Since 1977
AUDITING THEORY
AT.1522-Comprehensive Drill
MULTIPLE CHOICE
Republic Act No. 9298
1. Which of the following is required for a partnership for
public accountancy practice?
a. At least one of the partners must be a CPA.
b. All partners must be PICPA members.
c. All partners must be CPAs.
d. Firm name must contain names of partners only.
2. The CPA Registration Number shall be engraved in
what part of the CPAs seal?
a. Upper portion of the space between the
bigger and smaller circle.
b. Lower portion of the space between the
bigger and smaller circle.
c. Left and right portion of the space between
the bigger and smaller circle and in the middle of
the smaller circle.
d. Middle of the smaller circle.
3. Which statement is incorrect regarding CPE
requirements for renewal of professional license?
a. The total CPE credit units required for CPAs shall
be sixty (60) units for three (3) years, provided
that a minimum of fifteen (15) credit units shall be
earned in each year.
b. A registered professional shall be permanently
exempted from CPE requirements upon reaching
the age of 65 years old.
c. A registered professional who is working abroad
shall be temporarily exempted from compliance
with CPE requirement during his/her stay abroad,
provided that he/she has been out of the country
for at least one year immediately prior to the date
of renewal.
d. Those who failed to renew professional licenses for
a period of five (5) continuous years from initial
registration, or from last renewal shall be declared
delinquent.
Code of Ethics
4. In relation to the AICPAs Code of ethics, the IFACs
Code of ethics
a. has more outright prohibitions
b. has fewer outright prohibitions
c. has no outright prohibitions
d. applies only to professional accountants in
business
5. Ethically, the auditor could
a. Advertise only as to his expertise in preparing
income tax returns.
b. Base his audit fee on a percentage of the proceeds
of his client's stock issue.
c. Own preferred stock in a corporation which is an
audit client.
d. Perform an examination for a financially distressed
client at less than his customary fees.
6. Warner, CPA, places a 2 x 2 display advertisement in
a national financial newspaper. The advertisement
reads: Wanted: Outgoing CPA with partnership
potential. Must have 5 years experience in a tax
department of a CPA firm. Reply Box 1940. Under
the Code of Professional Ethics such an advertisement
would
a. Violate the provisions dealing with advertising.
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L. R. CABARLES
OCTOBER 2013
b. Violate the provisions dealing with specialization.
c. Violate the provisions dealing with encroachment.
d. Not be a violation.
7. May a CPA hire for the CPAs public accounting firm a
non-CPA systems analyst who specializes in developing
computer systems?
a. Yes, provided the CPA is qualified to perform each
of the specialists tasks.
b. Yes, provided the CPA is able to supervise the
specialist and evaluate the specialists end product.
c. No, because non-CPA professionals are not
permitted to be associated with CPA firms in public
practice.
d. No, because developing computer systems is not
recognized as a service performed by public
accountants.
8. After beginning an audit of a new client, Larkin, CPA,
discovers that the professional competence necessary for
the engagement is lacking. Larkin informs management
of the situation and recommends another CPA, and
management engages the other CPA. Under these
circumstances
a. Larkin's lack of competence should be construed to
be a violation of GAAS.
b. Larkin may request compensation from the client for
any professional services rendered to it in connection
with the audit.
c. Larkin's request for a commission from the other
CPA is permitted because a more competent audit
can now be performed.
d. Larkin may be indebted to the other CPA since the
other CPA can collect from the client only the
amount the client originally agreed to pay Larkin.
9. In which of the following circumstances would a CPA be
bound to refrain from disclosing confidential
information obtained during a professional
engagement?
a. The CPA is issued a summons enforceable by a
court order that orders the CPA to present
confidential information.
b. A major stockholder of a client company seeks
accounting information from the CPA after
management declined to disclose the information.
c. Confidential client information is made available as
part of a quality review of the CPA's practice by a
review team authorized by the BOA/PICPA.
d. An inquiry by a disciplinary body of PICPA requests
confidential client information.
AASC and its Pronouncements
10. Which statement is incorrect regarding AASC?
a. The AASC shall be composed of 14 members plus a
chairman
b. The chairman and members of the AASC shall be
appointed by PRC upon the recommendation of
BOA
c. The chairman and members of the AASC shall have
a non-renewable term of 3 years
d. The chairman should have been or presently a
senior practitioner in public accountancy
11. Which of the following is true of Practice Statements?
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a. These statements are intended to replace
standards
b. These statements are intended to have the
authority of the standards
c. These statements are issued to provide practical
assistance to auditors in implementing the
standards
d. These are form of interpretation issued by the
AASC
12. The exposure period allowed for each exposure draft of
PSA to be considered by the organizations and persons
to whom it is sent for comment is generally
a. 120 days c. 60 days
b. 90 days d. 180 days
Fundamentals of Assurance and Non-assurance
Services
13. Which statement is (are) correct regarding assurance
engagements?
a. It is an engagement in which a practitioner
expresses a conclusion designed to enhance the
degree of confidence of the intended users other
than the responsible party about the outcome of
the evaluation or measurement of a subject matter
against criteria.
b. All engagements performed by professional
accountants are assurance engagements.
c. Whether a particular engagement is an assurance
engagement will depend upon whether it exhibits
all the following elements - a three party
relationship, a subject matter and suitable criteria.
d. All of the above
14. A service that always requires that a report be
provided to a third party is
a. Assurance c. Audit
b. Attestation d. Both b and c.
Quality Controls
15. The policies and procedures adopted by a firm to
provide reasonable assurance that all audits done by
the firm are being carried out in accordance with the
Objective and General Principles Governing an Audit of
Financial Statements.
a. Internal controls c. Peer review
b. Quality controls d. General controls
16. Quality control policies and procedures are designed to
ensure that all audits are conducted in accordance with
PSAs or relevant national standards or practices.
These policies and procedures should be implemented.
a. At the audit firm level only.
b. On individual audits only.
c. Either at the audit firm level or on individual
audits.
d. Both at the audit firm level and on individual
audits.
17. The implementation of quality control procedures that
are applicable to the individual audit engagement is
the responsibility of the
a. CPA firm
b. Engagement quality control review
c. Engagement team
d. Expert contracted by the firm in connection with
the audit engagement
18. Before accepting an audit engagement, a successor
auditor should make specific inquiries of the
predecessor auditor regarding the predecessors
a. opinion of any subsequent events occurring since
the predecessors audit report was issued
b. understanding as to the reasons for the change of
auditors
c. awareness of the consistency in the application of
GAAP between periods
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d. evaluation of all matters of continuing accounting
significance
19. This quality control element requires a CPA firm to
establish policies and procedures to provide it with
reasonable assurance that engagements are performed
in accordance with professional standards and
regulatory and legal requirements, and that the firm or
the engagement partner issue reports that are
appropriate in the circumstances.
a. Ethical requirements c. Monitoring
b. Engagement performance d. Human resources
20. A process designed to provide an objective evaluation,
before the auditors report is issued, of the significant
judgments the engagement team made and the
conclusions they reached in formulating the auditors
report.
a. Peer review
b. Management review
c. Engagement quality control review
d. Concurring review
Introduction to Auditing
21. Which one of the following is most difficult to evaluate
objectively?
a. Presentation of financial statements in accordance
with generally accepted accounting principles.
b. Compliance with government regulations.
c. Efficiency and effectiveness of operations.
d. All three of the above are equally difficult.
22. Which of the following is least likely an application of
maintaining an attitude of professional skepticism?
a. The auditor does not consider representations from
management as substitute for obtaining sufficient
appropriate audit evidence to be able to draw
reasonable conclusions on which to base the audit
opinion.
b. In planning and performing an audit, the auditor
assumes that management is dishonest.
c. The auditor is alert to audit evidence that
contradicts or brings into question the reliability of
documents or management representations.
d. The auditor makes a critical assessment, with a
questioning mind, of the validity of audit evidence
23. An audit is conducted on the premise that
management and, where appropriate, those charged
with governance, have acknowledged and understand
that they have responsibilities that are fundamental to
the conduct of an audit in accordance with PSAs.
Which of the following is not one of those
responsibilities?
a. To provide the auditor unrestricted access to
persons within and outside the entity from which
the auditor determines it necessary to obtain audit
evidence
b. The preparation and presentation of financial
statements in accordance with an identified
financial reporting framework
c. The establishment and maintenance of internal
control relevant to the preparation and
presentation of financial statements that is free
from material misstatement, whether due to fraud
or error
d. To provide complete information to the auditor.
24. The following are the general principles governing an
audit of FS Audit, except
a. Independence c. Confidentiality
b. Professionalism d. Professional behavior
25. The expectation gap is made up of the standards gap
and the performance gap. Which of the following best
describes the standards gap?
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a. The difference between the publics assessment of d. A significant change in the nature or size of the
the performance by auditors and what the client's business.
standards require of auditors
33. Which of the following is not included in an
b. The difference between what current standards
engagement letter?
require and auditors actual performance
a. Restriction on cash balances, lines of credit by
c. The difference between the publics expectation of
similar arrangements
auditors and what the standards require of
b. Accessibility to all financial records
auditors
c. Client imposed limitation in the scope
d. The difference between the publics expectation of
d. Limitation in the scope of examination as imposed
auditors and the publics assessment of auditors
by circumstances
actual performance
Audit Evidence and Documentation 34. The form and content of audit engagement letters may
AUDIT EVIDENCE (PSA 500) vary for each client, but they would generally include
26. Other information that the auditor may use as audit reference to the following, except
evidence least likely includes a. The objective of the audit of financial statements.
a. Minutes of meetings. b. Auditors responsibility for the financial statements.
b. Confirmation from third parties. c. The form of any reports or other communication of
c. Information obtained by the auditor from such results of the engagement.
audit procedures as inquiry, observation, and d. Unrestricted access to whatever records,
inspection. documentation and other information requested in
d. Adjustments to the financial statements that are connection with the audit.
not reflected in formal journal entries.
Audit Planning
27. Which of the following generalizations in assessing the 35. The nature and extent of planning will vary according
reliability of audit evidence is incorrect? the following, except
a. Audit evidence is more reliable when it is obtained a. Size of the auditing firm
from independent sources outside the entity. b. Complexity of the entity
b. Audit evidence that is generated internally is not c. Auditors experience with the entity
affected by the effectiveness of the controls d. Changes in circumstances that occur during the
imposed by the entity. audit engagement
c. Audit evidence obtained directly by the auditor is
36. The following are the matters to be considered by the
more reliable than audit evidence obtained
auditor in establishing the overall audit strategy,
indirectly or by inference.
except
d. Audit evidence is more reliable when it exists in
a. Defining the scope of the examination
documentary form.
b. Assess risk and materiality
AUDIT DOCUMENTATION (PSA 230) c. Computation of audit fees
28. The permanent (continuing) file of an auditors working d. Ascertaining the reporting objectives of the
papers most likely would indicate copies of the engagement
a. Bank statements c. Lead schedules
37. It serves as a set of instructions to assistants involved
b. Debt agreements d. Attorneys letters
in the audit and as a means to control the proper
29. No deletions of audit documentation are allowed after execution of the work.
the a. Audit program c. Engagement letter
a. Client's year-end. b. Overall audit plan d. Control questionnaire
b. Documentation completion date.
38. Refers to the audit procedures deemed necessary in
c. Last date of significant fieldwork.
the circumstances to achieve the objective of the audit.
d. Report release date.
a. Scope of an audit c. Audit program
30. Audit documentation may be recorded on paper or on b. Scope of a review d. Scope limitation
electronic or other media. Examples of audit
Materiality and Risks
documentation include the following, except:
39. Inherent risk and control risk differ from detection risk
a. Audit programs c. Control manuals
in that inherent risk and control risk are
b. Analyses d. Issues memoranda
a. elements of audit risk while detection risk is not
Preliminary Engagement Activities b. changed at the auditors discretion while detection
31. Which of the following factors do not influence the risk is not
decision of the auditor to send a separate engagement c. considered at the individual account-balance while
letter to the parent entity and its component detection risk is not
(subsidiary, branch or division) assuming the same d. functions of the client and its environment while
auditor handles both entities? detection risk is not
a. legal requirements
40. Since materiality is relative, it is necessary to have
b. degree of ownership by parent
bases for establishing whether misstatements are
c. ethical requirements
material. Normally, the most common base for
d. whether a separate audit report is to be issued on
deciding materiality is:
the component
a. net income before taxes. c. total assets.
32. Assuming a recurring audit, in which of the following b. net working capital. d. profit after taxes.
situations would the auditor be unlikely to send a new
Understanding the Entity and its Environment
engagement letter to the client?
41. The auditor should perform the following risk
a. A recent change in partner and/or staff involved in
assessment procedures to obtain an understanding of
the audit engagement.
the entity and its environment, including its internal
b. A change in the terms of engagement.
control, except:
c. A recent change of client management.
a. Inquiries of management and others within the
entity

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EXCEL PROFESSIONAL SERVICES, INC.
b. External confirmation
c. Analytical procedures
d. Observation and inspection
42. Inquiries directed towards those charged with
governance may most likely
a. Relate to their activities concerning the design and
effectiveness of the entitys internal control and
whether management has satisfactorily responded
to any findings from those activities
b. Help the auditor in understanding the environment
in which the financial statements are prepared
c. Relate to changes in the entitys marketing
strategies, sales trends or contractual
arrangements with its customers
d. Help the auditor in evaluating the appropriateness
of the selection and application of certain
accounting policies
ANALYTICAL PROCEDURES (PSA 520)
43. Analytical procedures enable the auditor to predict the
balance or quantity of an item under audit.
Information to develop this estimate can be obtained
from all of the following, except
a. Comparison of financial data with data for
comparable prior periods, anticipated results (e.g.,
budgets and forecasts), and similar data for the
industry in which the entity operates.
b. Study of the relationships of elements of financial
data that would be expected to conform to a
predictable pattern based upon the entitys
experience.
c. Study of the relationships of financial data with
relevant nonfinancial data.
d. Tracing transactions through the system to
determine whether procedures are
44. Auditor try to identify predictable relationships when
using the analytical procedures. Relationships
involving transactions from which of the following
accounts most likely would yield the highest level of
evidence.
a. Accounts payable c. Accounts receivable
b. Advertising expense d. Payroll expense
45. Analytical procedures are used for the following
purposes:
a. To assist the auditor in assessing the risk of
material misstatements of the FS
b. As a substantive test to obtain evidential matter
about particular assertion related to account
balances or classes of transaction.
c. As an overall review of financial information in the
final review stage of the audit.
d. All of the above.
Understanding the Entitys Internal Control
46. Control environment
a. Consists of the policies and procedures that help
ensure that management directives are carried
out.
b. Includes the governance and management
functions and the attitudes, awareness, and
actions of those charged with governance and
management concerning the entitys internal
control and its importance in the entity.
c. Is the entitys process for identifying business risks
relevant to financial reporting objectives and
deciding about actions to address those risks, and
the results thereof.
d. Consists of the procedures and records established
to initiate, record, process, and report entity
transactions (as well as events and conditions) and
to maintain accountability for the related assets,
liabilities, and equity.
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47. Which of the following is not useful for obtaining an
understanding of internal controls?
a. Make inquiries of the clients personnel.
b. Examine documents and records.
c. Read industry trade magazines.
d. Observe client activities and operations.
48. The following are the different techniques in
documenting the auditors understanding of the clients
internal control system, except
a. Narrative c. Flowchart
b. Questionnaires d. Procedures manual
Transaction Cycles and Related Controls
Revenue and Receipt Cycle
49. An auditor is reviewing internal control for accounts
receivable:
I. The billing function should not be assigned to the
person who is responsible for maintaining accounts
receivable records.
II. Responsibility for approval of the write-off of
accounts receivable that are uncollectible should
not be assigned to the cashier.
a. Only I is true c. Both I and II are true
b. Only II is true d. Neither I nor II is true
50. Which of the following would best protect a company
that wishes to prevent lapping?
a. Segregating duties so that accounting has no
access to an incoming mail
b. Segregating duties so that no employee has access
both to checks from customers and to currency
from daily cash receipts
c. Having customers send payments directly to the
companys bank
d. Requesting that customers checks be made
payable to the company and be addressed to the
treasurer
Expenditure and Disbursement Cycle
51. Internal control is improved when the quantity of
merchandise ordered is omitted from the copy of the
purchase order sent to the
a. Department that initiated the requisition
b. Receiving department
c. Purchasing agent
d. Accounts payable department
52. When goods are received, the receiving clerk should
match the goods with the
a. Purchase order and requisition.
b. Vendors invoice and the receiving report.
c. Vendors shipping document and the purchase
order.
d. Receiving report and the vendors shipping
documents.
53. The accounts payable department should compare the
information on each vendors invoice with the
a. Receiving report and the purchase order.
b. Receiving report and the vendor.
c. Vendors packing slip and the purchase order.
d. Vendors packing slip and the voucher.
54. The mailing of disbursement checks and remittance
advices should be controlled by the employee who
a. Signed the checks last
b. Approved the vouchers for payment
c. Matched the receiving reports, purchase orders,
and vendor invoices
d. Verified the mathematical accuracy of the vouchers
and remittance advices
55. Which of the following would prevent a paid
disbursement from being paid a second time?
a. Individuals responsible for signing checks should
prepare vouchers.
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b. Disbursements should be approved by at least two a. Emphasizing to the audit team the need to
responsible officials. maintain professional skepticism in gathering and
c. The disbursement date should be within a few days evaluating audit evidence
of the date the voucher is presented for payment. b. Assigning more experienced staff or those with
d. The official signing the check should cancel the special skills or using experts.
supporting documents. c. Incorporating additional elements of
unpredictability in the selection of further audit
Investing and Financing Cycle
procedures to be performed.
56. A company holds bearer bonds as a short-term
d. Performing substantive procedures at an interim
investment. Responsibility for custody of these bonds
date instead of at period end.
and submission of coupons for periodic interest
collections probably should be delegated to the 64. The auditor should design and perform further audit
a. Chief accountant c. Cashier procedures whose nature, timing, and extent are
b. Internal auditor d. Treasurer responsive to the assessed risks of material
misstatement at the assertion level. Which of the
57. When no independent stock transfer agents are following is the most important consideration in
employed and the corporation issues its own stocks responding to the assessed risks?
and maintains stock records, canceled stock a. The nature of the audit procedures
certificates should b. The extent of the audit procedures
a. Not be defaced but segregated from other stock c. The timing of the audit procedures
certificates and retained in a canceled certificates d. All of these are equally important
file. 65. A procedure that would least likely be used by an auditor
b. Be destroyed to prevent fraudulent reissuance. in performing tests of control is
c. Be defaced and sent to the secretary of state. a. Inspection. c. Observation.
d. Be defaced to prevent reissuance and attached to b. Reperformance. d. Recalculation
their corresponding stubs.
66. As the acceptable level of detection risk decreases an
Personnel and Payroll auditor may
58. Which of the following departments most likely would a. Reduce substantive testing by relying on the
approve changes in pay rates and deductions from assessments of inherent risk and control risk.
employee salaries? b. Postpone the planned timing of substantive tests
a. Personnel c. Controller from interim dates to the year-end.
b. Treasurer d. Payroll c. Eliminate the assessed level of inherent risk from
Identifying and Assessing Risks of Material consideration as a planning factor.
Misstatement d. Lower the assessed level of control risk from the
59. Which of the following conditions and events may most maximum level to below the maximum.
likely indicate the existence of risks of material 67. Which of the following is the best example of a
misstatements? substantive test?
a. Having personnel with appropriate accounting and a. Examining a sample of cash disbursements to test
financial reporting skills. whether expenses have been properly approved.
b. Accounting measurements that involve simple b. Confirmation of balances of accounts receivable.
processes c. Comparison of signatures on checks to a list of
c. Significant amount of routine or systematic authorized signers.
transactions d. Flowcharting of the clients cash receipts system.
d. Constraints on the availability of capital and credit
68. A high-level view of how much risk management and
60. An identified and assessed risk of material the board are willing to accept
misstatement that in the auditors judgment require a. Tolerable error c. Risk tolerance
special audit consideration b. Risk appetite d. Risk management
a. Business Risk c. Significant Risk
b. Inherent Risk d. Sampling Risk 69. The acceptable level of variation around objectives of
Enterprise Risk Management
61. Assertions about classes of transactions and events for a. Tolerable error c. Risk tolerance
the period under audit least likely include b. Risk appetite d. Risk management
a. Transactions and events that have been recorded
have occurred and pertain to the entity. Specific Substantive Audit Procedures
b. All transactions and events that should have been Audit of Cash
recorded have been recorded. 70. Cash receipts should be deposited on the day of receipt
c. Transactions and events have been recorded in the or the following business day. Select the most
correct accounting period. appropriate audit procedure to determine that cash is
d. All assets, liabilities and equity interests that promptly deposited.
should have been recorded have been recorded. a. Review the functions of cash receiving and
disbursing for proper separation of duties.
62. Which of the following is not a financial statement as- b. Review cash register tapes prepared for each sale.
sertion relating to account balances? c. Review the functions of cash handling and
a. Completeness. c. Rights and obligations. maintaining accounting records for proper
b. Existence. d. Valuation and competence. segregation of duties.
Responding to Assessed Risks d. Compare the daily cash receipts totals with the
63. The auditor should determine overall responses to bank deposits
address the risks of material misstatement at the 71. The primary evidence regarding year-end bank
financial statement level. Such responses least likely balances is documented in the
include a. Standard bank confirmations
b. Bank reconciliations
c. Interbank transfer schedule

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EXCEL PROFESSIONAL SERVICES, INC.
d. Bank deposit lead schedule
Audit of Receivables
72. Which of the following statements is correct concerning
the use of negative confirmation requests?
a. Unreturned negative confirmation requests rarely
provide significant explicit evidence.
b. Negative confirmation requests are effective when
detection risk is low.
c. Unreturned negative confirmation requests indicate
that alternative procedures are necessary.
d. Negative confirmation requests are effective when
understatements of account balances are
suspected.
73. It is sometimes impracticable or impossible for an
auditor to use normal accounts receivable confirmation
procedures. In such situations, the best alternative
procedure the auditor might resort to would be
a. Examining subsequent receipts of year-end
accounts receivable.
b. Reviewing accounts receivable aging schedules
prepared at the balance sheet date and at a
subsequent date.
c. Requesting that management increase the
allowance for uncollectible accounts by an amount
equal to some percentage of the balance in those
accounts that cannot be confirmed.
d. Performing an overall analytic review of accounts
receivable and sales on a year-to-year basis.
Audit of Inventory
74. After accounting for a sequence of inventory tags, an
auditor traces a sample tags to the physical inventory
listing to obtain evidence that all items
a. Included in the listing have been counted.
b. Represented by inventory tags are included in the
listing.
c. Included in the listing are represented by inventory
tags.
d. Represented by inventory tags are bona fide.
75. Which of the following audit procedures would provide
the least reliable evidence that the client has legal title
to inventories?
a. Confirmation of inventories at locations outside the
clients facilities
b. Analytical review of inventory balances compared
to purchasing and sales activities
c. Observation of physical inventory counts
d. Examination of paid vendors invoices
Audit of Investments
76. To establish the existence and ownership of a long-
term investment in the common stock of a publicly-
traded company, an auditor ordinarily performs a
security count or
a. Relies on the clients internal accounting controls, if
the auditors procedures are being applied as
prescribed.
b. Confirms the number of shares owned that are
held by an independent custodian.
c. Determine the market price per share at the
balance sheet date from published quotation.
d. Confirms the number of shares owned with the
issuing company.
77. When an auditor is unable to inspect and count a
clients investment securities until after the balance
sheet date, the bank where the securities are held in a
safe deposit box should be asked to
a. Verify any differences between the contents of the
box and the balances in the clients subsidiary
ledger.
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b. Provide a list of securities added and removed from
the box between the balance sheet and the
security-count date.
c. Confirm that there has been no access to the box
between the balance sheet date and the security-
count date.
d. Count the securities in the box so that the auditor
have an independent direct verification.
78. An auditor would most likely verify the interest earned
on bond investments by
a. Vouching the receipt and deposit of interest
checks.
b. Confirming the bond interest rate with the issuer of
the bonds
c. Recomputing the interest earned on the basis of
face amount, interest rate and period held.
d. Testing the internal controls over cash receipts.
Audit of PPE
79. When there are few property and equipment
transactions during the year, the continuing auditor
makes a
a. Complete review of the related internal accounting
controls and performs compliance test of controls
being relied upon.
b. Complete review of the related internal accounting
controls and performs analytical review tests to
verify the current year additions to property and
equipment.
c. Preliminary review of the related internal
accounting controls and performs a thorough
examination of the balance at the beginning of the
year.
d. Preliminary review of the related internal
accounting controls and performs extensive tests
of current year property and equipment
transactions.
Audit of Liabilities
80. Which of the following procedures would an auditor
most likely perform in searching for unrecorded
payables?
a. Reconcile receiving reports with related cash
payments made just prior to year-end.
b. Contrast the ratio of accounts payable to purchases
with the prior years ratio.
c. Vouch a sample of creditor balances to supporting
invoices, receiving reports, and purchase orders.
d. Compare the cash payments occurring after the
balance sheet date with the accounts payable trial
balance.
Audit of SHE
81. When a clients company does not maintain its own
stock records, the auditor should obtain written
confirmation from the transfer agent and the registrar
concerning:
a. Restrictions on the payment of dividends
b. The number of shares issued and outstanding
c. Guarantees of preferred stock liquidation value
d. The number of shares subject to agreements to
repurchase
Audit of Litigations, Claims and Assessments
82. The refusal of a clients lawyer to provide a
representation on the legality of a particular act
committed by the client is ordinarily
a. Sufficient reason to issue a subject to opinion.
b. Considered to be a scope limitation.
c. Insufficient reason to modify the auditors report
because of the lawyers obligation of
confidentiality.
d. Proper grounds to withdraw from the management.
Audit Sampling
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83. The risk that the auditors conclusion based on a
sample may be different from the conclusion if the
entire population were subjected to the same audit
procedure
a. Sampling risk
b. Confidence levels
c. Statistical sampling
d. Tolerable rate and the expected rate of deviation
84. Which of the following is not an element of
nonsampling risk, which is defined as the risk that the
auditor does not recognize misstatements or deviations
included in the sample for what they are?
a. The auditor uses inappropriate procedures in
auditing accounts receivable
b. The use of unreasonable small sample size
c. Misinterpretations of audit evidence
d. Auditor fails to recognize the error in the sample
85. At times a sample may indicate in the case of a test of
details that a material misstatement does not exist
when in fact it does. This situation illustrates the risk of
a. incorrect rejection c. over reliance
b. incorrect acceptance d. under reliance
86. In assessing sampling risk, the risk of assessing
control risk too high (under reliance) and risk of
incorrect rejection relate to the
a. Efficiency of the audit.
b. Effectiveness of the audit.
c. Selection of the sample.
d. Audit quality controls.
87. Which of the following statements is correct concerning
statistical sampling in tests of controls?
a. There is an inverse relationship between the
sample size and the expected control deviation
rate.
b. As the population size doubles, the sample size
should also double.
c. The qualitative aspects of deviations are not
considered by the auditor.
d. There is an inverse relationship between the
sample size and the tolerable rate of deviation.
88. Which of the following is correct about sampling risks?
a. The risk of incorrect acceptance relates to the
efficiency of the audit.
b. The risk of assessing control risk too low relates to
the efficiency of the audit.
c. Sampling risk includes the auditors failure to
recognize errors in the documents examines for
the chosen sample.
d. The likelihood of assessing control risk too high is
the risk that the sample selected to test controls
are less effective than they actually are
89. If all other factors specified in a variables sampling
plan remain constant, increasing the acceptable risk of
incorrect acceptance would cause the required sample
size to
a. Decrease. c. Increase.
b. Remain the same. d. Become indeterminate.
The Auditor's Responsibilities to Fraud and Error and
Non-compliance
90. The primary responsibility for the prevention and
detection of fraud and error rests with.
a. The auditor
b. Those charged with governance
c. The management of an entity
d. Both b and c
91. The following are examples of circumstances that may
indicate the possibility that the financial statements
may contain a material misstatement resulting from
fraud, except
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a. Undue time pressures imposed by management to
resolve complex or contentious issues.
b. Complaints by management about the conduct of
the audit or management intimidation of
engagement team members.
c. Usual delays by the entity in providing requested
information
d. An unwillingness to address identified weaknesses
in internal control on a timely basis.
92. Based on PSA 240 Redrafted, in a financial statement
audit, the auditor should consider categories of fraud
risk factors relating to misstatements arising from (1)
fraudulent financial reporting and (2) misappropriation
of assets. Which of the following is not a category of
fraud risk factors in relation to misstatements arising
from misappropriation of assets?
a. Opportunities c. Pressures/Incentives
b. Controls d. Attitudes/Rationalizations
93. According to PSA 240 Redrafted, the auditor may
consider withdrawing from the engagement
a. When the entity does not take the remedial action
regarding fraud, even if it not material to the
financial statements.
b. If the fraud is perpetrated through the connivance
of some employees
c. When the fraudulent act affects the financial
statements, even if such effect is reflected in the
financial statements
d. When the auditor is unable to gather evidence that
will corroborate his suspicion that possible
occurrence of fraud may have materially affected
the financial statements
94. The following are conditions that non-compliance may
have occurred, except
a. Payments for unspecified services or loans to
consultants, related parties, employees or
government employees
b. Existence of an accounting system which fails,
whether by design or by accident, to provide an
adequate audit trail or sufficient evidence.
c. Payments without proper exchange control
documentation.
d. Sales commissions or agent's fees that appear
reasonable in relation to those ordinarily paid by
the entity or in its industry or to the services
actually received.
Completing the Audit and Post-audit Responsibilities
Subsequent Events
95. Which of the following is least likely a procedure that
would be performed by the auditor near the auditors
report date?
a. Reviewing the procedures that management has
established to ensure that subsequent events are
identified.
b. Inquiring of management as to whether any
subsequent events have occurred which might
affect the financial statements.
c. Reading the minutes of the meetings of
shareholders, the BOD and audit executive
committees held throughout the audit year.
d. Reading/comparing the entitys latest available
interim financial statements.
Going Concern Considerations
96. What is the auditors responsibility of detecting
significant doubt about the entitys ability to continue
as a going concern?
a. Analyze the ability of the company to generate
cash flows.
b. The auditor should make extensive analytical
procedures.
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c. Consider those events that may require disclaimer
of opinion.
d. The auditor should inquire of management of
indication of those events or conditions.
Written Representations
97. When considering the use of managements written
representations as audit evidence about the
completeness assertion, an auditor should understand
that such representations
a. Complement, but do not replace, substantive tests
designed to support the assertion.
b. Constitute sufficient evidence to support the
assertion when considered in combination with a
sufficiently low assessed level of control risk.
c. Are not part of the evidence considered to support
the assertion.
d. Replace a low assessed level of control risk as
evidence to support the assertion.
98. A management representation letter would ordinarily
be dated as of the
a. Date the report is delivered to the entity audited.
b. Date of the audit report
c. Balance sheet date of the latest period reported
on.
d. Date a letter of audit inquiry is received from the
entitys attorney of record.
99. For which of the following matters should an auditor
obtain written management representations?
a. Managements cost-benefit justifications for not
correcting internal control weaknesses.
b. Managements knowledge of future plans that may
affect the price of the entitys stock.
c. Managements compliance with contractual
agreements that may affect the financial
statements.
d. Managements acknowledgment of its responsibility
for employees violations of laws.
Communication with Those Charged with Governance
100. Which of the following should be communicated by
the auditor to the audit committee?
a. auditor's responsibilities under GAAP
b. significant accounting policies
c. all significant audit adjustments
d. all are required communications
101. Which of the following statements is correct
concerning an auditors required communication with
an entitys audit committee?
a. This communication is required to occur before the
auditors report on the financial statements is
issued.
b. This communication should include discussion of
any significant disagreements with management
concerning the financial assertions.
c. Any significant matter communicated to the audit
committee also should be communicated to
management.
d. Significant audit adjustments proposed by the
auditor and recorded by management need not be
communicated to the audit committee.
102. Which statement is incorrect regarding the
auditors communications of audit matters with those
charged with governance?
a. The auditors communications of matters include
all audit matters of governance interest.
a. An audit of financial statements is not designed to
identify all matters that may be relevant to those
charged with governance.
b. The auditors communications with those charged
with governance may be made orally or in writing.
c. None of the above.
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103. Which of the following statements is correct
concerning significant deficiencies in an audit?
a. An auditor is required to search for significant
deficiencies during an audit.
b. All significant deficiencies are also considered to be
material weaknesses.
c. An auditor may communicate significant
deficiencies during an audit or after the audit's
completion.
d. An auditor may report that no significant
deficiencies were noted during an audit.
104. An auditor would least likely initiate a discussion
with those charged with governance of an audit client
concerning
a. The methods used to account for significant un-
usual transactions.
b. The maximum peso amount of misstatements that
could exist without causing the financial state-
ments to be materially misstated.
c. Indications of fraud and illegal acts committed by a
corporate officer that were discovered by the
auditor.
d. Disagreements with management as to accounting
principles that were resolved during the current
year's audit.
105. Which of the following matters is an auditor
required to communicate to an entity's audit
committee?
I. Disagreements with management about matters
significant to the entity's financial statements that
have been satisfactorily resolved.
II. Initial selection of significant accounting policies in
emerging areas that lack authoritative guidance.
a. I only. c. Both I and II.
b. II only. d. Neither I nor II.
The Auditors Opinions and Reports
106. An auditors responsibility to express an opinion on
the financial statements is
a. Implicitly represented in the auditors report.
b. Explicitly represented in the Auditors
Responsibility paragraph of the auditors report.
c. Explicitly represented in the Managements
Responsibility paragraph of the auditors report.
d. Explicitly represented in the opinion paragraph of
the auditors report.
107. The following statements relate to the date of the
auditors report. Which is false?
a. The auditor should date the report as of the
completion date of the audit
b. The date of the auditors report should not be
earlier than the date on which the financial
statements are signed or approved by
management
c. The date of the auditors report should not be later
than the date on which the financial statements
are signed or approved by management.
d. The date of the auditors report should always be
later than the date of the financial statements (i.e.,
the balance sheet date).
108. Which of the following is not a reason to issue a
modified audit report with opinion other than
unqualified opinion?
a. The scope of the auditors work is restricted by the
client.
b. The amount of inventories at cost as presented in
the balance sheet significantly exceeded their
market values.
c. Certain significant matter is omitted from either
the financial statements or notes to financial
statements.
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d. An adequately disclosed significant uncertainty, the
resolution of which is dependent upon future
events and which may affect the financial
statements.
109. The auditor may continue to express unqualified
opinion though there are modifications made in the
audit report. Which of the following situations, would
the auditor likely modify his opinion?
a. Existence of multiple uncertainties that are
adequately described in the notes to financial
statements.
b. The prior years financial statements were audited
by other CPAs.
c. An important subsidiary whose financial statements
were included in the consolidated financial
statements were audited by other CPAs.
d. A substantial doubt about the clients ability to
continue as a going concern which is adequately
disclosed in the financial statements.
110. When there is a limitation on the scope of the
auditors work that requires a modification of the audit
report:
a. The auditors report should either contain a
qualified or adverse opinion.
b. The auditors report may contain an unqualified
opinion with an emphasis of matter paragraph that
follows the opinion paragraph.
c. The auditors report should describe the limitation
and indicate the possible adjustments to the
financial statements that might have been
determined to be necessary had the limitation not
existed.
d. Should always contain a disclaimer of opinion.
111. An auditor would issue an adverse opinion if
a. The audit was begun by other independent
auditors who withdrew from the engagement.
b. The statements taken as a whole do not fairly
present the financial condition and results of
operations of the company.
c. A qualified opinion cannot be given because the
auditor lacks independence.
d. The restriction on the scope of the audit was
significant.
112. Which of the following least likely requires an
additional explanatory paragraph in an otherwise
unmodified report?
a. Substantial doubt about going-concern ability of
the entity.
b. Emphasis of a matter.
c. Reports involving other auditors.
d. Auditor agrees with change in generally accepted
accounting principles.
113. Subsequent to the date of the financial statements
as part of his post-balance-sheet date audit
procedures, JB, CPA, learned that a recent fire caused
heavy damage to one of a clients two plants; the loss
will not be reimbursed by insurance. The newspapers
described the event in detail. The client did not
disclose the event in the notes to financial statements.
JB most likely would express
a. Either a qualified or disclaimer of opinion.
b. Either a qualified or adverse opinion.
c. A disclaimer of opinion.
d. An unqualified opinion because disclosure in the
financial statements is no longer necessary since
the event was reported in detail in the newspapers.
114. When an auditor expresses an adverse opinion
he/she should disclose the substantive reasons for
such an opinion in an explanatory paragraph.
a. Within the notes to the financial statements
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b. Preceding the opinion paragraph
c. Following the opinion paragraph
d. Preceding the introductory paragraph
115. It exists when other information, not related to
matters appearing in the audited financial statements,
is incorrectly stated or presented.
a. Material inconsistency
b. Material misstatement of fact
c. Material weaknesses
d. Misstatement
116. It exists when other information contradicts
information contained in the audited financial
statements.
a. Material inconsistency
b. Material misstatement of fact
c. Material weaknesses
d. Misstatement
117. When audited financial statements are presented
in a clients document containing other information, the
auditor should
a. Perform inquiry and analytical procedures to
ascertain whether the other information is
reasonable.
b. Add an explanatory paragraph to the auditors
report without changing the opinion on the
financial statements.
c. Perform the appropriate substantive auditing
procedures to corroborate the other information.
d. Read the other information to determine that it is
consistent with the audited financial statements.
118. If an amendment to other information in a
document containing audited financial statements is
necessary and the entity refuses to make the
amendment, the auditor would consider issuing:
a. Qualified or adverse opinion
b. Unqualified opinion with explanatory paragraph
c. Qualified or disclaimer of opinion
d. Unqualified opinion.
119. They are not presented as complete financial
statements capable of standing alone, but are an
integral part of the current period.
a. Corresponding figures
b. Comparative financial statements
c. Supplementary report
d. Notes of financial statements
Other Audit Special Considerations and Reports
120. A report, separate from the financial statements, in
which an entity provides third parties with qualitative
information on the entity's commitments towards the
environmental aspects of the business, its policies and
targets in that field, its achievement in managing the
relationship between its business processes and
environmental risk, and quantitative information on its
environmental performance.
a. Environmental performance report
b. Annual report
c. Environmental risk
d. Special purpose audit report
121. A report issued in connection with the independent
audit of financial information other than an auditor's
report on financial statements.
a. Special purpose auditor's report
b. Compilation report
c. Annual report
d. Modified auditors report
122. Reports are considered special reports when issued
in connection with
a. Compliance with aspects of contractual provisions.
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b. Pro forma financial presentations designed to
demonstrate the effect of hypothetical transactions
c. Feasibility studies presented to illustrate an entitys
results of operations
d. Interim financial information reviewed
determine whether material modifications should
be made to conform with PFRS
123. An auditors report on financial statements
prepared on the cash receipts and disbursements basis
of accounting should include the following
a. A reference to the note to the financial statements
that describes the cash receipts and disbursements
basis of accounting.
b. An opinion as to whether the financial statements
are presented fairly in conformity with the cash
receipts and disbursements basis of accounting.
c. A statement that the audit was conducted in
accordance with PSA.
d. All of the above
Review and Other Assurance Services
124. Which of the following is not included in the scope
paragraph of a review report?
a. A statement that a review is limited primarily to
inquiries and analytical procedures.
b. A reference to PSREs.
c. A statement the review included an evaluation of
reasonableness of accounting estimates made by
management.
d. A statement that an audit has not been performed.
125. Which of the following would not be included in an
accountants report based upon a review of the
financial statements of a nonpublic entity?
a. A statement that the review was in accordance
with PSAs.
b. A statement that all information included in the
financial statements are the representations of
management
c. A statement describing the principal procedures
performed.
d. A statement describing the accountants
conclusions based upon the results of the review.
126. In a review engagement, if there has been a
material scope limitation, the auditor should describe
the limitation in the review report and either
a. Express a qualification of the negative assurance or
not provide any assurance.
b. Express a qualification of the negative assurance
provided or issue an adverse statement that the
financial statement are not presented fairly.
c. Express an adverse statement that the financial
statements are not presented fairly or the auditor
not issue any assurance.
d. Not modify the negative assurance or not issue an
assurance.
127. A review engagement differs in scope as compared
to an audit due to:
a. the subject matter of the service
b. the quantity and type of evidence obtained
c. ethical requirements with respect to independence
d. the users of the financial statements
128. What is meant by a financial forecast?
a. A prospective financial statement that predicts
entitys expected financial position, results of
operations, and cash flows
b. A prospective financial statement that presents
entitys expected financial position, results of
operations, and cash flows
c. A prospective financial statement that predicts
entitys expected financial position, results of
operations, and cash flows based on one or more
hypothetical assumptions
d. A prospective financial statement that presents an
entitys expected financial position, results of
to operations, and cash flows based on one or more
hypothetical assumptions
129. Which of the following statements concerning
prospective financial statements is correct?
a. Only a financial forecast would normally be
appropriate for limited use.
b. Only a financial projection would normally be
appropriate for general use.
c. Any type of prospective financial statements would
normally be appropriate for limited use.
d. Any type of prospective financial statements would
normally be appropriate for general use.
130. Comfort letters ordinarily are signed by the client's
a. Independent auditor.
b. Underwriter of securities.
c. Audit committee.
d. Senior management.
Related Services
131. Which of the following is not correct concerning
specified parties of an agreed-upon procedures
report under either the auditing or attestation
standards?
a. They must agree on the procedures to be
performed
b. They must take responsibility for the adequacy of
the procedures performed
c. They must sign an engagement latter
d. After completion of the engagement, another party
may be added as a specified user
132. A summary of findings (Report of Factual Findings)
rather than assurance is most likely to be included in
a. Agreed-upon procedures report.
b. Compilation report.
c. Examination report.
d. Review report.
133. An accountant may accept an engagement to apply
agreed-upon procedures to prospective financial
statements provided that:
a. distribution of the report is to be restricted to the
specified users involved.
b. the prospective financial statements are also
examined.
c . responsibility for the adequacy of the procedures
performed is taken by the accountant.
d. negative assurance is expressed on the prospective
financial statements taken as a whole.
134. A compilation report is not required when compiled
financial statements are expected to be used by
a. Management only
b. Management and third parties
c. Third parties only
d. A compilation report is required whenever financial
statements are compiled
135. Contingency fee based pricing of accounting
services is:
a. Always strictly prohibited in public accounting
practice.
an
b. Allowed in an engagement to compile financial
statements.
c. Not prohibited if associated with report based on
an
agreed-upon procedures.
d. Always considered an act discreditable to the
profession.
an
136. An accountant should perform analytical
procedures during an engagement to

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EXCEL PROFESSIONAL SERVICES, INC.

Compile a nonpublic Review a nonpublic b. Constructive fraud is also termed recklessness.

entity's entitys c. Fraud requires the intent to deceive
financial statements financial statements d. All of the following are true
a. No No
148. Which of the following if present, would support a
b. Yes Yes
finding of constructive fraud on the part of a CPA?
c. Yes No
a. Privity of contract c. Reckless disregard
d. No Yes
b. Intent to deceive d. Ordinary negligence
Auditing in CIS Environment
137. It relates to materiality of the financial statement 149. In rare cases auditors have been held liable for
assertions affected by the computer processing. criminal acts, A criminal conviction against an auditor
a. Threshold c. Complexity can result only when it is demonstrated that the
b. Relevance d. Significance auditor
a. was negligent.
138. The possibility of erasing a large amount of b. was grossly negligent.
information stored on magnetic tape most likely would c. intended to deceive or harm others.
be reduced by the use of d. caused financial loss to an innocent third party.
a. File protection rings. c. Completeness tests.
b. Check digits. d. Conversion verification. 150. The principal issue to be resolved in cases
involving alleged negligence is usually
139. In the study and review of a clients EDP internal
a. the amount of the damages suffered by the
control system, the auditor will encounter general
users of the financial statements.
controls and application controls. Which of the
b. whether to impose punitive damages on defendant.
following is an application control?
c. the level of care required to be exercised.
a. Dual read. c. Systems flowchart.
d. whether defendant was involved in fraud.
b. Hash total. d. Control over program changes.
140. When auditing "around" the computer, the 151. Absence of reasonable care that can be expected
independent auditor focuses solely upon the source of a person in a set of circumstances" is the description
documents and of
a. Test data. c. Compliance techniques. a. Ordinary negligence c. Gross negligence.
b. EDP processing. d. EDP output. b. Constructive fraud d. Fraud
141. Which of the processing functions are not 152. A CPA firm is considered independent when it
performed by generalized audit software? performs which of the following services for a publicly-
a. Sorting data in predetermined format. traded audit client?
b. Statistically selecting data for analysis and review. a. Serving as a member of the client's board of
c. Operate efficiently in all operating environments directors.
d. Comparing two or more data files. b. Determining which accounting policies will be
142. The series of tasks and records of an entity by adopted by the client.
which transactions are processed as a means of c. Accounting information system design and
maintaining financial records. implementation
a. Computer information system d. Tax return preparation as approved by the board of
b. Internal control system directors
c. Accounting system 153. The limitation of an auditor's liability under
d. Control environment contract law known as
143. A collection of files that is shared and used by a a. privity of contract. c. statutory liability.
number of different users. b. contributory liability. d. common law liability.
a. Database c. Master file 154. Privity of contract exists between the
b. Information file d. Transaction file a. auditor and client.
Other Topics b. auditor and third parties.
CPAs Legal Liabilities c. auditor and the Securities and Exchange
144. While performing service for their clients, Commission.
professionals have always had a duty to provide a d. All of these
level of care which is Audit of Entities Using Service Organizations
a. reasonable. 155. When the auditor considers that the service
b. greater than average. organization activities are significantly relevant to the
c. superior. audit and he concludes that it would be efficient to
d. guaranteed to be free from error. obtain evidence from tests of controls, such evidence
145. The existence of extreme or unusual negligence, may be obtained by, except
even though there was no intent to deceive or do a. Visiting the service organization
harm, is a(n) b. Performing tests of clients control activities of the
a. fraud. c. constructive fraud. service organization
b. gross fraud. d. ordinary fraud. c. Review the service contract between the client and
146. The failure of the auditor to meet PSAs the service organization
a. an accepted practice. d. Obtaining a service organization auditors report
b. a suggestion of negligence. that expresses an opinion as to the operating
c. an evidence of negligence. effectiveness of the service organizations
d. tantamount to criminal behavior. accounting and internal control systems for the
147. Which of the following statement(s) is (are) true? processing applications relevant to the audit
a. Gross negligence may constitute constructive fraud

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