CPAR AUDTHEO

Question 1

The objective of assurance services is to
*improve the firm’s outcomes
*compare Internal Information and policies to those of other entities
*enhance decision making
*provide more timely information to users of financial statements

Answer 1

enhance decision making

Question 2

A CPA performed the following engagements in March 2023. Which is considered an attestation engagement?
I. Audit of 2022 financial statements
II. Examination of 2024 proposed financial statements
*I only
*II only
*Both I and II
*Neither I nor II

Answer 2

Both I and II

Question 3

The Philippine Framework for Assurance Engagements
*Contains basic principles, essential procedures, and related guidance for the performance of assurance engagements.
*Defines and describes the elements and objectives of an assurance engagement, and identifies engagements to which PSAs, PSREs, and PSAEs apply.
*Provides a frame of reference for CPAs in public practice when performing audits, reviews,and compilations of historical financial information,
*Establishes standards and provides procedural requirements for the performance of assurance engagements.

Answer 3

Defines and describes the elements and objectives of an assurance engagement, and identifies engagements to which PSAs, PSREs, and PSAEs apply.

Question 4

Landing,CPA, is auditing the financial statements of Hilarion Company. Hilarion uses the IT Service Center,Inc.to process its payroll transactions. IT’s financial statements are audited by Copeng,CPA,who recently issued a report on IT’s internal control. Landing is considering Copeng’s report on IT’s internal control in assessing control risk on the Hilarion engagement. What is Landing’s responsibility concerning making reference to Copeng as a basis, in part, for Landing’s own opinion?
*Landing may refer to Copeng only if Landing is satisfied as to Copeng’s professional reputation and independence.
*Landing may refer to Copeng only if Landing relies on Copeng’s report in restricting the extent of substantive tests.
*Landing may refer to Copeng only if Landing’s report indicates the division of responsibility.
*Landing may not refer to Copeng under the circumstances above.

Answer 4

Landing may not refer to Copeng under the circumstances above.

Question 5

Which of the following procedures is a practitioner least likely to perform during a review engagement?
*Comparing the financial statements with anticipated results in budgets and forecasts.
*Studying the relationships of financial statement elements expected to conform to
predictable patterns.
*Inquiring of management about actions taken at the board of directors’ meetings.
*Observing the safeguards over access to and use of assets and records.

Answer 5

Observing the safeguards over access to and use of assets and records.

Question 6

The ________ sets the scope, timing and direction of the audit, and guides the development of the more detailed ______.
*overall audit strategy; audit plan
*audit plan; overall audit strategy
*audit risk plan; substantive tests
*audit plan; risk assessment procedures

Answer 6

overall audit strategy; audit plan

Question 7

The _______ element of internal control includes the governance and management functions and the attitudes, awareness, and actions of those charged with governance and management concerning the entity’s internal control and its importance in the entity.
*control activities
*control environment
*monitoring
*risk assessment process

Answer 7

control environment

Question 8

An auditor is concerned with completing various phases of the audit after the balance sheet date. This subsequent period extends to the date of the
*Delivery of the auditor’s report to the client.
*Auditor’s Report.
*Final review of the audit working papers.
*Public issuance of the financial statements.

Answer 8

Auditor’s Report.

Question 9

A CPA should decide NOT to accept a new client for an audit engagement if
*the CPA lacks an understanding of the client’s industry and accounting principles prior to acceptance.
*The client’s management has unusually high turnover.
*Both
*Neither

Answer 9

Neither

Question 10

Which of the following is least likely to be a test of a control?
*Inquiries of appropriate personnel.
*Inspection of management’s engagement letter.
*Observation of the application of a policy.
*Reperformance of the application of a policy.

Answer 10

Inspection of management’s engagement letter.

Question 11

Professional skepticism requires that an auditor assume that management is
*honest, in the absence of fraud risk factors
*dishonest until completion of audit tests
*neither honest nor dishonest
*offering reasonable assurance of honesty

Answer 11

neither honest nor dishonest

Question 12

Some accounting estimates may involve relatively low estimation uncertainty and may give rise to lower risks of material misstatements, including
*Accounting estimates arising in entities that engage in business activities that are not complex.
*Accounting estimates relating to the outcome of litigation.
*Fair value accounting estimates for derivative financial instruments not publicly traded.
*Fair value accounting estimates for which a highly specialized entity-developed model is used or for which there are assumptions or inputs that cannot be observed in the marketplace.

Answer 12

Accounting estimates arising in entities that engage in business activities that are not complex.

Question 13

Under the Code of Ethics, the following are examples of situations that might create a conflict of interest, EXCEPT
*Providing services to a seller and a buyer in relation to different transactions.
*Preparing valuations of assets for two parties who are in an adversarial position with respect to the assets.
*Representing two clients in the same matter who are in a legal dispute with each other.
*In relation to a license agreement, ‘providing an assurance report for a licensor on the royalties due while advising the licensee on the amounts payable.

Answer 13

Providing services to a seller and a buyer in relation to different transactions.

Question 14

The auditor shall obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period’s financial statements by:
*Evaluating whether audit procedures performed in the current period provide evidence
relevant to the closing balances.
*Determining whether the prior period’s closing balances have been correctly brought forward to the current period.
*Performing specific audit procedures to obtain evidence regarding the closing balances.
balonces
*Determining whether the closing balances reflect the application of appropriate accounting policies.

Answer 14

Determining whether the prior period’s closing balances have been correctly brought forward to the current period.

Question 15

A summary of findings rather than assurance is most likely to be included in
*Audit report.
*Compilation report.
*Examination report.
*Agreed-upon procedures report.

Answer 15

Agreed-upon procedures report.

Question 16

A purpose of a management representation letter is to reduce
*The possibility of a misunderstanding concerning management’s responsibility for the financial statements.
*The scope of an auditor’s procedures concerning related party transactions and subsequent events.
*Audit risk to an aggregate level of misstatement that could be considered material.
*An auditor’s responsibility to detect material misstatements only to the extent that the letter is relied on.

Answer 16

The possibility of a misunderstanding concerning management’s responsibility for the financial statements.

Question 17

All of the following are correct regarding an auditor’s understanding with a potential client prior to beginning an audit EXCEPT:
*the understanding should list the audit fees and frequency of billing.
*the understanding should cover the responsibilities of the independent auditor.
*the understanding should cover the limitations of the engagement.
*the understanding should be in the form of an engagement letter in order to be in conformity with auditing standards.

Answer 17

the understanding should be in the form of an engagement letter in order to be in conformity with auditing standards.

Question 18

The auditor shall express an adverse opinion when
*The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements.
*The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be material but not pervasive.
*The auditor,having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.
*The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

Answer 18

The auditor,having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.

Question 19

Some accounting estimates may involve relatively low estimation uncertainty and may give rise to lower risks of material misstatements, such as those
*with fair value estimates for which a highly specialized entity-developed model is used
*relating to the outcome of litigation
*with fair value estimates for derivative financial instruments not publicly traded
*that are frequently made and updated because they relate to routine transactions.

Answer 19

that are frequently made and updated because they relate to routine transactions.

Question 20

The “Basis for Opinion” section of the auditor’s report shall NOT
*Include a statement that the auditor is independent of the entity in accordance with the relevant ethical requirements,and has fulfilled the auditor’s other ethical responsibilities in accordance with these requirements.
*Specify the date of, or period covered by, each financial statement comprising the financial
statements.
*Refer to the section of the auditor’s report that describes the auditor’s responsibilities under the Philippine Standards on Auditing (PSAS).
*State whether the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the auditor’s opinion.

Answer 20

Specify the date of, or period covered by, each financial statement comprising the financial
statements.

Question 21

Which of the following meets the definition of an assurance engagement but does NOT need to be performed in accordance to the Framework for Assurance Engagement?
*Consulting (or advisory) engagements, such as management and tax consulting.
*The preparation of tax returns where no conclusion conveying assurance is expressed.
*Agreed-upon procedures engagements and compilations of financial or other information.
*Engagements to testify in legal proceedings regarding accounting, auditing, taxation or other matters.

Answer 21

Engagements to testify in legal proceedings regarding accounting, auditing, taxation or other matters.

Question 22

This government agency is responsible for the registration of corporations and partnerships,as well as monitoring of compliance with the Corporation Code, Civil Code provisions on partnerships, Foreign Investments Act, and other related laws.
*Bangko Sentral ng Pilipinas (BSP).
*Securities and Exchange Commission (SEC).
*Bureau of Internal Revenue (BIR).
*Philippine Stock Exchange (PSE).

Answer 22

Securities and Exchange Commission (SEC).

Question 23

Which of the following is NOT a function of the Bangko Sentral ng Pilipinas (BSP)?
*Recommend measures to improve the efficiency and effectiveness of government operations.
*Supervise banks and exercise regulatory powers over non-bank institutions performing quasi-banking functions.
*Determine the exchange rate policy of the Philippines.
*Extend discounts, loans, and receivables to banking institutions for liquidity purposes.

Answer 23

Recommend measures to improve the efficiency and effectiveness of government operations.

Question 24

Which of the following is not one of the principal duties of the COA?
*Keep the general accounts of the government and preserve the vouchers and supporting papers pertaining thereto.
*Maintain price stability conducive to a balanced and sustainable economic growth.
*Promulgate accounting and auditing rules and regulations including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant and unconscionable expenditures, or uses of government funds and properties. on
*Submit to the president of the Philippines and congress, within the time fixed by law, an annual report covering the financial condition and operation of the government.

Answer 24

Maintain price stability conducive to a balanced and sustainable economic growth.

Question 25

The following statements relate to assurance engagements. Choose the incorrect statements. 1. The objective of an assurance engagement is for a professional accountant to evaluate or measure a subject matter that is the responsibility of another party against identified suitable criteria, and to express a conclusion that provides the intended user with a level of assurance about the subject matter. 2. Assurance engagements performed by professional accountants are intended to enhance the credibility of information about a subject matter. 3. Assurance engagements involve two parties: a professional accountant and an intended user. 4. The subject matter of an assurance engagement is limited to historical or prospective financial information. 5. The intended user in an assurance engagement is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose. *2,3,4, and 5. *3 and 4. *2,4,and 5. *1,2,3,and 4.

Answer 25

3 and 4.

Question 26

Assistants to whom work is delegated need appropriate direction. Direction involves *Informing assistants of their responsibilities and the objectives of the procedures they are to perform. *Informing assistants of matters, such as the nature of the entity's business and possible accounting or auditing problems that may affect the nature, timing, and extent of audit procedures with which they are involved. *Both *Neither

Answer 26

Both

Question 27

Which of the following is correct about forensic audits? *Forensic are usually performed in situations in which fraud has been found or suspected. *Forensic audits are equivalent to compliance audits. *Forensic audits are performed by law firms; they are not performed by CPA firms. *All audits are forensic audits.

Answer 27

Forensic are usually performed in situations in which fraud has been found or suspected.

Question 28

Narratives, flowcharts, and internal control questionnaires are three common methods of *documenting the auditor's understanding of internal controls. *designing the audit manual and procedures. *documenting the auditor's understanding of a dient's organizational structure. *testing the internal controls.

Answer 28

documenting the auditor's understanding of internal controls.

Question 29

Fraud refers to an intentional act by one or more individuals among management, employees or third parties, which results in a misrepresentation of financial statements while error refers to unintentional mistakes in financial statements. Fraud may involve 1. Manipulation, falsification or alteration of records or documents. 2. Misappropriation of assets. 3. Mathematical or clerical mistakes in the underlying records and accounting data. 4. Suppression or omission of the effects of transactions from records or documents. 5. Oversight or misinterpretation of facts 6. Recording of transactions without substance. 7. Misapplication of accounting policies. *1,2,4,6,and 7. *1,2,3,4,6,and 7. *1,2,3,and 6 *1, 2,4,5, and 6.

Answer 29

1,2,4,6,and 7.

Question 30

As defined in PSA 500,________is an individual or organization possessing the expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements. *auditor's expert *auditor's internal expert *management's expert *auditor's external expert

Answer 30

management's expert

Question 31

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 is the *Date the financial statements are issued. *Date of the auditor's report. *Date of the financial statements *Date of approval of the financial statements.

Answer 31

Date of the financial statements

Question 32

Which is least likely beneficial in adequately planning an audit of financial statements? *Assist in coordination of work done by auditors of components and experts. *Assist in the selection of engagement team members with appropriate levels of capabilities and competence. *Aid the auditor to identify and resolve potential problems on a timely basis. *Aid the auditor to devote appropriate attention to all areas of the audit.

Answer 32

Aid the auditor to devote appropriate attention to all areas of the audit.

Question 33

Which one of the following statements concerning sampling risk and nonsampling risk is correct? *Neither sampling risk nor nonsampling risk can be reduced by the auditor. *Sampling risk, but not nonsampling risk, can be reduced by the auditor. *Nonsampling risk, but not sampling risk, can be reduced by the auditor. *Both sampling risk and nonsampling risk can be reduced by the auditor.

Answer 33

Both sampling risk and nonsampling risk can be reduced by the auditor.

Question 34

Users of financial statements demand independent audits because *management relies on the auditor to improve the entity's internal control. *management may not be objective in reporting. *users expect auditors to correct errors of management. *users want assurance that fraud does not exist

Answer 34

management may not be objective in reporting.

Question 35

Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to *Permit cross-referencing and simplify supervisory review. *Support the audit report. *Eliminate the need for follow-up reviews. *Determine that working papers adequately support findings, conclusions, and reports.

Answer 35

Permit cross-referencing and simplify supervisory review.

Question 36

At what level shall the auditor. identify and assess the risks of material misstatement to provide a basis for designing and performing further audit procedures? *Financial statement level. *Assertion level. *Financial statement level and assertion level. *Financial statement level, assertion level, and engagement level.

Answer 36

Financial statement level and assertion level.

Question 37

A summary of findings rather than assurance is most likely to be included in *Audit report. *Compilation report. *Examination report. *Agreed-upon procedures report.

Answer 37

Agreed-upon procedures report.

Question 38

The auditor shall express an adverse opinion when *The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements. *The auditor is unable to obtain suíficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the financial statements of undetected rns statements, if any, could be material but not pervasive. *The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements. *The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be both material and pervasive.

Answer 38

The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements.

Question 39

Observation of inventories is a generally accepted auditing procedure. Which of the following statements about this accepted auditing procedure is incorrect? *When weIl-kept perpetual inventory records are checked periodically by comparisons with physical counts, observation procedures can be performed either during or after the end of the period under audit. *Regardless of the inventory system maintained by the client, an annual physical count must be made of each item in the inventory, and test counts must be made by the auditor. *The auditor, when engaged to audit financial statements covering the current period and one or more prior periods for which he/she had not observed or made some physical counts, may be able to become satisfied as to such prior inventories by the application of appropriate alternative procedures. *Material inventories, which are stored in public warehouses may be verified by direct communication in writing from the custodians.

Answer 39

Regardless of the inventory system maintained by the client, an annual physical count must be made of each item in the inventory, and test counts must be made by the auditor.

Question 40

Which of the following statements concerning the auditor's responsibility regarding subsequent events is INCORRECT? *The auditor should perform audit procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor's report that may require adjustment of, or disclosure in, the financial statements have been identified. *The audit procedures to identify events that may require adjustment of, or disclosure in,the financial statements should be performed as near as practicable to the date of issuance of the audited financial statements. *When the auditor becomes aware of events which materially affect the financial statements, the auditor should consider whether such events are properly accounted for and adequately disclosed in the financial statements. *The auditor does not have any responsibility to perform audit procedures or make inquiry regarding the financial statements after the date of the auditor's report.

Answer 40

The audit procedures to identify events that may require adjustment of, or disclosure in,the financial statements should be performed as near as practicable to the date of issuance of the audited financial statements.

Question 41

When planning the audit, the auditor should make inquiries of management. Such inquiries should address the following,except *Management's assessment of the risk that the financial statements may be misstated due to fraud. *Management's process for identifying and responding to the risks of fraud in the entity. *Management's consideration of how an element of unpredictability will be incorporated into the nature, timing, and extent of the audit procedures to be performed. *Management's communication, if any, to those charged with governance regarding its processes for identifying and responding to the risks of fraud in the entity.

Answer 41

Management's consideration of how an element of unpredictability will be incorporated into the nature, timing, and extent of the audit procedures to be performed.

Question 42

The following statements relate to the auditor's inquiry regarding litigation and claims. Which Is correct? *When litigation or claims have been identified or when the auditor believes they may exist,the auditor should seek direct communication with entity's lawyers. *The auditor considers the status of legal matters up to the balance sheet date. *If management refuses to give the auditor permission to communicate with the entity's lawyers, this would be a scope limitation and should ordinarily lead to a qualified or adverse opinion. *The letter of audit inquiry, which should be prepared by the auditor and sent by management, should request the lawyer to communicate directly with the auditor.

Answer 42

When litigation or claims have been identified or when the auditor believes they may exist,the auditor should seek direct communication with entity's lawyers.

Question 43

According to PSA 520, Analytical Procedures, "analytical procedures'' means the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predicted amounts. These procedures are used for the following purposes, except *As tests of control to determine the effectiveness of the design and operation of the entity's accounting and internal controls. *As substantive procedures when their use can be more effective or efficient than tests of details in reducing detection risk for specific financial statement assertions. *To assist the auditor in planning the nature, timing and extent of other audit procedures. *As an overall review of the financial statements in the final review stage of the audit.

Answer 43

As tests of control to determine the effectiveness of the design and operation of the entity's accounting and internal controls.

Question 44

The following statements relate to the auditor's use of the work of an expert: 1. The auditor should assess the appropriateness of the expert's work as audit evidence regarding the financial statement assertion being considered. 2. If the results of the expert's work do not provide sufficient appropriate audit evidence or if the results are not consistent with other audit evidence,the auditor should resolve the matter. 3. When issuing an unmodified auditor's report, the auditor should not refer to the work of an expert. *True True True *True False True *False True False *False False True

Answer 44

True True True

Question 45

An operational audit is designed to *Assess the efficiency and effectiveness of management's operating procedures. *Assess the presentation of management's financial statements in accordance with PFRS. *Determine whether management has complied with applicable laws and regulations. *Determine whether the audit committee of the board of directors is effectively discharging its responsibility to oversee management's operations.

Answer 45

Assess the efficiency and effectiveness of management's operating procedures.

Question 46

In a financial statement audit, audit risk represents the probability that *Internal control fails and the failure is not detected by the auditor's procedures. *The auditor unknowingly fails to modify an opinion on materially misstated financial statements. *Inherent and control risk cause errors that could be material to the financial statements. *The auditor is not retained to conduct a financial statement audit in the succeeding year.

Answer 46

The auditor unknowingly fails to modify an opinion on materially misstated financial statements.

Question 47

The auditor is examining copies of sales Invoices only for the initials of the person responsible for checking the extensions. This is an example of a *test of controls. *substantive test. *dual-purpose test *test of balances.

Answer 47

test of controls.

Question 48

Purpose of a management representation letter is to reduce *The possibility of a misunderstanding concerning management's responsibility for the financial statements. *The scope of an auditor's procedures concerning related party transactions and subsequent events. *Audit risk to an aggregate level of misstatement that could be considered material. *An auditor's responsibility to detect material misstatements only to the extent that the letter is relied on.

Answer 48

The possibility of a misunderstanding concerning management's responsibility for the financial statements.

Question 49

The risk that the audit will fail to uncover a material misstatement is eliminated *if client has good internal control *if client follows Financial Reporting Standards *when the auditor has complied with Standards on Auditing *under no circumstances

Answer 49

under no circumstances

Question 50

Internal control is the process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity's objectives with regard to *reliability of financial reporting *effectiveness and efficiency of operations *compliance with applicable laws and regulations *All of the above

Answer 50

All of the above

Question 51

Which of the following is the best example-of a substantive test? ^Examining a sample of cash disbursements to test whether expenses have been properly approved. *Confirmation of balances of accounts receivable. *Comparison of signatures on checks to a list of authorized signers. *Flowcharting of the client's cash receipts system.

Answer 51

Confirmation of balances of accounts receivable.

Question 52

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 *irregularities exist among the relevant account balances *internal control procedures are not operating effectively *additional tests cf details are required *the communication with the audit committee should be revised

Answer 52

additional tests cf details are required

Question 53

A document that details what the auditor will do to gather sufficient, appropriate evidence isthe *audit strategy *audit program *audit procedure *audit risk model

Answer 53

audit program

Question 54

In the context of an audit of financial statements, substantive tests are audit procedures that *may be eliminated under certain conditions *are designed to discover significant subsequent events *may be either tests of transactions, direct tests of financial balances, or analytical tests *will increase proportionately with the auditor's assessment of control risk

Answer 54

may be either tests of transactions, direct tests of financial balances, or analytical tests

Question 55

As the acceptable level of detection risk decreases, an auditor may change the *timing of substantive tests by performing them at an interim date rather than at year-end. *nature of substantive tests from a less effective to a more effective procedure. *timing of tests of controls by performing them at several dates rather than at one time. *assessed level of inherent risk to a higher amount.

Answer 55

nature of substantive tests from a less effective to a more effective procedure.

Question 56

Which of the following least likely requires the services of an expert? *Valuations of certain types of assets like land and buildings. *Legal opinions concerning interpretations of statutes and regulations. *Determination of amounts using specialized techniques. *Application of accounting methods in computing inventory balances.

Answer 56

Application of accounting methods in computing inventory balances.

Question 57

While Engagement involves the application of audit skills and techniques and the gathering of evidence, it does not ordinarily involve an assessment of accounting and internal control systems, tests of records, and of responses to inquiries by obtaining corroborating evidence through inspection, observation, confirmation, and computation. *compilation *review *agreed-upon procedures *consultancy

Answer 57

review

Question 58

After considering internal control, an auditor might decide to *increase the extent of tests of controls and substantive tests in areas where internal control is strong *reduce the extent of tests of controls in areas where internal control is strong *reduce the extent of both substantive tests and tests of controls in areas where internal control is strong *increase the extent of substantive tests in areas where internal control is weak

Answer 58

increase the extent of substantive tests in areas where internal control is weak

Question 59

Which of the following procedures can be performed only in the subsequent period? *Examination of data to determine that a proper cutoff has been made. *Tests of the details of balances. *Tests of the details of transactions. *Reading of the minutes of the board of directors' meetings.

Answer 59

Examination of data to determine that a proper cutoff has been made.

Question 60

The establishment of an overall audit strategy or plan involves I. Determining the characteristics of the engagement that define its scope.. II. Ascertaining the reporting objectives of the engagement to plan the timing of the auditand the nature of the communications-required. III.Considering the important factors that will determine the focus of the engagement team's efforts. *I and II only. *II and III only. *I and III only. *I,II,and III.

Answer 60

I,II,and III.

Question 61

In obtaining an understanding of internal control relevant to the audit, the auditor may trace several transactions through the system, including how the transactions interface with anyservice organizations whose services are part of the entity's information system. The primary objective of this procedure-is to *Evaluate the design of internal control and determine whether it has been implemented. *Determine the effectiveness of internal control. *Detect fraud. *Replace substantive tests.

Answer 61

Evaluate the design of internal control and determine whether it has been implemented.

Question 62

Which of the following questions would an auditor most likely include in the production cycle internal control questionnaire? *Are details of individual disbursements for raw materials compared to the total for posting to the general ledger? *Are vendor invoices for raw materials approved before payment? *Are all issuances of raw materials to production based on approved requisition forms? *Are signed checks for the purchase of raw materials sent directly to intended payees after signing, without being returned to the person who authorized the invoice processing?

Answer 62

Are all issuances of raw materials to production based on approved requisition forms?

Question 63

The engagement partner should be satisfied that appropriate procedures regarding the acceptance and continuance of client relationships and specific audit engagements have been followed, and that conclusions reached in this regard are appropriate and have been documented. Acceptance and continuance of client relationships and specific audit engagements include considering: I. The integrity of the principal owners, key management, and those charged with governance of the entity. II.Whether the engagement team is competent to perform the audit engagement and has the necessary time and resources. III.Whether the firm and the engagement team can comply with ethical requirements. *I only. *I and II only. *II and III only. *I,II, and III.

Answer 63

I,II, and III.

Question 64

Prior to beginning the fieldwork on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates,the CPA.should *Reduce audit risk by lowering the preliminary levels of materiality. *Design special substantive tests to compensate for the lack of industry expertise. *Engage financial experts familiar with the nature of the industry. *Obtain a knowledge of matters that relate to the nature of the entity's business.

Answer 64

Obtain a knowledge of matters that relate to the nature of the entity's business.

Question 65

Which of the following statements relating to communication of audit matters of governance interest is incorrect? *Audit matters of governance interest include only those matters that have come to the attention of the auditor as a result of the performance of the audit. *In an audit in accordance with PSAs, the auditor should design audit procedures for the specific purpose of identifying matters of governance interest. *The auditor should identify relevant persons who are charged with governance and with whom audit matters of governance interest are to be communicated. *The auditor's communications with those charged with governance may be made orally in writing.

Answer 65

In an audit in accordance with PSAs, the auditor should design audit procedures for the specific purpose of identifying matters of governance interest.

Question 66

To protect the integrity of the database, data sharing by different users requires organization,coordination, rules, and guidelines. The individual responsible for managing the database resource is the *programmer *database administrator *user *IT manager

Answer 66

database administrator

Question 67

In the audit of financial statements, the auditor is only concerned.with those policies and procedures within the accounting and internal control systems that are relevant to the financial statement assertions. The understanding of relevant aspects of the accounting and internal control systems, together with the inherent and control risk assessments and other considerations, will enable the auditor to *Identify the types of potential misstatements that could occur in the financial statements. *Consider factors that affect the risk of material misstatements. *Design appropriate audit procedures. *All of the above.

Answer 67

All of the above.

Question 68

In representing that the financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles,management Implicitly or explicitly makes regarding the recognition, measurement, presentation, and disclosure of the various elements of financial statements and related disclosures. *assertions *allegations *conclusions *assurances

Answer 68

assertions

Question 69

Which of the following procedures is most likely to give the greatest assurance that securities held as investments are safeguarded? *There is no access to securities between year-end and the date of the auditor's security count. *Proceeds from the sale of investments are received by an employee who does not have access to securities. *Investment acquisitions are authorized by a member of the board of directors before execution. *Access to securities requires the signatures and presence of two designated officials.

Answer 69

Access to securities requires the signatures and presence of two designated officials.

Question 70

The diamond-shaped symbol is commonly used in flowcharting to show or represent a *Process or a single step in a procedure or program. *Terminal output display. *Decision point, conditional testing, or branching. *Predefined process.

Answer 70

Decision point, conditional testing, or branching.

Question 71

Sequential access means *Data is stored on magnetic tape. *The address of the location of data is found through the use of either an algorithm or an index. *Each record can be accessed in the same amount of time. *To read record 500, records 1 through 499 must be read first.

Answer 71

To read record 500, records 1 through 499 must be read first.

Question 72

An auditor is concerned with completing various phases of the audit after the balance sheet date. This subsequent period extends to the date of the *Delivery of the auditor's report to the client. *Auditor's report. *Final review of the audit working papers. *Public issuance of the financial statements.

Answer 72

Auditor's report.

Question 73

Theis responsible for-the direction, supervision and performance of the group audit engagement in compliance with professional standards and regulatory and legal requirements, and whether the auditor's report that is issued is appropriate in the circumstances. *group engagement partner *component auditor *team leader *principal partner

Answer 73

group engagement partner

Question 74

After testing a client's internal control activities, an auditor discovers a number of significant deficiencies in the operation of a client's internal controls. Under these circumstances the auditor most likely would *issue a disclaimer of opinion about the internal controls as part of the auditor's report. *Increase the assessment of control risk and increase the extent of substantive tests. *issue a qualified opinion of this finding as part of the auditor's report. *withdraw from the audit because the internal controls are ineffective.

Answer 74

Increase the assessment of control risk and increase the extent of substantive tests.

Question 75

A substantive strategy is typically used to audit stockholders' equity because *controls over stockholders' equity transactions typically are weak *a reliance strategy is most efficient *the number of transactions is small *a substantive strategy likely was used in prior years

Answer 75

the number of transactions is small

Question 76

Auditors may use positive and/or negative forms of confirmation requests. An auditor most likely will use *The negative form for small balances. *The positive form, when the combined assessed level of inherent and control risk for related assertions is acceptably low, and the negative form when it is unacceptably high. *The positive form to confirm all balances regardless of size. *A combination of the two forms, with the positive form used for trade balances and the negative form for other balances.

Answer 76

The negative form for small balances.

Question 77

As used in PSA 230,________ refers to the record of audit procedures performed,relevant audit evidence obtained, and conclusions the auditor reached. *audit documentation *audit file *audit planning memorandum *management letter working papers.

Answer 77

audit documentation

Question 78

Safeguards created by the profession, legislation or regulation include the following, except *Continuing professional development requirements. *Professional standards. *Firm-wide and engagement specific safeguards. *Educational, training and experience requirements for entry into the profession.

Answer 78

Firm-wide and engagement specific safeguards.

Question 79

The date of the review report should *Not be earlier than the date on which the financial statements were approved by management. *Be earlier than the date on which the financial statements were approved by management. *Coincide with the balance sheet date. *Not be later than the balance sheet date.

Answer 79

Not be earlier than the date on which the financial statements were approved by management.

Question 80

Which of the following circumstances may create self-interest threats for a professional accountant in public practice? *A financial interest in a client or jointly holding a financial interest with a client. *Performing a service for a client that directly affects the subject matter of the assurance engagement. *Being threatened with litigation. *Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.

Answer 80

A financial interest in a client or jointly holding a financial interest with a client.

Question 81

An accountant may perform an agreed-upon procedures engagement regarding prospective financial statements provided that A. Use of the report is to be restricted to the specified users. B. The prospective financial statements are also examined. C. Responsibility for the sufficiency of the procedures performed is taken by the accountant. D. Negative assurance is expressed on the prospective financial statements taken as a whole.

Answer 81

Use of the report is to be restricted to the specified users.

Question 82

The objective of performing analytical procedures in planning an audit is to identify the existence of *unusual transactions and events *noncompliance with laws that went undetected because of internal control weaknesses *related party transactions *recorded transactions that were not properly authorized

Answer 82

unusual transactions and events

Question 83

Observation *Consists of looking at a process or procedure being performed by others. *Consists of seeking information of knowledgeable persons, both financial and nonfinancial, throughout the entity or outside the entity. *is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity's internal control. *Is the process of obtaining a representation of Information or of an existing condition directly from a third party.

Answer 83

Consists of looking at a process or procedure being performed by others.

Question 84

When an auditor believes that an understanding with the client has not been established, he or she should ordinarily *Perform the audit with increased professional skepticism. *Decline to accept or perform the audit. *Assess control risk at the maximum level and perform a primarily substantive audit. *Modify the scope of the audit to reflect an increased risk of material misstatement due to fraud.

Answer 84

Decline to accept or perform the audit.

Question 85

When approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining *Whether the predecessor's work should be used. *Whether the company follows the policy of rotating its auditors. *Whether in the predecessor's opinion internal control of the company has been satisfactory. *Whether the engagement should be accepted.

Answer 85

Whether the engagement should be accepted.

Question 86

The Code of Ethics for Professional Accountants in the Philippines provides the categories of threats that could compromise or could be perceived to compromise a professional accountant's compliance with the fundamental principles. The threat that the professional accountant will not appropriately evaluate the results of a previous judgment made or service performed on which the accountant will rely when forming a judgment as part of providing a current service is called *Advocacy threat. *Familiarity threat. *Self-review threat. *Intimidation threat.

Answer 86

Self-review threat.

Question 87

______ are the policies and procedures to help ensure that management directives are carried out. Examples are authorization, physical controls, and segregation of duties. *Risk assessments *Substantive tests *Control activities *Tests of control

Answer 87

Control activities

Question 88

The primary reason an auditor requests letters of inquiry be sent to a client's attorneys is to provide the auditor with *The probable outcome of asserted claims and pending or threatened litigation. *Corroboration of the information furnished by management about litigation, claims, and assessments. *The attorneys' opinions of the client's historical experiences in recent similar litigation. *A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.

Answer 88

Corroboration of the information furnished by management about litigation, claims, and assessments.

Question 89

Which of the following is not among the risk assessment procedures that the auditor should perform in obtaining an understanding of the entity and its environment, including its internal control? *Inquiries of management and others within the entity *Analytical procedures *Observation and inspection *Confirmation

Answer 89

Confirmation

Question 90

Further audit procedures consist which of the following? I. Risk assessment procedures II. Substantive procedures III. Tests of Control *I and II only *II and III only *I and III only *I, II, and III

Answer 90

II and III only

Question 91

In evaluating the reasonableness of an entity's accounting estimates, an auditor normally would be concerned about assumptions that are *Susceptible to bias. *Consistent with prior periods. *Insensitive to variations. *Similar to industry guidelines.

Answer 91

Susceptible to bias.

Question 92

To which of the following matters would materiality limits not apply in obtaining written management representations? *The availability of minutes of shareholders' and directors' meetings. *Losses from purchase commitments at prices in excess of market value. *The disclosure of compensating balance arrangements involving related parties. *Reductions of obsolete inventory to net realizable value.

Answer 92

The availability of minutes of shareholders' and directors' meetings.

Question 93

If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor *Should withdraw from the engagement. *Should request an increase in audit fees so that more resources can be used to conduct the audit. *Has the responsibility of notifying financial statement users through the auditor's report. *Should notify regulators of the circumstances.

Answer 93

Has the responsibility of notifying financial statement users through the auditor's report.

Question 94

In comparing management fraud with employee fraud, the auditor's risk of failing to discover the fraud is *Greater for management fraud because managers are inherently more deceptive than employees. *Greater for management fraud because of management's ability to override existing internal-controls. *Greater for employee fraud because of the higher crime rate among blue collar workers. *Greater for employee fraud because of the larger number of employees in the organization.

Answer 94

Greater for management fraud because of management's ability to override existing internal-controls.

Question 95

As a condition of obtaining a loan from Metro Manila Bank, Maasim Corp. is required to submit an audited statement of financial position but not the related statements of income, changes in equity, or cash flows. Maasim would like to engage a CPA to audit only its statement of financial position. Under these circumstances, the CPA *May not audit only Maasim's statement of financial position if the amount of the loan is material to the financial statements taken as a whole. *May not audit only Maasim's statement of financial position if Maasin is not a listed entity. *May audit only Maasim's statement of financial position if the CPA disclaims an opinion on the other financial statements. *May audit only Maasim's statement of financial position if access to the information underlying the basic financial statements is not limited.

Answer 95

May audit only Maasim's statement of financial position if access to the information underlying the basic financial statements is not limited.

Question 96

An auditor believes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor the entity's plans to *Purchase production facilities that are currently being leased from a third party. *Postpone expenditures to upgrade its information technology system. *Pay cash dividends that are in arrears to the preference shareholders. *Increase the useful lives of property, plant, and equipment for depreciation purposes.

Answer 96

Postpone expenditures to upgrade its information technology system.

Question 97

In a practitioner's review of interim financial information, the practitioner typically performs each of the following, except *Reading the minutes of the meetings of shareholders, those charged with governance, and other appropriate committees to identify matters that may affect the interim financial information. *Obtaining corroborating external evidence. *Inquiring of members of management responsible for financial and accounting matters. *Applying financial ratios to the interim financial Information.

Answer 97

Obtaining corroborating external evidence.

Question 98

Which of the following conditions identified during fieldwork of an audit is most likely to affect the auditor's assessment of the risk of misstatement due to fraud? *Checks for significant amounts outstanding at year-end. *Computer generated documents. *Missing documents. *Year-end adjusting journal entries.

Answer 98

Missing documents.

Question 99

Before assessing control risk at a level lower than the maximum, the auditor obtains reasonable assurance that controls are in use and operating effectively. This assurance is most likely obtained in part by *Preparing flowcharts. *Performing substantive tests. . *Analyzing tests of trends and ratios.. *Inspection of documents.

Answer 99

Inspection of documents.

Question 100

The work of internal auditors may affect the independent auditor's I. Procedures performed in obtaining an understanding of internal control. II. Procedures performed in assessing the risk of material misstatement. III. Substantive procedures performed in gathering direct evidence. *I and II only. *I and III only. *II and III only. *I, II, and III.

Answer 100

I, II, and III.

Question 101

The auditor's primary purpose in auditing the client's system of internal control over financial reporting is *To prevent fraudulent financial statements from being issued to the public. *To evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements. *To report to management that the internal controls are effective in preventing misstatements from appearing on the financial statements. *To efficiently conduct the audit of financial statements.

Answer 101

To evaluate the effectiveness of the company's internal controls over all relevant assertions in the financial statements.

Question 102

Which of the following factors may increase risks to an organization? Geographic dispersion of company operations; Presence of new information technologies *Yes; Yes *No; No *Yes; No *No; Yes

Answer 102

Yes; Yes

Question 103

Which of the following best describes the purpose of control activities? *The actions, policies and procedures that reflect the overall attitude management. *The identification and analysis of risks relevant to the preparation of financial statements. *The policies and procedures that help ensure that necessary actions are taken to address risks to the achievement of the entity's objectives. *Activities that deal with ongoing assessment of the quality of internal control by management.

Answer 103

The policies and procedures that help ensure that necessary actions are taken to address risks to the achievement of the entity's objectives.

Question 104

A company is concerned with the theft of cash after the sale has been recorded. One way in which fraudsters conceal the theft is by a process called "lapping." Which of the following best describes lapping? *Reduce the customer's account by recording a sales return. *Write off the customer's account. *Reduce the customer's account by recording a sales allowance. *Apply the payment from another customer to the customer's account.

Answer 104

Apply the payment from another customer to the customer's account.

Question 105

An important characteristic of IT is uniformity of processing. Therefore, a risk exists that *Auditors will not be able to access data quickly. *Auditors will not be able to determine if data is processed consistently. *Erroneous processing can result in the accumulation of a great number of misstatements in a short period of time. *All of the above.

Answer 105

Erroneous processing can result in the accumulation of a great number of misstatements in a short period of time.

Question 106

To determine if a sample is truly representative of the population, an auditor would be required to *Conduct multiple samples of the same population. *Never use sampling because of the expense involved. *Audit the entire population. *Use systematic sample selection.

Answer 106

Audit the entire population.

Question 107

The most important test of details of balances to determine the existence of recorded accounts receivable is *Tracing details of sales invoices to shipping documents. *Tracing the credits in accounts receivable to bank deposits. *Tracing sales returns entries to credit memos issued and receiving room reports. *The confirmation of customers' balances.

Answer 107

The confirmation of customers' balances.

Question 108

It is common to use a combination of positive and negative confirmations by sending the latter to accounts with large balances and the former to those with small balances. When sending confirmations during most audits of accounts receivable, the emphasis is often on confirming larger and older balances. *True; True *False; False *True; False *False; True

Answer 108

False; True

Question 109

Which of the following is the most effective control procedure to detect vouchers that were prepared for the payment of goods that were not received? *Count goods upon receipt in storeroom. *Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department. *Compare goods received with goods requisitioned in receiving department. *Verify vouchers for accuracy and approval in internal audit department.

Answer 109

Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department.

Question 110

Internal controls that are likely to prevent the client from including as a business expense those transactions that primarily benefit management or other employees rather than the entity being audited satisfy the control objective that *Acquisitions are correctly valued. *Existing acquisitions are recorded. *Acquisitions are correctly classified. *Recorded acquisitions are for goods or services received.

Answer 110

Recorded acquisitions are for goods or services received.