Summative Test Flashcards
(119 cards)
1
Q
When an auditor becomes aware of a possible illegal act by a client, the auditor should obtain an understanding of the nature of the act in order to
*Determine the reliability of management’s representation.
*Evaluate the effect on the financial statements.
*Consider whether other similar acts may have occurred.
*Recommend remedial actions to the audit committee
A
Evaluate the effect on the financial statements.
2
Q
Subsequent events based on PSA 560 are defined as events which occur subsequent to the:
*Balance sheet date
*Balance sheet date but prior to the date of auditor’s report
*Issuance of approved financial statements
*Date of the auditor’s report
A
Balance sheet date but prior to the date of auditor’s report
3
Q
Although the quantity, type and contents of working papers will vary with circumstances, the working papers generally would include:
*Auditor’s comments concerning the efficiency and competence of client management and personnel
*Copies of client records examined by the auditor during the course of the engagement
*Evaluation of the efficiency and competence of audit staff assistants by the partner responsible for the audit
*Auditing procedures followed and the tests performed in obtaining evidential matter.
A
Auditing procedures followed and the tests performed in obtaining evidential matter.
4
Q
In the auditing environment, failure to meet auditing standards is often:
*A suggestion of negligence.
*Conclusive evidence of negligence.
*An accepted practice.
*Tantamount to criminal behavior.
A
Conclusive evidence of negligence.
5
Q
When compiling financial statements of a non-public entity, an accountant should
*Inquiry of key personnel concerning related parties and subsequent event
*Perform ratio analyses of the financial data of comparable periods
*Understand the accounting principles and practices of the entity’s industry
*Review agreements with financial institutions for restrictions of cash balances
A
Understand the accounting principles and practices of the entity’s industry
6
Q
Santos, a non-CPA, has a law practice. Santos has recommended one of his clients to Gomez, a CPA. Gomez has agreed to pay Santos 10% of the fee for services rendered by Gomez to Santos’ client. Who, if anyone, is in violation of the Code of Ethics?
*Both Santos and Gomez
*Neither Santos and Gomez
*Only Santos
*Only Gomez
A
Only Gomez
7
Q
When preparing working papers, the auditor should remember that working papers should be:
*The primary support for the financial statements being examined
*Designed to meet the circumstances and the auditor’s needs on each engagement
*Kept on the client’s premises so that the client can have access to them for reference purposes
*Considered as a substitute for the client’s accounting records
A
Designed to meet the circumstances and the auditor’s needs on each engagement
8
Q
Tracing bills of lading to sales invoice provides evidence that:
*Recorded sales were shipped
*Shipments to customers were invoiced
*Invoiced sales were actually shipped
*Shipments to customers were recorded as sales
A
Shipments to customers were invoiced
9
Q
In designing written audit programs, an auditor should establish specific audit objectives that relate primarily to the:
*Financial statement assertions
*Selected audit technique
*Timing of audit procedures
*Cost-benefit of gathering audit evidence
A
Financial statement assertions
10
Q
Misappropriation of assets involves intentional misstatement in the accounting records in order to conceal the fact that assets are missing or lacking. The following are examples of misappropriation, except
*Stealing physical assets or intellectual property of the entity
*Using an entity’s assets for personal use
*Embezzling receipts
*Understating inventory in order to overstate cost of good sold, understate profit, and to decrease income tax due
A
Understating inventory in order to overstate cost of good sold, understate profit, and to decrease income tax due
11
Q
The CPA profession deemed it necessary to establish a code of ethics and a mechanism for its enforcement because:
*An ethical conduct that stresses the responsibility of a CPA to clients and colleagues is a prerequisite to success
*The establishment of flexible ethical standards provides self-protection for CPAs.
*The acceptance of responsibility to the public is a distinguishing mark of a profession
*A requirement of law provides that CPAs establish a code of ethics
A
The acceptance of responsibility to the public is a distinguishing mark of a profession
12
Q
Audit programs should be designed so that
*Most of the required procedures can be performed as interim work
*Inherent risk is assessed at a sufficiently low level
*The auditor can make constructive suggestions to management
*The audit evidence gathered can adequately support the auditor’s conclusion
A
The audit evidence gathered can adequately support the auditor’s conclusion
13
Q
When threats to independence are other than clearly insignificant, the professional accountant should:
*Withdraw immediately from the engagement
*Apply appropriate safeguards to eliminate threats or reduce them to an acceptable level
*Downgrade the nature of engagement to one that does not require independence
*Continue to assurance engagement but with heightened level of professional skepticism
A
Apply appropriate safeguards to eliminate threats or reduce them to an acceptable level
14
Q
The primary reason an auditor requests a letter of inquiry be sent to a client’s attorney is to provide the auditor with
*The attorney’s opinions of the client’s historical experiences in recent similar litigation
*A description and evaluation of litigation, claims and assessments that existed at balance sheet date
*The probable outcome of asserted claims and pending or threatened litigation
*Corroboration of the information furnished by management about litigation, claims and assessments.
A
Corroboration of the information furnished by management about litigation, claims and assessments.
15
Q
A CPA firm should decline an offer to perform consulting service engagements if:
*The proposed engagement is not accounting related
*Acceptance would require the CPA firm to make management decisions for an audit client
*Any of the above is true
*Recommendations made by the CPA are to be subject to review by the client
A
Acceptance would require the CPA firm to make management decisions for an audit client
16
Q
An auditor may decide to increase the risk of incorrect rejection when
*The cost and effort of selecting additional sample
items are low
*Many differences between audit value and recorded value are expected
*Increased reliability from the sample is desired
*Initial sample results do not support the planned level of control risk
A
The cost and effort of selecting additional sample items are low
17
Q
Which of the ff. is not an example of a circumstance which creates self-interest threat for a CPA in business?
*A professional accountant being offered a gift or special treatment from a supplier of the employing organization.
*A professional accountant participating in incentive compensation arrangements offered by the employing organization.
*A professional accountant having the opportunity to manipulate information in a prospectus in order to obtain favorable financing.
*A professional accountant having access to corporate assets for personal use.
A
A professional accountant having the opportunity to manipulate information in a prospectus in order to obtain favorable financing.
18
Q
Which of the following is an element least likely required of assurance engagements
*Intended user
*Suitable criteria
*Practitioner
*Related party
A
Related party
19
Q
The risk that the auditor may express an inappropriate opinion on the financial statement is
*Inherent risk
*Control risk
*Audit risk
*Detection risk
A
Audit risk
20
Q
For sampling risks, which of the following is true about alpha and beta risks?
*Neither the alpha risk nor the beta risk need be considered by the auditor.
*The beta risk and the alpha risk are of equal importance to the auditor.
*The alpha risk is of greater concern to the auditor than the beta risk.
*The beta risk is of greater concern to the auditor than the alpha risk.
A
The beta risk is of greater concern to the auditor than the alpha risk.
21
Q
To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely would
*Read specialized industry journals
*Reevaluate the client’s internal control environment
*Review prior year working papers and permanent file of the client
*Perform tests of details of transactions and balances
A
Review prior year working papers and permanent file of the client
22
Q
Which of the following is not one of the elements of internal control?
*Control risk
*Control activities
*Information system
*Control environment
A
Control risk
23
Q
Which of the following statements is true?
1. Gross negligence may constitute constructive fraud
2. Fraud requires the intent to deceive
3. All fraud should be detected during audit
*3
*1 and 2
*none of the above
*1 and 3
A
1 and 2
24
Q
Which of the ff. would not be an audit procedure in relation with related party transactions?
*Review prior year working papers for names of known related parties
*Reading the entity’s latest subsequent interim financial statements
*Inquire as to the affiliation of directors, and officers with other entities
*Review the entity’s procedures for identification of related parties
A
Reading the entity’s latest subsequent interim financial statements
25
Which statement is incorrect regarding agreed-upon procedures?
*The report is restricted to those parties that have agreed to the procedures to be performed since others, are able to interpret the results for themselves
*Where the auditor is independent, a statement to that effect need not be made in the report of factual findings.
*Users of the report assess for themselves the procedures and findings reported by the auditor and draw their own conclusions from the auditor’s work
*The auditor should conduct an agreed-upon procedures engagement in accordance with PSRS 4400
Where the auditor is independent, a statement to that effect need not be made in the report of factual findings.
26
It will be appropriate to audit all the items that make up a class of transactions or account balances (100% examination), except:
*When there is a significant risk of misstatement and other selection methods do not provide sufficient appropriate audit evidence
*When the repetitive nature of a calculation or other process performed automatically by the client's computer information system, makes 100% audit cost-effective
*When the class of transactions or account balances consists of a small number of large balances
*When the class of transactions or account balances consists of a large number of small balances
When the class of transactions or account balances consists of a large number of small balances
27
Familiarity threat could be created under the following circumstances
*A member of the engagement team is the spouse of one of the directors of the client
*A professional accountancy accepting gifts from a client whose value is inconsequential or trivial
*A member of the engagement team is the distant cousin of the bookkeeper of the client
*Junior personnel of the engagement team having a long association with the assurance client
A member of the engagement team is the spouse of one of the directors of the client
28
An auditor, in accepting an audit engagement where he does not possess the expertise on the client’s industry, should
*Refer substantial portion of the audit to another CPA who will act as the principal auditor
*First inform client’s management that an unqualified opinion cannot be issued
*Engage financial experts familiar with the nature of the client
*Obtain knowledge about the nature and industry of the client’s business
Obtain knowledge about the nature and industry of the client’s business
29
Which of the following statements concerning materiality is incorrect?
*The auditor shall also determine materiality levels to those particular classes of transactions, account balances or disclosures.
*When establishing the overall audit strategy, the auditor shall determine materiality for the financial statements as a whole
*Determining materiality levels does not involve the use of professional judgement
*The materiality level for the financial statements as a whole determined in the planning stage of the audit may be affected by changes in the circumstances of the engagement
Determining materiality levels does not involve the use of professional judgement
30
An extensive understanding of the client's business and industry, and knowledge about the company's operations are essential for doing an adequate audit. For a new client, most of this information is obtained
*From the predecessor auditor
*From the permanent file
*At the client's premises
*From the Securities and Exchange Commission
At the client's premises
31
In which of the ff. circumstances would a CPA be considered independent when performing the audit of the financial statements of new client for the year ended December 31, 2018?
*The CPA’s grandparent owns an immaterial amount of ordinary shares in the client
*The CPA resigned on January 17, 2019 from the board of directors of the client, prior to becoming a member of the engagement team
*The CPA continues to hold an immaterial, direct financial interest in the client
*The CPA continues to serve as a trustee for the client’s pension plan and has the authority to make investment decisions
The CPA’s grandparent owns an immaterial amount of ordinary shares in the client
32
For which of the ff. audit tests would an auditor most likely use attribute sampling?
*Selecting accounts receivable for confirmation of account balances.
*Inspecting employee time cards for proper approval of supervisor
*Making an independent estimate of the amount of FIFO inventory
*Examining invoices in support of the valuation of property, plant and equipment additions
Inspecting employee time cards for proper approval of supervisor
33
All other factors being equal, which of the ff. would lead to a larger sample size?
*Greater reliance on internal control
*Smaller measure of tolerable misstatement
*Greater reliance on analytical procedures
*Smaller expected frequency of errors
Smaller measure of tolerable misstatement
34
Which of the ff. would the auditor do if facts were discovered after the date of the auditor’s report, but before the date of issuance of financial statements, and such facts will cause the auditor to amend his report had he known before the date of the audit report, and management agrees to amend the financial statements?
*The auditor should express an adverse opinion
*The auditor should express a qualified opinion
*Auditor will notify management and BOD that the auditor will seek to prevent future reliance on the auditor’s report
*Provide a new auditor’s report on the amended FS
Provide a new auditor’s report on the amended FS
35
Which statement is correct regarding report on summarized financial statements?
*Unless the auditor has expressed an audit opinion on the financial statements from which the summarized financial statements were derived, the auditor should not report on summarized financial statements.
*Summarized financial statements contain all the information required by the financial reporting framework used for the annual audited financial statements
*The auditor's report on summarized financial statements includes a statement that the summary
financial statements are presented fairly in accordance with the applicable reporting framework
*Summarized financial statements need not be appropriately titled nor identify the audited financial statements from which they have been derived.
Unless the auditor has expressed an audit opinion on the financial statements from which the summarized financial statements were derived, the auditor should not report on summarized financial statements.
36
Which of the ff. procedures would a CPA ordinarily perform during audit planning?
*Obtain understanding of the client’s business and industry
*Obtain client’s representation letter
*Review the client’s bank reconciliation
*Perform audit sampling
Obtain understanding of the client’s business and industry
37
If management refuses to furnish certain written representations that the auditor believes are essential, which of the ff. is appropriate?
*The auditor can rely on verbal evidence relating to the matter as a basis for unqualified opinion
*The client’s refusal does not constitute a scope limitation that may lead to modification of the opinion
*The auditor should issue an adverse opinion because of management’s refusal
*This may have an effect on the auditor’s ability to rely on other representations of management
This may have an effect on the auditor’s ability to rely on other representations of management
38
What should the auditor do if the going concern assumption of the client is appropriate but a material uncertainty exists and adequate disclosure about the material uncertainty is made in the financial statements?
*The auditor shall express a qualified opinion and the auditor’s report shall include a separate section under the “Emphasis of Matter” paragraph
*The auditor shall express an adverse opinion
*The auditor shall express an unmodified opinion and the auditor’s report shall include a separate section under the heading “Material Uncertainty Related to Going Concern”
*The auditor will do nothing since there is adequate disclosure in the financial statements
The auditor shall express an unmodified opinion and the auditor’s report shall include a separate section under the heading “Material Uncertainty Related to Going Concern”
39
When safeguards available are insufficient in eliminating the threats to independence or to reduce them to an acceptable level, or when a firm chooses not to eliminate the activities or interests creating the threat, the only other course of action is to
*Issue qualified or disclaimer of opinion
*Withdraw from the engagement
*Issue unmodified opinion, with explanatory paragraph
*Issue adverse opinion
Withdraw from the engagement
40
An auditor’s purpose for performing tests of control is to provide reasonable assurance that
*The risk that the auditor may unknowingly fail to modify the opinion on the financial statements is minimized
*Transactions are recorded as necessary to permit the preparation of the financial statements in conformity with financial reporting standards.
*The controls on which the auditor plans to consider are operating effectively
*Transactions are executed in accordance with management’s authorization and access to assets is limited by segregation of functions
The controls on which the auditor plans to consider are operating effectively
41
Proper segregation of duties reduces the opportunities in which a person could both
*Approve purchase orders and record cash disbursements
*Record cash receipts and record cash disbursements
*Journalize entries and prepare financial statements
*Establish internal control and authorize transactions
Approve purchase orders and record cash disbursements
42
Which of the following is not a reason an auditor obtains understanding of the elements of an entity’s internal control structure in planning an audit?
*Identify the types of potential misstatements that can occur
*Consider factors that affect the risk of material misstatements
*Consider the operating effectiveness of the internal control structure
*In considering the design of substantive tests
Consider the operating effectiveness of the internal control structure
43
Inherent risk and control risk are:
*Inversely related to audit risk
*Inversely related to each other
*Directly related to detection risk
*Inversely related to detection risk
Inversely related to detection risk
44
Which of the ff. is not one of the pre-engagement activities?
*Assign partner, manager and staff to the engagement
*Obtain an engagement letter
*Investigate new clients and existing clients
*Obtain knowledge of the client’s business
Obtain knowledge of the client’s business
45
An audit firm should implement quality control policies and procedures designed to ensure that all assurance engagements are conducted in accordance with PSAs and to issue appropriate reports. These policies and procedures should be implemented
*At the audit firm level only
*Either at the audit firm level or on individual engagements
*On individual engagements only
*Both at the audit firm level and on individual engagements
Both at the audit firm level and on individual engagements
46
An auditing firm must establish and follow quality control policies and procedures because these standards:
*Include formal filing of records of such policies and procedures to a regulatory agency
*Are required by SEC for auditors of all firms
*Give reasonable assurance that the firm will comply with professional standards and regulatory and legal requirements
*Are necessary to meet increasing requirements of auditor’s liability as insurers
Give reasonable assurance that the firm will comply with professional standards and regulatory and legal requirements
47
The factor which distinguishes an error from an irregularity is
*Whether it is caused by an employee or management
*Intent
*Materiality
*Whether it is a peso amount or a process
Intent
48
Which of the ff. is incorrect concerning planning an audit?
*Planning is a discrete phase of an audit
*The auditor considers the timing of certain planning activities and audit procedures that are to be completed prior to the performance of further audit procedures.
*In a recurring audit, planning often begins shortly after the completion of the previous audit and continues until the completion of the current audit
*Planning is a continual and iterative process
Planning is a discrete phase of an audit
49
The risk of material misstatement refers to:
*Control risk and detection risk
*Inherent risk
*Combination of inherent risk and detection risk
*Control risk and acceptable audit risk
Combination of inherent risk and detection risk
50
The main purpose of risk assessment procedure is to:
*All of the above
*Detect material misstatements at the assertion level
*Obtain an understanding of the entity and its environment, including its internal control; and to assess the risks of material misstatements at the financial statement and assertion level.
*Test the operating effectiveness of controls in preventing, or detecting and correcting material misstatements at the assertion level
Obtain an understanding of the entity and its environment, including its internal control; and to assess the risks of material misstatements at the financial statement and assertion level.
51
Which of the ff. is not normally one of the preliminary engagement activities?
*Making a preliminary estimate of materiality
*Inquiring from predecessor auditor
*Deciding whether to accept or reject an audit engagement
*Preparing an engagement letter
Making a preliminary estimate of materiality
52
An audit designed to evaluate the efficiency and effectiveness of an organization or some part thereof, would most likely come under the title of:
*Internal audit
*Compliance audit
*Financial audit
*External audit
Internal audit
53
Which of the ff. statements is correct concerning prospective financial information
*Any type of prospective financial statements would normally be appropriate for general use
*Only financial projections would normally be appropriate for limited use
*Only financial forecasts would normally be appropriate for limited use
*Any type of prospective financial statements would normally be appropriate for limited use
Any type of prospective financial statements would normally be appropriate for limited use
54
Which of the ff. would most likely give the most assurance concerning the valuation and allocation assertion of accounts receivable?
*Inquiring about receivables pledged under loan agreements
*Comparing receivable turnover ratios with industry statistics for reasonableness
*Assessing the allowance for bad debts for reasonableness
*Vouching amounts in the subsidiary ledger to details on shipping documents
Assessing the allowance for bad debts for reasonableness
55
“…We draw attention to note 2 in the financial statements which discusses that the company incurred a net loss of P6.4 million during the year ended December 31, 2016 and as of that date, the Company’s liabilities exceeded its total assets by P2,500,000...”
*Material Uncertainty Related to Going Concern paragraph
*Emphasis of matter paragraph
*Opinion paragraph
*Other Matter Paragraph
Material Uncertainty Related to Going Concern paragraph
56
Each time an auditor draws a conclusion based on evidence from a sample, an additional risk, sampling risk, is introduced. An example of sampling risk is
*Properly applying an improper audit procedure to sample data.
*Projecting the results of sampling beyond the population tested.
*Improperly applying a proper audit procedure to sample data.
*Drawing an erroneous conclusion from sample data
Drawing an erroneous conclusion from sample data
57
Which of the following audit phases would generally be conducted before all of the others listed below?
*Consideration of internal control systems
*Evaluation of audit evidence
*Gaining an understanding of the client's industry
*Auditing business processes and related accounts
Gaining an understanding of the client's industry
58
A CPA examines the financial statements of a local bank. According to the Code of Ethics, the appearance of independence ordinarily would not be impaired if the CPA
*Uses the bank’s timesharing computer service to solve bank-related problems
*Owns substantial amount of the bank’s ordinary shares
*Serves on the bank’s committee that approves loans
*Obtains a long-term loan from the bank
Uses the bank’s timesharing computer service to solve bank-related problems
59
Which of the following best describes “high level of assurance”?
*It refers to the professional accountant having obtained evidence based on procedures agreed upon between the practitioner and the intended users to be satisfied that findings be reported to the intended users.
*It refers to the professional accountant having obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria.
*It refers to the professional accountant having obtained sufficient external and internal appropriate evidence to be satisfied that the subject matter is plausible in the circumstances.
*It refers to the professional accountant having obtained sufficient evidence to conclude that he has no knowledge of any required modifications to be made in the financial statements in order for them to conform of prescribed criteria.
It refers to the professional accountant having obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria.
60
For an unmodified opinion, with an explanatory paragraph, which shows the correct sequence of the parts of the auditor's report? (1-first)
1 - Auditor's responsibility 4 - Responsibility of Management
2 - Title of report 5 - Emphasis of matter
3 - Opinion paragraph 6 – Basis for Opinion
*2, 6, 3, 4, 1, 5
*2, 3, 6, 5, 4, 1
*2, 3, 6, 1, 4, 5
*2, 3, 6, 5, 1, 4
2, 3, 6, 5, 4, 1
61
Which of the following is not a basis of the auditor in determining the specific nature, timing and extent of review procedures?
*The materiality of transactions and account balances
*Assessed level of control risk
*The extent to which a particular item is affected by management judgment
*Any knowledge acquired by carrying out reviews of the financial statements for prior periods
Assessed level of control risk
62
The Code of Professional Ethics for CPA’s was promulgated by the:
*Board of Accountancy
*Auditing and Assurance Standards Council
*Philippine Institute of CPAs
*Securities and Exchange Commission
Board of Accountancy
63
Which statement is correct about a review of a company’s FS by a CPA firm:
*A review requires a less detailed analysis of the major accounts
*A review Is substantially less in scope of procedures than an audit
*A review is where the auditor provides a reasonable level of assurance that the information subject to review is free of material misstatement
*A review is of similar scope as an audit and adds similar credibility to the FS
A review Is substantially less in scope of procedures than an audit
64
Which of the ff. is not to be stated in the Auditor’s Responsibilities for the Audit of Financial Statements portion of the audit report?
*We also evaluate the appropriateness of the accounting policies used and the reasonableness of accounting estimates and related disclosures made by management
*We have conducted our audit in accordance with Phil. Standards on Auditing
*As part of an audit in accordance with PSAs, we exercise professional judgement and maintain professional skepticism
*Our objectives are to obtain reasonable assurance about whether the FS as a whole are free from material misstatements, whether due to fraud or error
We have conducted our audit in accordance with Phil. Standards on Auditing
65
Immediate family members do not include:
*Dependent child
*Spouse
*Parents
*Domestic partner
Parents
66
Which of the ff. circumstances is not likely to be reported in the Emphasis of Matter paragraph?
*A material uncertainty due to an event that may cast doubt as to the ability of the entity to continue as a going concern.
*Early application of a new accounting standard that has a material effect on the financial statements
*An uncertainty relating to the future outcome of exceptional litigation or regulatory action
*The company was severely affected by recent flood
A material uncertainty due to an event that may cast doubt as to the ability of the entity to continue as a going concern.
67
The risk that the financial statements are likely to be misstated materially, without regard to the effectiveness of internal control
*Audit risk
*Detection risk
*Control risk
*Inherent risk
Inherent risk
68
The auditor gathers information about a new client’s business and industry in order to obtain:
*An understanding of the client’s internal control system for financial reporting.
*Information about engagement risk
*An understanding of how economic events and transactions affect the company’s financial statements
*Information regarding whether the client is engaging in financial statement fraud
An understanding of how economic events and transactions affect the company’s financial statements
69
Which of the ff. is not one of the procedures that the auditor will perform in relation with the review of contingent liabilities?
*Reviewing accounting records for large or unusual transactions or balances, paying close attention to transactions recognized at or near the end of the reporting period
*Analyze legal expense for the period and review invoices and statements from legal counsel
*Obtain confirmation from all major attorneys performing legal services for the client as to the status of pending litigation or other contingent liabilities
*Review current and previous year’s BIR reports for income tax settlement
Reviewing accounting records for large or unusual transactions or balances, paying close attention to transactions recognized at or near the end of the reporting period
70
If the auditor believes that a required material disclosure is omitted from the FS, the auditor should decide between issuing aNo:
*Qualified opinion or Disclaimer of Opinion
*Qualified opinion or Unmodified opinion
*Qualified opinion or Adverse Opinion
*Adverse opinion or Disclaimer of Opinion
Qualified opinion or Adverse Opinion
71
In statistical sampling, an auditor would most likely stratify a population into meaningful groups if:
*The standard deviation of recorded amounts is relatively small
*The auditor's estimated tolerable misstatement is extremely small
*The population has highly variable recorded amounts
*Value-weighted sampling is used
The population has highly variable recorded amounts
72
Working papers which contain information relating primarily to the audit of a single period are known as:
*Financial reporting file
*Permanent audit file
*Correspondence file
*Current audit file
Current audit file
73
Which of the required materiality levels is calculated by multiplying a certain percentage by the appropriate benchmark which is either a component of the entity's financial statements?
*Performance materiality
*Overall materiality
*Planning materiality
*Specific materiality
Overall materiality
74
Which of the ff. audit procedures would most likely assist an auditor in identifying conditions and events that may indicate substantial doubt as to the entity’s ability to continue as a going concern?
*Confirmation of accounts receivable from principal customers
*Reconciliation of interest expense with debt outstanding
*Confirmation of cash in bank balances
*Review compliance with the terms of debt agreements
Review compliance with the terms of debt agreements
75
If the auditor undertakes an engagement to report on a single financial statement or on a specific element of the financial statements, in conjunction with an engagement to audit the entity’s complete set of financial statements, the auditor shall express:
*A separate opinion for each engagement
*A single opinion covering both the single financial statement or specific element and the complete set of financial statements
*An opinion on the complete set of financial statements
*An opinion on the single financial statements or on the specific element only
A separate opinion for each engagement
76
Reports on compilation engagements should contain the following, except:
*Identification of the financial information noting that it is based on information provided by management.
*A statement that the engagement was performed in accordance with the PSA applicable to compilation engagements.
*statement that the accountant does not express an opinion but expresses only limited assurance on the financial statements.
*A statement that management is responsible for the financial information compiled by the accountant.
statement that the accountant does not express an opinion but expresses only limited assurance on the financial statements.
77
Which of the ff. is not a component of assurance engagement risk?
*Business risk
*Detection risk
*Control risk
*Inherent risk
Business risk
78
Which fundamental principle is seriously threatened professional accountant offers or accepts, or encourages others to offer or accept, an inducement where the intent is to improperly influence the behavior of the recipient or of another individual?
*Objectivity
*Confidentiality
*Professional behavior
*Integrity
Integrity
79
Which of the ff. is not likely to be included in the Key Audit Matter paragraph?
*The effect on the audit of significant events or transactions that occurred during the period
*Material uncertainty related events that may cast doubt as to the entity’s ability to continue as a going concern
*Significant management judgement, including accounting estimates
*Areas of higher risk of material misstatement
Material uncertainty related events that may cast doubt as to the entity’s ability to continue as a going concern
80
Which of the ff. is not generally included in the working paper file?
*Analyses of significant ratios and trends
*An indication as to who performed the audit procedures and when they were performed
*Documentation of the auditor’s understanding of the accounting and internal control systems
*Copy of the internal audit department’s audit program
Copy of the internal audit department’s audit program
81
Which of the ff. is not one of the statements found under the Responsibility of Management portion of the audit report?
*Misstatements can arise from fraud or error, and are considered material if, individually or in aggregate could influence the economic decisions of users
*Is responsible for assessing the Group’s ability to continue as a going concern, and using the going concern basis of accounting unless management either intends to liquidate the Group or cease operations.
*Management is responsible for the preparation and fair presentation of the FS in accordance with PFRS
*Those charged with governance are responsible for overseeing the Company’s financial reporting process
Misstatements can arise from fraud or error, and are considered material if, individually or in aggregate could influence the economic decisions of users
82
As a result of sampling procedures applied as tests of control, an auditor incorrectly assesses control risk lower than appropriate. Which of the ff. is the most likely explanation for this situation?
*The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.
*The deviation rate of both the auditor's sample and the population are less than the tolerable rate
*The deviation rate of both the auditor's sample and the population exceed the tolerable rate
*The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate.
The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.
83
An auditing firm is allowed to offer employment to an employee of another CPA in public practice if the CPA
*Makes the offer on behalf of an audit client
*Makes the offer verbally to an employee who is not a CPA
*Informs the other CPA in public practice prior to making the offer
*Offering the position with a much higher salary than that of the normal range in that position
Informs the other CPA in public practice prior to making the offer
84
As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the Lamp Corp., Harrison, CPA, did not detect the embezzlement of a material amount of funds by the company’s controller. As a matter of common law, to what extent would Harrison be liable to the Lamp Corp. for losses attributable to the theft?
*He would be liable for losses attributable to his negligence.
*He would have no liability, since the ordinary examination cannot be relied upon to detect thefts of assets by employees.
*He would be liable only if it could be proven that he was grossly negligent.
*He would have no liability because privity of contract is lacking.
He would be liable for losses attributable to his negligence.
85
Each of the ff. may be relevant to an auditor when obtaining knowledge about the client’s business and industry, except:
*Visits of the client’s premises
*Reading publications related to the industry
*Performing tests of control
*Discussion with people within or outside the entity
Performing tests of control
86
The auditor is required to determine different levels of materiality: a) materiality for the financial statements as a whole, b) specific materiality and:
*Overall materiality
*Planning materiality
*Materiality for particular classes of transactions, account balances or disclosure
*Performance materiality
Performance materiality
87
In the planning stage of an audit engagement, the auditor is required to perform audit procedures to obtain an understanding of the entity and its environment, including its internal control. These procedures are called:
*Risk assessment procedures
*Risk assessment activities
*Substantive tests
*Compliance tests
Risk assessment procedures
88
Which of the ff. will create self-interest threats for a professional accountant?
*A professional accountant having access to corporate assets for personal use
*Preparing the original data used to generate the client’s records
*A professional accountant promoting the interests of, or shares in, a client
*An audit team member having a long association with the audit client
A professional accountant having access to corporate assets for personal use
89
The ff. are examples of circumstances that may create familiarity threat, except:
*The firm promoting shares in an audit client
*A director or officer of the client or an employee in a position to exert significant influence over the subject matter of the engagement, having recently served as the engagement partner
*A member of the engagement team having a close or immediate family member who is a director or officer of the client
*Long association of senior personnel with the assurance client
The firm promoting shares in an audit client
90
An issue of independence might arise from the auditor’s participation on management advisory services engagement. Which of the following is most consistent with the Code of Ethics?
*Information obtained as a result of management advisory services engagement is confidential to that engagement and should not influence the attest function
*The auditor who is asked to review management decisions is also competent to make these decisions and can do so without loss of independence.
*The decision as to loss of independence must be made by the client based on facts of the particular case
*The auditor should not make management decisions for the client
The auditor should not make management decisions for the client
91
Which of the ff. is most likely an objective of operational audit?
*To comply with laws and regulations regarding economy and efficiency
*To measure and evaluate the effectiveness of internal controls
*To determine if financial statements have been prepared in conformity with financial reporting standards
*To ensure the fairness and reliability of the financial reporting system
To measure and evaluate the effectiveness of internal controls
92
Absence of reasonable care that can be expected of a person in a set of circumstances” defines:
*Extreme negligence.
*Ordinary negligence.
*Gross negligence.
*Pecuniary negligence.
Ordinary negligence.
93
The most likely reason for the auditor’s concern about the valuation of cash is that
*The proof of cash cannot be reconciled
*Both currency and negotiable securities are on hand
*The client uses a checking account
*The client has foreign currency accounts
The most likely reason for the auditor’s concern about the valuation of cash is that
94
Which of the following would most likely create a self-review threat?
*Financial interest in a client
*A former officer of a client is now a member of the assurance team
*A former partner joins the assurance client
*Litigation involving a professional accountant and a client
A former officer of a client is now a member of the assurance team
95
The reliability of data is influenced by its source and nature and is dependent on the circumstances under which it is obtained. The ff. are to be considered by the auditor in determining whether data is reliable for the purposes of designing substantive analytical procedures, except
*Source of the information available
*Nature and relevance of the information available
*Comparability of the information available
*Persuasiveness of the information
Persuasiveness of the information
96
Analytical procedures performed in the overall review stage of an audit shows that several accounts have unexpected fluctuations. The auditor in this situation most likely will conclude that
*Additional tests of details are required
*Irregularities exist among the account balances involved in the analysis
*The communication with the audit committee should be revised
*The internal control system is not operating effectively
Additional tests of details are required
97
Early appointment of the external auditor will enable:
*A proper study and evaluation of internal control to be performed
*A more efficient examination to be planned
*A more thorough examination to be performed
*Sufficient competent evidential matter to be obtained
A more thorough examination to be performed
98
An audit program should be designed for each individual audit and should incorporate steps and procedures to:
*Provide assurance that the objectives of the audit are satisfied
*Gather sufficient amount of management information
*Ensure that only material items are audited
*Detect and eliminate fraud of any type
Provide assurance that the objectives of the audit are satisfied
99
The permanent file of an auditor’s working papers most likely would include a copy of the:
*Financial statements
*Lead and supporting schedule
*Continuing analyses of fixed assets
*Audit plans and program
Continuing analyses of fixed assets
100
Evidence is generally considered sufficient when
*There is enough of it to afford a reasonable basis for an opinion of the financial statements
*It has the qualities of being relevant, objective and free from bias
*It has been obtained directly by the auditor
*It is appropriate
There is enough of it to afford a reasonable basis for an opinion of the financial statements
101
Loans from an assurance client that is not a bank or financial institution will impair independence of the professional accountant if:
I. The loan is material
II. The loan is immaterial
III. The loan was obtained under normal lending procedures
IV. The loan was not obtained under normal lending procedures
*I and IV only
*I, III and IV
*I only
*I, II and IV
I, III and IV
102
The following are special purpose audit engagements, except
*Specified accounts, elements of accounts, or items in a financial statement.
*Summary financial statements
*Financial statements prepared in accordance with a comprehensive basis of accounting other than generally accepted accounting principles in the Philippines.
*Examination of prospective financial information
Examination of prospective financial information
103
If an auditor conducted an audit in accordance with PSAs, which of the ff. would the auditor be most likely to detect?
*Unrecorded cash receipts
*Counterfeit signatures on checks issued and paid.
*Fraud involving collusion
*Errors in postings of recorded transactions
Errors in postings of recorded transactions
104
Audit programs should be designed so that
*Inherent risk is assessed at a sufficiently low level.
*The audit evidence gathered supports the auditor’s conclusions
*Most of the required procedures can be performed as interim work.
*The auditor can make constructive suggestions to management.
The audit evidence gathered supports the auditor’s conclusions
105
Negative external confirmation is appropriate when:
*The assessed level of inherent and control risk is high
*A substantial number of errors is expected
*A small number of large balances in involved
*A large number of small balances is involved
A large number of small balances is involved
106
Which of the ff. is the most likely first step an auditor would perform at the beginning of an initial audit engagement?
*Prepare a rough draft of the financial statements and auditor’s report
*Consult with and review the work of the predecessor auditor prior to discussing the engagement with the audit client
*Study and evaluate the system of internal administrative control
*Tour the client’s facilities and review the general records
Tour the client’s facilities and review the general records
107
Which of the ff. situations would not normally cause the auditor to question whether material errors or possible fraud exists?
*Differences between control accounts and related subsidiary accounts
*The accounting department is overstaffed
*There are frequent changes of auditors and lawyers
*Transactions are not supported by proper documentation
The accounting department is overstaffed
108
Pervasiveness refers to the ff, except:
*If so confined, represent or could represent a substantial proportion of the FS
*Are misstatements that in aggregate would exceed the overall materiality
*Are not confined to specific elements, accounts or items of the FS
*In relation to disclosures, are fundamental to the user’s understanding of the FS
Are misstatements that in aggregate would exceed the overall materiality
109
In extreme situations, if the circumstances that created the threats cannot be eliminated and safeguards are not available or capable of being applied to reduce the threat to an acceptable level, it might be appropriate for a professional accountant in business to
*Report to government authorities
*Withdraw from the engagement
*Issue qualified or adverse opinion
*Resign from the employing organization
Resign from the employing organization
110
An auditor established a P180,000 tolerable misstatement for an asset with an account balance of P3,000,000. The auditor selected a sample of every 20th item from the population and discovered a net misstatement of P10,500 from the sample. Under these circumstances, the auditor most likely conclude that
*There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because total projected misstatement exceeds the tolerable misstatement
*The asset is fairly stated because the total projected misstatements is less than the tolerable misstatement
*The asset is fairly stated because the tolerable misstatement exceeds the net of projected actual misstatements
*There is an unacceptably high risk that the tolerable misstatement is more than the sum of actual misstatements
There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because total projected misstatement exceeds the tolerable misstatement
111
Which of the ff. procedures should an auditor generally perform regarding subsequent events?
*Send second requests to client’s customers who failed to respond to initial accounts receivable confirmation requests
*Compare the latest available interim financial statements with the financial statements being audited
*Review the cut-off bank statements for several months after the year end
*Communicate material weaknesses in the internal control structure to the client’s audit committee
Compare the latest available interim financial statements with the financial statements being audited
112
Which of the ff. part of the auditor’s report affirms the auditor’s independence?
*Opinion paragraph
*Basis for Opinion paragraph
*Signature
*Auditor’s Responsibilities for the Audit of FS
Basis for Opinion paragraph
113
Which of the ff. procedures would a CPA ordinarily perform during audit planning?
*Obtain understanding of the client’s business and industry
*Review the client’s bank reconciliation
*Obtain client’s representation letter
*Review and evaluate the client’s internal control
Obtain understanding of the client’s business and industry
114
An auditor is most likely to rely on knowledge about slow-moving inventory through
*Physical observation of inventory
*Inquiry of sales personnel
*Review of perpetual inventory records
*Inquiry of warehouse personnel
Review of perpetual inventory records
115
The threat that the professional accountant will not appropriately evaluate the results of a previous judgement made or service performed on which the accountant will rely on when forming a judgement as part of providing a current service is:
*Self-review threat
*Advocacy threat
*Familiarity threat
*Self-interest threat
Self-review threat
116
Which of the following best describes “high level of assurance”?
*It refers to the professional accountant having obtained sufficient external and internal appropriate evidence to be satisfied that the subject matter is plausible in the circumstances
*It refers to the professional accountant having obtained evidence based on procedures agreed upon between the practitioner and the intended users to be satisfied that findings be reported to the intended users.
*It refers to the professional accountant having obtained sufficient evidence to conclude that he has no knowledge of any required modifications to be made in the financial statements in order for them to conform of prescribed criteria
*It refers to the professional accountant having obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria.
It refers to the professional accountant having obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria.
117
Which of the ff. persons in the firm assumes the ultimate responsibility for the firm’s system of quality control.
*Engagement partner
*Any one of the above
*Engagement quality control reviewer
*Managing partner
Managing partner
118
A firm’s system of quality control should include policies and procedures that address each of the ff. elements, except
*Monitoring
*Relevant Ethical requirements
*Control environment
*Human resources
Control environment
119
Operational auditing is primarily directed toward:
*The accuracy of data reflected in management's financial records
*Past protection provided by existing internal control
*Future improvements to accomplish the goals of management
*The verification that a company's financial statements are fairly presented
Future improvements to accomplish the goals of management
