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Quality Control Standards D. Assigning a number of employees to each engagement in excess of the number required
1. A basic objective of a CPA firm is to provide professional services that conform to so as not to overburden the staff and interfere with the quality of the audit work
professional standards. Reasonable assurance of achieving this basic objective is provided performed.
A. a system of quality control C. continuing professional education RA 9298 & IRR
B. compliance with PFRS D. system of peer review 6. The Chairpersons of the FRSC and the AASC shall be appointed by:
A. The Professional Regulation Commission.
2. Accounting firms should establish quality control procedures for professional development in B. The President of the Republic of the Philippines.
order to provide reasonable assurance that C. The Professional. Regulatory Board of Accountancy.
A. The extent of supervision and review in a given instance will be appropriate. D. The Philippine Institute of Certified Public Accountants.
B. Association with a client whose management lacks integrity will be minimized.
C. Personnel will have the knowledge required to fulfill responsibilities assigned. Code of Ethics
D. Persons promoted possess the appropriate characteristics to perform competently 7. The Code of Ethics for Professional Accountants in the Philippines defined "practice" as
A. A distinct sub-group, whether organized on geographical or practice lines.
3. The objective of quality control mandates that a public accounting firm should establish B. A sole proprietor or a partnership of professional accountants which offers professional
policies and procedures for professional development that provide reasonable assurance that services to the public.
all entry-level personnel C. Any service requiring accountancy or related skills performed by a professional
A. Will advance within the organization accountant including accounting, auditing, taxation, management consulting and
B. Develop specialties in specific areas of public accounting financial management services.
C. Prepare working papers that are standardized in form and content. D. An entity under common control, ownership or management with the firm or any' entity
D. Have the knowledge required to enable them to fulfill responsibilities assigned. that a reasonable and informed third party having knowledge of all relevant information
would reasonably conclude as being part of the firm nationally or internationally.
4. Williams & Co., a large international public accounting firm, is due to have a peer review. The
peer review will most likely be performed by 8. Existing accountant, as defined in the Code of Ethics means
A. Employees and partners of another firm A. Those persons who hold a valid certificate issued by the Board of Accountancy.
B. Audit review staff of the Securities and Exchange Commission. B. A professional accountant employed in industry, commerce, the public sector or
C. Audit review conducted by the Public Company Accounting Oversight Board PCAOB. education.
D. Employees and partners of Williams & Co. who are not associated with the particular C. A professional accountant in public practice currently holding an audit appointment or
audit being reviewed carrying out accounting, taxation, consulting or similar professional services for a client
D. A sole proprietor, or each partner or person occupying a position similar to that of a
5. In pursuing its quality control objectives with respect to assigning personnel to engagements, partner and each staff in a practice providing professional services to a client,
a public accounting firm, may use policies and procedures such as irrespective of their functional classification (e.g., audit, tax of, consulting) and
A. Allowing staff to select the assignments of their choice to promote better client professional accountants in a practice having managerial responsibilities.
B. Rotating employees from assignment to assignment on a random basis to aid in the staff 9. The term receiving accountant includes the following, except
training effort. A. A professional accountant in public practice who is consulted in order to meet the needs
C. Requiring timely identification of the staffing requirements of specific engagements so of the client.
that, enough qualified personnel, can be made available B. A professional accountant in public practice to whom the existing, accountant has
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referred tax engagement. 13. Occurs when a firm or a member of the assurance team could benefit from a financial interest
C. A professional accountant in public practice to whom the client of the existing accountant in, or other self-interest conflict with, an assurance client.
has referred audit engagement. A. Advocacy threat C. Self-interest threat
D. A professional accountant in public practice currently holding an audit appointment or B. Familiarity threat D. Self-review threat
carrying out accounting, taxation, consulting or similar professional services for a client.
14. Intimidation threat
10. Lead engagement partner is A. Is not a threat to independence.
I. The partner responsible for signing the report on the consolidated financial statement of B. Occurs when a member of the assurance team may be deterred from acting objectively
the audit client. and exercising professional skepticism by threats, actual or perceived, from the directors,
II. Where relevant, the partner responsible for signing the report in respect of any entity officers or employees of an assurance client.
whose financial statements form part of the consolidated, financial statements and on C. Occurs when, by virtue of a close relationship with an assurance client, its directors,
which a separate stand-alone report is issued. officers or employees, a firm or a member of the assurance team becomes too
III. When no consolidated financial statements are prepared, the partner responsible for sympathetic to the client's interests.
signing the report on the financial statements. D. Occurs when a firm, or a member of the assurance team, promotes, or may be perceived
A. I only C. I. and III only to promote, an assurance client's position or opinion to the point that objectivity may, or
B. I and II only D. I, II and IIl. may be perceived to be, compromised.

11. How did the Code of Ethics define public interest? 15. If a firm, or a network firm, has a direct financial interest in an audit-client of the firm, the self-
A. A distinguishing mark of a profession is acceptance of its responsibility to the public. interest threat created would be so significant no safeguard could reduce the threat to an
B. The standards of the accountancy profession are heavily determined by the public acceptable level. The action appropriate to permit the firm to perform the engagement would
interest. be to
C. The collective well-being of the community of people, and institutions the professional A. Dispose of the financial interest.
accountant serves. B. Dispose of a sufficient amount of it so that the remaining interest is no longer material.
D. The accountancy profession's public consists of clients, credit grantors, governments, C. Either a or b.
employers, employees, investors, the business and financial community, and others who D. Neither a nor b.
rely on the objectivity and integrity of -professional accountants.
16. The following loans and guarantees would not create a threat to independence, except
A. If the firm, or a member of the assurance team, makes a loan to an assurance client, that
12. Which of the following is incorrect regarding professional competence?
is not a bank or similar institution, or guarantees such an assurance client's borrowing.
A. Professional competence may be divided into two separate phases.
B. Deposits made by, or brokerage accounts of, a firm or a member of the assurance team
B. The attainment of professional competence requires initially a high standard of general
with an assurance client that is a bank, broker or similar, institution, provided the deposit
or account is held under normal commercial terms.
C. Professional accountants may portray themselves as having expertise or experience
they do not possess. C. A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar
institution, to a member of the assurance team or their immediate family, provided the
D. The maintenance of professional competence requires a continuing awareness of
loan is made under normal lending procedures, terms and requirements.
development in the accountancy profession.
D. A loan from, or a guarantee, thereof by, an assurance client that is a bank or a-similar
institution, to the firm, provided the loan, is made under normal lending procedures,
terms and requirements and the loan is immaterial to both the firm1 and the assurance
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Client Acceptance & Continuance 21. The understanding between the client and the auditor as to the degree of responsibility to be
17. A CPA who has never audited a commercial bank assumed by each is normally set forth in a(n)
A. May not accept such an engagement. A. The comfort letter C. The management letter
B. May accept the engagement because training as a CPA transcends unique industry B. The engagement letter D. The representation letter.
C. May accept the engagement only if the accounting firm specializes in the audit of 22. Engagement letter for a review of financial statements least likely includes
commercial bands. A. The objective of the service being-performed.
D. May accept the engagement after attaining a suitable level of understanding of the B. A statement that an audit is not being performed and that an audit opinion will not be
transactions and accounting practices unique to commercial banking expressed.
C. The fact that the engagement cannot be relied upon to disclose errors, illegal acts or
18. Prior to the acceptance of an audit engagement with a client who has terminated the services other irregularities, for example, fraud or defalcations that, may exist. .
of the predecessor auditor, the CPA should D. The fact that because of the test nature and other inherent limitations of an audit,
A. Advise the client of the intention to contact the predecessor auditor and request together with the inherent limitations of any accounting and internal control system, there
permission for the contact. is an unavoidable risk that even, some material misstatement may remain undiscovered.
B. Not communicate with the predecessor auditor because this would in effect be asking
the auditor to violate the confidential relationship between auditor and client 23. An initial (first-time) audit requires more audit time to complete than a recurring audit. One of
C. Accept the engagement without contacting the predecessor auditor since the CPA can the reasons for this is that
include audit procedures to verify the reason given by the client for the termination A. Predecessor auditors need to be consulted
D. Contact the predecessor auditor without advising the prospective client and request a B. New auditors are usually assigned to an initial audit.
complete report of the circumstance leading to the termination with the understanding C. A larger proportion of customer accounts receivable need to be confirmed on an initial
that all information disclosed will be kept confidential audit.
D. The client's business, industry, and internal control are unfamiliar to the auditor and need
19. Which of the following should an auditor obtain from the predecessor auditor prior to to be carefully studied.
accepting an audit engagement?
A. Analysis of balance sheet account's Planning – Risk Assessment
B. Analysis of income-statement accounts 24. Having evaluated inherent risk and control risk, the auditor determines detection risk
C. All matters of continuing accounting significance A. By performing substantive audit tests.
D. Facts that might bear on the integrity of management. B. As the complement of overall audit risk.
C. As a product of further study of the business and Industry and application of analytical
20. When an independent auditor is approached to perform an audit for the first time, he or she
should make inquiries of the predecessor auditor. Inquiries are necessary because the
D. At a level that equates the joint probability of inherent risk, control risk, and detection risk
predecessor may be able to provide the successor with information that will assist the
with overall audit risk.
successor in determining whether.
A. The company rotates auditor
25. The probability of an auditor's procedures leading to the conclusion that a material error does
B. The engagement should be accepted
not exist in an account balance when, in fact, such error does exist is referred to as:
C. The predecessor auditor should be used.
A. Control risk C. Inherent risk
D. Control risk is low in the predecessor's opinion
B. Detection risk D. Prevention risk

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Planning – Strategic Planning Issues 31. Warning signs that cause the auditor to question management integrity must be taken
26. Which of the following persons is not a specialist upon whose work an auditor may rely? seriously and pursued vigorously. Which of the following may lead the auditor to suspect
A. Actuary C. Engineers management dishonesty?
B. Appraiser D. Internal auditor A. The client has been named as a defendant in a product liability suit.
B. The client has experienced a decrease in revenue from increased import competition.
27. An auditor should consider the competence of a client's employees because their C. A new regulation making customer licenses more difficult to obtain may adversely affect
competence bears directly and importantly on the the client's operations.
A. Cost-benefit relationship of internal control. D. The president and chief executive officer of the client corporation has held numerous
B. Achievement of the objective of internal control meetings with the controller for the purpose of discussing accounting practices that will
C. Comparison of recorded accountability, with assets on hand. maximize reported profits.
D. Timing of the tests to be performed.
Study & Evaluation of Internal Control
28. The element of the audit planning process most likely to be agreed upon with the client 32. The primary, purpose of the auditor's consideration of internal control is to provide a basis for
before implementation of the strategy is the determination of the A. The expression of opinion
A. Schedules and analyses to be prepared by the client's staff. B. Determining the nature, timing, and extent of audit tests to be applied.
B. Pending legal matters to be included in the inquiry of the client's attorney. C. Constructive suggestions to clients concerning deficiencies in internal control.
C. Methods of statistical sampling to be used in confirming accounts receivable D. Determining whether procedures and records that are concerned with the safeguarding
D. Evidence to be gathered to provide a sufficient basis for the auditor's opinion of assets are reliable.

Error, Fraud & Illegal Acts 33. A secondary purpose of the auditor's consideration of internal control is to provide
29. Which of the following statements best describes the auditor's responsibility regarding the A. A basis for assessing control risk.
detection of fraud? B. A basis for constructive suggestions about improvements in internal control structure.
A. The auditor is responsible for the failure to detect fraud only when an unqualified opinion C. A basis for the determination of the resultant extent of the tests to which auditing
is issued. procedures are to be restricted.
B. The auditor must extend auditing procedures to actively search for evidence of fraud D. An assurance that the records and documents have been maintained in accordance with
where the examination indicates that fraud may exist. existing company policies and procedures.
C. The auditor should design audit procedures that will provide reasonable assurance that
34. In studying the design and implementation of a client's internal controls, the auditor needs to
the financial statements are free from material misstatement due to errors and/or fraud.
identify necessary control points. Controls existing at these points may be classified as
D. The auditor is responsible for the failure to detect fraud only when such failure clearly
"accuracy" controls and ''safeguard" Controls. Which of the following controls may be
results from nonperformance of audit procedures specifically described in the
regarded as a safeguard control?
engagement letter.
A. Although the payroll is prepared manually, a second employee recalculates gross pay,
withholdings, and net pay.
30. The risk of fraudulent financial reporting increases in the presence of
B. Sales prices are stored in computer' memory and are automatically applied as stock
A. Improved control systems.
numbers are entered from customer orders.
B. Substantial increases in sales.
C. Negotiable securities are kept in a locked vault, and are accessible only by the treasurer
C. Frequent changes in suppliers.
accompanied by one of her assistants,
D. Incentive systems based on operating income.
D. In processing sales orders, the computer is programmed to compare the customer's
credit, limit minus the prior balance with the current sales order amount.
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35. The auditor is examining copies of sales invoices only for the initials of the person 40. Audit evidence can come in different forms with different degrees of persuasiveness. Which
responsible for checking the extensions. This is an example of of the following is the least persuasive type of evidence?
A. Dual-purpose test C. Test of balances A. Computations made by the auditor.
B. Substantive test D. Test of controls. B. Sales invoices inspected by the auditor
C. Documents mailed by outsiders to the auditor.
36. The auditor is studying internal control policies and procedures within the sales, shipping, and D. Correspondence between the auditor and vendors
billing subset of the revenue cycle. Which of the following conditions suggests a need for
additional testing of controls? 41. The following statements were made in a discussion of audit evidence by two independent
A. Internal control is found to be weak with regard to shipping and billing. auditors. Which statement is untrue?
B. Internal control over the recording of sales is found to be weak and the sales are evenly A. "I evaluate the degree of risk involved in deciding the kind of evidence I will gather,"'
divided among a large number of customers. B. "I evaluate the usefulness of the evidence I can obtain against the cost to obtain it."
C. Internal control over sales, billing, and shipping appears strong, but 80% of sales C. "I am seldom convinced beyond all doubt about all aspects of the financial statements
revenue is attributable to three major customers. being audited."
D. Internal control over billing and shipping is thought to be strong and the auditor considers D. "I would not undertake that procedure because, at best, the results would only be
additional testing of selected controls will result in a major reduction, in substantive persuasive and I’m looking for convincing evidence."
42. There is an inverse relationship between the effectiveness of an entity's internal control
Audit Objectives, Evidence & Procedures structure and the
37. Which of the following is not considered an assertion as formulated by the Auditing and A. Reliability of financial statements.
Assurance Standards Council? B. Extent of detailed audit tests required.
A. Mathematical accuracy C. Rights and obligation C. Fairness of management assertions in the financial statements
B. Presentation and disclosures D. Valuation or Allocation. D. Degree of staff supervision, required in the performance of an audit

38. Which of the following statements is an example of an assertion made by management in an 43. Which of the following is the correct order for performing the auditing procedures. A through
entity's financial statements? C below?
A. The financial statements were prepared in an unbiased manner. A. Tests of controls
B. Reported inventory balances reflect all related transactions for the period. B Preparation of a flowchart depicting the client's internal control structure
C. Reported accounts receivable does not include any uncollectible accounts. C Substantive tests
D. The scope of the auditors' investigation was not limited in any way by management. A. ABC C. BAC
39. The sequence of steps in gathering evidence as the basis of the auditor's opinion is:
A. Substantive tests, documentation of control structure, and tests of controls 44. The auditor's analytical procedures will be facilitated if the client
B. Documentation of control structure, substantive tests, and tests of controls A. Reduces inventory balances to the lower of cost or market.
C. Documentation of control structure, tests, of controls, and substantive tests B. Uses a standard cost system that produces variance reports.
D. Tests of controls, documentation of control structure, and substantive tests. C. Segregates obsolete inventory before the physical inventory count
D. Corrects material weaknesses in internal control before the beginning of the audit.

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45. S1. The auditor shall design and perform analytical procedures near the end of the audit 50. When auditing inventories of raw materials, purchased parts, and/or merchandise inventory,
that assist the auditor when forming an overall conclusion as to whether the financial the auditor's most effective means for evaluating the valuation assertion is to
statements are consistent with the auditor's understanding of the entity. A. Trace quantities from tags or count sheets to final inventory listings.
S2. The auditor may inquire of management as to the availability and reliability of B. Compare purchases with prior year and with industry averages and account, for
information needed to apply substantive, analytical procedures, and the results of any significant fluctuations.
such analytical procedures performed by the entity C. Scan inventory listings for large extended amounts, and trace related quantities to
A. True, true C. False, true auditor's copy of the inventory tag or listing.
B. True, false D. False, false D. Examine recent invoices from vendors, along with freight bills and compare with client's
unit, costs, as adjusted for freight and discount.
46. S1 The auditor shall perform audit procedures designed to obtain sufficient appropriate
audit evidence that all events occurring between the statements and the date of the 51. In. auditing investments for proper valuation, the auditor should do all but the following:
auditor's report that require adjustment of or disclosure in the financial statements, have A. Recalculate gain or loss on disposals.
been identified. B. Confirm securities held in safekeeping off the client's premises.
S2. The auditor has an obligation to perform any audit procedures regarding the financial C. Vouch purchases and sales of securities by tracing to brokers' advices and canceled
statements after the date of the auditor's report. checks.
A. True, false C. True, true D. Compare cost and market by reference to year-end market values for selected
B. False, true D. False, false securities.

47. To gather evidence about the balance per bank in a bank reconciliation, an auditor would 52. An audit of accounts payable is ordinarily not designed to
examine all of the following except the A. Detect substantially past due accounts
A. Bank confirmation. C. General ledger B. Determine the reasonableness of recorded liabilities
B. Cutoff bank statement D. Year-end bank statement C. Verify that accounts payable were properly authorized
D. Determine that all existing liabilities at the balance sheet date have been recorded.
48. An auditor is examining account's receivable. What is the most competent type of evidence
in this situation? 53. In conducting a search for unrecorded liabilities, the auditor should do all but the following:
A. Receipt by the auditor of a positive confirmation. A. Examine invoices paid a few days prior to the balance sheet date.
B. Interviewing the personnel who record accounts receivable. B. Examine prior year's audit work papers to ascertain that adjustments for unrecorded
C. No response received for a request for a negative confirmation. liabilities have not been overlooked.
D. Verifying that postings to the receivable account from journals have been made.. C. Examine paid invoices for a short period following the balance sheet date and trace to
client's year-end adjustment for unrecorded liabilities.
49. Customers with substantial account balance have failed to reply after a second confirmation, D. Examine unpaid invoices for a short period following the balance sheet date and trace to
request had been mailed to them directly. Which of the following audit procedures is most client's year-end adjustment for unrecorded liabilities.
A. Examine shipping documents 54. To verify that all sales transactions have been recorded, a test of transactions should be
B. Intensify the study of internal controls for receivables completed on a representative sample drawn from
C. Review cash collections during the year being audited. A. Entries In the sales journal
D. Increase the balance in the accounts receivable allowance account. B. The billing clerk's file of sales orders.
C. The shipping, clerk's file of duplicate copies of shipping documents
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D. A file of duplicate copies of sales invoices for which all prenumbered forms In the series 59. Which of the following accounts would most likely be reviewed by the auditor to gain
have been accounted. reasonable assurance that additions to the equipment account are not understated?
A. Accounts payable C. Gain on disposal of equipment
55. Auditors sometimes use comparison of ratios as audit evidence. For example, an B. Depreciation expense D. Repairs and maintenance expense.
unexplained decrease in the ratio of gross profit to sales, may suggest which of the following
possibilities? Documentation
A. Fictitious sales 60. Which of the following is not a primary purpose of audit working papers?
B. Unrecorded sales. A. To coordinate the examination.
C. Unrecorded purchases B. To support the financial statements
D. Merchandise purchases being charged to selling and general expense. C. To assist in the preparation of the audit report
D. To provide evidence of the audit work performed
56. Which of the following audit procedures is not designed primarily to test for the correctness of
purchases and sales cutoff? 61. The permanent file section of the working papers that is kept for each audit client most likely
A. Trace client's unit costs to the auditor's copies of audited price lists. contains
B. Record last document numbers (sales invoice, voucher, check, receiving report) for the. A. A schedule of time spent on the engagement by each individual auditor.
year and relate to goods in shipping and receiving areas at year end. B. Narrative descriptions of the client's internal control policies and procedures.
C. Observe shipping and receiving areas during physical inventory observation and relate C. Correspondence with the client's legal counsel concerning pending litigation.
goods to the last receipt and shipment for the year. Determine that these are the final D. Review notes pertaining to questions and comments regarding the audit work performed.
entries in the-purchases and sales records for the year.
D. Examine sales and purchases invoices for a few days before and after year-end. 62. The current file of the auditor's working papers, generally should include
Compare with dates of receipt and shipment and with freight terms to ascertain that the A. Organizational charts.
transactions were recorded in the proper accounting period. B. A copy of the financial statements
C. A flowchart of the internal controls
57. An entity's financial statements were misstated over a period of years due to large amounts D. Copies of bond and note indentures
of revenue having been recorded in journal entries that involved debits and credits to an
illogical combination of accounts. The auditor could most likely have been alerted to this 63. When reviewing working papers, an audit supervisor will be primarily concerned with
irregularity by determining whether the
A. Performing cutoff tests at year-end A. Audit programs have been carried out without deviation.
B. Scanning the general journal for unusual entries. B. Working papers reflect adherence to budget constraints
C. Tracing a sample of journal entries to the general ledger. C. Working papers adequately support the audit findings, conclusions, and reports
D. Examining documents supporting sales returns and allowances recorded after year-end. D. Auditing department's standard formats and tick marks have been used consistently.

58. Which of the following is not an appropriate auditing procedure supporting fairness of 64. The auditor should complete the assembly of the final audit file on a timely basis after the
financial presentation? date of the auditor's report, which is ordinarily:
A. Inspecting plant asset additions for existence. A. 30 days after the date of the audit report
B. Recalculating accrued interest on notes payable. B. 60 days after the date of the audit report.
C. Reviewing the client's production quality control program. C. 90 days after the date of the audit report
D. Examining.' invoices in support of legal fees recorded during the fiscal, year. D. 120-days' the date of the audit report
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Audit Sampling 71. Assume you are auditing a retail department store which want to estimate the peso amount of
65. Which of the following is true about sampling and non-sampling risks? errors on sales invoices using probability-proportional-to-size sampling. Which of the
A. Sampling risk cannot be eliminated. following is true?
B. Sampling risk can be reduced by increasing sample size. A. Tolerable error is ignored
C. Non-sampling risk can be eliminated by proper engagement planning, supervision, and B. The estimate will be unreliable if the error rate is small.
review. C. An invoice with a large balance has a greater chance of being selected than one with a
D. Non-sampling risk, arises from the possibility that the auditor's conclusion, based on a smaller balance.
sample may be different from the conclusion reached if the entire population were D. The risks of incorrect acceptance and incorrect rejection are greater than for classical
subjected to the same audit procedure. variable sampling plan.

66. In assessing sample risk, the risk of incorrect acceptance and the risk of assessing control 72. S1. When designing an audit sample, the auditor shall consider the purpose of the audit
risk too low (over-reliance) relate to the procedure and the characteristics of the population from which the sample will be
A. Efficiency of the" audit C. Effectiveness of the audit drawn.
B. Selection of the sample D. Audit quality controls S2. The auditor shall select items for the sample in such a way that each sampling unit in
the population has a chance of selection.
67. An advantage of statistical sampling over non-statistical sampling is that statistical sampling A. True, true C. False, true
helps an auditor to B. True, false D. False, false
A. Eliminate non-sampling risk.
B. Minimize the failure to detect errors and frauds. 73. Which of the, following statements is not correct?
C. Measure the sufficiency of the evidential matter obtained. A. It is acceptable for auditor to use statistical sampling methods.
D. Reduce the level of audit risk and materiality to a relatively low amount. B. It is acceptable for auditor to use non-statistical sampling methods.
C. The primary benefit of statistical sampling methods is the quantification of sampling risk.
68. The deviation rate the auditor will permit in the population and still be willing to reduce the D. An advantage of using statistical sampling is that the cost/benefit ratio is always positive.
assessed level of control risk is called the
A. Acceptable risk of over-reliance C. Estimated population deviation rate I.T. Audit
B. Acceptable risk of under-reliance D. Tolerable deviation rate 74. In considering a client's internal control structure in a computer environment, the auditor will
encounter general controls and application controls. Which of the following is an application
69. If all other factors specified in variables sampling plan remain constant, increasing the control?
acceptable risk of incorrect acceptance would cause the required sample size to. A. Control over program changes C. Organizational charts
A. Decrease. C. Increase B. Hash totals D. Systems flowchart
B. Remains the same. D. Become indeterminate
75. Accounting functions that are normally considered incompatible in a manual system are often
combined by computer software. This necessitates an application control that prevents
70. Statistical sampling may be applied to test controls when a client's control procedures
A. Enable the detection of fraud.
A. Access to computer library. C. Testing of modified software.
B. Depend primarily on segregation of duties.
B. Revision of existing software. D. Usage of software.
C. Leave an audit trail as evidence of compliance.
D. Are carefully reduced to writing and are included in client accounting manuals.

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76. Moreno Corporation has numerous customers. A customer file is kept on disk. Each Standard Audit Report
customer file contains the name, address, credit limit, and account balance. The auditor 80. An auditor's report contains the following sentences:
wishes to test this file to determine whether credit limits are being exceeded. The best "We did not audit the financial statements of B Company, a consolidated subsidiary,
procedure for the auditor to follow would be to which statements reflect total assets and revenues constituting 20 percent and 22
A. Develop test data that would cause some account balances to exceed the credit limit and percent, respectively, of the related consolidated totals. These statements were
determine if the system properly detects such situations. audited by other auditors, whose report has been furnished to us, and our opinion,
B. Develop a program to compare credit limits with account balances and print out the insofar as it relates to the amounts included for B Company, is based solely upon
details of any account with a balance exceeding its credit limit. the report of the other auditors, ".
C. Request a printout of all account balances so they can be manually checked against the These sentences
credit limit A. Qualify an opinion
D. Request a printout of a sample of account balances so they can be individually checked B. Disclaims an opinion
against the credit limits. C. Divide responsibility allowed under PSA
D. Should not be part of the audit report under PSA
Completing the Audit & Post-Audit Responsibilities
77. The existence of a related party transaction may be indicated, when another entity 81. An explanatory paragraph following an opinion paragraph describes an uncertainty as
A. Absorbs expenses of the corporation. follows:
B. Lends to the corporation at a rate of interest, which equals the current market rate. As discussed in Note X to the financial statements, the company is a defendant in a
C. Sells real estate to the corporation at a price that is comparable to its appraised value. lawsuit alleging infringement of certain patent rights and'' claiming damages.
D. Borrows from the corporation at a rate of interest which, equals the current market rate. Discovery proceedings are in progress. The ultimate, outcome of the litigation
cannot presently be determined. Accordingly, no provision for any liability that may
78. The main purpose of the auditor/client conference held at the close of audit fieldwork is to result upon adjudication has been made in the accompanying financial statements.
A. Discuss unresolved matters and audit fee arrangements. What type of opinion should the auditor express in this circumstance?
B. Discuss areas of major audit risk and use of client personnel to assist in high-risk areas. A. Adverse C. Qualified
C. Arrange for a meeting with outside legal counsel for the purpose of discussing pending B. Disclaimer D. Unqualified
D. Review proposed audit adjustments, internal control weaknesses, and needed 82. When the financial statements are prepared on the going concern basis but the auditor
disclosures, and agree on the type of audit report to be rendered. concludes there is substantial doubt whether the client can continue in existence and also
believes there are uncertainties about the recoverability of recorded asset amounts on the
79. Which of the following expressions is least likely to be included in a client's representation financial statements, the auditor may issue a (an)
letter? A. Adverse opinion.
A. Management has made available all financial statements and related data. B. Qualified opinion due to scope limitation.
B. Management acknowledges responsibility for illegal acts committed by employees. C. Qualified opinion due to departure from PFRS.
C. No events have occurred subsequent to the balance sheet date that require adjustment D. Unqualified opinion with an emphasis of matter paragraph.
to or disclosure in the financial statements.
D. The company has complied with all aspects of contractual-agreements that would have a
material effect on the financial statements in the event of noncompliance.

May 2015, Final Preboard Examination Page 9 of 12


Departure from Unqualified Opinion 87. Under which of the following sets of circumstances might an auditor disclaim an opinion?
83. An audit report contains the following paragraph: A. There were significant limitations on the scope of the audit.
"Because of the inadequacies in the company's accounting records during the year B. The financial statements contain a departure from PFRS, the effect of which is material
ended December 31, 2014, it was not practicable, to extend our auditing C. The Group auditor decides to make reference to the report of another auditor who
procedures to the extent necessary to enable us to obtain sufficient and audited a subsidiary
appropriate audit evidence as it relates to classification of certain items in the D. There has been a material change between periods in the method of the application of
consolidated statements of comprehensive income." accounting principles.
This paragraph most likely describes.
A. An uncertainty that should not lead to a qualified opinion. 88. When management prepares financial statements on the basis of a going concern and the
B. A material departure from PFRS requiring a qualified audit opinion auditor believes the company's use of the going concern assumptions is inappropriate the
C. A material scope restriction requiring a qualification of the audit opinion. auditor should issue
D. A matter that the auditor wishes to emphasize and that does not lead to a qualified audit A. Adverse opinion
opinion. B. A qualified opinion
C. Disclaimer of opinion
84. The management of a client company believes that the statement of cash flow is not a useful D. An unqualified opinion with an explanatory paragraph
document and refuses to include one in the annual report to stockholders. As a result, the
auditor's opinion should be 89. Restrictions imposed by a client prohibit the observation of physical inventories, which
A. Adverse account for 35% of all assets. Alternative audit procedures cannot be applied, although the
B. Unqualified auditor was able to examine satisfactory evidence for all other items in the financial
C. Qualified due to a scope limitation. statements.
D. Qualified due to inadequate disclosure The auditor should issue a (an)
A. Disclaimer of opinion.
85. An auditor's opinion reads as follows: "In our opinion, except' for the above-mentioned B. Qualified opinion due to scope limitation.
limitation on the scope of our audit..." This is an example of a(n) C. Unqualified opinion with an emphasis of matter paragraph.
A. Review opinion D. Unqualified opinion with an explanation in the scope paragraph.
B. Qualified opinion
C. Emphasis of a matter 90. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall
D. Inappropriate wordings in the opinion paragraph determine the implication. If the auditor concludes that the possible effects on the financial
statements of undetected misstatements, if any, could be both material, and pervasive so that
86. S1. If there Is a material misstatement of the financial statements that relates to narrative a qualification of the opinion would be inadequate to communicate the gravity of the situation,
disclosures, the auditor is not required to include in the basis for modification paragraph the auditor shall.
an explanation of how the disclosures are misstated. I. Resign from the audit, where practicable and not prohibited by law or regulation.
S2. When the auditor expects to modify the opinion in the auditor's report, the., auditor may II. Disclaim an opinion on the financial statements
communicate with those, charged, with governance the circumstances that led to the A. I only C. Both I and II
expected modification and the proposed, wording of the modification. B. II only D. Neither I nor II
A. True, true C. False, true
B. True, false D. False, false

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91. When an Independent CPA is associated with the financial statements of a publicly held 96. When compiling financial information, the accountant ordinarily is required to
entity but has not audited or reviewed such statements, the appropriate form of report to be A. Verify any matters.
issued must include a (an) B. Verify any explanations.
A. Compilation report. C. Qualified opinion C. Obtain a general knowledge of the business and operations of the entity.
B. Disclaimer of opinion. D. Unaudited association report- D. Make any inquiries of management to assess the reliability and completeness of the
information provided.
Reports on Comparative Financial Statements
92. An auditor has previously expressed a qualified opinion on the financial statements of a prior 97. Reports on compilation engagements should contain the following, except:
period because of a departure from PFRS. The prior-period financial statements are restated A. A statement that management is responsible for the financial information- compiled by
in the current period to conform with PFRS. The auditor's updated report on the prior-period the accountant.
financial statements should? B. Identification of the financial information noting that it is based on Information provided
A. Express an unqualified opinion concerning the restated by management.
B. Be accompanied by the original auditor's report on the prior period. C. A statement that the engagement was performed in accordance with the PSA applicable
C. Bear the same date as the original auditor's report on the prior period. to compilation engagements.
D. Qualify the opinion concerning the restated financial statements because of a change in D. A statement that the accountant does not express an opinion but expresses only limited
accounting principle. assurance on the financial statements.

Review, Compilation, Agree-upon Procedures 98. Which statement is incorrect regarding agreed-upon procedures?
93. Which of the following is not a basic element of a review report? A. Where the auditor is not independent, a statement to that effect need not be made in the
A. Auditor's address C. Introductory paragraph report of factual findings.
B. Client's address D. Title of the report B. The auditor should conduct an agreed-upon procedures engagement in accordance with
PSA 920 and the terms of the engagement.
94. Which of the following is not a distinction between a compilation and a review? C. Beers of the report assess for themselves the procedures and findings reported by the
A. A compilation offers no assurance, whereas a review provides limited assurance. auditor and draw their own conclusions from the auditor's war k.
B. Analytical procedures are applied in a review engagement, but are not required on a D. The report is restricted to those parties that have agreed to the procedures to be
compilation. performed since others, unaware of the reasons for the procedures, may misinterpret the
C. The CPA must be independent as a prerequisite to performing a review engagement, but results.
need not be independent to perform a compilation.
Special Reports
D. In conducting a review, the CPA must obtain an understanding of the client's internal
99. Which of the following statements best distinguishes a forecast from a projection?
control system; but this is not necessary for a compilation engagement.
A. The CPA may review a financial forecast, but may only compile a projection.
95. Which of the following procedures is not necessary in conducting a review of interim B. A forecast contains one or more hypothetical assumptions, whereas a projection reflects
financial information? conditions expected to exist
A. Application of analytical procedures to the interim information. C. A projection is appropriate for general distribution to third parties, whereas a forecast is
B. Enquiry concerning the accounting system and any changes in internal control.. more tentative and should be restricted to those parties with whom the client is
C. Confirmation of significant customer accounts receivable as of the interim balance sheet negotiating directly.
date. D. A forecast reflects conditions expected to exist, whereas a projection presents financial
D. Inquiry of and obtaining written representations from management concerning its position, results of operations, and cash flows given one or more hypothetical
responsibility for the financial information and other matters. assumptions.
May 2015, Final Preboard Examination Page 11 of 12

Answer Key
1. 26. 51. 76.
2. 27. 52. 77.
3. 28. 53. 78.
4. 29. 54. 79.
5. 30. 55. 80.
6. 31. 56. 81.
7. 32. 57. 82.
8. 33. 58. 83.
9. 34. 59. 84.
10. 35. 60. 85.
11. 36. 61. 86.
12. 37. 62. 87.
13. 38. 63. 88.
14. 39. 64. 89.
15. 40. 65. 90.
16. 41. 66. 91.
17. 42. 67. 92.
18. 43. 68. 93.
19. 44. 69. 94.
20. 45. 70. 95.
21. 46. 71. 96.
22. 47. 72. 97.
23. 48. 73. 98.
24. 49. 74. 99.
25. 50. 75. 100.

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