RIZAL TECHNOLOGICAL UNIVERSITY

Junior Philippine Institute of Accountants

Boni Avenue, Brgy. Malamig, Mandaluyong City

SET A

NAME: 1ST SEM._SY. 17-18

MOCK COMPREHENSIVE EXAMINATION AUDITING THEORY

Subject in the Actual CPA Board Examination:

AUDITING
Pray before taking the examination. God Bless us!

MULTIPLE CHOICE THEORIES: Indicate your answers by writing the letter of your answer choice on
the provided answer sheet.

1. Financial statements are ordinarily prepared and presented annually and are directed toward the common
information needs of a wide range of users. Many of those users rely on the Financial Statements as their major
source of information because they do not have the power to obtain additional information to meet their specific
information needs. Thus, financial statements need to be presented in accordance with one, or a combination of,
except:
a. Accounting standard generally accepted in the Philippines.
b. International Accounting Standards.
c. Another authoritative and comprehensive financial reporting framework which has been designed for use
in financial reporting and is identified in the financial statements.
d. Philippine Standard on Auditing.
2. Framework distinguishes audit from related services. Related services comprise of, which of the following,
except:
a. Reviews c. Audit
b. Agreed-upon procedures d. Compilation
3. Framework does not apply to other services provided by auditors such as of which of the following, except:
a. Taxation c. Financial and Accounting advice
b. Consultancy d. Compilation
4. Indicate the level of assurance provided by the audit and related services.
A B C D
Audit High High Negative Absolute
Review Moderate None Moderate High
Agreed-upon Procedures None None None Limited
Compilation None None None None

5. Which of the following is least likely considered a part of the financial reporting framework?
a. Generally accepted auditing standards. c. International accounting standards
b. Generally accepted accounting principles d. Another authoritative and comprehensive
basis of reporting
6. A type of engagement, where 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.
a. Audit c. Agreed-upon procedures
b. Review d. Compilation
7. A type of engagement where the accountant is engaged to use accounting expertise as opposed to auditing
expertise to collect, classify and summarized financial information. This entails reducing detailed data to a
manageable and understandable form without a requirement to test the assertions underlying that information:
a. Audit engagement c. Agreed-upon procedures engagement
b. Review engagement d. Compilation engagement
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8. It refers to the auditor’s satisfaction as to the reliability of an assertion being made by one party for use by
another party.
a. Confidence level c. Reasonableness level
b. Assurance level d. Tolerable level
9. Which of the following statements is true on the report issued based on agreed-upon procedures?
a. The report is restricted to those parties who have agreed to the procedures to be performed.
b. The CPA provides the recipients of the report limited assurance as to reasonableness of the assertion(s)
presented in the financial information.
c. The report states that the auditor has not recognized any basis that requires revision of financial statements.
d. The report should state that the procedures performed are limited to analytical procedures and inquiry.
10. Which of the following is an objective of a review engagement?
a. Expressing a positive opinion that the financial information is presented in conformity with generally
accepted accounting principles.
b. Expressing a limited assurance to users who have agreed as to procedures that will be performed by the
CPA.
c. Reporting whether material modification should be made to such financial statements to make them
conform with generally accepted accounting principles.
d. Reporting that the financial statements are not prepared in all material respects, fin accordance with an
identified financial reporting framework.
11. As a lower acceptable level of materiality is established, the auditor should plan more work on individual accounts
to
a. Find smaller misstatements.
b. Find larger misstatements.
c. Increase the tolerable misstatement in the accounts.
d. Decrease the risk of assessing control risk too low.
12. Which of the following factors is most important concerning an auditor’s responsibility to detect errors and fraud?
a. The susceptibility of the accounting records to intentional manipulations, alterations, and the misapplication
of accounting principles.
b. The probability that unreasonable accounting estimates result from unintentional bias or intentional attempts
to misstate the financial statements.
c. The possibility that management fraud, defalcations, and the misappropriation of assets may indicate the
existence of illegal acts.
d. The risks that mistake, falsifications, and omissions may cause the financial statements to contain material
misstatements.
13. Which of the following statements best describes the auditor’s responsibility regarding the detection of material
errors and fraud?
a. The auditor is responsible for the failure to detect material errors and fraud only when such failure results
from the non-application of generally accepted accounting principles.
b. Auditing procedures may or may not need to be extended if the auditor’s analysis indicates the existence of
fraud risk factors.
c. The auditor is responsible for the failure to detect material errors and fraud only when the auditor fails to
confirm receivables or observed inventories.
d. Extended auditing procedures are required to detect unrecorded transactions even if there is no evidence that
material errors and fraud may exist.
14. Which of the following is not a likely response when an auditor has determined that a misstatement is, or may be,
the result of fraud, and has determined that the effect on the financial statements may be material?
a. Consider the implications for other aspects of the audit.
b. Discuss the matter and approach to further investigation with an appropriate level of management.
c. Attempt to obtain additional evidential matter to determine whether material fraud has occurred or is likely
to have occurred.
d. Suggest that the client contact a local law enforcement authority to report the possible fraud.
15. Which of the following is not a procedure performed primarily for the purpose of expressing an opinion on the
financial statements, but may bring possible illegal acts to the auditor’s attention?
a. Consideration of internal control. c. Test of transactions.
b. Review of policies concerning effectiveness d. Test of balances.
of management decision making policies.
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16. An auditor who finds that the client has committed an illegal act would be most likely to withdraw from the
engagement when the
a. Illegal act affects the auditor’s ability to rely on management representations.
b. Illegal act has material financial statement implication.
c. Illegal act has received widespread publicity.
d. Auditor cannot reasonably estimate the effect of the illegal act on the financial statements.
17. Which of the following procedures would an auditor most likely include in the initial planning of a financial
statement audit?
a. Obtaining a written representation letter from the client’s management.
b. Examining documents to detect illegal acts having a material effect on the financial statements.
c. Considering whether the client’s accounting estimates are reasonable in the circumstances.
d. Determining the extent of involvement of the client’s internal auditors.
18. If, during an audit, the successor auditor becomes aware of information that may indicate that financial statements
reported on by the predecessor auditor may require revision, the successor auditor should
a. Ask the client to arrange a meeting among the three parties to discuss the information and attempt to resolve
the matter.
b. Notify the client and the predecessor auditor of the matter and ask them to attempt to resolve it.
c. Notify the predecessor auditor who may be required to revise the previously issued financial statements and
auditor’s report.
d. Ask the predecessor auditor to arrange a meeting with the client to discuss and resolve the matter.
19. In which circumstance is the confirmation of receivables on October 31 most likely for a client with a December
31 year-end?
a. Tests of controls have revealed that the disbursements cycle is operating effectively.
b. The receivables balance is material.
c. Accounts were confirmed as of December 31 for the preceding year’s audit.
d. Appropriate audit tests indicate that control risk for receivables is low.
20. A CPA should not submit unaudited financial statements of a non-public company to a client or others unless, as a
minimum, the CPA complies with the provisions applicable to
a. Compilation engagements. c. Statements on auditing standards.
b. Review engagements. d. Attestation standards.
21. Which of the following is least likely a risk characteristic associated with CIS environment?
a. Error embedded in an application’s program logic maybe difficult to manually detect on a timely basis.
b. Many control procedures that would ordinarily be performed by separate individuals in manual system
maybe concentrated in CIS.
c. Respective users exclusively handle initiation of changes in the master file.
d. The potential unauthorized access to data or to alter them without visible evidence maybe greater.
22. Which of the following statements is correct regarding external confirmation, as per PSA 505?
a. Consists of the response to an inquiry to corroborative information contained in the accounting records.
b. Seeking information of knowledgeable persons inside or outside the entity.
c. The process of obtaining and evaluating audit evidence through direct communication from a third party in
response to a request for information about a particular item affecting assertions made by management in
the financial statements.
d. The process of obtaining and evaluating audit evidence through indirect communication from a third party
in response to a request for information about a particular item affecting assertions made by management in
the financial statements.
23. External confirmations are frequently used in relation to account balances and their components, but need not be
restricted to these items. Examples of situation where external confirmation may be used include the following,
except
a. Bank balances and other information from entity.
b. Accounts receivable balances.
c. Inventories held by third parties at bonded warehouse for processing or on consignment.
d. Property title deeds held by lawyers or financiers for safe custody or as security.

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24. Which of the following statements is incorrect regarding external confirmation?
a. External Confirmation is the process of obtaining and evaluating audit evidence through direct
communication from a third party in response to a request for information about a particular item affecting
assertions made by management in the financial statements.
b. The auditor tailors external confirmation requests to the specific audit objective.
c. The auditor may use positive or negative external confirmation requests or a combination of both.
d. External confirmation of an account receivable provides strong evidence regarding the valuation of the
account as at a certain date.
25. The auditor tailors external confirmation requests to the specific audit objective. When designing the request, the
auditor considers the assertions being address ed and the factors that are likely to affect the reliability of the
confirmations. These factors have a direct effect on the design of the reliability of the evidence obtained through
external confirmation, except
a. Form of internal confirmation request c. Nature of the information being confirmed
b. Prior experience on the audit or similar d. Intended respondent
engagements
26. External confirmation of an account receivable provides strong evidence regarding the existence of the account at
a certain date. Which of the following statements is correct regarding positive confirmation?
a. Respondents are asked to reply to the auditor in all cases either by indicating the respondent’s agreement
with the given information, or by asking the respondent to fill in information.
b. Respondents are asked to reply only in the event of disagreement with the information provided in the
request.
c. The process of obtaining and evaluating audit evidence through direct communication from a third party in
response to a request for information about a particular item affecting assertions made by management in
the financial statements.
d. Consists of the response to an inquiry to corroborative information contained in the accounting records.
27. External confirmations are frequently used in relation to account balances and their components, but need not be
restricted to these items. Which of the following statements is correct regarding negative confirmation?
a. Respondents are asked to reply to the auditor in all cases either by indicating the respondent’s agreement
with the given information, or by asking the respondent to fill in information.
b. Respondents are asked to reply only in the event of disagreement with the information provided in the
request.
c. The process of obtaining and evaluating audit evidence through direct communication from a third party in
response to a request for information about a particular item affecting assertions made by management in
the financial statements.
d. Consists of the response to an inquiry to corroborative information contained in the accounting records.
28. According to PSA 505, negative confirmation request may not be used to reduce audit risk to an acceptable level
when, which of the following?
a. The assessed level of inherent and control risk is high
b. A large number of small balances is involved
c. A substantial number of error is expected
d. The auditor has no reason to believed that respondents will disregard these requests
29. Negative confirmation requests is unlikely to be used to reduce audit risk to an acceptable level when:
a. The assessed level of inherent and control risk is low
b. A large number of small balances is involved
c. A substantial number of error is expected
d. The auditor has no reason to believed that respondents will disregard these requests
30. When the auditor forms a conclusion that the confirmation process and alternative procedures have not provided
sufficient appropriate audit evidence regarding an assertion, the auditor should undertake additional procedures to
obtain sufficient appropriate audit evidence. In forming the conclusion, the auditor should not consider the
following?
a. Reliability of the confirmation and analytical procedures.
b. Reliability of the confirmation and alternative procedures.
c. Nature of any exceptions, including the implications, both quantitative and qualitative of those exceptions.
d. Evidence provided by the other procedures.

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31. In performing tests of controls, the auditor will normally find that
a. The level of risk is directly proportionate to the rate of error.
b. The rate of deviations in the sample exceeds the rate of error in the accounting records.
c. The rate of error in the sample exceeds the rate of deviations.
d. All unexamined items results in errors in the accounting records.
32. An auditor may decide to increase the risk of incorrect rejection when
a. Increase reliability form the sample is desired.
b. Many differences (audit value minus recorded value) are expected.
c. Initial sample results do not support the planned level of control risk.
d. The cost and effort of selecting additional sample items is low.
33. The auditor faces a risk that the examination will not detect material misstatements which occur in the accounting
process. In regard to minimizing this risk, the auditor primarily relies on
a. Substantive tests. c. Internal control.
b. Tests of controls. d. Statistical analysis.
34. The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the
a. Operational responsibility from the recordkeeping responsibility.
b. Responsibility of recording a transaction at its origin from the ultimate posting in the general ledger.
c. Authorization of transactions from the custody or related assets.
d. Human resources function from the controllership function.
35. A CPA reviews a client’s payroll procedures. The CPA would consider internal control to be less than effective if
a payroll department supervisor was assigned the responsibility for
a. Reviewing and approving time reports for subordinate employees.
b. Distributing payroll checks to employees.
c. Hiring subordinate employees.
d. Initiating requests for salary adjustments for subordinate employees.
36. In the audit of which of the following types of profit-oriented enterprises would the auditor be most likely to place
special emphasis on testing the controls over proper classification of payroll transactions?
a. A manufacturing organization. c. Wholesaling organization.
b. Retailing organization. d. A service organization.
37. One of the auditor’s objectives in observing the actual distribution of payroll checks is to determine that every
name on the payroll is that of a bona fide employee. The payroll observation is an auditing procedure that is
generally performed for which of the following reasons?
a. The professional standards that are generally accepted require the auditor to perform the payroll
observation.
b. The various phases of payroll work are not sufficiently segregated to afford effective internal control.
c. The independent auditor uses personal judgment and decides to observe the payroll distribution on a
particular audit.
d. The standards that are generally accepted by the profession are interpreted to mean that payroll observation
is expected on an audit unless circumstances dictate otherwise.
38. Which of the following questions would an auditor most likely include on an internal control questionnaire for
notes payable?
a. Are assets that collateralize notes payable critically needed for the entity’s continued existence?
b. Are two or more authorized signatures required on checks that repay notes payable?
c. Are the proceeds from notes payable used for the purchase of noncurrent assets?
d. Are direct borrowings on notes payable authorized by the board of directors?
39. The primary responsibility of a bank acting as registrar of capital stock is to
a. Ascertain that dividends declared do not exceed the statutory amount allowable in the state of incorporation.
b. Account for stock certificates by comparing the total shares outstanding to the total in the shareholders
subsidiary ledger.
c. Act as an independent third party between the board of directors and outside investors concerning merger,
acquisitions, and the sale of treasury stock.
d. Verify that stock is issued in accordance with the authorization of the board of directors and the articles of
incorporation.

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40. A company holds bearer bonds as a short-term investment. Responsibility for custody of these bonds and
submission of coupons for periodic interest collections probably should be delegated to the
a. Chief accountant. c. Cashier.
b. Internal auditor. d. Treasurer.
41. In order to avoid the misappropriation of company-owned marketable securities, which of the following is the best
course of action that can be taken by the management of a company with a large portfolio of marketable
securities?
a. Require that one trustworthy and bonded employee be responsible for access to the safekeeping area, where
securities are kept.
b. Require that employees who enter and leave the safekeeping area sign and record in a log the exact reasons
for their access.
c. Require that employees involved in the safekeeping function maintain a subsidiary control ledger for
securities on a current basis.
d. Require that the safekeeping function for securities be assigned to a bank that will act as a custodial agent.
42. A company has additional temporary funds to invest. The board of directors decided to purchase marketable
securities and assigned the future purchase and sale decisions to a responsible financial executive. The best
person(s) to make periodic reviews of the investment activity should be
a. The investment committee of the board of directors.
b. The treasurer.
c. The corporate controller.
d. The chief operating officer.
43. When there are numerous property and equipment transactions during the year, an auditor planning to assess
control risk at the minimum level usually plans to obtain an understanding of the internal control and to perform
a. Tests of control and extensive tests of property and equipment at the end of the year.
b. Extensive tests of current year property and equipment transactions.
c. Tests of controls and limited tests of current year property and equipment transactions.
d. Analytical procedures for property and equipment balances at the end of the year.
44. To strengthen internal control over the custody of heavy mobile equipment, the client would most likely institute a
policy requiring a periodic
a. Increase in insurance coverage.
b. Inspection of equipment and reconciliation with accounting records.
c. Verification of liens, pledges, and collateralizations.
d. Accounting for work orders.
45. A weakness in internal control over recording retirements of equipment may cause the auditor to
a. Inspect certain items of equipment in the plant and trace those items to the accounting records.
b. Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during
the year.
c. Trace additions to the “other assets” account to search for equipment that still on hand but no longer being
used.
d. Select certain items of equipment from the accounting records and locate them in the plant.
46. Which of the following procedures is most likely to prevent the improper disposition of equipment?
a. A separation of duties between those authorized to dispose of equipment and those authorized to approve
removal work orders.
b. The use of serial numbers to identify equipment that could be sold.
c. Periodic comparison of removal work orders to authorizing documentation.
d. A periodic analysis of the scrap sales and the repairs and maintenance accounts.
47. Which of the following is the most important internal control activity over acquisitions of property, plant, and
equipment?
a. Establishing a written company policy distinguishing between capital and revenue expenditures.
b. Using a budget to forecast and control acquisitions and retirements.
c. Analyzing monthly variances between authorized expenditures and actual costs.
d. Requiring acquisitions to be made by users departments.

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48. Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by a control
that provides for
a. Segregation of duties of employees in the accounts payable department.
b. Independent verification of invoices for disbursements reported as equipment acquisitions.
c. Investigation of variances within a formal budgeting system.
d. Authorization by the board of directors of significant equipment acquisitions.
49. It would not be appropriate for the auditor to initiate discussion with the audit committee concerning
a. The extent to which the work of internal auditors will influence the scope of the examination.
b. Details of the procedures which the auditor intends to apply.
c. The extent to which change in the company’s organization will influence the scope of the examination.
d. Details of potential problems which the auditor believes might cause a qualified opinion.
50. When communicating internal control related matters noted in an audit, an auditor’s report issued on reportable
conditions should indicate that
a. Errors or irregularities may occur and not be detected because there are inherent limitations in any internal
control.
b. The issuance of an unqualified opinion on the financial statements may be dependent on corrective follow-
up action.
c. The deficiencies noted were not detected within a timely period by employees I in the normal course of
performing their assigned functions.
d. The purpose of the audit was to report on the financial statements and not to provide assurance on internal
control.
51. Which of the following is not an element of quality control for a CPA firm?
a. Independence, integrity and objectivity.
b. Acceptance and continuance of clients and engagements.
c. Engagement supervision.
d. Monitoring.
52. The technical standards that apply to consulting services engagements require the practitioner to do all of the
following except
a. Maintain independence from the client.
b. Give support for and clearly identify an estimates any quantifiable results that are based on estimates.
c. Obtain an understanding concerning the nature, scope, and limitations of the consulting advisory services
engagement to be performed.
d. Take no position which might impair the practitioner’s objectivity.
53. A CPA in public practice must be independent in fact and appearance when providing which of the following
services?
Preparation of a Compilation of Compilation of
tax return financial forecast personal financial
statements
A Yes No No
B No Yes Yes
C No No Yes
D No No No
54. If requested to perform a review engagement for a non-public entity in which an accountant has an immaterial
direct financial interest, the accountant is
a. Independent because the financial interest is immaterial and, therefore, may issue a review report.
b. Not independent and, therefore, may not be associated with the financial statements.
c. Not independent and, therefore, may not issue a review report.
d. Not independent and, therefore, may issue a review report, but may not issue an auditor’s opinion.
55. Which statement is incorrect when auditing in a CIS environment?
a. A CIS environment exists when a computer of any type or size is involved in the processing by the entity of
financial information of significance to the audit, whether that computer is operated by the entity or by a
third party.
b. The auditor should consider how a CIS environment affects the audit.
c. The overall objective and scope of an audit is change in a CIS environment.
d. The use of a computer changes the processing, storage and communication of financial information and
may affect the accounting and internal control systems employed by the entity.
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56. As per PSA 401, which of the following statements the auditor should not consider how a CIS environment affects
the audit?
a. CIS environment may affect the procedures followed by the auditor in obtaining a sufficient understanding
of the accounting and internal control systems.
b. CIS environment may affect the consideration of inherent risk and control risk through which the auditor
arrives at the risk assessment.
c. CIS environment may affect the auditor’s design and performance of test of control and substantive
procedures appropriate to meet the audit objective.
d. CIS environment may affect the consideration of analytical procedure during completion stage of the audit.
57. Which of the following is least considered if the auditor has to determine whether specialized CIS skills are
needed in an audit?
a. The auditor needs to obtain a sufficient understanding of the accounting and internal control systems
affected by the CIS environment.
b. The auditor needs to determine the effect of the CIS environment on the assessment of overall risk and of
risk at the account balance and class of transactions level.
c. Design and perform appropriate tests of control and substantive procedures.
d. The need of the auditor to make analytical procedures during the completion stage of the audit.
58. Which of the following significance and complexity of the CIS activities should an auditor least understand?
a. The organizational structure of the client’s CIS activities.
b. The availability of data.
c. The significance and complexity of computer processing in each significant accounting application.
d. The use of software packages instead of customized software.
59. Which of the following least likely indicates a complexity of computer processing?
a. The system generates a daily exception report.
b. Transactions are exchange electronically with other organizations without manual review of their propriety.
c. The volume of the transactions is such that users would find it difficult to identify and correct errors in
processing.
d. The computer automatically generates material transactions or entries directly to another applications.
60. The nature of the risk and the internal control characteristics in CIS environment that the auditors are mostly
concerned include the following, except:
a. Lack of transaction trails.
b. Cost-benefits ratio.
c. Lack of segregation of functions.
d. Potential for errors and irregularities.

Prepared by: Checked by:

Prof. Mark Grabillo, CPA Prof. Macrina Violeta Vicente-Mutuc, CPA

Faculty, Accountancy Faculty/ Adviser,RTU-JPIA

Recommending Approval:

Prof. Elizabeth E. Salvador, CPA

Department Head, Accountancy
Approved by:

Prof. Amelia M. Arganda, CPA

CBET, Dean

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