1.

The auditor should carry out procedures in order to become aware of any litigation and claims involving the entity which
may have a material effect on the financial statements. Such procedures least likely include
a. Making appropriate inquiries of management including obtaining representations.
b. Reviewing board minutes and correspondence with the entitys lawyers.
c. Examining interest expense accounts.
d. Using any information obtained regarding the entitys business including information obtained from discussions with
any in-house legal department.

2.

The objective of a review of financial statements is

a. To enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in
accordance with generally accepted accounting principles in the Philippines.
b. For the auditor to carry out procedures of an audit nature to which the auditor and the entity and any appropriate third
parties have agreed and to report on factual findings.
c. For the accountant to use accounting expertise, as opposed to auditing expertise, to collect, classify and summarize
financial information.
d. To enable an auditor to state whether, on the basis of procedures which do not provide all the evidence that would be
required in an audit, anything has come to the auditor's attention that causes the auditor to believe that the financial
statements are not prepared, in all material respects, in accordance with generally accepted accounting principles in the
Philippines (negative assurance).

3.

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

4.

Which statement is incorrect regarding agreed-upon procedures?

a. Users of the report assess for themselves the procedures and findings reported by the auditor and draw their own
conclusions from the auditors work.
b. The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the
reasons for the procedures, may misinterpret the results
c. The auditor should conduct an agreed-upon procedures engagement in accordance with PSA 920 and the terms of the
engagement.
d. Where the auditor is not independent, a statement to that effect need not be made in the report of factual findings.

5.

Prior to the acceptance of an audit engagement with a client who has terminated the services of the predecessor auditor, the
CPA should
a. Contact the predecessor auditor without advising the prospective client and request a complete report of the
circumstance leading to the termination with the understanding that all information disclosed will be kept confidential.
b. Accept the engagement without contacting the predecessor auditor since the CPA can include audit procedures to verify
the reason given by the client for the termination.
c. Not communicate with the predecessor auditor because this would in effect be asking the auditor to violate the
confidential relationship between auditor and client.
d. Advise the client of the intention to contact the predecessor auditor and request permission for the contact.

6.

Which of the following is a NOT valid reason for a change of the engagement to a lower level of assurance?
a. Change in circumstances affecting the need for the service.
b. Restriction on the scope of the engagement.
c. Misunderstanding as to the nature of the engagement originally requested.
d. The clients need is satisfied by an engagement that provides lower level of assurance.

7.

Which of the following actions may be appropriate if the auditor is unable to agree to a change of the engagement and is not
permitted to continue the original engagement?
i. Issue a qualified opinion due to a significant scope limitation.
ii. Auditor should withdraw from the engagement.
iii. Consider whether there is any obligation to report to the board of directors or shareholders the
circumstances necessitating withdrawal
a. I only
b. I and II

c.
d.

II and III
I, II and III

8.

Fraudulent financial reporting involves intentional misstatements or omissions of amounts or disclosures in financial
statements to deceive financial statement users. Fraudulent financial reporting least likely involve
a. Deception such as manipulation, falsification, or alteration of accounting records or supporting documents from which
the financial statements are prepared.
b. Misrepresentation in, or intentional omission from, the financial statements of events, transactions or other significant
information.
c. Intentional misapplication of accounting principles relating to measurement, recognition, classification, presentation, or
disclosure.
d. Embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for goods and services not
received.

9.

Which of the following statements describes why a properly designed and executed audit may not detect a material fraud?
a. Audit procedures that are effective for detecting an unintentional misstatement may be ineffective for an intentional
misstatement that is concealed through collusion.
b. An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility
concerning material fraud.
c. The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low
risk of unintentional errors in the financial statements.
d. The auditor did not consider factors influencing audit risk for account balances that have pervasive effects on the
financial statements taken as a whole.

10. Which statement is incorrect regarding PSA 260?

a. The purpose of this PSA is to establish standards and provide guidance on communication of audit matters arising from
the audit of financial statements between the auditor and those charged with governance of an entity.
b. These communications relate to audit matters of governance interest as defined in this PSA.
c. This PSA provides guidance on communications by the auditor to parties outside the entity, for example, external
regulatory or supervisory agencies.
d. All the above statements are correct.