General Instruction: Read carefully each item given and shade the letter in the exam booklet which

corresponds to your
chosen

CODE OF ETHICS & RA 9298

1. Which part of the Code establishes the fundamental principles of professional ethics for professional accountants and
provides a conceptual framework that professional accountants shall apply to identify threats to compliance with the
fundamental principles, evaluate the significance of the threats identified, and apply safeguards, when necessary, to
eliminate the threats or reduce them to an acceptable level?
a. Part A d. Part D
b. Part B e. Parts B and C
c. Part C

2. Which of the following is not prohibited by the Code of Professional Ethics for CPAs?
a. Advertising and solicitation of clients
b. Payment of commissions to obtain a client
c. Receiving a contingent fee on a tax case before the Bureau of Internal Revenue
d. Offering employment to a staff member of another CPA without first informing the CPA
e. None of the above

3. Competence as a certified public accountant includes all of the following except

a. Having the technical qualifications to perform an engagement.
b. Possessing the ability to supervise and evaluate the quality of staff work.
c. Warranting the infallibility of the work performed.
d. Consulting others if additional technical information is needed.
e. None of the above

4. Which of the following is mandatory if the auditor is to comply with generally accepted auditing standards?
a. Possession by the auditor of adequate technical training.
b. Use of analytical review on audit engagements.
c. Use of statistical sampling whenever feasible on an audit engagement.
d. Confirmation by the auditor of material accounts receivable balances.
e. None of the following

5. The threat that a professional accountant will be deterred from acting objectively because of actual or perceived
pressures from the client is known as
a. Intimidation threat
b. Familiarity threat
c. Self-interest threat.
d. Advocacy threat
e. None of the following

6. Which of the following is a violation of Confidential Client Information of the Code of Professional Conduct?
a. The CPA, in response to a court subpoena, submits auditor-prepared workpapers as evidence of possible
illegal acts perpetrated by the client.
b. The CPA discloses to the board of directors a scheme concocted by top management to intentionally inflate
earnings.
c. The CPA warns Client B as to the inadvisability of acquiring Client A. The CPA bases this warning on
knowledge of Client A's financial condition and a belief that the management of Client A lacks integrity. This
knowledge was obtained by the CPA as a result of auditing Client A during the past several years.
d. The CPA, when questioned in court, admits to knowledge of certain illegal acts perpetrated by the client.
e. None of the following
7. Which of the following will not create self-interest threat for a professional accountant in public practice?
a. The possibility of losing a significant client.
b. Direct financial interest in the assurance client.
c. Undue dependence on total fees from a client.
d. Preparing the original data used to generate records that are the subject matter of the assurance engagement.
e. None of the following
8. PSA 220 requires the engagement partner to consider whether members of the engagement team have complied with the
ethical requirements relating to audit engagements. The Code of Ethics establishes the fundamental principles of
professional ethics, which include
I. Integrity
II. Objectivity
III. Professional competence and due care
IV. Confidentiality
V. Professional behavior
a. I, II, IV, and V only
b. II, III, IV, and V only
c. I, III, IV, and V only
d. I, II, IV and V only
e. I, II, III, IV, and V
9. The following statements relate to the provision of legal services to an audit client. Which is incorrect?
a. The provision of legal services to an audit client involving matters that would not be expected to have a
material effect on the financial statements may create a self-review threat.
b. Legal services to support an audit client in the execution of a transaction (e.g., contract support) may create a
self-review threat.
 c. Acting for an audit client in the resolution of a dispute or litigation in such circumstances when the amounts
involved are material in relation to the financial statements of the audit client would create advocacy and self-
review threats so significant no safeguards could reduce the threats to an acceptable level.
d. The appointment of a partner or an employee of the firm or network firm as General Counsel for legal affairs
to an audit client would create self-review and advocacy threats that are so significant no safeguards could
reduce the threats to an acceptable level.
e. None of the following
10. As defined in the Code of Ethics, __________ is the communication to the public of facts about a professional accountant
which are not designed for the deliberate promotion of that professional accountant.
a. Advertising
b. Publicity
c. Solicitation
d. Marketing professional services
e. None of the following
11. The following circumstances create advocacy threats for a professional accountant in public practice except
a. Promoting shares in an audit client.
b. Acting as an advocate on behalf of an audit client in litigation or disputes with third parties.
c. Acting as campaign manager for the president of a client who is running for a public office.
d. A member of the assurance team having a significant close business relationship with an assurance client.
e. None of the following
12. When a close family member of a member of the assurance team is a director, an officer, or an employee of the
assurance client in a position to exert direct and significant influence over the subject matter information of the
assurance engagement, threats to independence may be created. If the threats are other than clearly insignificant,
which of the following safeguards can be applied to reduce the threats to an acceptable level?
I. Removing the individual from the assurance team.
II. Where possible, structuring the responsibility of the assurance team so that the professional does not deal with
matters that are within the responsibility of the close family member.
III. Policies and procedures to empower staff to communicate to senior levels within the firm any issue of
independence and objectivity that concerns them.
a. I and II only d. I, II, and III
b. II and III only e. II only
13. The Code of Ethics for Professional Accountants in the Philippines is approved by ______, recommended for adoption by
the __________.
a. BOA, PICPA
b. BOA, President of the Philippines
c. SEC, BOA
d. PICPA, BOA
e. BOA, SEC
14. A client seeking a second opinion does not permit the CPA to communicate with the existing accountant. In such cases,
the CPA should:
a. Issue a disclaimer of opinion due to a significant client-imposed scope limitation
b. Consider whether, taking all the circumstances into account, it is appropriate to provide the opinion sought
c. Consider whether to issue a qualified opinion or disclaimer of opinion due to significant client-imposed scope
limitation
d. Issue unqualified opinion with emphasis of a matter paragraph
e. Communicate the client’s refusal activity directly to the existing accountant
15. The rendering of two or more types of professional services concurrently:
a. Is a violation of the Code of Ethics
b. Would impair integrity, objectivity or independence, or the good reputation of the profession
c. Does not itself impair integrity, objectivity or independence
d. Is inconsistent with the practice of public accountancy
e. It depends upon the relationship of the two types of services
16. The members of the Professional Regulatory Board of Accountancy shall be appointed by the
a. Philippine Institute of CPAs (PICPA)
b. Professional Regulation Commission (PRC)
c. President of the Philippines
d. Association of CPAs in Public Practice (ACPAPP)
e. International Federation of Accountants (IFAC)
17. Which of the following shall be issued to examinees who pass the CPA licensure examination?
a. Certificate of registration and death certificate.
b. Professional identification card and warrant of arrest.
c. Certificate of registration and professional identification card.
d. Warrant of arrest and death certificate.
e. Baptismal certificate and professional identification card
18. Which of the following statements concerning a CPA’s disclosure of confidential client information is ordinarily correct?
a. Disclosure may be made to any party on consent of the client.
b. Disclosure should not be made even if such disclosure will protect the CPA’s professional interests in legal
proceedings.
c. Disclosure should be made only if there is a legal or professional duty to make the disclosure.
d. Disclosure may be made to any government agency without subpoena.
e. All of the following are correct
19. Which of the following statements concerning the issuance of Certificates of Registration and Professional Identification
Cards to successful examinees is correct?
a. The Certificate of Registration issued to successful examinees is renewable every three (3) years.
b. The Professional Identification Card issued to successful examinees shall remain in full force and effect until
withdrawn, suspended or revoked in accordance with RA 9298.
c. The BOA shall not register and issue a Certificate of Registration and Professional Identification Card to any
successful examinee of unsound mind.
 d. The BOA may, after the expiration of three (3) years from the date of revocation of a Certificate of Registration,
reinstate the validity of a revoked Certificate of Registration.
e. All statements are correct

20. When is the full implementation of RA 10912 for the 120 Continuing Professional Development (CPD) unit requirement
for the renewal of the CPA license?
a. 2017 c. 2019 e. 2021
b. 2018 d. 2020

ASSURANCE & RELATED SERVICES

21. Which of the following is not an assurance service?
a. Examination of prospective financial information
b. Audit of historical financial statements
c. Review of financial statements
d. Compilation of financial information
e. None of the above
22. Which of the following prospective financial statements is(are) appropriate for general use?
Financial forecast Financial projection
a. Yes Yes
b. Yes No
c. No Yes
d. No No
e. No Depends upon the
engagement
23. A practitioner’s report on agreed-upon procedures that is in the form of procedures and findings should contain:
a. Negative assurance that the procedures did not necessarily disclose all reportable conditions.
b. An acknowledgment of the practitioner’s responsibility for the sufficiency of the procedures.
c. A statement of restrictions on the use of the report.
d. A disclaimer of opinion on the entity’s financial statements.
e. An emphasis of the matter paragraph to draw attention to the reader of the report.
24. An accountant agrees to the client’s request to change an engagement from a review to a compilation of financial
statements. The compilation report should include:
a. No reference to the original engagement
b. Reference to a departure from PSAs
c. Scope limitations that may have resulted in the change of engagement
d. Information about review procedures already performed
e. The scope of the engagement previously done which were never used
25. The overall objectives of the auditor in conducting an audit of financial statements are
I. To obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether caused by fraud or error.
II. To report on the financial statements.
III. To obtain conclusive rather than persuasive evidence.
IV. To detect all misstatements, whether due to fraud or error.
a. I and II only d. III and IV only
b. II and IV only e. I, II, III, and IV
c. I, II, and III only

AUDIT REPORTS ON FINANCIAL STATEMENTS

26. The following statements relate to unaudited prior year financial statements that are presented in comparative form
with audited current year financial statements. Which is incorrect?
a. The incoming auditor should state in the auditor’s report that the comparative financial statements are
unaudited.
b. The incoming auditor need not perform audit procedures regarding opening balances of the current period.
c. Clear disclosure in the financial statements that the comparative financial statements are unaudited is
encouraged.
d. In situations where the incoming auditor identifies that the prior year unaudited figures are materially
misstated, the auditor should request management to revise the prior year’s figures or if management refuses
to do so, appropriately modify the report.
e. All of the above are incorrect

27. An independent auditor discovers that a payroll supervisor of the company being audited has misappropriated P50,000.
The company’s total assets and income before tax are P70 million and P15 million, respectively. Assuming no other
issues affect the report, the auditor’s report will most likely contain a/an
a. Unmodified opinion
b. Disclaimer of opinion
c. Adverse opinion
d. Scope qualification
e. Unmodified opinion with other matter paragraph

28. Based on PSA 700 Revised, an auditor should disclose the substantive reasons for expressing an adverse opinion in the
Basis for Adverse Opinion paragraph
a. Following the opinion paragraph.
b. Preceding the opinion paragraph.
c. Following the introductory paragraph
d. Within the notes to the financial statements.
e. At the last paragraph of the report

29. An audit report should be dated as of the

a. date the report is delivered to the entity audited.
 b. date the financial statements were approved by the client management.
c. balance sheet date of the latest period reported on.
d. date a letter of audit inquiry is received from the entity’s attorney of record.

30. If a company’s external auditor expresses an unqualified opinion as a result of the audit of the
company’s financial statements, readers of the audit report can assume that
a. The external auditor found no fraud.
b. The company is financial sound and the financial statements are accurate.
c. Internal control is effective.
d. All material disagreements between the company and external auditor about the application
of accounting principles were resolved in the satisfaction of the external auditor.

31. A statement that the auditor’s responsibility is to express an opinion on the financial statements
is contained in the:
a. Opening paragraph c. Opening and scope paragraph
b. Scope paragraph d. Opinion paragraph

32. The description of an audit in the scope paragraph of the standard audit report includes all of
the following except:
a. Evaluating the overall financial statement presentation.
b. Assessing control risk.
c. Examining, on a test basis, evidence supporting the amount and disclosures in the financial
statements.
d. Assessing the accounting principles used and significant estimates made by management.

33. The audit report is normally addressed to the:

Board of directors Stockholders Chair of the Audit Committee
a. No Yes No
b. Yes Yes No
c. Yes Yes Yes
d. Yes No Yes

34. If comparative financial statements are presented and the present auditor has audited both
years, the auditor should:
a. Reissue the report c. Redate the report
b. Dual date the report d. Update the report

35. In which of the following situations would the auditor appropriately issue a standard unqualified
report with no explanatory paragraph concerning consistency?
a. A change in the method of accounting for specific subsidiaries that comprise the group of
companies for which consolidated statements are presented.
b. A change from an accounting principle that is not generally accepted to one that is
generally accepted.
c. A change in the percentage used to calculate the provision for warranty expense.
d. Correction of a mistake in the application of a generally accepted accounting principle.
 Page 2 of 10

36. An auditor’s report contains the following sentences:

We did not audit the financial statements of B Company, a consolidated subsidiary,
whose statements reflect total assets and revenues constituting 20 percent and 22
percent, respectively, of the related consolidated totals. These statements were audited
by other auditors, whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for B Company, is based solely upon the report of the
other auditors.
These sentences
a. disclaim an opinion c. divide responsibility
b. qualify the opinion d. should not be part of the audit report
37. The management of a client company believes that the statement of cash flow is not a useful
document and refuses to include one in the annual report to stockholders. As a result, the
auditor’s opinion should be
a. qualified due to inadequate disclosure c. adverse
b. qualified due to a scope limitation d. unqualified

38. Management departs from a requirement of the PFRS as compliance would otherwise make the financial statements
misleading. In this case, the auditor issues
a. A qualified or adverse opinion because the financial statements must conform to PFRS at all times
b. An unmodified opinion with emphasis paragraph if management disclosed the reasons for the departure and
the auditor found the reasons appropriate in the circumstances
c. A qualified or adverse opinion regardless whether management disclosed the reasons for the departure
d. A disclaimer of opinion to evade reporting responsibilities
e. An unqualified opinion with other matter paragraph

COMPLETING THE AUDIT

39. Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of
subsequent events?
a. Inquiring as to whether any unusual adjustments were made after the date of the financial statements.
b. Confirming a sample of material accounts receivable established after the date of the financial statements.
c. Comparing the financial statements being reported on with those of the prior period.
d. Investigating personnel changes in the accounting department occurring after the date of the financial
statements.
e. None of the above
40. Which of the following statements best describes the “date of the financial statements?”
a. The date on which those with the recognized authority assert that they have prepared the entity’s complete
set of financial statements, including the related notes, and that they have taken responsibility for them.
b. The date that the auditor’s report and audited financial statements are made available to third parties.
c. The date of the end of the latest period covered by the financial statements, which is normally the date of the
most recent balance sheet in the financial statements subject to audit.
d. The date on which the auditor has obtained sufficient appropriate audit evidence on which to base the
opinion on the financial statements.
e. None of the above
41. When considering the use of management’s written representations as audit evidence about the completeness assertion,
an auditor should understand that such representations
a. Constitute sufficient appropriate audit evidence to support the assertion when considered in combination
with a sufficiently low assessed level of control risk.
b. Are not part of the audit evidence considered to support the assertion.
c. Replace a low assessed level of control risk as audit evidence to support the assertion.
d. Complement, but do not replace, substantive tests designed to support the assertion.
e. All of the above
42. The primary objective of analytical procedures used in the final review of an audit is to
a. Obtain evidence from details tested to corroborate particular assertions
b. Identify areas that represent specific risks relevant to the audit
c. Assist the audit in assessing the validity of the conclusions reached
d. Satisfy doubts when questions arise about a client’s ability to continue in existence
e. All of the above
43. Shortly after the audit report has already been released to the entity, an auditor discovered that a material subsequent
event requiring adjustment of the financial statements exists. Accordingly, the auditor should
a. Notify the persons ultimately responsible for the overall direction of the entity not to issue the financial
statements and the audit report to third parties
b. Issue a modified report, as a corrigendum, together with a written apology addressed to the board of directors
and shareholders of the entity
c. Issue a modified report, as a corrigendum, but without a written apology
d. Issue a statement, in a newspaper of general circulation, asking the public at large not rely on the financial
statements and the audit report thereon
e. All of these are alternatives

AUDIT SAMPLING
44. An advantage of statistical over nonstatistical sampling methods in tests of controls is that the statistical methods
a. Afford greater assurance than a nonstatistical sample of equal size.
 b. Provide an objective basis for quantitatively evaluating sampling risks.
c. Can more easily convert the sample into a dual-purpose test useful for substantive testing.
d. Eliminate the need to use judgment in determining appropriate sample sizes.
e. All of the above are advantages
45. The diagram below depicts the auditor’s estimated maximum deviation rate compared with the tolerable rate and also
depicts the true population deviation rate compared with the tolerable rate.
True State of Population
Auditor’s Estimate
Deviation Rate is less than Deviation Rate exceeds
based on Sample
Tolerable Rate Tolerable Rate
Results
Maximum Deviation
Rate is less than I III
Tolerable Rate
Maximum Deviation
Rate exceeds II IV
Tolerable Rate
As a result of tests of controls, the auditor assesses control risk higher than necessary and thereby increases
substantive testing. This is illustrated by

a. I d. IV
b. II e. I and IV
c. III
46. Which of the following combinations results in a decrease in sample size in a sample for attributes?
Risk of Expected
assessing Tolerable population
control risk rate deviation rate
too low
a. Increase Decrease Increase
b. Decrease Increase Decrease
c. Increase Increase Decrease
d. Increase Increase Increase
e. Decrease Decrease Increase
47. An auditor wishes to sample 200 sales receipts from a population of 5,000 receipts issued during the last year. The
receipts have preprinted serial numbers and are arranged in chronological (and thus serial number) order. The audit
randomly chooses a receipt from the first 25 receipts and the selects every 25th receipt thereafter. The sampling
procedures described here is called
a. Systematic random sampling
b. Monetary-unit sampling
c. Judgmental interval sampling
d. Variables sampling
e. Probability proportionate to size sampling
48. When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by
calculating the possible error in either direction. This statistical concept is known as
a. Projected error d. Variance
b. Reliability e. Precision
c. Standard deviation

49. The risk that the auditor’s conclusion based on a sample may be different from the conclusion if the entire population
were subjected to the same audit procedure is
A. Sampling risk
B. Non-sampling risk
C. Risk of incorrect rejection
D. Risk of incorrect acceptance

50. Sampling risk that leads the auditor to conclude that controls are more effective than they actually are is
A. Risk of assessing control risk too low
B. Risk of assessing control risk too high
C. Risk of incorrect rejection
D. Risk of incorrect acceptance

51. Sampling risk that leads the auditor to conclude that a material misstatement exists when in fact it does not is
A. Risk of assessing control risk too low
B. Risk of assessing control risk too high
C. Risk of incorrect rejection
D. Risk of incorrect acceptance

52. Of the four erroneous conclusions from a sampling risk, the auditor is primarily concerned with
A. Risk of assessing control risk too low
 B. Risk of assessing control risk too high
C. Risk of incorrect rejection
D. Risk of incorrect acceptance

PERFORMING SUBSTANTIVE TEST

53. This consists of checking the mathematical accuracy of documents or records.
a. Reperformance d. Inspection
b. Recalculation e. Observation
c. Confirmation
54. Which statement is correct regarding the sufficiency and appropriateness of audit evidence?
a. Sufficiency is the measure of the quality of audit evidence.
b. Appropriateness is the measure of the quantity of audit evidence; that is, its relevance andits reliability in
providing support for, or detecting misstatements in, the classes oftransactions, account balances, and
disclosures and related assertions.
c. The quantity of audit evidence needed is affected by the risk of misstatement (the greaterthe risk, the more
audit evidence is likely to be required) and also by the quality of suchaudit evidence (the higher the quality,
the less may be required).
d. Merely obtaining more audit evidence may compensate for its poor quality.
e. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining auditevidence
regarding another assertion.
55. Which of the following generalizations does not relate to the appropriateness of evidence?
a. Audit evidence from external sources (for example, confirmation received from a third party) is more reliable
than that generated internally.
b. An auditor’s opinion, to be economically useful, is formed within reasonable time and based on evidence
obtained at a reasonable cost.
c. Audit evidence generated internally is more reliable when the related accounting and internal control systems
are effective.
d. Audit evidence obtained directly by the auditor is more reliable than that obtained from the entity.
e. None of the above
56. Confirmation is “the process of obtaining and evaluating a direct communication from a third party in response to a
request for information about a particular item affecting financial statement assertions.” Two assertions for which
confirmation of accounts receivable balances provides primary evidence are
a. Completeness and valuation
b. Valuation and rights and obligations
c. Rights and obligations and existence
d. Existence and completeness
e. Presentation and disclosure
57. Audit information is generally considered relevant when it is:
a. Derived through valid statistical sampling.
b. Objective and unbiased.
c. Factual, adequate, and convincing.
d. Consistent with the audit objectives.
e. All of the above.

58. Which statement is incorrect regarding audit evidence?

a. Audit evidence is all the information used by the auditor in arriving at the conclusions on
which the audit opinion is based.
b. Audit evidence includes the information contained in the accounting records underlying the
financial statements and other information.
c. Audit evidence is cumulative in nature.
d. Auditors are expected to address all information that may exist.

59. Accounting records least likely include

a. The records of initial entries and supporting records.
b. The general and subsidiary ledgers.
c. Work sheets and spreadsheets supporting cost allocations.
d. Comparable data about competitors (benchmarking).

60. Other information that the auditor may use as audit evidence least likely includes
a. Minutes of meetings.
b. Confirmations from third parties.
c. Information obtained by the auditor from such audit procedures as inquiry, observation, and
inspection.
d. Adjustments to the financial statements that are not reflected in formal journal entries.

61. Which statement is correct regarding the sufficiency and appropriateness of audit evidence?
a. Sufficiency is the measure of the quality of audit evidence.
b. Appropriateness is the measure of the quantity of audit evidence; that is, its relevance and
its reliability in providing support for, or detecting misstatements in, the classes of
transactions, account balances, and disclosures and related assertions.
c. The quantity of audit evidence needed is affected by the risk of misstatement (the greater
the risk, the more audit evidence is likely to be required) and also by the quality of such
audit evidence (the higher the quality, the less may be required).
d. Merely obtaining more audit evidence may compensate for its poor quality.
62. Which of the following statements is incorrect regarding relevance of audit evidence?
a. A given set of audit procedures may provide audit evidence that is relevant to certain
assertions, but not others.
b. The auditor often obtains audit evidence from different sources or of a different nature that
is relevant to the same assertion.
c. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit
evidence regarding another assertion.
d. None of the above.
Which of the following generalizations in assessing the reliability of audit evidence is incorrect?
a. Audit evidence is more reliable when it is obtained from independent sources outside the
entity.
b. Audit evidence that is generated internally is not affected by the effectiveness of the
 controls imposed by the entity.
b. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained
c. indirectly or by inference.
d. d. Audit evidence is more reliable when it exists in documentary form.
AUDIT IN A COMPUTERIZED ENVIRONMENT
63. It is a computer program (a block of executable code) that attaches itself to a legitimate program or
data file and uses it as a transport mechanism to reproduce itself without theknowledge of the user.
a. Password
b. Utility program
c. System management program
d. Encryption
e. Virus
64. 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 system 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 controls and substantive procedures.
d. The need of the auditor to make analytical procedures during the completion stage of audit.
e. None of the above
65. An entity has recently converted its purchasing cycle from a manual process to an online computer
system. Which of the following is a probable result associated with conversion to the new IT system?
a. Traditional duties are less separated.
b. Increased processing time.
c. Reduction in the entity’s risk exposure.
d. Increased processing errors.
e. Reduces capacity of storage of database.
66. The internal controls over computer processing include both manual procedures and procedures
designed into computer programs (programmed control procedures). These manual and programmed
control procedures comprise the general CIS controls and CIS application controls. The purpose of
general CIS controls is to
a. Establish specific control procedures over the accounting applications in order to provide
reasonable assurance that all transactions are authorized and recorded and are processed
completely, accurately, and on a timely basis.
b. Establish a framework of overall controls over the CIS activities and to provide a reasonable
level of assurance that the overall objectives of internal control are achieved.
c. Provide reasonable assurance that systems are developed and maintained in an authorized
and efficient manner.
d. Provide reasonable assurance that access to data and computer programs is restricted to
authorized personnel.
e. Provide assurance that only the specific applications can be carried out in a CIS
environment
67. In planning the portions of the audit which may be affected by the client’s CISenvironment, the
auditor should obtain an understanding of the significance and complexity of the CIS activities and
the availability of data for use in the audit. The following relate to the complexity of CIS activities
except when
a. Transactions are exchanged electronically with other organizations (for example, in
electronic data interchange systems [EDI]).
b. Complicated computations of financial information are performed by the computer and/or
material transactions or entries are generated automatically without independent
validation.
c. Material financial statement assertions are affected by the computer processing.
d. The volume of transactions is such that users would find it difficult to identify and correct
errors in processing.
e. None of the above
68. Which of the following is an engagement attribute for an audit of an entity that processes mostof its
financial data in electronic form without any paper documentation?
a. Discrete phases of planning, interim, and year-end field work.
b. Increased effort to search for evidence of management fraud.
c. Performance of audit tests on a continuous basis.
d. Increased emphasis on the completeness assertion.
e. None of the above

CONSIDERATION OF INTERNAL CONTROL

69. An auditor should consider two key issues when obtaining an understanding of a client’s internal
controls. These issues are

Page 12 of 17
 a. The effectiveness and efficiency of the controls.
b. The frequency and effectiveness of the controls.
c. The design and implementation of the controls.
d. The implementation and efficiency of the controls.
e. The implementation and frequency of controls.
70. Which of the following best describe the interrelated components of internal control?
a. Organizational structure, management philosophy, and planning.
b. Control environment, risk assessment, control activities, information and communication
systems, and monitoring.
c. Risk assessment, backup facilities, responsibility accounting and natural laws.
d. Legal environment of the firm, management philosophy, and organizational structure.
e. The size of the firm, integrity of the management and the quality of regulatory laws of the
state.
71. According to PSA 400, which of the following is correct regarding internal control system?
a. Internal control system refers to all the policies and procedures adopted by the auditor
toassist in achieving management’s objective.
b. A strong environment, by itself, ensure the effectiveness of the internal control system.
c. In the audit of financial statements, the auditor is only concerned with those policies and
procedures within the accounting and internal control systems that are relevant to the
financial statements.
d. The internal control system is confined to those matters which relate directly to the
functions of the accounting system.
e. All of the above
72. Authorizations can be either general or specific. Which of the following is not an example of a general
authorization?
a. Automatic reorder points for raw materials inventory.
b. A sales manager’s authorization for a sales return.
c. Credit limits for various classes of transactions.
d. A sales price list for merchandise.
e. Accepting payment from customer having account balance.
73. An entity should consider the cost of a control in relationship to the risk. Which of the following
controls best reflects this philosophy for a large peso investment in heavy machine tools?
a. Conducting a weekly physical inventory.
b. Placing security guards at every entrance 24 hours a day.
c. Imprinting a controlled identification number on each tool.
d. Having all dispositions approved by the vice president of sales.
e. Safekeep the assets in a far and secluded away from the business entity.
74. Which of the following is not one of the three primary objectives of effective internal control?
a. Reliability of financial reporting.
b. Efficiency and effectiveness of operations.
c. Compliance with laws and regulations.
d. Assurance of elimination of business risk.
e. None of the above
75. Which of the following statements concerning the relevance of various types of controls to a financial
statement audit is correct?
a. All controls are ordinarily relevant to a financial statement audit.
b. Controls over safeguarding of assets and liabilities are of primary importance, while
controls over the reliability of financial reporting may also be relevant.
c. Controls over the reliability of financial reporting are ordinarily most directly relevant to a
financial statement audit, but other controls may also be relevant.
d. An auditor may ordinarily ignore a consideration of controls when a substantive audit
approach is taken.
e. All of the above

AUDIT PLANNING
76. Which of the following least likely affect the form and content of the overall audit plan?
a. Complexity of the audit engagement.
b. Methodology and technology used by the auditor.
c. The entity’s form of business organization.
d. The size of the entity.
e. None of the above
77. Which of the following is an effective audit planning and control procedures that helps
preventmisunderstandings and inefficient use of audit personnel?

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 a. Make copies, for inclusion in the working papers, of those client’s supporting
documentsexamined by the auditor.
b. Provide the client with copies of the audit programs to be used during the audit.
c. Arrange a preliminary conference with the client to discuss audit objectives, fees,
timing,and other information.
d. Arrange to have the auditor prepare and post any necessary adjusting or
reclassificationentries prior to final closing.
e. None of the above
78. Before accepting an audit engagement, a successor auditor should make specific inquiries ofthe
predecessor auditor regarding the predecessor’s
a. Opinion of any subsequent events occurring since the predecessor’s 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.
d. Evaluation of all matters of continuing accounting significance.
e. None of the above

79. The engagement letter will do one, some, or all of the following:
I. State whether the CPA will perform audit, review or compilation services
II. State whether the CPA will perform tax or management advisory or other services
III. State any restriction to be imposed on the CPA’s work
IV. Identify deadlines for completing the work
V. State the amount and type of work to be done by client’s personnel in generating auditor’s
working papers
VI. State the CPA’s fees for the engagement
VII. Inform the client that the CPA does not have responsibility for detecting fraud
a. Numbers I, II, IV and VI
b. Numbers I, II, III, IV and VI
c. Numbers I, III, V and VII
d. Numbers I, III, IV, and V
e. All seven of the above stated items
80. Prior to beginning fieldwork on a new audit engagement in which a CPA does not possess industry
expertise, the CPA should
a. Reduce audit risk by lowering the preliminary levels of materiality
b. Design special substantive test to compensate for the lack of industry expertise
c. Engage financial experts who are familiar with the nature of the industry
d. Obtain knowledge of matters that relate to the nature of the entity’s business and industry
e. Resign from the audit engagement
81. Which of the following is not considered a valid source of information about the client’s processes?
a. Confirmation of third parties
b. Review of the client’s budget
c. A tour of the client’s plant
d. Management inquiry
e. None of the above
82. An attitude that includes a questioning mind and a critical assessment of audit evidence is referred to
as
a. Due professional care
b. Reasonable assurance
c. Supervision
d. Due diligence
e. Professional skepticism

PROFESSIONAL STANDARDS

83. The firm is to be staffed by personnel who have attained and maintained the technical

standards and professional competence required to enable them to fulfill their responsibilities

with due care is the objective of what quality control policy?

a. Professional Requirements
c. Assignment
b. Skills and Competence
d. Delegation
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84. In connection with the element of professional development, a CPA firm’s system of quality
control should ordinarily provide that all personnel
a. Have the knowledge required to enable them to fulfill responsibilities assigned.
b. Possess judgment, motivation, and adequate experience.
c. Seek assistance from persons having appropriate levels of knowledge, judgment, and
authority.
d. Demonstrate compliance with peer review directives.

85. Within the context of quality control, the primary purpose of continuing professional education
and training activities, is to enable a CPA firm to provide personnel within the firm with:
a. Technical training that assures proficiency as an auditor.
b. Professional education that is required in order to perform with due professional care.
c. Knowledge required to fulfill assigned responsibilities and to progress within the firm.
d. Knowledge required in order to perform a peer review.

86. In pursuing its quality control objectives with respect to assigning personnel to engagements,
a public accounting firm may use policies and procedures such as
a. Rotating employees from assignment to assignment on a random basis to aid in the staff
training effort.
b. Requiring timely identification of the staffing requirements of specific engagements so that
enough qualified personnel can be made available.
c. Allowing staff to select the assignments of their choice to promote better client
relationships.
d. Assigning a number of employees to each engagement in excess of the number required
so as not to overburden the staff and interfere with the quality of the audit work
performed.

87. A CPA firm’s personnel partner periodically studies the CPA firm’s personnel advancement
experience to ascertain whether individuals meeting stated criteria are assigned increased
degrees of responsibility. This is evidence of the CPA firm’s adherence to prescribed
standards of
a. Quality control.
c. Supervision and review.
b. Due professional care.
d. Fieldwork.

88. The firm’s evaluation of the performance of its personnel and advising them of their progress
is a quality control procedure that relates to
a. Promotion
c. Monitoring
b. Advancement
d. Directing

AUDITOR’S RESPONSIBILTY

89. Per PSA 240, what separates error from fraud?

a. Materiality d. Risk
b. Intention e. Friendzone
c. Involvement
90. Not included in the fraud triangle
a. Incentive or pressure
b. Perceived opportunity
c. Rationalization of the act
d. Fraud risk factor
e. All of the above
91. Which of the following is correct concerning requirements about auditor communications about
fraud?
a. Fraud that involves senior management should be reported directly to the audit committee
regardless of the amount involved
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 b. Fraud with a material effect on the financial statements should be reported directly by the
auditor to the Securities and Exchange Commission
c. Fraud with a material effect on the financial statements should ordinarily be disclosed by
the auditor through use of an “emphasis of matter” paragraph added to the audit report
d. The auditor has no responsibility to disclose fraud outside the entity under any
circumstances
e. All of the above are correct

92. The most difficult type of misstatement to detect is fraud based on

a. The over recording of transactions
b. The nonrecording of transactions
c. Recorded transactions in subsidiaries
d. Related-party receivables
e. Unusual unrelated transactions

AUDIT PROCESS

93. Which of the following types of audit uses as its criteria laws and regulations?
a. Operational audit
b. Compliance audit
c. Financial statement audit
d. Financial audit
e. Environmental audit
94. An operational audit is designed to
a. Assess the efficiency and effectiveness of management’s operating procedures
b. Assess the presentation of management’s financial statements in accordance with generally
accepted accounting principles
c. Determine whether management has complied with applicable laws and regulations
d. Determine whether the audit committee of the board of directors is effectively discharging
its responsibility to oversee management’s operations
e. Express an opinion whether the financial statements are prepared, in all material respect,
in accordance with an identified financial reporting framework
95. Which one of the following is more difficult to evaluate objectively?
a. Efficiency and effectiveness of operations
b. Compliance with government regulations
c. Presentation of financial statements in accordance with generally accepted accounting
principles
d. Internal control structure of the business operation
e. All of the above are equally difficult
96. A financial statement audit:
a. Confirms that financial statement assertion are accurate
b. Lends credibility to the financial statements
c. Guarantees that financial statements are presented fairly
d. Assures that fraud had been detected
e. Certifies that the business will continue indefinitely
97. Which of the following is an appraisal activity established within an entity as a service to the entity?
a. External auditing
b. Internal auditing
c. Financial auditing
d. Compliance auditing
e. Government auditing
98. An independent audit
a. Supports an internal audit
b. Negates an internal audit
c. Duplicates an internal audit
d. Complements an internal audit
e. Emphasizes an internal audit
99. Which statement is correct regarding the relationship between internal auditing and the external
auditor?
a. Some judgments relating to the audit of the financial statements are those of the internal
auditor
b. The external audit function's objectives vary according to management's requirements

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 c. Certain aspects of internal auditing may be useful in determining the nature, timing and
extent of external audit procedures
d. The external auditor is responsible for the audit opinion expressed, however that
responsibility may be reduced by any use made of internal auditing.
e. There can be no relationship between internal auditors and external auditor as external
auditors are hired if the internal auditors lack competence and integrity
100. Operational auditing is mainly concerned about:
a. Past protection provided by current internal control
b. Future improvements for management goals
c. Verification of fair presentation of financial data
d. Accuracy of data of financial records
e. Looking for violations committed by the entity

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