by the client on payment of income tax.
b. To comply with technical standards and ethics requirements.
c. To comply with the quality review of a member body or professional body
d. To respond to an inquiry or investigation by a member body or regulatory body.

Answer 18

A

Question 19

Which of the following is not likely a threat to independence?

a. Acting as an advocate on behalf of an assurance client in litigation or in resolving disputes with third parties.
b. Long association of a senior member of the assurance team with the assurance client.
c. Threat of replacement over a disagreement with the application of an accounting principle.
d. Owning immaterial indirect financial interest in an audit client.

Answer 19

D

Question 20

When threats to independence that are not clearly insignificant are identified, the following are appropriate, except:

a. When the firm decides to accept or continue the assurance engagement, the decision need
not be documented provided the threats identified were eliminated.
b. Professional judgment is used to determine the appropriate safeguards to eliminate threats to independence or to reduce them to an acceptable level.
c. In situations when no safeguards are available to reduce the threat to an acceptable level, the only possible actions are to eliminate the activities or interest creating the threat, or to refuse to accept or
continue the assurance engagement.
d. The evaluation of the significance of any threats to independence and the safeguards necessary to reduce any threats to an acceptable level, takes into account the public interest

Answer 20

A

Question 21

The following loans and guarantees would not create a threat to independence, except:

a. A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to the firm, provided the loan is made under normal lending procedures, terms and requirements and the loan is immaterial to both the firm and the assurance client.
b. A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to a member of the assurance team or their immediate family, provided the loan is made under normal lending procedures, terms and requirements.
c. If the firm, or a member of the assurance team, makes a loan to an assurance client that
is not a bank or similar institution, or guarantees such an assurance client’s borrowing.
d. Deposits made by, or brokerage accounts of, a firm or a member of the assurance team with an
assurance client that is a bank, broker or similar institution, provided the deposit or account is held under normal commercial terms

Answer 21

C

Question 22

Examples of circumstances that may create self-interest threat include:

a. Contingent fees relating to assurance engagements.
b. A direct financial interest or material indirect financial interest in an assurance client.
c. A loan or guarantee to or from an assurance client or any of its directors or officers.
d. All of the above

Answer 22

D

Question 23

Examples of circumstances that may create self-review threat least likely include

a. Potential employment with an assurance client.
b. Preparation of original data used to generate financial statements or preparation of other records that are the subject matter of the assurance engagement.
c. A member of the assurance team being, or having recently been, an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement.
d. Performing services for an assurance client that directly affect the subject matter of the assurance engagement.

Answer 23

A

Question 24

A CPA-lawyer, acting as a legal counsel to one of his audit client, is an example of

a. Advocacy threat
b. Familiarity threat
c. Self-interest threat
d. Self-review threat

Answer 24

A

Question 25

Examples of circumstances that may create familiarity threat least likely include a. A former partner of the firm being a director, officer of the assurance client or an employee in a position to exert direct and significant influence over the subject matter of the assurance engagement. b. Dealing in, or being a promoter of, share or other securities in an assurance client. c. A member of the assurance team having an immediate family member or close family member who is a director or officer of the assurance client. d. A member of the assurance team having an immediate family member or close family member who, as an employee of the assurance client, is in a position to exert direct and significant influence over the subject matter of the assurance engagement.

Answer 25

B

Question 26

The following are modifications made to the IFAC Code to consider Philippine regulatory requirements and circumstances, except a. The period for rotation of the lead engagement partner was changed from five to seven years. b. Advertising and solicitation by individual professional accountants in public practice were not permitted in the Philippines. c. Additional examples relating to anniversaries and websites wherein publicity is acceptable, as provided in boa resolution 19, series of 2000, were included. d. Payment and receipt of commissions were not permitted in the Philippines.

Answer 26

A

Question 27

The Code of Professional Ethics states, in part, that a CPA should maintain integrity and objectivity. Objectivity refers to the CPA's ability to a. Insist on all matters regarding audit procedures. b. Determine the materiality of items. c. Determine accounting practices that were consistently applied. d. Maintain an impartial attitude on all matters which come under his review.

Answer 27

D

Question 28

The network firms are required to be independent of the client a. For assurance engagements provided to an audit client. b. For assurance engagements provided to clients that are not audit clients, when the report is not expressly restricted for use by identified users. c. For assurance engagements provided to clients that are not audit clients, when the assurance report is expressly restricted for use by identified users. d. All of the above

Answer 28

A

Question 29

Which of the following is incorrect regarding independence? a. Independence consists of independence of mind and independence in appearance. b. Independence is a combination of impartiality, intellectual honesty and a freedom from conflicts of interest. c. Independence of mind is the state of mind that permits the provision of an opinion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism. d. Independence in appearance is the avoidance of facts and circumstances that are so significant a reasonable and informed third party, having knowledge of all relevant information, including any safeguards applied, would reasonably conclude a firm's or a member of the assurance team's integrity, objectivity or professional skepticism had been compromised.

Answer 29

B ## Footnote Objectivity is a combination of impartiality, intellectual honesty and a freedom from conflicts of interest.

Question 30

A CPA firm is considered independent when it performs which of the following services for a publicly-traded audit client? a. Serving as a member of the client's board of directors. b. Determining which accounting policies will be adopted by the client. c. Accounting information system design and implementation. d. Tax return preparation as approved by the board of directors.

Answer 30

D

Question 31

In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if a. Statistical sampling techniques were not used on the audit engagement. b. The fraud was perpetrated by one client employee, who circumvented the existing internal control. c. The auditor planned the work in a hasty and inefficient manner. d. Accountants performing important parts of the work failed to discover a close relationship between the treasurer and the cashier.

Answer 31

C

Question 32

Which of the following conditions suggests auditor negligence? a. Failure to detect collusive fraud perpetrated by members of middle management. b. Failure to detect collusive fraud perpetrated by members of top management. c. Failure to detect errors occurring outside the internal control structure. d. Failure to detect material errors under conditions of weak internal control.

Answer 32

D

Question 33

Conflict between financial statement users and auditors often arises because of the a. High cost of performing an audit. b. Expectation gap. c. Technical vocabulary which the auditor uses in the report. d. Placement of the auditor's report in the back of the client's annual report where it is hard to locate

Answer 33

B

Question 34

Which of the following is best considered a fraud? a. Inability to provide due diligence. b. Intentional misrepresentation of financial information. c. Declining to finish work on client in light of a valid contract. d. Not acting professionally while performing services.

Answer 34

B

Question 35

Anyone identified to the auditor by name prior to the audit who is to be the principal recipient of the auditor's report is a a. Primary beneficiary. b. Third party. c. Foreseen beneficiary. d. Secondary beneficiary.

Answer 35

A

Question 36

Quality control procedures are applicable to the individual audit engagement. The implementation of such quality control procedures is responsibility of the: a. CPA firm. b. Engagement team. c. Quality control reviewer. d. Manager assigned to the engagement.

Answer 36

B

Question 37

Which of the following statements is incorrect? a. In an audit, the independent auditor attempts to corroborate assertions made by the company’s management in connection with each account, class of transactions, and disclosures found in a set of financial statements. b. Because of the attest function, financial statements are the responsibility of the independent auditor. c. The term “materiality” refers to any factor of a size or type that would impact an outside decision-maker’s decision about a set of financial statements. d. The role of the independent auditor is to gain sufficient appropriate evidence so as to provide reasonable assurance that material misstatements do not exist in any of the assertions made by management.

Answer 37

B

Question 38

Which of the following statements is correct? a. Sufficiency refers to the quality of evidence, while appropriateness refers to the quantity of evidence. b. The reliability of evidence is influenced not by its nature but by its source. c. The performance of consulting services for audit clients does not, in and of itself, impair the auditor’s independence. d. A belief that management and those charged with governance are honest and have integrity relieves the auditor of the need to maintain professional scepticism.

Answer 38

C

Question 39

Which of the following statements is correct? a. The fair presentation of audited financial statements in accordance with applicable financial reporting framework is an implicit part of the auditor’s responsibility. b. Professional judgment can be used as the justification for the decisions made by the auditor that are not otherwise supported by the facts and circumstances of the engagement or sufficient appropriate evidence. c. Appropriateness is the measure of the quality of evidence, that is, its reliability and persuasiveness. d. Most CPAs, including those who provide audit and tax services, also provide consulting services to their clients.

Answer 39

D

Question 40

Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register with the BOA and the PRC. Assuming that the application for registration of Sisip and Co., CPAs was approved on August 30, 2005, which of the following is true? a. The registration will expire on Dec. 31, 2007. b. The registration must be renewed on September 30, 2007. c. The registration will expire on August 30, 2007 since the validity of the certificate of registration is three years. d. The registration will expire on Dec. 31, 2007 which is also the last day of renewal of certificate of registration

Answer 40

A

Question 41

Which of the following statements regarding RA 9298 is true? a. A person shall be considered to be in the professional practice of accounting if, as an officer in a private enterprise, he makes decisions requiring professional accounting knowledge. b. The Professional Regulation Commission has the authority to remove any member of the Board of Accountancy for negligence, incompetence, or any other just cause. c. Insanity is not a ground for proceeding against a CPA. 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.

Answer 41

A

Question 42

Auditor’s responsibility for detecting noncompliance is limited to those: a. Direct-effect noncompliance. b. Material direct-effect noncompliance. c. Material indirect-effect noncompliance. d. All noncompliance since they affect the financial statements directly or indirectly

Answer 42

B

Question 43

Auditors would perform the following steps in which order? a. Determine audit risk; assess control risk; determine detection risk; set materiality. b. Set materiality; assess control risk; determine detection risk; determine audit risk. c. Set materiality; determine audit risk; assess control risk; determine detection risk. d. Determine audit risk; set materiality; assess control risk; determine detection risk.

Answer 43

C

Question 44

Which of the following statements is an not an example of an inherent limitation of internal control? a. The effectiveness of control procedures depends on segregation of duties. b. Errors may arise from mistakes in judgments. c. Most internal controls tend to be directed at routine transactions rather than non-routine transactions. d. The cost-benefit relationship is a primary criterion in designing internal control

Answer 44

A

Question 45

The confidential relationship applies to: a. Only audit and attestation services. b. Only audit and attestation services since these types of services also require independence. c. Audit and MAS services, but not compilation engagements. d. All services provided by CPAs.

Answer 45

D

Question 46

Compliance with the independence requirement is necessary whenever a CPA performs: a. Non-assurance services b. Professional services c. Tax consultancy services d. Assurance services

Answer 46

D

Question 47

Which of the following is least likely an advantage to the client and the auditor as a result of early appointment of the auditor? a. The audit will be completed expeditiously. b. The auditor will be able to perform the examination more efficiently and will be finished at an early date after the year-end. c. The auditor will be able to complete the audit work in less time. d. Potential problems are identified and resolved on a timely basis.

Answer 47

C

Question 48

Which of the following procedures would an auditor be most likely to perform in planning a financial statement audit? a. Performing analytical procedures to identify material fraud and material error. b. Performing analytical procedures to identify areas that may represent specific risks. c. Obtaining a written representation letter from the client to emphasize management's responsibilities. d. Reading the minutes of stockholder and director meetings to discover whether any unusual transactions have occurred

Answer 48

B

Question 49

The primary purpose why an auditor obtains an understanding of the entity and its environment is to: a. Develop an attitude of professional skepticism concerning management's financial statement assertions. b. Make constructive suggestions concerning improvements to the client's internal control. c. Understand the events and transactions that may have an effect on the client's financial statements. d. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated.

Answer 49

C

Question 50

Auditors allocate the preliminary judgment about materiality to account balances. Such preliminary materiality is known as: a. Tolerable error. b. Planning materiality. c. Tolerable misstatement. d. Tolerable materiality.

Answer 50

B

Question 51

Although generalized audit programs may be used, the auditor should design an audit program suitable to the circumstances on particular engagements. A complete audit program for an engagement generally should be developed a. Prior to beginning the actual audit work. b. Whenever the auditor has completed an evaluation of the relevant internal control. c. After completing the s tudy of internal control. d. After reviewing the client's accounting records and procedures.

Answer 51

B

Question 52

Which of the following is least likely a potential effect of an auditor's decision to reduce acceptable audit risk at low level? a. Special care is required in assigning experienced staff. b. Review of the working papers by personnel who were not assigned to the engagement. c. More evidence is required. d. Less evidence is required.

Answer 52

D

Question 53

Which of the following statements is true? a. It is usually equally difficult for the auditor to uncover errors or fraud. b. It is usually easier for the auditor to uncover errors than fraud. c. Usually, the auditor does not design procedures to uncover fraud or errors. d. It is usually easier for the auditor to uncover management fraud than employee fraud.

Answer 53

B

Question 54

The risk of not detecting material misstatement resulting from fraud is greater than the risk of not detecting a material misstatement arising from error, because: a. Fraud ordinarily involves acts designed to conceal it. b. The auditor designs only procedures to detect material error but no procedures are designed to detect material fraud. c. The PSA do not require the auditor to discover information that is indicative of fraud. d. It is the responsibility of the management to detect fraud and the auditor's responsibility is confined only to the detection of material errors.

Answer 54

A

Question 55

Which of the following statements about noncompliance is incorrect? a. An audit in accordance with PSA can not be expected to detect noncompliance with all laws and regulations. b. The determination as to whether a particular act constitutes noncompliance is ultimately based on the judgment of the auditor. c. An auditor can not be held responsible for preventing noncompliance. d. It is management's responsibility to ensure that entity's operations are conducted in accordance with laws and regulations.

Answer 55

B

Question 56

Which of the following statements best describes why the auditor's examination cannot reasonably be expected detect all acts of noncompliance with existing laws and regulations? a. Noncompliance may be perpetrated by the only person in the client's organization with access to both assets and the accounting records. b. Noncompliance may involve conduct designed to conceal it, such as collusion, forgery, deliberate failure to record transactions. c. Acts of noncompliance by clients often relates to accounting aspects rather than operating aspects. d. The client's internal control may be so strong that the auditor performs only minimal substantive testing.

Answer 56

B

Question 57

Presented below are circumstances that may indicate the occurrence of noncompliance with laws and regulations, except: a. Payment of fines or penalties b. Payment for unspecified services to consultants, related parties, or government employees. c. Purchasing at prices significantly above or below book value. d. Purchasing at prices significantly above or below market price.

Answer 57

C

Question 58

Which of the following is not an information source for developing analytical procedures used in the audit? a. Key relationships among financial statement elements. b. Relationships between financial and relevant nonfinancial data. c. Comparison of current year financial data with projections for next year's financial results d. Comparison of financial data with anticipated results.

Answer 58

C

Question 59

It is acceptable for the auditor to prepare: a. The financial statements for the client. b. The notes to financial statements for the client. c. A draft of the financial statements for the client. d. A draft of the financial statements and notes to the financial statements for the client.

Answer 59

D

Question 60

The assessment of the risks of material misstatement at the financial statement level is affected by the auditor’s understanding of the control environment. Weaknesses in the control environment ordinarily will lead the auditor to a. Modify the nature of audit procedures to obtain more persuasive audit evidence. b. Have more confidence in internal control and the reliability of audit evidence generated internally within the entity. c. Conduct some audit procedures at an interim date rather than at period end. d. Decrease the number of locations to be included in the audit scope.

Answer 60

A

Question 61

Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards? a. The attestation standards provide a framework for the attest function beyond historical financial statements. b. The attestation standards do not permit an attest engagement to be part of a business acquisition study or a feasibility study. c. Attestation standards do not require independence in mental attitude. d. Attestation standards do not include standards of reporting.

Answer 61

A

Question 62

When an accountant performs more than one level of service, he generally should issue a report that is appropriate for: a. The lowest level of service rendered. b. A compilation engagement. c. The highest level of service rendered. d. A review engagement.

Answer 62

C

Question 63

An accountant who reviews the financial statements should issue a report stating that a review a. Is substantially less in scope than an audit. b. Provides negative assurance that the internal control is functioning as designed. c. Provides only a limited assurance that the financial statements are fairly presented. d. Is substantially more in scope than a compilation

Answer 63

A

Question 64

Which of the following is required to be performed in an audit but not in review engagement? a. Complying with the "Code of Professional Ethics for Certified Public Accountants" promulgated by the Board of Accountancy b. Planning the engagement c. Agreeing on the terms of engagement d. Studying and evaluating internal control structure

Answer 64

D

Question 65

Which statement is incorrect regarding procedures and evidence obtained in a review engagement? a. The auditor should apply judgment in determining the specific nature, timing and extent of review procedures. b. The auditor should apply the same materiality considerations as would be applied if an audit opinion on the financial statements were being given. c. There is a greater risk that misstatements will not be detected in an audit than in a review. d. The judgment as to what is material is made by reference to the information on which the auditor is reporting and the needs of those relying on that information, not to the level of assurance provided.

Answer 65

C

Question 66

A CPA is conducting the first examination of a non-public company's financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor's working papers. This procedure is a. Acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor's work. b. Required if the CPA is to render an unqualified opinion. c. Acceptable if the client and the predecessor auditor agree to it. d. Unacceptable because the CPA should bring an independent viewpoint to a new engagement.

Answer 66

C

Question 67

A CPA is conducting the first examination of a non-public company's financial statements. The CPA hopes to reduce the audit work by consulting with the predecessor auditor and reviewing the predecessor's working papers. This procedure is a. Acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor's work. b. Required if the CPA is to render an unqualified opinion. c. Acceptable if the client and the predecessor auditor agree to it. d. Unacceptable because the CPA should bring an independent viewpoint to a new engagement.

Answer 67

C

Question 68

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the a. Audit procedures performed are approved in the professional standards. b. Audit has been performed by persons having adequate technical training and proficiency as auditors. c. Results are consistent with the conclusions to be presented in the auditor's report. d. Auditor's system of quality control has been maintained at a high level.

Answer 68

C

Question 69

Which of the following is not a document or record that should be examined early in the engagement? a. Corporate charter and by-laws. b. Contracts. c. Management letter. d. Minutes of board of directors' and stockholders' meetings.

Answer 69

C

Question 70

Philippine Standards on Auditing require auditors to assess the risk of material misstatements due to fraud a. For first-time audits. b. Sufficient to find any frauds which may exist. c. For every audit. d. Whenever it would be appropriate.

Answer 70

C

Question 71

A measure of the auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of the internal control structure is a. Inherent risk. b. Acceptable audit risk. c. Statistical risk. d. Control risk.

Answer 71

A

Question 72

Which of the following statements best describes the auditor's responsibility to detect material errors and fraud? a. The auditor is responsible for the failure to detect material errors and frauds only when such failure results from the misapplication of generally accepted accounting principles. b. The auditor is responsible for the failure to detect material errors and frauds only when the auditor fails to confirm receivables or observe inventories. c. The audit should be designed to provide reasonable assurance that material errors and fraud are detected. d. Extended auditing procedures are required to detect unrecorded transactions even if there is no evidence that material errors and frauds may exist.

Answer 72

C

Question 73

In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if e. Accountants performing important parts of the work failed to discover a close relationship between the treasurer and the cashier. f. The auditor planned the work in a hasty and inefficient manner. g. Statistical sampling techniques were not used on the audit engagement. h. The fraud was perpetrated by one client employee, who circumvented the existing internal control.

Answer 73

F

Question 74

Which of the following is not true regarding planning in an electronic environment? a. The definition of auditing is not changed b. The purposes of auditing is not changed c. The procedures used are not changed d. Auditing standards are not changed

Answer 74

C

Question 75

Which of the following statements best identifies the two types of fraud? a. Theft of assets and employee fraud. b. Management fraud and employee fraud c. Misappropriation of asset and defalcation d. Fraudulent financial reporting and management fraud.

Answer 75

B

Question 76

Which of the following terms relates to the embezzling of receipts? a. Misrepresentation b. Misapplication c. Misappropriation d. Manipulation

Answer 76

C

Question 77

Which of the following fraud risk factors relate to misstatement arising from fraudulent financial reporting? a. Personal financial obligations may create pressure on management or employees with access to cash or other assets susceptible to theft to misappropriate those assets. b. Adverse relationships between the entity and employees with access to cash or other assets susceptible to theft may motivate those employees to misappropriate those assets. c. Inadequate internal control over assets may increase the susceptibility of misappropriation of those assets. For example, misappropriation of assets may occur because there is the following: d. Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth.

Answer 77

D

Question 78

An auditor's examination performed in accordance with generally accepted auditing standards generally should a. Be expected to provide assurance that illegal acts will be detected where internal control is effective. b. Be relied upon to disclose violations of truth-in-lending act. c. Encompass a plan to search actively for illegalities which relate to operating aspects. d. Not be relied upon to provide assurance that illegal acts will be detected.

Answer 78

D

Question 79

Which of the following concepts of materiality is incorrect? a. Materiality is based on quantitative and non-quantitative factors. b. Materiality is a matter of professional audit judgment. c. Materiality does not apply if internal control is highly effective. d. Materiality is more closely related to the fieldwork and reporting standards than to general standards.

Answer 79

C

Question 80

Which of the following statements is incorrect about materiality? a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important. b. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements. c. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. d. An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements.

Answer 80

B ## Footnote An auditor considers materiality for planning purposes in terms of the smallest aggregate level of misstatements that could be material to any one of the financial statements.

Question 81

After discovering that a related-party transaction exists, the auditor should be aware that the a. Transaction is assumed to be outside the ordinary course of business. b. Substance of the transaction could be significantly different from its form. c. Adequacy of disclosure of the transaction is secondary to its legal form. d. Financial statements should recognize the legal form of the transaction rather than its substance.

Answer 81

B

Question 82

Auditors focus on a. Areas where the risk of material errors and irregularities is least. b. Areas where the risk of material errors and irregularities is greatest. c. All areas equally. d. A random selection of all areas.

Answer 82

B

Question 83

Audit risk components consist of inherent, control and detection risks. Which of them is are dependent variable(s)? a. Inherent risk b. Control risk c. Detection risk d. Inherent and control risks

Answer 83

C

Question 84

The risk that the audit will fail to uncover a material misstatement is eliminated a. When the auditor has complied with generally accepted auditing standards. b. If a client has strong internal controls. c. If a client follows generally accepted accounting principles. d. Under no circumstances.

Answer 84

D

Question 85

The probability of an auditor's procedures leading to the conclusion that a material error does not exist in an account balance when, in fact, such error does exist is referred to as a. Prevention risk. b. Inherent risk. c. Control risk. d. Detection risk.

Answer 85

D

Question 86

Which of the following statements is true with regard to the relationship among audit risk, audit evidence, and materiality? a. The lower the inherent risk and control risk, the lower the aggregate materiality threshold. b. Under conditions of high inherent and control risk, the auditor should place more emphasis on obtaining external evidence and should reduce reliance on internal evidence. c. Where inherent risk is high and control risk is low, the auditor may safely ignore inherent risk. d. Aggregate materiality thresholds should not change under conditions of changing risk levels.

Answer 86

B

Question 87

Which of the following does an auditor least likely perform in assessing audit risk? a. Understand the economic substance of significant transactions completed by the client. b. Understand the entity and the industry in which it operates. c. Gather audit evidence in support of recorded transactions. d. Obtain an understanding of the client's system of internal control.

Answer 87

C

Question 88

Which of the following is most likely to be an overall response to fraud risks identified in an audit? a. Supervise members of the audit team less closely and rely more upon judgment. b. Use less predictable audit procedures. c. Use only certified public accountants on the engagement. d. Place increased emphasis on the audit of objective transactions rather than subjective transactions

Answer 88

B

Question 89

If the auditor is convinced that the client has an excellent internal control structure, the amount of audit evidence to be gathered. a. Can be significantly less than where internal control is not adequate. b. Will not be affected since the auditor must arrive at an independently determined opinion. c. Must be increased to support the auditor's belief. d. Is not determinable.

Answer 89

A

Question 90

Why should the auditor plan more work on individual accounts as lower acceptable levels of both audit risk and materiality are established? a. To find smaller errors b. To find larger errors c. To increase the tolerable error in the accounts d. To decrease the risk of overreliance

Answer 90

A

Question 91

Which of the following most accurately summarizes what is meant by the term “material misstatement?” a. Fraud and direct-effect illegal acts. b. Fraud involving senior management and material fraud. c. Material error, material fraud, and certain illegal acts. d. Material error and material illegal acts.

Answer 91

C

Question 92

The risk of fraudulent financial reporting increases in the presence of a. Substantial increases in sales. b. Incentive systems based on operating income. c. Improved control systems. d. Frequent changes in suppliers.

Answer 92

B

Question 93

Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting? a. Domination of management by top executives. b. Negative cash flows from operations. c. Large amounts of cash processed. d. Small high-dollar inventory items.

Answer 93

B

Question 94

When planning the audit, if the auditor has no reason to believe that illegal acts e xist, the auditor should a. Make inquiries of management regarding their policies and their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities. b. Still include some audit procedures designed specifically to uncover illegalities. c. Ignore the topic. d. Include audit procedures which have a strong probability of detecting illegal acts.

Answer 94

A

Question 95

Which statement best describes the emphasis of the systems and substantive approaches in the audit plan? a. A thoroughly designed systems approach to auditing can eliminate the need for any substantive procedures. b. The systems approach focuses on detailed testing of specific accounts for accuracy, while the substantive approach is the testing controls to make sure they are effective. c. The systems approach focuses on testing controls to make sure they are effective, while the substantive approach is the detailed testing of specific accounts for accuracy. d. The systems approach focuses on the use of computer systems to aid in the audit while the substantive approach focuses on more manual tests.

Answer 95

C ## Footnote Systems approach is also known as the controls reliance approach

Question 96

Audit programs should be designed so that a. Most of the required procedures can be performed as interim work. b. The audit evidence gathered supports the auditor’s conclusions. c. Inherent risk is assessed at a sufficiently low level. d. The auditor can make constructive suggestions to management.

Answer 96

B

Question 97

In designing written audit programs, an auditor should establish specific audit objectives that relate primarily to the a. Financial statement assertions. b. Timing of audit procedures. c. Cost-benefit of gathering evidence. d. Selected at techniques.

Answer 97

A

Question 98

An audit program provides proof that a. Sufficient appropriate evidence was obtained. b. The work was adequately planned. c. There was a proper study and evaluation of internal control. d. There was compliance with generally accepted standards of reporting.

Answer 98

B

Question 99

The audit program usually cannot be finalized until the a. Reportable conditions have been communicated to the audit committee of the board of directors. b. Engagement letter has been signed by the auditor and the client. c. Consideration of the entity’s internal control has been completed. d. Search for unrecorded liabilities has been performed and documented.

Answer 99

C

Question 100

A person or firm possessing special skill, knowledge and experience in a particular field excluding accounting and auditing. a. Quality control reviewer b. Multiskilled personnel c. Expert d. Taxation specialist

Answer 100

C