AUDITING THEORY c.

Requisite skill and diligence

PRELIM REVIEWER d. Freedom from undue influence
(875 Multiple Choice Questions)
8. Users of financial statements demand independent audit
because
SET 1 a. Users demand assurance that fraud does not exist.
b. Management may not be objective in reporting.
1. Which of the following engagements is covered by the c. Users expect auditors to correct management errors.
Framework for Assurance Engagements? d. Management relies on the auditor to improve internal
a. Consulting engagements control.
b. Preparation of tax returns
c. Independent financial statements audit 9. An audit of financial statements is conducted to determine
d. Agreed-upon procedures if the
a. Organization is operating efficiently and effectively
2. Independent auditing can best be described as a b. Client's internal control is functioning as intended.
a. Subset or branch of accounting. c. Auditee is following specific procedures or rules set
b. Professional activity that measures and communicates down by some higher authority
financial accounting data. d. Overall financial statements are stated in
c. A discipline or professional activity that attests to accordance with an identified financial reporting
the fair presentation of financial statements. framework.
d. Regulatory activity that prevents the issuance of
improper financial information. 10. An audit designed to determine the extent to which the desired
results of an activity established by the legislative or other
3. An auditor should not render a report on: authorizing body are being achieved.
a. Client internal control. a. Economy audit
b. Management performance. b. Efficiency audit
c. The achievability of forecasts. c. Program results audit
d. Quarterly financial information. d. Financial-related audit

4. The assumption underlying an audit of financial statements
is that they will be used by
a. Different groups for different purposes.
b. The general public in making investment decisions.
c. The board of directors as basis of declaring cash
dividends.
d. The regulatory agencies to verify information that is
relevant to their supervisory functions.
5. On every audit engagement, the CPA should comply with
applicable PSAs
a. Without exception.
b. Except in examinations that result in a qualified report.
c. Except in examinations of interim financial statements.
d. Except in circumstances where the CPA is associated
with unaudited financial statements.
6. It refers to the attribute or quality of audit evidence.
a. Sufficiency
b. Relevance
c. Reliability
d. Appropriateness
7. Which of the following best describes due care?
a. Reasonable infallibility
b. Tact in avoiding legal liability
11. Which of the following methods is most commonly used to
reduce information risk?
a. Allow users to verify information.
b. Allow all users to prepare the statements.
c. Users share information risk with management.
d. Have the financial statements audited.
12. Which of the following best describes the primary purpose of
audit procedures?
a. To detect errors or fraud
b. To comply with generally accounting principles
c. To gather sufficient, appropriate evidence
d. To verify the accuracy of account balances
13. It is essential that users regard CPA firms as:
a. Competent.
b. Unbiased.
c. Technically proficient.
d. All of the above
14. Which of the following is least likely an application of
maintaining an attitude of professional skepticism?
a. The auditor is alert to audit evidence that contradicts or
brings into question the reliability of documents or
management representations.
b. In planning and performing an audit, the auditor

AT – Prelim Rev (875 MCQs) Red Sirug Page 1 of 77

 assumes that management is dishonest.
c. The auditor makes a critical assessment, with a
questioning mind, of the validity of audit evidence
obtained.
d. The auditor does not consider representations from
management as substitute for obtaining sufficient
appropriate audit evidence to be able to draw reasonable
conclusions on which to base the audit opinion.
21. No matter how competent a CPA may be, his opinion on
financial statements will be of little value to those who rely on
him unless he
a. Issues an unqualified opinion
b. Maintains his independence.
c. Maintains a program of continuing education
d. Serves his clients with professional concern of their best
interests.

15. Which of the following is not one of the concepts in the 22. An audit can have a significant effect on
framework of auditing theory? a. Business risk.
a. Evidence b. Information risk.
b. Ethical conduct c. The risk-free interest rate.
c. Fair presentation d. All of these.
d. Conflict of interest
23. In government auditing, the three elements of expanded
16. To raise the standards of the profession, the Philippine scope auditing are
Accountancy Act of 2004 requires that the CPA profession be a. Goal analysis, audits of operations, audit of systems.
integrated under the rules to be established by b. Financial and compliance, economy and efficiency,
a. The PICPA. program results.
b. The Board of Accountancy. c. Pre-audit, post-audit, internal audit.
c. The Professional Regulation Commission. d. National government audit, local government audit,
d. The Government Association of CPAs. corporation audit.

17. Management assertions are
a. Stated in the footnotes to the financial statements.
b. Provided to the auditor in the assertions letter, but are not
disclosed in the financial statements of the entity.
c. Implied or express representations about the
accounts in the financial statements.
d. Explicitly expressed representations about the financial
statements.
18. In performing a financial statement audit, which of the
following would an auditor least likely consider?
a. Internal control.
b. Compliance with GAAP.
c. Fairness of the financial statement amounts.
d. Quality of management’s business decisions.
24. Which of the following types of audits are most similar?
a. Operational audits and compliance audit.
b. Internal audits and independent financial statement audits.
c. Independent financial statement audits and operational
audits.
d. Compliance audits and independent financial
statement audits.
25. If it is probable that the judgment of a reasonable person
would have been changed or influenced by the omission or
misstatement of information, then the information is
a. Relevant.
b. Pervasive.
c. Material.
d. Significant.

19. When the CPA is not independent, the CPA is precluded from 26. Which of the following is not among the factors that result to
issuing a limitations of audit?
a. Review report. a. Use of testing
b. Compilation report. b. Human error
c. Tax planning report. c. Going concern problem of the assurance client
d. Management advisory report. d. Evidence is basically persuasive rather than conclusive

20. The risk that the auditor will fail to uncover a material 27. Which of the following services is not within the area of public
misstatement is eliminated accounting?
a. If client has effective internal control. a. Attest function
b. If client follows PFRS. b. Taxation service
c. When the auditor has complied with PSA. c. Write-up work for one client
d. Under no circumstances. d. Management advisory services

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28. An audit committee must be comprised of outside directors.
Which of the following is considered an outside director?
a. A consultant to the company.
b. A member of company management.
c. The company's independent auditor.
d. A retired executive from another company.
29. "The auditor would ordinarily expect to find evidence to
support management representations and not assume that
they are necessarily correct". This is an example of:
a. Due diligence.
b. Unprofessional behavior.
c. An attitude of professional skepticism.
d. A rule in the code of Professional Conduct.
30. The audit process is
a. Regulated by the PICPA
b. Performed only by CPAs
c. The only service a CPA is allowed to perform by law
d. A special application of the scientific method of
inquiry
31. In determining the scope and nature of services to be
performed in public practice, a CPA firm should
a. Have in place internal control procedures
b. Only perform accounting related services
c. Require independence for all services performed
d. Determine that the performance of all services is
consistent with the firm's members' role as
professionals.
32. Which of the following is not an assurance that the auditors
give to the parties who rely on the financial statements?
a. Auditors give assurance that the financial statements
are accurate.
b. Auditors know how the amounts and disclosures in the
financial statements were produced.
c. Auditors gathered enough evidence to provide a
reasonable basis for forming an opinion.
d. If the evidence allows the auditors to do so, auditors give
assurance in the form of opinion, as to whether the
financial statements taken as a whole are fairly presented
in conformity with GAAP.
33. Auditing standards differ from auditing procedures in that
procedures relate to
a. Audit judgments.
b. Audit principles.
c. Acts to be performed.
d. Measures of performance.
34. Choose one of the following which would describe best the
phrase "generally accepted auditing standards":
a. They identify the policies and procedures for the conduct
of the audit.
AT – Prelim Rev (875 MCQs) Red Sirug
b. They define the nature and extent of the auditor's
responsibilities.
c. They provide guidance to the auditor with respect to
planning the audit and writing the audit report.
d. They set forth a measure a measure of the quality of
the performance of audit procedures.
35. Auditing includes both a(an)
a. Evaluation process and a reporting process.
b. Investigative process and a reporting process.
c. Documentation process and an evaluation process.
d. Documentation process and a reporting process.
36. The audit committee of the board of directors of a company
is responsible for
a. Hiring the auditor
b. The audit workpapers
c. Preparing the financial statements
d. Independence and obtaining evidence
37. Which of the following types of audits would be intended to
determine whether a governmental entity is following sound
procurement practices?
a. Program audit
b. Operational audit
c. Compliance audit
d. Financial statement audit
38. Which of the following is the authoritative body designated to
promulgate auditing standards?
a. BOA
b. PICPA
c. FRSC
d. AASC
39. Which of the following statements is true?
a. An independent auditor must be a CPA.
b. Compliance audits are conducted to determine
adherence to rules and regulations set by the auditor.
c. An audit, if properly conducted, ensures that fraud is
prevented.
d. After conducting an audit and release of the auditor’s
report, the primary responsibility on the fairness of the
financial statements is shifted to the auditor.
40. The Philippine Standards on Assurance Engagements
(PSAEs) are to be applied in
a. The audit or review of historical financial information.
b. Assurance engagements dealing with historical financial
information.
c. Compilation engagements and agreements to apply
agreed-upon procedures to information.
d. Assurance engagements dealing with subject matters
other than historical financial information.
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41. The Philippine Standards on Quality Control (PSQCs) are to
be applied to
a. Assurance engagements only.
b. Review engagements only.
c. Compilation and review engagements only.
d. All services that fall under the AASC's engagement
standards.
42. These statements are issued by the AASC to provide
interpretive guidance and practical assistance to auditors in
the implementation of PSAs and to promote good practice.
a. PREPSs
b. PAEPs
c. PAPSs
d. PRSPSs
43. For the purpose of expressing negative assurance in the
review report, the practitioner should obtain sufficient
appropriate evidence primarily through
a. Inquiry and confirmation
b. Confirmation and tests of controls
c. Inquiry and analytical procedures
d. Analytical procedures and substantive tests of details of
transactions and account balances
44. The BOA vice-chairman shall be
a. Appointed by the PRC
b. Elected by BOA members
c. Appointed by the President of the Philippines
d. Appointed by the PRC upon recommendation by the
PICPA
45. The term of BOA vice-chairman is
a. One year.
b. Three years subject to renewal.
c. At the discretion of BOA members.
d. Same with the term of BOA chairman.
46. An audit designed to evaluate the efficiency and effectiveness
of an organization or some or part thereof would not come
under the title of
a. Performance audit.
b. Compliance audit.
c. Management audit.
d. Operational audit.
47. In financial statement audits, the audit should be conducted
in accordance with
a. PAS / PFRS
b. Generally accepted auditing standards
c. Philippine Standards on Auditing
d. Code of Ethics for CPAs in the Philippines
AT – Prelim Rev (875 MCQs) Red Sirug
48. Which of the following statements does not properly describe
an element of the theoretical framework of auditing?
a. Remoteness of users.
b. An audit benefits the public.
c. The data to be audited are verifiable.
d. Auditor should maintain independence with respect to
the audit client.
49. The statement that the reviewer "is not aware of any material
modification that should be made to the financial statements in
order for them to be in conformity with GAAP" is known as:
a. Positive assurance.
b. Reasonable assurance.
c. Negative assurance.
d. Negligent performance.
50. An independent audit aids in the communication of economic
data because the audit
a. Lends credibility to the financial statements.
b. Confirms the accuracy of management's financial
representation.
c. Guarantees that financial data are fairly presented.
d. Assures the readers of financial statements that any
fraudulent activity has been corrected.
51. The purpose of an audit of financial statements is to
a. Obtain an absolute level of assurance that the financial
statements as a whole are free from material
misstatement.
b. Relieve management or those charged with governance
of the responsibility for the preparation and presentation
of the financial statements in accordance with the
applicable financial reporting framework.
c. Enhance the degree of confidence of intended users in
the financial statements.
d. Assure the future viability of the entity by expressing an
opinion on the entity's financial statements.
52. Inherent limitations in an audit stem from the following factors
except
a. Use of testing.
b. Incompetence of the auditor.
c. Internal control limitation.
d. Most audit evidence is persuasive rather than conclusive.
53. Auditing services may include which of the following?
a. Attesting to financial statements
b. Evaluation of a division’s performance for management
c. Examination of the economy and efficiency of
governmental operations
d. All of the above
54. The review of unaudited financial statements consists of:
a. Inquiry of management and analytical procedures.
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 b. Inquiry of management and documentation of internal
controls.
c. Analytical procedures and compliance with laws and
regulations.
d. Internal control evaluation and management
representation.
55. The Philippine Standards on Auditing issued by AASC:
a. Apply to independent examination of financial
statements of any entity when such an examination is
conducted for the purpose of expressing an opinion.
b. Need to be applied on all audit related.
c. Must not apply to other related activities of auditors.
d. Require that in no circumstances would an auditor may
judge it necessary to depart from a PSA, even though
such a departure may result to more effective
achievement of the objective of an audit.
56. In the case of an audit of financial statements, which of
the following would not be a valid criterion in ascertaining
the degree of correspondence between assertions and
established criteria?
a. International Accounting Standards
b. Philippine Accounting Standards
c. Philippine Standards on Auditing
d. Philippine Financial Reporting Standards
57. Which of the following statements about independent
financial statement audit is correct?
a. The audit of financial statements relieves management
of its responsibilities for die financial statements.
b. An audit is designed to provide limited assurance that
the financial statements taken as a whole are free from
material misstatement.
c. The auditor's opinion is not an assurance as to
the future viability of the entity as well as the
effectiveness and efficiency with which
management has conducted the affairs of the entity.
d. The procedures required to conduct an audit in
accordance with PSAs should be determined by the
client who engaged the services of the auditor.
58. The reason an independent auditor gathers evidence is to
a. Detect fraud
b. Evaluate management
c. Evaluate internal controls
d. Form an opinion on the financial statements
59. The auditor communicates the results of his or her work
through the medium of the
a. Engagement letter.
b. Audit report.
c. Management letter.
d. Audited financial statements.
AT – Prelim Rev (875 MCQs) Red Sirug
60. The expertise that distinguishes auditors from accountants is
in the
a. Ability to interpret PAS/PFRS.
b. Accumulation and interpretation of evidence.
c. Ability to interpret generally accepted accounting
principles.
d. Requirement to possess education beyond the
bachelor's degree.
61. The market for auditing services is driven by
a. The regulatory authority of the Securities and Exchange
Commission.
b. A demand by external users of financial statements.
c. Pronouncements issued by the Auditing and Assurance
Standards Council.
d. Congress.
62. An independent audit is important to readers of financial
statements because it
a. Provides a measure of management's stewardship
function
b. Objectively examines and reports on management's
financial statements
c. Reports on the accuracy of information in the financial
statements
d. Measures and communicates the financial data included
in financial statements
63. Independent auditing can best be described as
a. A branch of accounting.
b. A regulatory function that prevents the issuance of
improper financial information.
c. A professional activity that measures and communi-
cates financial and business data.
d. A discipline which attests to the results of
accounting and other functional operations and data.
64. The primary purpose of an independent financial statement
audit is to
a. Provide a basis for assessing management's
performance
b. Comply with government regulatory requirements
c. Assure management that the financial statements are
unbiased and free from material error
d. Provide users with an unbiased opinion about
the fairness of information reported in the financial
statements
65. The criteria for evaluating quantitative information vary. For
example, in the case of an independent audit of
financial statements by CPA firms, the criteria are
usually the:
a. Philippine Standards on Auditing
b. Philippine Financial Reporting Standards
c. National Internal Revenue Code
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 d. Securities and Exchange Commission Regulations c. Regulation within the firm, through the implementation of
a system of quality control.
66. A profession is distinguished by certain characteristics d. All of these.
including:
a. Mastery of a particular intellectual skill, acquired by 71. This body is created to assist the BOA in the attainment of the
training and education. objective to continually upgrade accounting education in the
b. Adherence by its members to a common code of values Philippines, thus making Filipino CPAs globally competitive.
and conduct established by its administrating body, a. PICPA CPE Council
including maintaining an outlook which is essentially b. Education Technical Council
objective. c. Accounting Teachers' Conference
c. Acceptance of a duty to society as a whole. d. Association of CPAs in Education
d. All of these.
72. Which of the following is not a requirement for a person
67. Professional judgment: applying for the CPA Board Examinations?
a. Is not used in making decisions about materiality and a. Good moral character
audit risk. b. Degree of BS Accountancy
b. Is necessary in the evaluation of management's c. Natural-born Filipino citizen
judgments in applying the entity's applicable d. No conviction of any criminal offense involving moral
financial reporting framework. turpitude.
c. Should be exercised in planning and performing an audit
of financial statements but need not be documented. 73. Its function is to conduct a quality review on applicants for
d. Can be used as the justification for the decisions made by registration to practice public accountancy and render a report
the auditor that are not supported by the facts and which shall be attached to the application for registration.
circumstances of the engagement. a. Quality Review Board
b. Quality Review Group
68. The auditor's judgment concerning the overall fairness of c. Board of Quality Reviewers
presentation of financial position, results of operation, and d. Quality Review Committee
changes in cash flow is applied within the framework of
a. Generally accepted auditing standards which include 74. Which of the following is the accredited national professional
the concept of materiality organization of CPAs?
b. Generally accepted accounting principles. a. IFAC
c. Philippine Financial Reporting Standards b. ASC
d. Quality control c. AASB
d. PICPA
69. One of the conditions that give rise to a demand for an
external audit of financial statements is expertise. Which 75. The ETC shall be composed of
of the following best describes the meaning of expertise as a. 7 members.
used in this context? b. 8 members.
a. Auditors usually rely on the work of an expert as c. 15 members
a basis for evaluating some assertions embodied in d. 14 members
the financial statements.
b. Users usually lack the necessary expertise to verify 76. Which of the following does not have representations in the
the reliability of the financial information. FRSC?
c. As experts, auditors are expected to detect all material a. PICPA
misstatements in the financial statements. b. BIR
d. The readers of the financial statements must possess c. BOI
the necessary expertise to be able to understand the d. BOA
financial statements.
77. A partner surviving the death or withdrawal of all the other
70. Regulation of the accounting profession include: partners in a partnership may continue to practice under the
a. Public Regulation as provided for in the Philippine partnership name for a period of not more than ___ years after
Accountancy Act of 2004. becoming a sole proprietor.
b. Regulation within the profession, through the a. 1
implementation of the Code of Ethics. b. 2
c. 3

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 d. 4 82. Which of the following statements concerning a CPA's
78. The death, or disability of an individual CPA and/or the
dissolution and liquidation of a firm or partnership of CPAs
shall be reported to the BOA not later than ___ days from the
date of such death, dissolution or liquidation.
a. 15
b. 30
c. 60
d. 90
79. It refers to the inculcation, assimilation and acquisition of
knowledge, skills, proficiency and ethical and moral values,
after the .initial registration of a professional that raise and
enhance the professional's technical skills and competence.
a. Professional Development
b. Continuing Professional Education
c. Continuing Professional Development
d. Professional Growth and Development
80. The following statements relate to CPE credit units. Which is
incorrect?
a. One credit hour of CPE program, activity or source shall
be equivalent to one (1) credit unit.
b. Any excess credit units in one year may be carried over
to the succeeding years within the three-year period.
c. The total CPE credit units for registered accounting
professionals shall be sixty (60) credit units for three (3)
years, provided that a minimum of fifteen (15) credit units
shall be earned in each year.
d. Excess credit units earned may be carried over to the
next three-year period including credit units earned
for doctoral and master's degrees.
81. The following statements relate to the exemption from CPE
requirements. Which is false?
a. A registered professional shall be permanently exempted
from CPE requirements upon reaching the age of 65
years old.
b. A registered professional shall be permanently
exempted from CPE requirements upon reaching the
age of 60 years old.
c. A registered professional who is working or practicing
his/her profession abroad shall be temporarily exempted
from compliance with CPE requirements during the
period of his/her stay abroad provided that he/she has
been out of the country for at least two years
immediately prior to the date of renewal.
d. A registered professional who is furthering his/her studies
abroad shall be temporarily exempted from compliance
with CPE requirements during the period of his/her stay
abroad provided that he/she has been out of the country
for at least two years immediately prior to the date of
renewal.
AT – Prelim Rev (875 MCQs) Red Sirug
disclosure of confidential client information is ordinarily correct?
a. Disclosure should not be made even if such disclosure
will protect the CPA's professional interests in legal
proceedings.
b. Disclosure should be made only if there is a legal, or
professional duty to make the disclosure.
c. Disclosure may be made to any party on consent of
the client.
d. Disclosure may be made to any government agency
without subpoena. .
83. This refers to those persons who hold a valid certificate issued
by the Board of Accountancy.
a. Senior accounting practitioner.
b. Professional accountant.
c. Professional accountant in public practice.
d. Audit associate.
84. The principle of professional behavior requires a CPA to
a. Be straightforward and honest in performing professional
services.
b. Perform professional services with due care, competence
and diligence.
c. Be fair and should not allow prejudice or bias, conflict of
interest or influence of others to override objectivity.
d. Act in a manner consistent with the good reputation
of the profession and refrain from any conduct which
might bring discredit to the profession.
85. This fundamental principle requires a CPA not to use or
disclose information acquired during the course of performing
professional services without proper and specific authority.
a. Objectivity.
b. Professional Behavior.
c. Professional Competence and Due care.
d. Confidentiality.
86. Which of the following is not a ground for suspension or
removal of members of BOA?
a. Negligence in the performance of duties, or lack of
professional competence.
b. Intolerance of violations of the Philippine
Accountancy Act.
c. Final judgment of crimes involving moral turpitude.
d. Rigging of the CPA licensure examination results.
87. The Professional Regulatory Board of Accountancy consists of:
a. 1 Chairman and 4 members.
b. 1 Chairman and 5 members.
c. 1 Chairman and 6 members.
d. 1 Chairman and 7 members.
88. The Chairman and the members of the BOA shall be
appointed by the:
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 a. Commissioner of the SEC.
b. President of the PICPA.
c. President of the Republic of the Philippines.
d. Retiring chairman of the Board of Accountancy.
89. Members of the Professional Regulatory Board of
Accountancy shall serve for:
a. Three years, subject to renewal.
b. Seven years, not subject to renewal.
c. Three years, subject to reappointment.
d. Three years, not subject to reappointment.
90. Which of the following is not mentioned as a power of the
Board?
a. To monitor the conditions affecting the practice of
accountancy.
b. To supervise the registration, licensure and practice of
accountancy.
c. To sentence to imprisonment CPAs who have been
found guilty of violations of the Accountancy Act.
d. To issue, suspend, revoke, or reinstate the Certificate of
Registration for the practice of the accountancy
profession.
91. Which of the following is the sectoral organization for CPAs in
Public Practice?
a. ACPACI
b. ACPAPP
c. ACPAE
d. GACPA
92. This is the standard-setting body that replaces the Accounting
Standards Council (ASC) and is tasked to develop and issue
standards which will represent generally accepted accounting
principles in the Philippines:
a. Accounting Standards Board.
b. Financial Reporting Standards Committee.
c. Financial Reporting Standards Council.
d. Auditing and Assurance Standards Council.
93. This standard-setting body replaces the Auditing Standards
and Practices Council (ASPC) and is tasked to develop and
issue Philippine Standards on Auditing and related
Interpretations:
a. Accounting Standards Board.
b. Financial Reporting Standards Committee.
c. Financial Reporting Standards Council.
d. Auditing and Assurance Standards Council.
94. The Chairpersons of the FRSC and the AASC shall be
appointed by:
a. The Philippine Institute of Certified Public Accountants.
b. The President of the Republic of the Philippines.
c. The Professional Regulatory Board of Accountancy.
AT – Prelim Rev (875 MCQs) Red Sirug
d. The Professional Regulation Commission.
95. A candidate successfully passes the Board exams if he/she
obtains
a. A general average of sixty-five percent (65%).
b. A general average of seventy-five percent (75%).
c. A general average of seventy-five percent (75%) in at
least a majority of the subjects given in the Board exams.
d. A general average of seventy-five percent (75%), with
no grades lower than sixty-five percent (65%) in any
given subject.
96. In the event a candidate obtains the rating of seventy-five
percent (75%) and above in at least a majority of subjects as
provided for in RA9298, and one subject has a rating of 64%,
he shall be considered as:
a. A failed candidate.
b. A conditioned candidate.
c. A successful passer of the CPA Board exams.
d. Cannot be determined without additional information
97. A certificate under seal, bearing a registration number, issued
to an individual, by the PRC, upon recommendation by the
BOA, signifying that the individual has complied with all the
legal and procedural requirements for such issuance:
a. Certificate of accreditation
b. Certificate of registration
c. Certificate of quality review
d. Certificate of identification
98. This bears the registration number, date of issuance with an
expiry date, due for periodic renewal, duly signed by the
Chairperson of the PRC and issued by the PRC to a
registered CPA upon payment of the registration fees:
a. Certificate of registration
b. Certificate of accreditation
c. Professional identification card
d. Professional tax receipt
99. A professional identification card has a validity of:
a. Six years
b. Five years
c. Four years
d. Three years
100. Foreign CPAs
a. Are allowed to practice accountancy in the Philippines
without restriction.
b. Are never allowed to practice accountancy in the
Philippines.
c. May be allowed to practice accountancy in the Philippines,
but only in areas outside public practice.
d. May be allowed to practice accountancy in the
Philippines, subject to the rules and regulations on
reciprocity.
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 a. The financial statements are client's responsibility.
SET 2 b. The audit was conducted in accordance with PSAs
c. Client is guilty of contributory negligence.
1. These are independent professional services that improve the d. The audit was conducted in accordance with generally
quality of information for decision-making. accepted accounting principles.
a. Audit services
b. Assurance services 8. The auditor considers materiality from:
c. Attestation services a. AASC perspective
d. Management consultancy b. Client perspective
c. Independence perspective
2. Which of the following types of audits is performed most d. Reasonable user perspective
frequently by CPAs on a fee basis and for more than one
client? 9. Which of the following is more difficult to evaluate
a. Government audits objectively?
b. Compliance audits a. Compliance with government regulations
c. Internal audits b. Efficiency and effectiveness of operations
d. Financial statement audits c. All of the above are equally difficult
d. Presentation of financial statements in accordance
3. The independent auditor lends credibility to client with the PFRS
financial statements by
a. Stating in the auditor’s management letter that the 10. The practitioner makes a critical assessment of validity of
examination was made in accordance with PSAs audit evidence, with a questioning mind and being alert to
b. Attaching an auditor’s opinion to the client’s conditions which may indicate possible misstatement due to
financial statements. error or fraud.
c. Testifying under oath about client financial statements. a. Objectivity and integrity
d. Maintaining clear-cut distinctions between b. Professional skepticism
management representations and auditor’s c. Independence is mental attitude
representations. d. Sufficient appropriate evidence

4. Internal auditing relates to an
a. Audit which is performed by a practitioner as an
independent contractor.
b. Audit which is incidentally concerned with the
detection and prevention of fraud.
c. Audit which serves the needs of management
d. Audit wherein the auditor should be independent of
management both in fact and in mental attitude
5. Independent auditors cannot be totally independent
a. Because they don’t audit financial statements
b. Since they do not possess the CPA license
c. As long as employer-employee relationship exists
d. Unless their immediate supervisor is a CPA
11. In the auditing environment, failure to meet the PSAs is
often
a. An accepted practice.
b. A suggestion of negligence.
c. Conclusive evidence of negligence.
d. Tantamount to criminal behavior.
12. The following phrases relate to the definition of auditing.
Which one is incorrect?
a. Systematic process
b. Objectively obtaining and obtaining evidence
c. Assertions about economic actions and events
d. Degree of correspondence between assertions
and GAAS

6. The Philippine Standards on Auditing issued by the Auditing 13. Non-assurance engagements include all of the following
and Assurance Standards Council (AASC) except
a. Must be followed in all situations. a. Compliance audit.
b. Are interpretations of generally accepted auditing b. Management consulting.
standards c. Agreed-upon procedures.
c. Are optional guidelines which an auditor may choose to d. Preparation of tax returns where no conclusion is
follow or not follow when conducting an audit. expressed.
d. Are the equivalent of laws for audit practitioners.
14. The subject matter of an assurance engagement can take the
7. The auditor's best defense when material misstatements in following forms except
the financial statements are not uncovered in the audit is that a. The entity’s internal control.

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 b. Historical or prospective financial statements.
c. Evaluation of a capital investment proposal.
d. Performance of an entity that could indicate efficiency
and effectiveness.
15. In performing an assurance engagement, a professional
accountant typically
a. Provides management consulting advice.
b. Supplies litigation support services.
c. Assesses control risk at a low level.
d. Expresses a conclusion about an assertion.
16. Which of the following is not an assurance engagement?
a. Risk Assessment Service
b. Information System Reliability Service
c. Business Performance Measurement
d. Management Consulting Service
17. The three commonly-sought types of assurance services are
a. Audits, reviews, and compilations.
b. Audits, reviews, and other assurance services.
c. Audits, compilations, and other assurance services.
d. Reviews, compilations, and other assurance services.
18. Which of the following statements is true?
a. Assurance engagements do not require independence.
b. The term “auditor” is broader in scope compared to the
term “practitioner.”
c. Assurance engagements performed by professional
accountants are intended to enhance the credibility
of information.
d. The degree or level of assurance that may be provided by
the practitioner is inversely related to the scope of
procedures performed and their results.
19. Which of the following forms may be the subject matter of
assurance engagements?
a. Behavior
b. Historical financial information
c. Systems and processes
d. All of the above
20. Engagement risk is influenced by the risks associated with the
following except
a. Nature and form of the subject matter.
b. Nature and form of the criteria applied to the subject
matter.
c. Unreasonably low professional fee.
d. Nature and extent of the process used to collect and
evaluate evidence.
21. Absolute assurance is not attainable as a result of such
factors as:
a. The use of judgment.
b. The use of selective testing.
AT – Prelim Rev (875 MCQs) Red Sirug
c. The inherent limitations of control systems.
d. All of the above
22. If the auditor learns that an entity is inappropriately using the
auditor’s name in association with financial information, he/she
should:
a. Remain silent.
b. Seek legal advice if necessary.
c. Require management to cease doing so.
d. Inform any known third party users of the inappropriate
use of his/her name in connection with the information.
23. A CPA should not submit unaudited financial statements of a
non-public entity to a client or others unless, as a minimum,
the CPA complies with the provisions applicable to
a. Audit engagements.
b. Review engagements.
c. Assurance engagements.
d. Compilation engagements.
24. You own Dude, Inc., which manufactures wooden tables. You
need to hire some accountants to prepare your monthly
financial statements. The preparation of your financial
statements is referred to as a(n)
a. Audit.
b. Review.
c. Compilation.
d. Special report.
25. Distribution of a report is always restricted when
a. Negative assurance is given.
b. A review has been performed.
c. There is a positive expression of opinion.
d. Agreed-upon procedures have been performed.
26. Which of the following methods is most commonly used to
reduce information risk?
a. Allow all users to prepare the statements.
b. Allow users to verify information.
c. Have the financial statements audited.
d. Users share information risk with management.
27. The phrase in our opinion in the auditor’s report is intended to
inform users that auditors
a. Guarantee fair presentation of the financial statements.
b. Act as insurers of the accuracy of the financial statements.
c. Certify the material presented in the statements by
management.
d. Based their conclusions about the statements on
professional judgment.
28. The need for assurance services arises because:
a. There is a potential bias in providing information.
b. Economic transactions are less complex than they were a
decade ago.
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 c. There is a consonance of interests of the preparer and b. Fine or imprisonment
the user of the financial statements. c. Revocation of CPA certificate
d. Most users today have access to the system that d. Suspension of CPA certificate
generates the financial statements they use.
36. Which of the following is an incorrect statement relating to the
29. This tax service includes the determination of the tax theoretical framework of auditing?
consequences of planned or potential transactions, followed a. Effective internal control structure reduces the probability
by making suggestions on the most desirable course of action of fraud or irregularities in an organization.
such as to legally minimize the tax liability while achieving the b. Application of generally accepted accounting principles
client’s objectives. results in a fair presentation of financial statements.
a. Tax shelter c. When examining financial data for the purpose of
b. Tax evasion expressing an independent opinion thereon, the auditor
c. Tax planning acts exclusively in the capacity of an auditor.
d. Tax compliance d. In collecting evidence, auditors should maintain an
attitude of trust about their clients' assertions.
30. Which of the following characteristics is not considered
necessary in determining whether the criteria are suitable? 37. The market for auditing services is driven by
a. Reliability a. Congress at the state level
b. Relevance b. A demand by external users of financial statements
c. Neutrality c. The regulatory authority of the Securities and Exchange
d. Sufficiency Commission
d. Pronouncements issued by the Auditing Standards and
31. In an assurance engagement, this refers to the information Practices Council
obtained by the practitioner in arriving at the conclusions on
which the conclusion is based. 38. Which of the following statements reflects an auditor's
a. Criteria responsibility for detecting fraud and error?
b. Assertions a. An auditor is responsible for detecting employee errors
c. Evidence and simple fraud, but not for discovering fraud involving
d. Generally accepted auditing standards employee collusion or management override.
b. An auditor should design the audit to provide
32. Compilation is an example of which one of the following types reasonable assurance of detecting errors and fraud
of services? that are material to the financial statements.
a. Auditing c. An auditor should plan the audit to detect errors and fraud
b. Review that are caused by departures from the applicable FRF.
c. Consulting d. An auditor is not responsible for detecting errors and
d. Accounting fraud unless the application of PSAs and PAPs would
result in such detection.
33. The Framework of Philippine Standards on Auditing
distinguishes audits from related services. Related services 39. The adequacy of disclosures in the financial statements and
include all of the following, except footnotes is the primary responsibility of the:
a. Reviews. a. Client
b. Compilations. b. Auditor in charge of field work
c. Agreed-upon procedures. c. Partner assigned to engagement
d. Management consulting. d. Staff member who drafted the statements

34. Assurance services involve which of the following?
a. Relevance as well as reliability.
b. Nonfinancial information as well as traditional financial
statements.
c. Electronic databases as well as printed reports.
d. All of the above.
35. Which of the following is not one of the penalties that can be
imposed by the BOA?
a. Reprimand
40. Generally accepted auditing standards do not require auditors
of financial statements to
a. Assess the risk of occurrence of errors and fraud
b. Design audits to provide reasonable assurance of
detecting errors and frauds
c. Report all the findings of errors and fraud to police
authorities
d. Understand the nature or errors and fraud

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41. The risk that the auditor's own work will lead to the decision b. A person may serve the BOA for not more than twelve
that material misstatements do not exist in the financial years.
statements, when in fact such misstatements do exist, is c. A member of the BOA may continuously serve office
a. Control risk for more than nine years.
b. Detection risk d. No person who has served two (2) successive complete
c. Inherent risk terms shall be eligible for reappointment until the lapse of
d. Audit risk one (1) year.

42. With respect to the concept of materiality, which one of the 47. The BOA shall submit to the PRC the ratings obtained by each
following statements is correct? candidate within how many calendar days after the
a. Materiality is a matter of professional judgment. examination?
b. Materiality is determined by reference to AASC's a. 5 days
guidelines. b. 10 days
c. Materiality depends on the nature of a transaction rather c. 15 days
than the peso amount of the transaction. d. 30 days
d. Materiality depends only on the peso amount of an item
relative to other items in the financial statements. 48. Which of the following is not one of the grounds for
proceedings against a CPA?
43. The following statements relate to the Board of Accountancy. a. Insanity.
Which statement is correct? b. Immoral or dishonorable conduct.
a. The Board consists of a Chairman and six members. c. Gross negligence or incompetence in the practice of his
b. The chairman and members are appointed by the profession.
President of the Philippines upon recommendation of d. Engaging in public practice while being employed in
PICPA. a private enterprise.
c. Majority of the board members shall as much as possible
be in public practice. 49. The primary duty to enforce the provisions of RA 9298 and its
d. The Professional Regulation Commission may remove IRR rests with
from the Board any member whose certificate to practice a. The PRC
has been removed or suspended. b. The BOA
c. The AASC
44. The APO shall submit its nominations with complete d. The PRC and BOA
documentation to the Commission not later than ______ prior
to the expiry of the term of an incumbent chairman or member. 50. The PICPA shall renew its Certificate of Accreditation once
a. 30 days every how many years after the date of the Resolution
b. 60 days granting the petition for re-accreditation and the issuance of
c. 90 days the said certificate upon submission of the requirements?
d. 120 days a. 2 years
b. 3 years
45. A member of the BOA shall, at the time of his/her appointment, c. 4 years
possess the following qualifications, except d. 6 years
a. Must be a natural-born citizen and resident of the
Philippines. 51. The practice of accountancy includes the following except:
b. Must not be a director or officer of the APO at the time of a. Serving as audit examiner for the Commission on Audit.
his/her appointment. b. Working as a Dean of a College that grants a degree of
c. Must be of good moral character and must not have been BS Accountancy.
convicted of crimes involving moral turpitude. c. Being appointed as the marketing manager of a
d. Must be a duly registered CPA with more than ten (10) business enterprise.
years of work experience in any scope of practice of d. Provision of assurance services to more than one client
accountancy. and on a fee basis.

46. Which statement is incorrect regarding the term of office of the
chairman and the members of the Board of Accountancy
(BOA)?
a. The Chairman and members of the Board shall hold
office for a term of three years.
52. Which of the following is one of the functions of Quality
Review Committee:
a. To promulgate accounting and auditing standards that will
be generally accepted in the Philippines.
b. To conduct a review on applicants for registration to

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 practice public accountancy and render a report
which shall be attached to the application for
registration.
c. To adopt a Code of Ethics for the practice of accountancy.
d. To evaluate periodically the performance of educational
institutions offering accountancy education.
53. No matter competent a CPA may be, his opinion on
financial statements will be of little value to those who rely
upon him unless he:
a. Maintains his independence.
b. Maintains professional competence.
c. Maintains a program of continuing education.
d. Serves his clients with professional concern.
54. Which of the following statements about independent financial
statement audit is incorrect?
a. The term "scope of the audit" refers to audit procedures
deemed necessary in the circumstances to achieve the
objective of the audit.
b. The auditor's opinion enhances the credibility of the
financial statements.
c. The phrase used to express the auditor's opinion is
"present fairly, in all material respects".
d. The risk that the auditor will fail to uncover material
misstatement is eliminated when the auditor
conducts the audit in accordance with PSAs.
55. For what reason does an independent auditor gather
evidence?
a. To assess management performance
b. To detect fraud
c. To detect misstatements
d. To form an opinion on the financial statements
56. In conducting an appraisal of the economy and efficiency with
which company resources are used, an internal auditor's
responsibility is to:
a. Verify the accuracy of asset valuation.
b. Verify the existence of assets.
c. Determine whether operating standards have been
established.
d. Review the reliability of operating information.
57. Because an external auditor is paid a fee by a client
company, he
a. Is absolutely independent and may conduct an audit.
b. May be sufficiently independent to conduct an audit.
c. Is never considered to be independent.
d. Must receive approval of the Securities and Exchange
Commission before conducting an audit.
58. Which of the following is a conceptual difference between the
attestation standards and generally accepted auditing
standards?
AT – Prelim Rev (875 MCQs) Red Sirug
a. The attestation standards do not permit an attest
engagement to be part of a business acquisition study or
a feasibility study.
b. The attestation standards provide a framework for
the attest function beyond historical financial
statements.
c. The requirement that the practitioner be independent in
mental attitude is omitted from the attestation standard.
d. None of the standards of fieldwork in generally accepted
auditing standards are included in the attestation
standards.
59. The exercise of due professional care requires that an auditor
a. Uses error-free judgment.
b. Considers internal control, including tests of controls.
c. Be responsible for fulfilling his or her duties
diligently and carefully.
d. Examines all corroborating evidence available.
60. The objectives of the Philippine accountancy Act of 2004 are
the following except:
a. The standardization and regulation of accounting
education.
b. The examination for registration of certified public
accountants.
c. The integration of the accounting profession.
d. The supervision, control, and regulation of the practice of
accountancy in the Philippines.
61. A CPA is in public accounting practice when he/she
a. Holds, or is appointed to, in an accounting professional
group in government or in a government-owned and/or
controlled corporation where decision making requires
professional knowledge in the science of accounting.
b. Represents his/her employer before government
agencies on tax and other matters related to accounting.
c. Represents his/her clients before government
agencies on tax and other matters related to
accounting.
d. Teaches accounting, auditing, management advisory
services, accounting aspect of finance, business law,
taxation, and other technically related subjects.
62. The underlying reason for a code of professional conduct for
any profession is
a. That it is required by Congress.
b. That it provides a safeguard to keep unscrupulous people
out.
c. The need for public confidence in the quality of
service of the profession.
d. That it allows Professional Regulation Commission to
have a yardstick to measure deficient performance.
63. If a firm, or a network firm, has a direct financial interest in an
audit client of the firm, the self-interest threat created would be
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 so significant no safeguard could reduce the threat to an
acceptable level. The action appropriate to permit the firm to
perform the engagement would be to
a. Dispose of the financial interest.
b. Dispose of a sufficient amount of it so that the remaining
interest is no longer material.
c. Either a or b
d. Neither a nor b
64. Which of the following statements is incorrect?
a. CPAs lose their independence if they acquire any direct
financial interest in a client.
b. CPAs lose their independence if they acquire any
indirect financial interest in a client.
c. CPAs lose their independence if they acquire a material
indirect financial interest in a client.
d. CPAs lose their independence if they have a material
direct financial interest in a client.
65. A violation of the ethical standards would most likely have
occurred when a CPA
a. Made arrangement with a bank to collect notes issued by
a client in payment of fees due.
b. Joined an accounting firm made up of three non-CPA
practitioners.
c. Issued an unqualified opinion on the 2010 financial
statements when fees for the 2009 audit were unpaid.
d. Purchased a bookkeeping firm's practice of monthly write-
ups for a percentage of fees received over a three-year
period.
66. The confidential relationship applies to
a. All services provided by CPAs.
b. Only audit and attestation services.
c. Audit and tax services, but no MAS services.
d. Audit and MAS services, but not tax services.
67. A CPA’s retention of records as a means of enforcing
payment of an overdue audit fee is an act that is:
a. A violation of generally accepted auditing standards.
b. Considered acceptable by the Code of Ethics.
c. Ill advised since it would impair the CPA’s
independence with respect to the client.
d. Considered discreditable to the profession.
68. Which of the following acts of the CPA would be most
likely a violation of the Code of Ethics?
a. Assisting a client in preparing a financial forecast.
b. Acting as auditor of a non-charitable organization with
audit client serving as president.
c. Accepting a fee in a tax matter that is contingent upon
the result of an administrative proceeding.
d. Having an immaterial loan to the president of an
audit.
AT – Prelim Rev (875 MCQs) Red Sirug
69. CPAs should not be liable to any party if they perform their
services with:
a. Ordinary negligence.
b. Regulatory providence.
c. Due professional care.
d. Good faith.
70. Under the Code of Ethics, a CPA may not:
a. Perform bookkeeping services for an audit client.
b. Perform advisory services for an audit client.
c. Have any direct financial interest in a client during
the period covered by the financial statements.
d. Having any joint, closely held investments with a
principal stockholder of an audit client during the
period of audit engagement which is not material in
relation to his net worth.
71. The Code of Ethics would be violated if a CPA accepted a
fee for services and the fee was:
a. Fixed by a public authority.
b. Based on a price quotation submitted in competitive
bidding.
c. Based on the results of judicial proceedings in a tax
matter.
d. Payable after a specified finding was attained in a
review of financial statements.
72. The CPA shall not concurrently engage in any business or
occupation which impairs his objectivity in rendering
professional services or which is inconsistent with his
practice or employment. This provision of the code of
ethics is applicable to:
a. Only to CPAs engaged in public accountancy.
b. CPAs engaged in public accountancy or employed in
a private enterprise.
c. CPAs engaged in public accountancy or employed in
a private enterprise or government agency.
d. All CPAs engaged in public accountancy, or
employed in a private enterprise, a government
agency or an educational institution.
73. Ultimately, the decision as to whether the CPA is
independent or not, will be made by the:
a. Audit Committee
b. Client
c. Public
d. Auditor
74. In which of the following instances would the
independence of the CPA not be considered to be
impaired? The CPA has been retained as the auditor of a
brokerage firm
a. Which owes the CPA audit fees for more than one
year.
b. In which the CPA has a large active margin account.
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 c. In which the CPA’s brother is the controller.
d. Which owes the CPA audit fees for the current
year services and just filed a petition for
bankruptcy.
75. A CPA, while performing an audit, strives to achieve
independence in appearance in order to:
a. Reduce risk and liability.
b. Become independent in fact.
c. Comply with GAAS.
d. Maintain public confidence in the profession.
76. Contingent fees charged by CPAs engaged in tax practice
are permitted under the rules of professional conduct
because:
a. This practice establishes fees which are
commensurate with the value of the services.
b. Attorneys in tax practice customarily set contingent
fees.
c. Determination by taxing authorities are a matter of
judicial proceedings which do not involve third parties.
d. The consequences are based upon findings of
judicial proceedings or the findings of tax
authorities.
77. Ethically, the auditor could:
a. Advertise only as to his expertise in preparing income
tax returns.
b. Base his audit fee on a percentage of the proceeds of
his client’s stock issue.
c. Perform an examination for a financially
distressed client at less than his customary fees.
d. Own preferred stock in a corporation which is an audit
client.
78. The Code of Ethics contains both general ethical
principles that are aspirational in character and also a:
a. List of violations that would cause the automatic
suspension of the CPA’s license.
b. Description of the CPA’s procedures for responding to
an inquiry from trial board.
c. Set of specific, mandatory rules describing levels
of conduct the CPA must observe.
d. List of specific crimes that would be considered as
acts discreditable to the profession.
79. According to the Code of Ethics, the characteristics
distinguishing the accountancy profession include the
following except:
a. To meet public interest requirement.
b. Adherence by its members to a common code of values
and conduct established by its administering body.
c. Acceptance of a duty to society as a whole.
d. Mastery of a particular intellectual skill, acquired by
training and education.
AT – Prelim Rev (875 MCQs) Red Sirug
80. A practicing CPA is allowed by the CPA Code of Ethics to
do the following except:
a. Announce the change in office location in a
newspaper.
b. List his firm name in the building lobby directory in
good taste and modest size.
c. Include his tax account number and membership in
PICPA on his stationary.
d. List his office telephones in the PLDT directory to
box or bold type.
81. Without the consent of the client, a CPA should not
disclose confidential information contained in working
papers to a:
a. Voluntary quality control review board.
b. CPA firm that has purchased the CPA’s
accounting practice.
c. National court that has issued a valid subpoena.
d. Disciplinary body created under statute.
82. A CPA who is engaged to prepare an income tax return
has a duty to prepare it in such a manner that the tax is:
a. The legal minimum.
b. Computed in conformity with generally accepted
accounting principles.
c. Supported by the client’s audited financial statements.
d. Not subject to change upon audit.
83. The principle of Professional behavior requires a CPA to:
a. Perform professional services with due care,
competence and diligence.
b. Be straightforward and honest in performing
professional services.
c. Act in a manner consistent with the good reputation
of the profession and refrain from any conduct
which might bring discredit to the profession.
d. Be fair and should not allow prejudice or bias, conflict of
interest or influence of others to override objectivity or
affect his professional or business judgments.
84. The communication to the public of facts about a CPA which
are not designed for the deliberate promotion of that CPA.
a. Advertising
b. Solicitation
c. Indirect promotion
d. Publicity
85. Which of the following does not belong to the group:
a. Independence of mind
b. Independence of fact
c. Independence in mental attitude
d. Independence in appearance
86. Safeguards that may eliminate or reduce threats to
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 independence to an acceptable level fall in the following
categories except:
a. Safeguards created by the profession, legislation or
regulation
b. Firm-wide safeguards
c. Engagement specific safeguards
d. Safeguards created by the client.
87. A CPA firm would be reasonable assured of meeting its
responsibility to provide professional services that conform
with professional standards by:
a. Adherence to GAAS
b. Maintaining an attitude of independence in its
engagements.
c. Having an appropriate a system of quality control.
d. Joining professional societies that enforce ethical
standards.
88. The Philippine Code of Ethics requires that lead engagement
partners of listed entities be rotated at least once every:
a. 2 years
b. 3 years
c. 5 years
d. 7 years
89. The following are represented both to the Financial Reporting
Standards Council (FRSC) and Auditing and Assurance
Standards Council (AASC), except:
a. Bangko Sentral ng Pilipinas
b. Securities and Exchange Commission
c. Bureau of Internal Revenue
d. Board of Accountancy
90. Which of the following auditor concerns most likely could be
so serious that the auditor concludes that a financial statement
audit cannot be conducted?
a. The entity has no formal written code of conduct
b. The integrity of the entity’s management is suspect
c. Procedures requiring segregation of duties are subject to
management override
d. Management fails to modify prescribed controls for
changes in conditions
91. Which of the following is a violation of the code of professional
ethics for certified public accountants?
a. A CPA permits his/her name to be used in a client's
advertising as having verified financial data and/or
statistical facts with respect to the client's products.
b. Based on information obtained in an audit, a CPA
reports an illegal act of his client to government
authorities.
c. Three years after a partner has retired, the remaining
partners continue to practice under a firm name that
includes the name of the retired partner. The retired
partner has severed all connections with the CPA firm.
AT – Prelim Rev (875 MCQs) Red Sirug
d. A CPA running for public office uses the professional
designation "CPA" after his name on posters employed in
connection with his election campaign.
92. A CPA in public accounting is prohibited from performing
which of the following actions?
a. Permit the publication of his being the author of a book.
b. Be a party to a stratagem which permits a non-CPA to
practice accountancy.
c. Allow his wife to acquire shares in a corporation's capital
stock.
d. Act as a stock and transfer agent.
93. A CPA who has been retained by a client that operates in an
industry totally new to him
a. May not accept such an engagement.
b. May accept the engagement only if the accounting firm
specializes in the audit of commercial banks.
c. May accept the engagement after attaining a suitable
level of understanding of the transactions and
accounting practices unique to commercial banking.
d. May accept the engagement because training as a CPA
transcends unique industry characteristics.
94. Which of the following is not an objective of requiring
registration of individual CPAs and Firms of partnership of
CPAs engaged in public accounting practice?
a. The required registration will give equal opportunities
to CPAs in the practice of their profession.
b. It will enable the Board of Accountancy to formulate and
implement rules and regulations more effectively for the
enhancement and maintenance of high professional,
ethical, and technical standards of the accounting
profession.
c. To protect the public against fraud, deception, unethical
practices and from the consequences of ignorance,
incompetence and incapacity in the practice of public
accounting.
d. It will help PRC and BOA to identify and impose
corresponding sanctions and penalties on individual
CPAs.
95. As used in Republic Act No. 9298, this term refers to the
area of practice of accountancy
a. Section
b. Sector
c. Segment
d. Line
96. Which of the following does not constitute a practice of
accountancy?
a. A person holding out himself as one skilled in the
knowledge, science and practice of accounting and as a
qualified person to render professional services as a CPA
to more than one client.
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 b. A person representing his/her employer before
government agencies on tax arid other accounting related
matters.
c. A person in educational institution teaching accounting,
auditing, business law, taxation or other technically
related subjects.
d. A person is appointed as a marketing director of a
government owned and controlled corporation.
97. The criteria for evaluating quantitative information vary. For
example, in the audit of historical financial statements by CPA
firms, the criteria are usually:
a. Generally accepted auditing standards.
b. Acceptable financial reporting framework
c. Regulations of the Securities and Exchange Commission
d. Regulations of the Bureau of Internal Revenue
98. 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. Ethical requirements
b. Leadership responsibilities
c. Assignment
d. Monitoring
99. In pursuing a CPA firm's quality control objectives, a CPA firm
may maintain records indicating which partners or employees
of the CPA firm were previously employed by the CPA firm's
clients. Which quality control element would this be most
likely to satisfy?
a. Monitoring.
b. Human resources.
c. Ethical requirements.
d. Engagement performance.
100. An engagement quality control review is required to be
performed:
a. Immediately after the re-assessment of control risk.
b. At engagement completion after the report is issued.
c. For all audits of financial statements of listed entities.
d. For all types of audits, regardless of the subject matter of
the engagement.
SET 3
1. The degree of certainty that the practitioner has attained and
wishes to convey is:
a. A conveyance.
b. An assertion.
c. A declaration.
d. An assurance.
AT – Prelim Rev (875 MCQs) Red Sirug
2. The level of assurance provided by an audit of detecting a
material misstatement is referred to as:
a. Positive assurance.
b. High assurance.
c. Reasonable assurance.
d. Negative assurance.
3. Of the following, which is the broadest concept?
a. Internal control audit.
b. Audit of financial statements.
c. Attestation services.
d. Assurance services.
4. In performing attestation services, a CPA will normally:
a. Recommend uses for information.
b. Improve the quality of information, or its context, for
decision makers.
c. Perform market analyses and cost estimates.
d. States a conclusion about a written assertion.
5. Which of the following is not one of the requirements before
accepting an assurance engagement?
a. The practitioner should be competent and independent.
b. The responsible party and the intended user of
assurance report should be from different
organizations.
c. The practitioner should accept the engagement only if the
subject matter is the responsibility of another party
d. The practitioner should accept the engagement only if the
subject matter is identifiable and in the form that can be
subjected to evidence gathering procedures.
6. The following statements relate to the three parties involved in
an assurance engagement. Which is correct?
a. The responsible party and the intended users should
always be from different entities.
b. A practitioner should not accept an assurance en-
gagement when the subject matter of the engagement
requires specialized skills and knowledge beyond those
ordinarily possessed by the practitioner.
c. A responsible party is the person who is responsible
for the subject matter or the subject matter
information.
d. In all assurance engagements, the responsible party is
the engaging party, i.e., the party that engages the
practitioner
7. The assurance report is often addressed to the intended users
which may be:
a. The party responsible for the subject matter.
b. Established by agreement between the professional
accountant and the responsible party.
c. Both A and B
d. Neither A nor B
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8. When performing an assurance service, professional
accountants use standards or benchmarks to evaluate or
measure the subject matter of an assurance engagement.
This is known as:
a. PFRS.
b. Assertion.
c. Criteria.
d. Conclusion.
9. Which of the following services provides positive assurance
through attestation?
a. Tax services
b. Review
c. Auditing
d. Accounting services
10. Positive assurance is expressed through:
a. Attestation
b. Declaration
c. Conclusion
d. Stating whether anything has come to the auditor's
attention that indicates that the financial statements are
not presented fairly.
11. Which of the following statements best describes review
services?
a. Review engagements focus on providing assurance on
the internal controls of a public company.
b. Review engagements focus on providing assurance on
the assertions contained in the financial statements of a
public company.
c. Review engagements focus on providing advice in a
three-party contract.
d. Review engagements focus on providing limited
assurance on financial statements of a private
company.
12. A review of a company's financial statements by a CPA firm:
a. Is similar in scope to an audit and adds similar credibility
to the statements.
b. Is significantly less in scope than an audit and results in a
report which provides positive assurance, although not
absolute assurance.
c. Concludes with the issuance of a report expressing the
CPA's opinion as to the fairness of the financial
statements.
d. Is designed to provide only moderate assurance.
13. The objective of a review of financial statements is to:
a. Express an opinion on the overall financial statements.
b. Carry out audit procedures agreed on with the client and
other users of report.
c. State whether anything has come to the auditor's
attention that indicates that the financial statements
are not presented fairly.
AT – Prelim Rev (875 MCQs) Red Sirug
d. Assist the client in the preparation of the financial
statements.
14. When providing consulting services, the CPA acts primarily as
a(n):
a. Independent practitioner.
b. Expert on compliance with industry standards.
c. Objective advisor on the use of information.
d. Confidential reviewer.
15. Which of the following statements concerning consulting
services is incorrect?
a. The performance of consulting services for audit clients
does not, in and of itself, impair the auditor's
independence.
b. Consulting services differ fundamentally from the CPA's
function of attesting to the assertions of other parties.
c. Consulting services ordinarily involve external
reporting.
d. Most CPAs, including those who provide audit and tax
services, also provide consulting services to their clients.
16. In an engagement to perform agreed-upon procedures, an
auditor is engaged to:
a. Use accounting expertise as opposed to auditing
expertise to collect, classify, and summarize financial
information.
b. Provide a moderate level of assurance that the
information is free of material misstatement.
c. Provide a high, but not absolute, level of assurance that
the information is free of material misstatement.
d. Carry out those procedures of an audit nature to
which the auditor and the entity and any appropriate
third parties have agreed and to report on factual
findings.
17. Assurance engagements should exhibit the following elements
except
a. A subject matter
b. Suitable criteria
c. Evidence
d. Appropriate professional fees
18. Which of the following is not an element of assurance
engagements?
a. Subject matter
b. Evidence
c. Engagement process
d. Suitable criteria
19. Assurance services involve which of the following?
a. Relevance as well as reliability.
b. Nonfinancial information as well as traditional financial
statements.
c. Electronic databases as well as printed reports.
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 d. All of the above.
20. Assurance engagement include the following, except
a. An engagement conducted to provide a high level of
assurance that the subject matter conforms in all material
respects with identified suitable criteria.
b. An engagement conducted to provide a moderate level of
assurance that the subject matter is plausible in the
circumstances.
c. An engagement in accordance with the Philippine
Standard on Assurance Engagement(s).
d. An engagement to perform agreed-upon procedures.
21. The subject matter of an assurance engagement may include
I. Historical or prospective financial information
II. Internal controls
III. Compliance with regulation
a. I and II only
b. I and III only
c. II and III only
d. I, II, and III
22. In assertion-based assurance engagements, the evaluation or
measurement of the subject matter against criteria is
performed by the
a. Intended users
b. Responsible party
c. Practitioner
d. AASC
23. Which of the following statements is true concerning evidence
in an assurance engagement?
a. The reliability of evidence is influenced not by its nature
but by its source.
b. Sufficiency is the measure of the quantity of evidence.
c. Obtaining more evidence may compensate for its poor
quality.
d. Appropriateness is the measure of the quality of evidence,
that is, its reliability and persuasiveness.
24. An unqualified conclusion is not appropriate for either
reasonable or limited assurance engagement when:
I. Circumstances prevent the practitioner from obtaining
evidence required to reduce assurance engagement risk to
the appropriate level.
II. The responsible party or the engaging party imposes a
restriction that prevents the practitioner from obtaining
evidence required to reduce assurance engagement risk to
the appropriate level.
a. I only
b. II only
c. Either I or II
d. Neither I nor II
25. Reducing assurance engagement risk to zero is very rarely
AT – Prelim Rev (875 MCQs) Red Sirug
attainable or cost beneficial as a result of the following factors,
except
a. The use of selective testing.
b. The fact that much of the evidence available to the
practitioner is persuasive rather than conclusive.
c. The practitioner may not have the required assurance
knowledge and skills to gather and evaluate evidence.
d. The use of judgment in gathering and evaluating
evidence and forming conclusions based on that evi-
dence.
26. Which of the following standards are to be applied, as
appropriate, in the audit of historical financial information?
a. PSAEs
b. PSREs
c. PSAs
d. PSRSs
27. Which of the following standards are to be applied to
compilation engagements and engagements to perform
agreed-upon procedures to information?
a. PSRSs
b. PSAs
c. PSAEs
d. PSREs
28. The Philippine Standards on Review Engagements (PSREs)
are to be applied in
a. The audit of historical financial information.
b. Assurance engagements dealing with subject matters
other than historical financial information.
c. The review of both historical and prospective financial
information.
d. The review of historical financial information.
29. PSRE 2400 (Engagements to Review Financial Statements),
as amended by the AASC in February 2008, applies to
a. Reviews of any historical financial information of an audit
client.
b. Reviews of historical financial or other information by a
practitioner other than the entity's auditor.
c. Reviews of historical financial or other information of an
audit client.
d. Reviews of any historical financial information by a
practitioner other than the entity's auditor.
30. When performing a compilation engagement, the accountant
is required to
a. Make inquiries of management to assess the reliability
and completeness of the information provided.
b. Assess internal controls.
c. Verify matters and explanations.
d. Obtain a general knowledge of the business and
operations of the entity.
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31. Each page of the financial information compiled by the
accountant should include the following reference, except
a. "Unaudited"
b. "Compiled, Negative Assurance Expressed"
c. "Compiled without Audit or Review"
d. "Refer to Compilation Report"
32. An auditor may accept an engagement to perform specified
procedures on the specific subject matter of specified
elements, accounts, or items of a financial statement if
a. The report does not list the procedures performed.
b. The auditor is also the entity's continuing auditor.
c. The financial statements are prepared in accordance with
a special purpose framework.
d. Use of the report is restricted.
33. An engagement to perform agreed-upon procedures may
involve the auditor in performing certain procedures
concerning
I. Individual items of financial data.
II. A single financial statement.
III. A complete set of financial statements.
a. I and II only
b. II and III only
c. I and III only
d. I, II, and III
34. The following contain basic principles, essential procedures
and related guidance, consistent with the concepts in the
Framework, for the performance of assurance engagements,
except
a. PSAs
b. PSREs
c. PSAEs
d. PSRSs
35. CPAs in public practice who perform assurance engagements
are governed by the following, except
a. Framework for Assurance Engagements
b. Philippine Standards on Quality Control
c. Code of Ethics for Professional Accountants in the
Philippines
d. AASC's Engagement Standards (PSAs, PSREs,
PSAEs, and PSRSs)
36. The Philippine Framework for Assurance Engagements
a. Provides a frame of reference for CPAs in public practice
when performing audits, reviews, and compilations of
historical financial information.
b. Contains basic principles, essential procedures, and
related guidance for the performance of assurance
engagements.
c. Establishes standards and provides procedural
requirements for the performance of assurance en-
gagements.
AT – Prelim Rev (875 MCQs) Red Sirug
d. Defines and describes the elements and objectives of
an assurance engagement, and identifies
engagements to which PSAs, PSREs, and PSAEs
apply.
37. The procedures employed in doing compilation are:
a. Designed to enable the accountant to express a limited
assurance
b. Designed to enable the accountant to express a negative
assurance
c. Not designed to enable the accountant to express
any form of assurance
d. Less extensive than review procedures but more
extensive than agreed-upon procedures
38. Which of the following procedures is normally performed in
connection with a compilation engagement?
a. Inquire of management about subsequent events
b. Making inquiries of management concerning actions
taken at board meeting
c. Applying analytical review procedures
d. Collect, classify and summarize financial information.
39. An engagement to apply agreed-upon procedure engagement
may be accepted, provided
a. The CPA has audited the financial statements of the
client.
b. The CPA is independent with respect to the client.
c. The distribution of the report will be limited only to
specified parties involved.
d. The adequacy of the procedures to be performed will be
determined by the CPA.
40. Pronouncements of Auditing and Assurance Standards
Council (AASC) do not cover
a. Review engagement
b. Compilation engagement
c. Consultancy
d. Agreed-upon procedures engagement
41. What is the most likely course of action that will be taken by
an auditor in assessing management integrity?
a. Tour the client premises.
b. Research the prospective client’s related parties.
c. Research the background and histories of officers
d. Review the minutes of the board of directors
42. Which of the following is an example of an assurance
engagement?
a. Management advisory services
b. Reporting on financial statements prepared using
other comprehensive basis of accounting.
c. compilation of financial information
d. preparation of tax returns
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43. Which of the following services provides a moderate level of
assurance about the client's financial statements?
a. Forecasts and projections
b. Compliance with contractual agreement
c. Review
d. Compilation
44. When an independent auditor is approached to perform an
audit for the first time, he/she should make inquiries of the
predecessor auditor. Inquiries are necessary because the
predecessor may be able to provide the successor with
information that will assist the successor in determining
whether
a. A certain amount of audit fee will be acceptable to the
client.
b. An unqualified opinion may be issued.
c. The audit documentation by the predecessor auditor can
be utilized.
d. The engagement proposal should be accepted.
45. Before accepting an audit engagement, a successor auditor
should make specific inquiries of the predecessor auditor
regarding the predecessor's
a. Evaluation of all matters of continuing accounting
significance.
b. Understanding as to the reasons for the change of
auditors.
c. Awareness of the consistency in the application of GAAP
between periods.
d. Opinion of any subsequent events occurring since the
predecessor's audit report was issued.
46. Before accepting an engagement to audit a new client, a CPA
is required to obtain
a. An understanding of the prospective client’s industry and
business.
b. The prospective client’s signature to the engagement
letter.
c. A preliminary understanding of the prospective client’s
control environment.
d. The prospective client’s consent to make inquiries of
the predecessor auditor, if any.
47. Before accepting an audit engagement, a successor auditor
should make specific inquiries of the predecessor auditor
regarding
a. Disagreements the predecessor had with the client
concerning auditing procedures and accounting
principles.
b. The predecessor’s evaluation of matters of continuing
accounting significance.
c. The degree of cooperation the predecessor received
concerning the inquiry of the client’s lawyer.
d. The predecessor’s assessments of inherent risk and
judgments about materiality.
AT – Prelim Rev (875 MCQs) Red Sirug
48. Which of the following factors would most likely cause a CPA
to decide not to accept a new audit engagement?
a. The CPA’s lack of understanding of the prospective
client’s internal auditor’s computer-assisted audit
techniques.
b. Management’s disregard of its responsibility to
maintain an adequate internal control environment.
c. The CPA’s inability to determine whether related-party
transactions were consummated on terms equivalent to
arm’s-length transactions.
d. Management’s refusal to permit the CPA to perform
substantive tests before the year-end.
49. The following are fundamental principles that are mostly
applied when performing procedures on acceptance of new
clients except:
a. Confidentiality.
b. Professional competence.
c. Independence.
d. Professional competence and due care.
50. Before continuing the client relationship, the auditor should
perform the following except:
a. Communicate with the predecessor auditor.
b. Evaluate client in case of change of client’s business.
c. Evaluate client’s integrity.
d. Evaluate financial condition of the client.
51. A successor auditor most likely would make specific inquiries
of the predecessor auditor regarding
a. Specialized accounting principles of the client's industry.
b. Disagreements with management as to auditing
procedures.
c. The competency of the client's internal audit staff.
d. The uncertainty inherent in applying sampling procedures.
52. Which of the following will an auditor least likely discuss with
the former auditors of a potential client prior to acceptance?
a. Disagreements with management regarding accounting
principles
b. Integrity of management
c. Fees charged for services
d. Reasons for changing audit firms
53. Prior to the acceptance of an audit engagement with a client
who has terminated the services of the predecessor auditor,
the CPA should
a. Accept the engagement without contacting the
predecessor auditor since the CPA can include audit
procedures to verify the reason given by the client for the
termination.
b. Contact the predecessor auditor without advising the
prospective client and request a complete report of the
circumstance leading to the termination with the
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 understanding that all information disclosed will be kept
confidential.
c. Advise the client of the intention to contact the
predecessor auditor and request permission for the
contact.
d. Not communicate with the predecessor auditor because
this would in effect be asking the auditor to violate the
confidential relationship between auditor and client.
54. Auditing standards require a successor auditor to
communicate with the predecessor auditor. The Code of
Professional Conduct requires confidentiality; therefore, the
client's permission must be obtained before the
communication can be made by
a. The predecessor auditor.
b. The successor auditor.
c. Both the successor and predecessor auditor.
d. Neither, since this is one of the exceptions to
confidentiality in the Code of Professional Conduct.
55. Which of the following is not done during the client selection
and retention phase of planning?
a. Obtain and review financial information
b. Consider the need for special skills
c. Ensure that the firm has sufficient resources to complete
the engagement in a timely manner.
d. Obtain an understanding of internal controls
56. Which of the following factors most likely would influence an
auditor’s determination of the auditability of an entity’s
financial statements?
a. The complexity of the accounting system.
b. The existence of related-party transactions.
c. The adequacy of the accounting records.
d. The operating effectiveness of control procedures.
57. Prior to beginning fieldwork on a new audit engagement in
which a CPA does not possess industry expertise, the CPA
should
a. Obtain knowledge of matters that relate to the nature
of the entity's business and industry.
b. Reduce audit risk by lowering the preliminary levels of
materiality.
c. Engage financial experts who are familiar with the nature
of the industry.
d. Design special substantive tests to compensate for the
lack of industry expertise.
58. The element of the audit planning process most likely to be
agreed upon with the client before implementation of the audit
strategy is the determination of the
a. Timing of inventory observation procedures to be
performed.
b. Evidence to be gathered to provide a sufficient basis for
the auditor's opinion.
AT – Prelim Rev (875 MCQs) Red Sirug
c. Procedures to be undertaken to discover litigation, claims,
and assessments.
d. Pending legal matters to be included in the inquiry of the
client's attorney.
59. A written understanding between the auditor and the client
concerning the auditor's responsibility for the discovery of
illegal acts is usually set forth in a(an)
a. Letter of audit inquiry.
b. Client representation letter.
c. Management letter.
d. Engagement letter.
60. The scope and nature of an auditor's contractual obligation to
a client is ordinarily set forth in the
a. Opinion paragraph of the auditor’s report.
b. Management letter.
c. Engagement letter.
d. Scope paragraph of the auditor’s report.
61. The primary reason an engagement letter is obtained by audit
firms prior to starting the work is that
a. It provides an insurance policy for companies entering
into the agreement.
b. It clarifies the responsibilities of management and
those of the auditor.
c. It communicates the type of opinion that will be rendered
on the engagement
d. It defines the firm's policies and procedures regarding
new clients.
62. An engagement letter should be written before the start of an
audit because
a. It specifies the client's responsibility for preparing
schedules and making the records available to the auditor.
b. It may limit the auditor's legal liability by specifying the
auditor's responsibilities.
c. It specifies the basis for billing the audit for the upcoming
year.
d. All of the above
63. Which of the following matters is generally included in an
auditor’s engagement letter?
a. Management’s responsibility for the entity’s
compliance with laws and regulations.
b. The factors to be considered in setting preliminary
judgments about materiality.
c. Management’s vicarious liability for illegal acts committed
by its employees.
d. The auditor’s responsibility to search for significant
internal control deficiencies.
64. Which of the following is not included in the engagement letter?
a. Objectives of the engagement
b. Management's responsibilities
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 c. A clear explanation of the services to be performed on
the engagement
d. Representations that the financial statements were
prepared in accordance with generally accepted
accounting principles
65. After an auditor had been engaged to perform the first audit
for a nonpublic entity, the client requested to change the
engagement to a review. In which of the following situations
would there be a reasonable basis to comply with the client's
request?
a. Management refused to sign the client representation
letter.
b. The client's bank required an audit before committing
to a loan, but the client subsequently acquired
alternative financing.
c. The auditor was prohibited by the client from
corresponding with the client's legal counsel.
d. The auditing procedures were substantially complete and
the auditor determined that an unqualified opinion was
warranted, but there was a disagreement concerning the
audit fee.
66. Which of the following statements would least likely appear in
an auditor’s engagement letter?
a. Fees for our services are based on our regular per diem
rates, plus travel and other out-of-pocket expenses.
b. During the course of our audit we may observe
opportunities for economy in, or improved controls over,
your operations.
c. After performing our preliminary analytical
procedures we will discuss with you the other
procedures we consider necessary to complete the
engagement.
d. Our engagement is subject to the risk that material
misstatements or fraud, if they exist, will not be detected.
67. Arrangements concerning which of the following are least
likely to be included in engagement letter?
a. Internal auditors
b. Predecessor auditor
c. Stockholders
d. Appraisers
68. When an auditor believes that an understanding with the client
has not been established, he or she should ordinarily
a. Perform the audit with increased professional skepticism.
b. Decline to accept or perform the audit.
c. Review the client’s financial reports.
d. Obtain information about the client’s business and the
industry where it operates.
69. Select the proper reply as to the allowable form of the
understanding with a client when an audit is being performed.
AT – Prelim Rev (875 MCQs) Red Sirug
a. While preferably written, it may be oral; but in all
cases it should be documented in the working papers.
b. While preferably written, it may be oral, in which case it
need not be documented in the working papers.
c. The understanding may be in any form, such as oral or
written.
d. The understanding must be obtained in written form and
included in the working papers.
70. In auditing the financial statements of Star Corp., Land
discovered information leading Land to believe that Star’s prior
year’s financial statements, which were audited by Tell,
require substantial revisions. Under these circumstances,
Land should
a. Notify Star’s audit committee and stockholders that the
prior year’s financial statements cannot be relied on.
b. Request Star to reissue the prior year’s financial
statements with the appropriate revisions.
c. Notify Tell about the information and make inquiries about
the integrity of Star’s management.
d. Request Star to arrange a meeting among the three
parties to resolve the matter.
71. Orange Corp. has a few large accounts receivable that total
P2,000,000. Yellow Corp. has a large number of small
accounts receivable that also total P2,000,000. The
importance of an error in any one account is, therefore,
greater for Orange Corp. than for Yellow Corp. This is an
example of the auditor's concept of:
a. Materiality.
b. Reasonable assurance.
c. Comparative analysis
d. Relative risk.
72. The relationship between materiality and audit risk is:
a. Indeterminable
b. Direct.
c. Inverse.
d. Materiality and audit risk have no relationship
73. An auditor should design a written audit program so that:
a. All material transactions will be selected for substantive
testing.
b. Substantive tests prior to the balance sheet date will be
minimized.
c. The audit procedures selected will achieve specific
audit objectives.
d. Each account balance will be tested under either tests of
controls or tests of transactions.
74. Audit programs are modified to suit the circumstances on
particular engagements. A complete audit program for an
engagement generally should be developed
a. Prior to beginning the actual audit work.
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 b. After the auditor has completed an evaluation of the
existing internal accounting control.
c. After reviewing the client's accounting records and
procedures.
d. When the audit engagement letter is prepared.
75. Which of the following is not a potential effect of an auditor's
decision that a lower acceptable audit risk is appropriate?
a. More evidence is required.
b. Less evidence is required.
c. Special care is required in assigning experienced staff.
d. Review of the working papers by personnel who were not
assigned to the engagement.
76. To obtain an understanding of a continuing client’s business in
planning an audit, an auditor most likely would
a. Read specialized industry journals.
b. Review prior year working papers and the permanent
file for the client.
c. Reevaluate the client’s internal control environment.
d. Perform tests of details of transactions and balances.
77. The management responsibility to detect and prevent fraud
and error is accomplished by
a. Having an annual audit of financial statements.
b. Implementing adequate quality control system.
c. Implementing adequate accounting and internal
control system.
d. Issuing a representation letter to the auditor.
78. Which of the following statements best describes the auditor's
responsibility to detect material errors and fraud?
a. The auditor is responsible for the failure to detect material
errors and frauds only when such failure results from the
misapplication of generally accepted accounting
principles.
b. The auditor is responsible for the failure to detect material
errors and frauds only when the auditor fails to confirm
receivables or observe inventories.
c. The audit should be designed to provide reasonable
assurance that material errors and fraud are detected.
d. Extended auditing procedures are required to detect
unrecorded transactions even if there is no evidence that
material errors and frauds may exist.
79. Which of the following procedures would an auditor be most
likely to perform in planning a financial statement audit?
a. Reviewing investment transactions of the audit period to
determine whether related parties were created.
b. Performing analytical procedures to identify areas
that may represent specific risks.
c. Obtaining a written representation letter from the client to
emphasize management's responsibilities.
AT – Prelim Rev (875 MCQs) Red Sirug
d. Reading the minutes of stockholder and director meetings
to discover whether any unusual transactions have
occurred.
80. A CPA is conducting the first audit of a client’s financial
statements. The CPA hopes to reduce the audit work by
consulting with the predecessor auditor and reviewing the
predecessor's working papers. This procedure is
a. Acceptable if the CPA refers in the audit report to reliance
upon the predecessor auditor's work.
b. Required if the CPA is to render an unqualified opinion.
c. Unacceptable because the CPA should bring an
independent viewpoint to a new engagement.
d. Acceptable if the client and the predecessor auditor
agree to it.
81. PSA 315 requires that the auditor should obtain an
understanding of relevant industry, regulatory and other
external factors including the applicable financial reporting
framework. Which of the following is not among the items that
relate to industry conditions?
a. Energy, supply and cost
b. Inflation and currency revaluation
c. Market and competition
d. Cyclical or seasonal activity
82. The risk of material financial statement misstatement may be
greater when the following conditions exist except
a. When there is greater management intervention to
specify the accounting treatment.
b. When there is sufficient personnel with appropriate
accounting and financial reporting skills.
c. When there is greater manual intervention for data
collection and processing.
d. Complex calculations or accounting principles is involved.
83. The following are assurance engagements except
a. Tax consulting
b. Financial statements audit
c. Review of financial statements
d. Information system reliability services
84. Engagements frequently performed by professional
accountants that are not assurance engagements include the
following except
a. Compilation
b. Agreed-upon procedures.
c. Compliance audit
d. Management consulting.
85. When the professional accountant has obtained sufficient
appropriate evidence to conclude that the subject matter
conforms in all material respects with identified suitable criteria,
he or she can provide what level of assurance?
a. None
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 b. High
c. Absolute
d. Moderate
86. The Framework of PSA applies to
a. Taxation
b. Consultancy
c. Accounting advice
d. Compilation
87. Which of the following procedures ordinarily performed during
an audit are also performed in review?
a. Assessment of accounting and internal control systems
b. Test of controls
c. Tests of records and of responses to inquiries
d. Inquiry and analytical procedures
88. Which statement is incorrect regarding the pronouncements of
AASC?
a. The PSAs and Interpretations may also have application,
as appropriate, to other related activities of auditors.
b. PSAs contain basic principles and essential procedures
(identified in bold type black lettering) together with
related guidance in the form of explanatory and other
material.
c. PSAs need only be applied to material matters.
d. The Interpretations have the same authority as the
PAPSs.
89. The amount of audit fees depend largely on the
a. Size and capitalization of the company under audit.
b. Amount of profit for the year.
c. Availability of cash.
d. Volume of audit work and degree of competence and
responsibilities involved.
90. In determining audit fees, an auditor may take into account
each of the following except
a. Volume and intricacy of work involved.
b. Number and cost of manhours needed.
c. Degree of responsibility assumed.
d. Size and amount of capital of client.
91. Under this method of billing a client, the external auditors
charges on the basis of time spent by principals/partners,
supervisors, seniors and juniors at predetermined rates
agreed upon with the client
a. Maximum fee basis
b. Flat sum basis
c. Retainer basis
d. Per diem basis
92. Which of the following will impair the independence of a CPA
in public practice?
a. He has his name and address listed on a one-page
AT – Prelim Rev (875 MCQs) Red Sirug
section of the telephone book.
b. He obtained a loan from a bank under the normal lending
procedures, terms and requirements of that bank.
c. He holds one share of the client's capital stock.
d. He failed to disclose a client's departure from GAAP.
93. When CPAs are able to maintain an independence attitude in
fulfilling their responsibility, it is referred to as independence in
a. Fact.
b. Appearance.
c. Conduct.
d. Total.
94. When the users of financial statements have confidence in the
independence of the CPA, it is referred to as in independence
in
a. Fact.
b. Appearance.
c. Conduct.
d. Total.
95. Which of the following statements is incorrect?
a. CPAs lose their independence if they acquire any direct
financial interest in a client.
b. CPAs lose their independence if they have a material
direct financial interest in a client.
c. CPAs lose their independence if they acquire any
indirect financial interest in a client.
d. CPAs lose their independence if they acquire a material
indirect financial interest in a client.
96. Which of the following statements is not a distinction between
independent auditing and internal auditing?
a. Independent auditors represent third party users external
to the auditee entity, whereas internal auditors report
directly to management.
b. Internal auditors are employees of the auditee, whereas
independent auditors are independent contractors.
c. The internal auditor's span of coverage goes beyond
financial auditing to encompass operational and
performance auditing.
d. Although independent auditors strive for both validity
and relevance of evidence, internal auditors are
concerned almost exclusively with validity.
97. Which of the following is a correct qualification of the
Chairman and Two Commissioners of the Commission on
Audit?
a. A citizen of the Philippines.
b. At least 40 years of age upon appointment.
c. Must not have been candidates for any elective
position preceding appointment.
d. CPA’s with no less than 5 years of auditing experience or
members of Philippine bar who have been engaged in
law practice for at least 5 years.
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98. The 1986 Constitution provides that the Chairman and
Commissioners of the Commission on Audit shall be
a. All lawyers
b. All Certified Public Accountants
c. Two lawyers and one CPA
d. One or two lawyers and one or two CPAs for a total of
three
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.
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.
100. Which of the following is incorrect regarding the Philippine
Standards on Assurance Engagements (PSAE)?
a. It provides an overall framework for assurance
engagements intended to provide either a high or
moderate level of assurance.
b. When a professional accountant is engaged to perform
an assurance engagement for which specific standards
exist, those standards apply.
c. It provides basic principles and essential procedures
for engagements intended to provide a moderate
level of assurance.
d. If no specific standards exist for an assurance
engagement, PSAE apply.
SET 4
1. A professional accountant has a professional duty or right to
disclose confidential information in each of the following,
except:
a. To comply with technical standards and ethics
requirements.
b. To disclose to BIR fraudulent scheme committed by
the client on payment of income tax.
c. To comply with the quality review of a member body or
professional body
d. To respond to an inquiry or investigation by a member
body or regulatory body.
2. Which of the following best describes the passing of
confidential information from a client to its auditor? The
information:
a. Should in no circumstances be conveyed to third parties.
AT – Prelim Rev (875 MCQs) Red Sirug
b. Is not legally protected and can be subpoenaed by a
competent court.
c. Can only be released for peer reviews after receiving
permission from the client.
d. Should be conveyed to the public if it affects the
"correctness" of the financial statements.
3. If an auditor had a substantial stock investment in a client that
s(he) was auditing, which of the following would be true?
a. The auditor would lack independence.
b. The auditor would be violating the PASB standards.
c. The auditor would be violating the Institute of
Management Accounting standards
d. The auditor would be violating the IIA standards.
4. The CPA must not subordinate his or her professional
judgment to that of others in every
a. Engagement.
b. Audit engagement.
c. Engagement except tax services.
d. Engagement except management advisory services.
5. Which of the following is an indication of lack of objectivity of
an auditor?
a. The auditor believes that accounts receivable may
not be collectible, but accepts management's opinion
without an independent evaluation.
b. In preparing client's tax return, the CPA encourages client
to take a deduction which the CPA believes is valid, but
for which there is some but not complete support.
c. Both a and b above would be a violation
d. Neither would be a violation
6. A CPA in public practice shall not disclose any confidential
client information without the specific consent of the client.
The confidentiality rule is violated if CPA disclosed
information without client's consent as a result of a
a. Subpoena or summons.
b. Peer review.
c. Request by client's largest stockholder.
d. Complaint filed with the trial board of the Board of
Accountancy.:
7. The confidential relationship applies to
a. All services provided by CPAs.
b. Only audit and attestation services.
c. Audit and tax services, but no MAS services.
d. Audit and MAS services, but not tax services.
8. The confidential relationship will be violated if, without client's
permission, the CPA provides working papers about client to
a. A court of law which subpoenas them.
b. Another CPA firm as part of a peer review.
c. Another CPA firm which has just purchased the
CPA's entire practice.
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 d. An investigative or disciplinary body which is conducting
a review of the CPA's practice.
9. A member in public practice may perform for a contingent fee
any professional services for a client for whom the member
or member's firm performs
a. An audit.
b. A review.
c. A compilation used only by management.
d. An audit of prospective financial information.
10. Which one of the following contingent fee is allowed?
a. All services performed by a CPA firm.
b. Non-attestation services.
c. Non-attestation services, unless the CPA firm was
also performing attestation services for the same
client.
d. Attestation services.
11. A violation of the ethical standards would most likely have
occurred when a CPA
a. Made arrangement with a bank to collect notes issued by
a client in payment of fees due.
b. Joined an accounting firm made up of three non-CPA
practitioners.
c. Issued an unqualified opinion on the 2006 financial
statements when fees for the 2005 audit were unpaid.
d. Purchased a bookkeeping firm's practice of monthly write-
ups for a percentage of fees received over a three-year
period.
12. The concept of materiality would be least important to an
auditor when considering the
a. Decision whether to use positive or negative
confirmations of accounts receivable.
b. Adequacy of disclosure of a client's illegal act.
c. Discovery of weaknesses in a client's internal control
structure.
d. Effects of a direct financial interest in the client upon
the CPA's independence.
13. Which of the following is a violation Confidentiality rule of the
Code of Ethics?
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 year is.
AT – Prelim Rev (875 MCQs) Red Sirug
d. The CPA, when questioned in court, admits to knowledge
of certain illegal acts perpetrated by the client.
14. An auditor who accepts an audit engagement and does not
possess the industry expertise of the business entity, should
a. Engage, financial experts familiar with the nature of the
business entity.
b. Obtain a knowledge of matters that relates to the
nature of the entity's business.
c. Refer a substantial portion of the audit to another cpa
who will act as the principal auditor.
d. First inform management that an unqualified opinion
cannot be issued.
15. In determining estimates of fees, an auditor may take into
account each of the following, except the:
a. Value of the service to the client
b. Degree of responsibility assumed by undertaking the
engagement.
c. Skills required to perform the service.
d. Attainment of specific findings.
16. A CPA, while performing an audit, strives to achieve
independence in appearance in order to
a. Reduce risk and liability.
b. Comply with the generally accepted standards of
fieldwork.
c. Become independent in fact.
d. Maintain public confidence in the profession
17. The IFAC Code of Professional Conduct will ordinarily be
considered to have been violated when the member
represents that specific consulting services will be performed
for a stated fee and it is apparent at the time of the
representation that the
a. Actual fee would be substantially higher.
b. Actual fee would be substantially lower than the fees
charged by other members for comparable services.
c. Fee was a competitive bid.
d. Member would not be independent.
18. In which of the following instances would the independence of
the CPA not be considered to be impaired? The CPA has
been retained as the auditor of a brokerage firm
a. Which owes the CPA audit fees for more than one year.
b. In which the CPA has a large active margin account.
c. In which the CPA's brother is the controller.
d. Which owes the CPA audit fees for services in the
current year and has just filed a petition for
bankruptcy.
19. In performing an audit, Jackson, CPA, discovers that the
professional competence necessary for the engagement is
lacking. Jackson informs management of the situation and
recommends another local firm, and management engages
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 this other firm. Under these circumstances,
a. Jackson may request compensation from the other
firm for any professional services rendered to it in
connection with the engagement.
b. Jackson may accept a referral fee from the other firm.
c. Jackson has violated the AICPA Code of Professional
Conduct because of nonfulfillment of the duty of
performance.
d. Jackson's lack of competence should be construed to be
a violation of generally accepted auditing standards.
20. Which of the following fee arrangements is in violation of the
Code of Professional Conduct?
a. A fee based on whether the CPA's report on the
client's financial statements results in the approval of
a bank loan.
b. A fee based on the outcome of a bankruptcy proceeding.
c. A fee based on the nature of the service rendered and
the CPA's particular expertise instead of the actual time
spent on the engagement.
d. A fee based on the fee charged by the prior auditor.
21. Richard, CPA, performs accounting services for Norton
Corporation. Norton wishes to offer shares to the public and
asks Richard to audit the financial statements. Richard refers
Norton to Cruz, CPA, who is more competent in the area of
registration statements. Cruz performs the audit of Norton's
financial statements and subsequently thanks Richard for the
referral by giving Richard a portion of the audit fee. Richard
accepts the fee. Who, if anyone, has violated professional
ethics?
a. Only Richard
b. Both Richard and Cruz
c. Only Cruz
d. Neither Richard nor Cruz
22. Which of the following would not fit the description of a
related-party transaction?
a. An unusually large sale of merchandise to the
company's best and largest customer.
b. Sales of merchandise between a parent company and its
subsidiary.
c. Exchanges of equipment between two companies owned
by the same person.
d. Loans to corporate officers at market rates of interest with
a regular repayment schedule.
23. The audit work performed by each assistant should be
reviewed to determine whether it was adequately performed
and to evaluate whether the
a. Results are consistent with the conclusions to be
presented in the auditor's report.
b. Audit procedures performed are approved in the
professional standards.
AT – Prelim Rev (875 MCQs) Red Sirug
c. Audit has been performed by persons having adequate
technical training and proficiency as auditors.
d. Auditor's system of quality control has been maintained at
a high level.
24. Risk assessment procedures include the following, except
a. Analytical procedures.
b. Confirmation of accounts receivable.
c. Observation and inspection.
d. Inquiries of management
25. PSA 315 requires:
a. Obtaining an understanding of the entity and its
environment
b. Identifying and assessing the risks of material
misstatement
c. Discussion among engagement team members about the
risk of material misstatement in the financial statements.
d. All of the above
26. A time budget is an estimate of the total hours an audit is
expected to take. The following are among the factors to be
considered in developing this budget, except
a. Client's size as indicated by its gross assets, sales,
number of employees.
b. Location of client facilities.
c. The competence and experience of available staff.
d. Whether the audit is performed during the interim or
at year-end.
27. The extent of audit planning will vary according to the
following:
a. Auditor’s experience with the entity.
b. The nature and complexity of the audit engagement.
c. Size of the entity.
d. All of the above.
28. The audit plan should (select the exception)
a. Be flexible
b. Precede performance of procedures
c. Succeed action
d. Be cost-beneficial
29. The establishment of an overall audit strategy involves
I. Determining the characteristics of the engagement that
define its scope.
II. Ascertaining the reporting objectives of the engagement
to plan the timing of the audit and the nature of the
communications required.
III. Considering the important factors that will determine the
focus of the engagement team's efforts.
a. I and II only
b. I and III only
c. II and III only
d. I, II, and III
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30. In the planning stage of an audit engagement, the auditor is
required to perform audit procedures to obtain an
understanding of the entity and its environment, including its
internal control. These procedures are called
a. Substantive tests
b. Tests of controls
c. Risk assessment procedures
d. Dual-purpose tests
31. In planning the audit engagement, the auditor should consider
each of the following, except
a. Matters relating to the entity's business and the industry
in which it operates.
b. Materiality level and audit risk.
c. The kind of opinion (unmodified, qualified, or adverse)
that is likely to be expressed.
d. The entity's accounting policies and procedures.
32. The auditor's understanding of the entity and its environment
consists of an understanding of the following aspects except
a. Industry, regulatory, and other external factors, including
the applicable financial reporting framework.
b. Nature of the entity, including the entity's selection and
application of accounting policies.
c. Measurement and review of the entity's financial
performance.
d. Entity's selection and screening process of
marketing and production personnel.
33. PSA 315 requires that the auditor should obtain an
understanding' of relevant industry, regulatory and other
external factors including the applicable financial reporting
framework. Which of the following is not an example of
matters relating to regulatory environment that the auditor
would usually consider?
a. Regulatory framework for a regulated industry.
b. Product technology relating to the entity's product.
c. Legislation and regulation significantly affecting the
entity's operation.
d. Taxation.
34. PSA requires that the auditor should obtain an understanding
of the entity's objectives and strategies, and the related
business risks that may result in material misstatement of the
financial statements. Which of the following is not an example
of business risks that may have financial consequences and
may affect the financial statements?
a. A contracting customer base due to industry
consolidation that may increase the risk of misstatement
associated with the valuation of receivables.
b. Contracting economy.
c. New accounting requirements.
d. Use of new IT.
AT – Prelim Rev (875 MCQs) Red Sirug
35. Auditors perform analytical procedures in the planning stage
of an audit for the purpose of:
a. Determining which of the financial statement assertions
are the most important for the client's financial statements.
b. Determining the nature, timing, and extent of audit
procedures for auditing the inventory.
c. Deciding the matters to cover in an engagement.
d. Identifying unusual conditions that deserve more
auditing effort.
36. For initial audits, additional matters the auditor may consider
in the overall audit strategy and audit plan include the
following except
a. Major issues including the application of accounting
principles or any auditing and reporting standards
discussed with management.
b. Confirmation of material accounts receivable balance
at the end of the year.
c. Planned audit procedure to obtain sufficient appropriate
audit evidence regarding opening balances.
d. Assignment of firm personnel with appropriate levels of
capabilities and competence to respond to anticipated
significant risks.
37. Which of the following would not be found in the corporate
charter?
a. The date of incorporation.
b. The rules and procedures adopted by the
stockholders.
c. The kinds and amount of capital stock authorized.
d. The types of business activity that the corporation is
allowed to conduct.
38. Which of the following would not usually be included in the
minutes of the board of directors and/or stockholders?
a. Declaration of dividends.
b. Authorization of long-term loans.
c. Authorization of individuals to sign checks.
d. The duties and powers of the corporate officers.
39. Which of the following is not an inherent risk that is common to
all clients in certain industries?
a. Accounts receivable collection in the consumer loan
industry.
b. Potential inventory obsolescence in the fashion clothes
industry.
c. Brand loyalty in the cosmetics industry.
d. Reserve for loss in the casualty insurance industry.
40. Transactions with related parties are important to the auditors
because they will be disclosed in the financial statements if
material. Generally accepted accounting principles would not
require disclosure of
a. Loans to officers during the year which had been
repaid before the balance sheet date.
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 b. The nature of the related-party relationship.
c. A description of transactions, including peso amounts.
d. The amounts due from and to related parties.
41. Which of the following would not be classified as a related-
party transaction?
a. Sales of merchandise between affiliated companies.
b. An advance of one week's salary to an employee.
c. Loans or credit sales to the principal owner or client.
d. Exchanges of equipment between two companies owned
by the same person.
42. Most auditors assess inherent risk as high for related parties
and related-party transactions because
a. Of the accounting disclosure requirement.
b. Of the lack of independence between the parties.
c. Both a and b.
d. It is required by generally accepted accounting principles.
43. Experience has shown that certain conditions in an
organization are symptoms of possible management fraud.
Which of the following conditions would not be considered an
indicator of possible fraud?
a. Managers are regularly assuming subordinates' duties
b. Managers are subject to formal performance reviews
on a regular basis.
c. Managers are dealing in matters outside their profit
center's scope
d. Managers are not complying with corporate directives
and procedures
44. The nature of the entity refers to the following, except:
a. The types of investments that it is making and plans to
make.
b. Other external factors, such as general economic
conditions.
c. The way that the entity is structured and how it is
financed.
d. The entity's operations, its ownership, and governance.
45. These result from significant conditions, events,
circumstances, actions or inactions that could adversely affect
the entity’s ability to achieve its objectives and execute its
strategies or through the setting of inappropriate objectives
and strategies.
a. Business failure
b. Information risk
c. Business obstacles
d. Business risk
46. These are the operational approaches by which management
intends to achieve its objectives.
a. Business risk approaches
b. Strategies
c. Planning methods
AT – Prelim Rev (875 MCQs) Red Sirug
d. Operational plans.
47. The auditor's understanding of the entity and its environment
consists an understanding of the following aspects:
a. Industry, regulatory and other external factors, including
the applicable financial reporting framework
b. Nature of the entity, including the entity's selection and
application of accounting policies
c. Objectives and strategies and the related business risks
that may result in a material misstatement of the financial
statements
d. All of these.
48. There are fundamental principles that the professional
accountant has to observe when performing assurance
engagements. The requirement of which principle is of
particular importance in an assurance engagement in ensuring
that the conclusion of the professional accountant has value to
the intended user?
a. Integrity
b. Confidentiality
c. Professional competence
d. Objectivity
49. Existing accountant, as defined in the Code of Ethics, means
a. A professional accountant employed in industry,
commerce, the public sector or education.
b. Those persons who hold a valid certificate issued by the
Board of Accountancy.
c. A professional accountant in public practice
currently holding an audit appointment or 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 partner and each staff in a
practice providing professional services to a client
irrespective of their functional classification (e.g., audit,
tax or consulting) and professional accountants in a
practice having managerial responsibilities.
50. How did the Code of Ethics define public interest?
a. A distinguishing mark of a profession is the acceptance of
its responsibility to the public.
b. The accountancy profession's public consists of clients,
credit grantors, governments, employers, employees,
investors, the business and financial community, and
others who rely on the objectivity and integrity of
professional accountants.
c. The collective well-being of the community of people
and institutions the professional accountant serves.
d. The standards of the accountancy profession are
heavily determined by the public interest.
51. Independent auditors of financial statements perform audits
that reduce and control
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 a. Business risk faced by investors
b. Information risk faced by investors
c. Complexity of financial statements
d. Timeliness of financial statements
52. Which of the following statements is true?
a. Professional standards prohibit CPAs from performing
non-assurance engagements.
b. Absolute assurance is attainable owing to the fact that
much of the evidence available to the CPA is persuasive
rather than conclusive.
c. The CPA’s conclusion provides a level of assurance
about the subject matter.
d. The responsible party expresses a conclusion that
provides a level of assurance as to whether the subject
matter conforms, in all material respects, with the
identified suitable criteria.
53. Which of the following best describes the operational audit?
a. It requires the constant review by internal auditors of the
administrative controls as they relate to operations of
the company.
b. It concentrates on implementing financial and
accounting control in a newly organized company.
c. It concentrates on seeking out aspects of
operations in which waste would be reduced by the
introduction of controls.
d. It attempts and is designed to verify the fair
presentation of a company's results of operations.
54. What is the proper organizational role of internal auditing?
a. To serve as an independent, objective assurance and
consulting activity that adds value to operations.
b. To assist the external auditor in order to reduce external
audit fees.
c. To perform studies to assist in the attainment of more
efficient operations.
d. To serve as the investigative arm of the audit committee
of the board of directors.
55. Which of the following is not one of the limitations of an audit?
a. The use of testing
b. Limitations imposed by client
c. Human error
d. Nature of evidence that the auditor obtains
56. Which of the following terms does not belong to the group
a. Financial audit
b. Internal audit
c. External audit
d. Independent audit
57. By providing high level of assurance on audit reports on
financial statements, the auditor
a. Guarantees the fair presentation of the financial
AT – Prelim Rev (875 MCQs) Red Sirug
statements.
b. Confirms the accuracy of the financial statements.
c. Enhances the credibility of the financial statements.
d. Assures the readers that fraudulent activities of
employees have been detected.
58. Most of the independent auditor's work in formulating
an opinion on financial statements consists of
a. Studying and evaluating internal control
b. Obtaining and examining evidential matter
c. Examining cash transactions
d. Comparing recorded accountability with assets
59. The overall objective of internal auditing is to
a. Attest to the efficiency with which resources are
employed.
b. Ascertain that controls are costs justified.
c. Provide assurance that financial data have been
accurately recorded.
d. Assist members of the organization in the effective
discharge of their responsibilities.
60. Internal auditing is an independent appraisal function
established within an organization to examine and evaluate its
activities. To that end, internal auditing provides assistance to
a. External auditors
b. Stockholders
c. Management and the board of directors
d. Government
61. An audit which is undertaken in order to determine whether
the auditee is following specific procedures or rules set down
by some higher authority is classified as a(n)
a. Audit of financial statements.
b. Compliance audit.
c. Operational audit.
d. Production audit.
62. The most important function of operational audit report is to:
a. Direct management to take specified actions.
b. State the auditor’s opinion or conclusion.
c. Report findings and recommendations.
d. Report the objective of the audit.
63. Operational audit differs in many ways from an audit of
financial statements. Which of the following is the best
example of one of these differences?
a. The usual audit of the financial statement covers four
basic statements, whereas operational audit is usually
limited either the statement of financial position or the
income statement.
b. Operational audit do not necessarily result in the
preparation of a report.
c. The operational audit deals with pre-tax income.
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 d. The boundaries of an operational audit are often generally accepted accounting principles.
drawn from an organization chart and are not limited d. Financial statements are fairly presented.
to a single accounting period.
70. As used in auditing, which of the following statements best
describes "assertions”?
64. Which of the following actions would be an appropriate
a. Assertions are the auditor's findings to be communicated
response by companies to improve the public's perception of
in his audit report.
their financial reporting?
b. Assertions are found only in the notes to the financial
a. Requiring internal auditors to report all significant findings of
statements.
fraud and illegal activity to the company president.
c. Assertions are the representations of management as to
b. Increased adoption of audit committees.
the reliability of the information system.
c. Keeping external and internal auditing work separated to
d. Assertions are the representations of management as
maintain independence.
to the fairness of presentation of the financial
d. None of the above.
statements.
65. Which of the following is considered a primary reason for
71. The internal auditing department's responsibility for deterring
creating an internal audit department?
fraud is to
a. To safeguard resources entrusted to the organization.
a. Exercise operating authority over fraud prevention
b. To evaluate and improve the effectiveness of
activities.
control processes.
b. Establish an effective internal control system.
c. To ensure the accuracy, reliability, and timeliness of
c. Maintain internal control.
financial and operating data used in management's
d. Examine and evaluate the system of internal control.
decision making.
d. To relieve management of the responsibility for
72. Internal auditors review the adequacy of the company's
establishing effective controls.
internal control system primarily to
a. Help determine the nature, timing, and extent of tests
66. What is the overall objective of internal auditing?
necessary to achieve audit objectives.
a. To attest to the efficiency with which resources are used.
b. Determine whether the internal control system ensures
b. Ascertain that the cost of internal control is justified.
that financial statements are fairly presented.
c. To ascertain that financial statements present
c. Determine whether the internal control system
accurately the financial position, operating results, and
provides reasonable assurance that the company's
changes in cash and stockholders' equity.
objectives and goals are met efficiently and
d. To help members of the organization to effectively
economically.
discharge their responsibilities.
d. Ensure that material weaknesses in the system of internal
control are corrected.
67. Which of the following types of audit uses laws and
regulations as its criteria?
73. Internal auditors should review the means of physically
a. Operational audit
safeguarding assets from losses arising from
b. Financial statement audit
a. Procedures that are not cost justified.
c. Compliance audit
b. Exposure to the elements.
d. Performance audit
c. Underusage of physical facilities.
d. Misapplication of accounting principles.
68. An audit that involves obtaining and evaluating evidence
about the efficiency and effectiveness of an entity's operating
74. The essence of the attest function is to
activities in relation to specified objectives is a(n):
a. Detect fraud.
a. External audit
b. Examine individual transactions so that the auditor can
b. Compliance audit
certify as to their validity.
c. Operational audit
c. Determine whether the client's financial statements
d. Financial statement audit
are fairly stated.
d. Ensure the consistent application of correct accounting
69. A operational audit is primarily oriented toward
procedures.
a. Future improvements to accomplish management’s
goals.
75. A typical objective of an operational audit is to determine
b. Past protection provided by existing internal control.
whether an entity's
c. Operational information is in accordance with
a. Internal control structure is adequately operating as

AT – Prelim Rev (875 MCQs) Red Sirug Page 32 of 77

 designed
b. Operational information is in accordance with
generally accepted accounting principles.
c. Specific operating units are functioning efficiently
and effectively
d. Financial statements present fairly the results of
operations
76. Audits of financial statements include an expression of a
conclusion about which of the following financial statement
characteristics?
a. Governance.
b. Reliability.
c. Relevance.
d. Timeliness.
77. There are four conditions that give rise to the need for
independent audits of financial statements. One of these
conditions is consequence. In this context, consequence
means that the:
a. Users of the statements may not fully understand the
consequences of their actions.
b. Auditor must anticipate all possible consequences
of the report issued.
c. Impact of using different accounting methods may
not be fully understood by the users of the statements.
d. Financial statements are used for important
decisions.
78. One of the conditions that give rise to a demand for an
external audit of financial statements is expertise. Which
of the following best describes the meaning of expertise as
used in this context?
a. Auditors usually rely on the work of an expert as
a basis for evaluating some assertions embodied in
the financial statements.
b. The readers of the financial statements must possess
the necessary expertise to be able to understand the
financial statements.
c. Users usually lack the necessary expertise to verify
the reliability of the financial information.
d. As experts, auditors are expected to detect all material
misstatements in the financial statements.
79. Operational audits generally have been conducted by internal and
COA auditors, but may be performed by certified public
accountants. A primary purpose of an operational audit is to
provide:
a. A measure of management performance in meeting
organizational goals.
b. The results of internal examinations of financial and
accounting matters to a company's top-level management.
c. Aid to the independent-auditor, who is conducting the
examination of the financial statements.
AT – Prelim Rev (875 MCQs) Red Sirug
d. A means of assurance that internal accounting controls are
functioning as planned.
80. Governmental audi ting often ex tends beyond
examinations leading to the expression of opinion on the
fairness of financial presentation and includes audits of
efficiency, economy, effectiveness, and also:
a. Accuracy
b. Evaluation
c. Compliance
d. Internal control
81. The internal auditing profession has advanced primarily as a
result of
a. Increased interest by Bachelor of Science in Accoun-
tancy (BSA) graduates and experienced auditors.
b. The limitation of financial statement audit scope.
c. Job qualification specifications that include added emphasis
on background knowledge and skills.
d. Increased complexity and sophistication of business
operations.
82. A typical objective of an operational audit is for the auditor to
a. Determine whether the financial statements fairly
present the entity's operations.
b. Evaluate the feasibility of attaining the entity's
operational objectives.
c. Make recommendation for improving performance.
d. Report on the entity's relative success in maximizing
profits.
83. An objective of a performance audit is to determine
whether an entity's
a. Operational information is in accordance with
government auditing standards.
b. Specific operating units are functioning
economically and efficiently.
c. Financial statements present fairly the results of
operations.
d. Internal control is adequately operating as designed.
84. What is the responsibility of an auditor who is engaged to
audit the financial statements of a government entity?
a. Assess control risk with respect to each component of
internal control.
b. Assume responsibility for assuring that the entity complies
with applicable laws and regulations.
c. Obtain an understanding of the possible financial
statement effects of laws and regulations having direct
and material effects on amounts reported.
d. Design the audit to provide reasonable assurance that the
statements are free of material misstatements resulting
from illegal acts having direct or indirect effects.
85. Solicitation consists of the various means that CPA firms use
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 to engage new clients. Which one-of the following would not
be an example of solicitation?
a. Accepting new clients that approach the firm.
b. Taking prospective clients to lunch.
c. Offering seminars on current tax law changes to potential
clients.
d. Advertisements in the yellow pages of a phone book.
86. Which of the following activities is not prohibited for the CPA
firm's attestation service clients?
a. Competitive bidding on audit jobs.
b. Contingent fees on audit jobs.
c. Commissions for obtaining client services on audit jobs.
d. Referral fees on audit jobs.
87. If requested to perform a review engagement for a nonpublic
entity in which an accountant has an immaterial direct financial
interest, the accountant is
a. Independent because the financial interest is immaterial
and, therefore, may issue a review report.
b. Not independent and, therefore, may not be associated
with the financial statements.
c. Not independent and, therefore, may not issue a
review report.
d. Not independent and, therefore, may issue a review
report, but may not issue an auditor's opinion.
88. Which of the following most completely describes how
independence has been defined by the CPA profession?
a. Performing an audit from the viewpoint of the public.
b. Avoiding the appearance of significant interests in the
affairs of an audit client.
c. Possessing the ability to act with integrity and
objectivity.
d. Possessing the ability to act professionally and
accordance with a professional code of ethics.
89. To emphasize auditor independence from management,
many corporations follow the practice of
a. Appointing a partner of the CPA firm conducting the
examination to the corporation's audit committee.
b. Establishing a policy of discouraging social contact
between employees of the corporation and the staff of the
independent auditor.
c. Requesting that a representative of the independent
auditor be on hand at the annual stockholders' meeting.
d. Having the independent auditor report to an audit
committee of outside members of the board of
directors.
90. In determining independence with respect to any audit
engagement, the ultimate decision as to whether or not the
auditor is independent must be made by the
a. Auditor.
b. Client.
AT – Prelim Rev (875 MCQs) Red Sirug
c. Audit committee.
d. Public.
91. When a CPA who is not independent is associated with
financial statements, he would be precluded from expressing
an opinion because
a. The public would be aware of his lack of independence
and would place little or no faith in his opinion.
b. He would place himself in the position of suffering an
adverse decision in a possible liability suit.
c. He would be in the position of auditing his own work.
d. Any auditing procedures he might perform would not
be in accordance with generally accepted auditing
standards.
92. In which of the following circumstances would a CPA be
bound by ethics to refrain from disclosing any confidential
information obtained during the course of a professional
engagement?
a. The CPA is issue a summons enforceable by a court
order which orders the CPA to present confidential
information.
b. A major stockholder of a client company seeks
accounting information from the CPA after
management declined to disclose the requested
information.
c. Confidential client information is made available as part of
a quality review of the CPA's practice by a peer review
team authorized by the PICPA.
d. An inquiry by a disciplinary body of PICPA requests
confidential client information.
93. Which of the following best describes why publicly-traded
corporations follow the practice of having the outside auditor
appointed by the board of directors or elected by the
stockholders?
a. To comply with the regulations of the Accounting
Standards Council.
b. To emphasize auditor independence from the
management of the corporation.
c. To encourage a policy of rotation of the independent
auditors.
d. To provide the corporate owners with an opportunity to
voice their opinion concerning the quality of the auditing
firm selected by the directors.
94. The objective of governmental effectiveness or program
auditing is to determine if the desired results of a program
are being achieved. What is the first step in conducting
such an audit?
a. Identify the legislative intent of the program being
audited.
b. Collect quantifiable data on the program's success
or failure.
c. Determine the time frame to be audited.
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 d. Evaluate the system used to measure results.
95. Which of the following statements is a standard
applicable to financial statement audits in accordance
with Government Auditing Standards?
a. An auditor should briefly describe in the auditor's report the
method of statistical sampling used in per forming tests
of controls and substantive tests.
b. An auditor should report on the scope of the
auditor's testing of internal control.
c. An auditor should determine the extent to which
the entity's programs achieve the desired level of
results.
d. An auditor should assess whether the entity has
reportable measures of economy and efficiency
that are valid and reliable.
96. Which of the following is incorrect about responsibility for
financial statements?
a. Management is responsible for fair presentation of the
financial statements.
b. Auditor is responsible for expressing an opinion on the
financial statements.
c. Audit of financial statements does not reduce
management's responsibility.
d. Fair presentation of financial statements is an implicit
part of the auditor's responsibility.
97. Which of the following is correct?
a. The evidence which the auditor accumulates remains the
same from audit to audit, but the general objectives vary,
depending on the circumstances.
b. The general audit objectives remain the same from
audit to audit, but the evidence varies, depending on
the circumstances.
c. The circumstances may vary from audit to audit, but the
evidence accumulated remains the same.
d. The general audit objectives may vary from audit to audit,
but the circumstances remain the same.
98. The work of each assistant needs to be reviewed by personnel
of at least equal competence. Which of the following is not one
of the objectives of this requirement?
a. The conclusions expressed are consistent with the result
of the work performed and support the opinion.
b. The work performed and the results obtained have been
adequately documented.
c. The objectives of the audit procedures have been
achieved.
d. All available evidences have been obtained,
evaluated and documented.
99. Every independent audit engagement involves both auditing
standards and auditing procedures. The relationship between
the two may be illustrated by how they apply from
AT – Prelim Rev (875 MCQs) Red Sirug
engagement to engagement. The best representation of this
application is that, from one audit engagement to the next,
a. Both auditing standards and auditing procedures are
applied uniformly.
b. Auditing standards are applied uniformly but auditing
procedures are optional.
c. Auditing standards are applied uniformly but auditing
procedures may vary.
d. Auditing standards may vary but auditing procedures are
applied uniformly.
100. The CPA should not undertake an engagement if his fee is to
be based upon
a. A percentage of audited net income.
b. Per diem rates plus expenses.
c. The findings of a tax authority.
d. The complexity of the service rendered.
SET 5
1. The establishment of the overall audit strategy involves
a. Determining the characteristics of the engagement that
defines its scope.
b. Ascertaining the reporting objectives of the engagement
to plan the timing of the audit and the nature of the
communications required.
c. Considering the important factors that will determine the
focus of the engagement team's efforts.
d. All of the answers
2. Which of the following is least likely to be required on an audit?
a. Review accounting estimates for biases
b. Test appropriateness of journal entries and adjustment
c. Make a legal determination of whether fraud has
occurred
d. Evaluate the business rationale for significant, unusual
transactions
3. Which of the following should be included in the audit plan?
I. The nature, timing and extent of planned risk assessment
procedures.
II. The nature, timing and extent of planned further audit
procedures at the assertion level.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
4. Which of the following matters would an auditor least likely
consider when setting the direction of the audit?
a. The selection of the engagement team and the
assignment of audit work to the team members.
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 b. The engagement budget which includes consideration of
the appropriate amount of time to allot for areas where
there may be higher risks of material misstatement.
c. The availability of client personnel and data.
d. The manner in which the auditor emphasizes to
engagement team members the need to maintain a
questioning mind and to exercise professional skepticism
in the gathering and evaluation of audit evidence.
5. Which of the following matters would an auditor most likely
consider when establishing the scope of the audit?
a. Audit areas where there is a higher risk of material
misstatement.
b. The expected audit coverage, including the number
and locations of the entity's components to be
included.
c. The entity's timetable for reporting, such as at interim and
final stages.
d. The discussion with the entity's management concerning
the expected communications on the status of audit work
throughout the engagement and the expected
deliverables resulting from the audit procedures.
6. An auditor should consider materiality when
I. Determining the nature, timing, and extent of audit
procedures.
II. Evaluating the effect of misstatements.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
7. It is the amount or amounts set by the auditor at less than
materiality for the financial statements as a whole to reduce to
an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds
materiality for the financial statements as a whole.
a. Lower materiality
b. Lesser materiality
c. Performance materiality
d. Materiality
8. A basic premise underlying analytical procedures is that
a. The study of financial ratios is an acceptable alternative
to the investigation of unusual fluctuations.
b. Plausible relationships among data may reasonably
be expected to exist and continue in the absence of
known conditions to the contrary.
c. These procedures cannot replace tests of details of
transactions and balances.
d. Statistical tests of financial information may lead to the
detection of material misstatements in the financial
statements.
AT – Prelim Rev (875 MCQs) Red Sirug
9. Which of the following statements concerning analytical
procedures is true?
a. Analytical procedures are more efficient, but not more
effective, than tests of details of transactions.
b. Analytical procedures used as risk assessment
procedures use data aggregated at a high level.
c. Analytical procedures can replace tests of controls in
gathering audit evidence to support the assessed level of
control risk.
d. Analytical procedures usually involve comparisons of
ratios developed from recorded amounts with ratios
developed by management.
10. In relation to audit planning, the auditor should document the
following:
a. The overall audit strategy.
b. The detailed audit plan.
c. Significant changes made during the audit engagement.
d. All of the answers
11. Audit programs generally include procedures to test actual
transactions and resulting balances. These procedures are
primarily designed to
a. Detect irregularities that result in misstated financial
statements.
b. Test the adequacy of internal control.
c. Gather corroborative evidence.
d. Obtain information of informative disclosures.
12. An audit process is a well-defined methodology for organizing
an audit to ensure that
a. The evidence gathered is both sufficient and competent.
b. All appropriate audit objectives are specified.
c. All appropriate audit objectives are met.
d. All of these
13. For a particular assertion, control risk is the risk that
a. Controls will not detect a material misstatement that
occurs.
b. Audit procedures will fail to detect a weak control system.
c. The prescribed control procedures will not be applied
uniformly.
d. A material misstatement will occur in the accounting
process.
14. Which of the following is most likely to require special planning
considerations related to asset valuation?
a. Accelerated depreciation methods are used for
amortizing the costs of factory equipment.
b. The client has recently purchased an expensive copy
machine.
c. Assets costing less than P5,000 are expensed even
when the expected life exceeds one year.
d. Inventory is comprised of diamond rings.
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15. The responsibility for the detection and prevention of errors,
fraud and noncompliance with laws and regulations rests with:
a. Auditor
b. Client's legal counsel
c. Internal auditor
d. Client management
16. The following statements relate to the auditor's responsibility
for the detection of errors and fraud. Which of the statement
is correct?
I. Due to the inherent limitations of the audit, there is a
possibility that material misstatements in the financial
statements may not be detected.
II. The subsequent discovery of material misstatement of
the financial information resulting from fraud or error does
not, in itself, indicate that the auditor failed to follow the
basic principles and essential procedures of an audit.
a. I only
b. II only
c. Both statements are true
d. Both statements are false
17. Which of the following is not an assurance that the auditors
give to the parties who rely on the financial statements?
a. Auditors know how the amounts and disclosures in the
financial statements were produced.
b. Auditors gathered enough evidence to provide a
reasonable basis for forming an opinion.
c. Auditors give assurance that the financial statements
are accurate.
d. If the evidence allows the auditors to do so, auditors give
assurance in the form of opinion, as to whether the
financial statements taken as a whole are fairly presented
in conformity with GAAP.
18. Material misstatements in financial statements may arise from
all of the following except
a. Fraud
b. Error
c. Limitations of the audit
d. Noncompliance with laws and regulations
19. Which of the following is an example of an error?
a. Defalcation
b. Misapplication of accounting policies.
c. Suppression or omission of the effects of transactions
from the records or documents.
d. Recording of transactions without substance.
20. An intentional act by one or more individuals among
management, employees, or third parties which results in
misrepresentation of financial statements refers to
a. Illegal acts
b. Error
c. Fraud
AT – Prelim Rev (875 MCQs) Red Sirug
d. Noncompliance
21. The primary factor that distinguishes errors from fraud is
a. Whether the misstatement is perpetrated by an employee
or by a member of management
b. Whether the underlying cause of misstatement is
intentional or unintentional.
c. Whether the misstatement is concealed.
d. Whether the underlying cause of misstatement relates to
misapplication of accounting principles or to clerical
processing.
22. The factor that distinguishes an error from fraud is
a. Materiality.
b. Intent.
c. Whether it is peso amount or a process.
d. Whether it is a caused by the auditor or the client.
23. Fraudulent financial reporting is often called
a. Misappropriation or theft of assets
b. Management fraud
c. Defalcation
d. Employee fraud
24. In comparing management fraud with employee fraud, the
auditor's risk of failing to discover the fraud is
a. Greater for employee fraud because of the larger number
of employees in the organization.
b. Greater for management fraud because of
management's ability to override existing internal
controls.
c. Greater for employee fraud because of the higher crime
rate among blue collar workers.
d. Greater for management fraud because managers are
inherently smarter than employees.
25. Which of the following statements about fraud or error is
incorrect?
a. The responsibility for the prevention and detection of
fraud and error rests with management.
b. The auditor should plan and perform the audit with an
attitude of professional skepticism, recognizing that
conditions or events may be found that fraud or error may
exist.
c. The likelihood of detecting fraud is ordinarily higher
than that of detecting error.
d. The auditor is not and can not be held responsible for the
prevention of fraud and error.
26. Which of the following is an "error" as distinguished from
"fraud"?
a. Lapping
b. Embezzlement of company's fund
c. Clerical mistakes in the processing of transactions
d. Window dressing
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27. Which of the following could be an example of fraud?
a. Misappropriation of assets or group of assets.
b. Errors in the application of the accounting principles.
c. Clerical errors in accounting data underlying the financial
statements.
d. Misinterpretation of facts that existed when financial
statements were prepared.
28. Which of the following is an example of fraudulent financial
reporting?
a. Misappropriating collections on accounts receivable
b. Using inappropriate assumptions in accounting
estimate
c. Stealing inventory
d. Payments to fictitious employees or vendors
29. These refer to events or conditions that may indicate an
incentive or pressure to commit fraud or provide an
opportunity to commit fraud.
a. Fraud conditions
b. Fraud risk factors
c. Fraudulent activities
d. Fraud events
30. The following are fraud risk factors except:
a. Incentive or pressure to commit fraud
b. Opportunity to commit fraud
c. Attitude or rationalization to commit fraud
d. All of the above
31. Certain characteristics or circumstances may increase the
susceptibility of assets to misappropriation. Opportunities to
misappropriate assets increase due to the following except:
a. Inventory items that are small in size, of high value, or in
high demand.
b. Known or anticipated future employee layoffs.
c. Easily convertible assets, such as bearer bonds,
diamonds, or computer chips.
d. Fixed assets which are small in size, marketable, or
lacking observable identification of ownership.
32. The auditor is most likely to presume that a high risk of fraud
exists if
a. The client is a multinational company that does business
in numerous foreign countries.
b. The client does business with several related parties.
c. Inadequate segregation of duties places an employee
in a position to perpetrate and conceal thefts.
d. Inadequate employee training results in lengthy EDP
exception reports each month.
33. All of the following conditions are indicators of possible
pressures on an entity except
a. The industry in which the entity operates is declining.
AT – Prelim Rev (875 MCQs) Red Sirug
b. There is inadequate working capital due to declining
profits or too rapid expansion.
c. The client is heavily dependent on one or a few products
or customers.
d. There is a significant and prolonged understaffing of
the accounting department.
34. Which of the following is most likely to be a response to the
auditor's assessment that the risk of material misstatement
due to fraud for the existence of inventory is high?
a. Observe test counts of inventory at certain locations
on an unannounced basis.
b. Perform analytical procedures rather than taking test
counts.
c. Request that inventories be counted prior to year end.
d. Request that inventory counts at the various locations be
counted on different dates so as to allow the same
auditor to be present at every count.
35. The term used to refer to acts of omission or commission by
the entity being audited, either intentional or unintentional,
which are contrary to the prevailing laws and regulations is
a. Misappropriation.
b. Fraud.
c. Illegal acts.
d. Noncompliance.
36. Noncompliance with laws and regulations are also called
a. Irregularities
b. Illegal acts
c. Misappropriation
d. Defalcation
37. The responsibility for the detection and prevention of
noncompliance with laws and regulations rests with
a. The auditor
b. The client's legal counsel
c. The auditor’s legal counsel
d. The client management
38. The term “noncompliance” as used in PSA 250 refers to acts
of omission or commission by the entity being audited, either
intentional or unintentional, which are contrary to the
prevailing laws or regulations. Such acts include the following
except
a. Transactions entered into by the entity
b. Transactions entered into in the name of the entity
c. Transactions entered into by the entity on its behalf by its
management or employees
d. Personal misconduct (unrelated to the business
activities of the entity) by the entity’s management or
employees.
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39. As part of audit planning, CPAs should design audit programs
for each individual audit and should include audit steps and
procedures to
a. Ensure that only material items are audited.
b. Provide assurance that the objectives of the audit are
met.
c. Detect and eliminate fraud.
d. Increase the amount of management information
available.
40. How can the audit program best be described at the beginning
of the audit process?
a. Conclusive
b. Confirmed
c. Optional
d. Temporary
41. Internal auditing can affect the scope of the external auditor's
audit of financial statements by
a. Decreasing the external auditor's need to perform
detailed tests.
b. Eliminating the need to observe the physical inventory
taking.
c. Allowing the external auditor to limit his/her audit to the
performance of substantive test procedures.
d. Limiting direct testing by the external auditor to
management assertions not directly tested by internal
auditing.
42. The external auditor should obtain a sufficient understanding
of the internal audit function because
a. The understanding of the internal audit function is an
important substantive test to be performed by the external
auditor.
b. The audit programs, working papers, and reports of
internal auditors may often be used as a substitute for the
work of the external auditor's staff.
c. The procedures performed by the internal audit staff may
eliminate the external auditor's need for considering
internal control.
d. The work performed by internal auditors may be a
factor in determining the nature, timing, and extent of
the external auditor's procedures.
43. In determining whether the work of the internal auditors is
likely to be adequate for purposes of the audit, the external
auditor shall evaluate the internal auditor's
a. Efficiency and experience
b. Competence and objectivity
c. Independence and review skills
d. Training and supervisory skills
44. In assessing the technical competence of an internal auditor,
an external auditor most likely would obtain information about
the
AT – Prelim Rev (875 MCQs) Red Sirug
a. Organizational level to which the internal auditor reports.
b. Quality of working paper documentation, reports, and
recommendations.
c. Influence of management on the internal auditor's duties.
d. Entity's commitment to integrity and ethical values.
45. Given that an audit in accordance with generally accepted
auditing standards is influenced by the possibility of material
errors and fraud, the auditor should conduct the audit with an
attitude of
a. Professional responsiveness.
b. Conservative advocacy.
c. Professional skepticism.
d. Objective judgment.
46. The primary difference between financial statement errors and
fraud is that
a. Errors are intentional misstatements by management,
while fraud involves unintentional mistakes or omissions.
b. Errors are more likely to provide an indication that an
illegal act has occurred.
c. Errors are unintentional mistakes or omissions, while
fraud involves intentional misstatements.
d. There is no difference as errors and fraud have the same
meaning.
47. Which of the following statements is correct relating to the
auditor’s consideration of fraud?
a. The auditor’s interest in fraud consideration relates
to fraudulent acts that cause a material misstatement
of financial statements.
b. A primary factor that distinguishes fraud from error is that
fraud is always intentional, while errors are generally, but
not always, intentional.
c. While an auditor should be aware of the possibility of
fraud, management, and not the auditor, is responsible
for detecting fraud.
d. Fraud always involves a pressure or incentive to commit
fraud, and a misappropriation of assets.
48. Which of the following factors or conditions is an auditor least
likely to plan an audit to discover?
a. High turnover of senior management.
b. Inadequate monitoring of significant controls.
c. Inability to generate positive cash flows from operations.
d. Financial pressures affecting employees.
49. Which of the following statements concerning audit planning is
incorrect?
a. Planning is a continual and iterative process.
b. Planning is a discrete phase of an audit.
c. In a recurring audit, planning often begins shortly after (or
in connection with) the completion of the previous audit
and continues until the completion of the current audit
engagement.
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 d. In planning an audit, the auditor considers the timing of
certain planning activities and audit procedures that are
to be completed prior to the performance of further audit
procedures.
50. The generally accepted auditing standards of fieldwork pertain
most directly to:
a. Improving internal control as a result of the audit.
b. Due professional care in the performance of the audit.
c. The required training and proficiency of the auditors.
d. The planning of the audit.
51. With respect to the auditor's planning of a year-end
examination, which of the following statements is always true?
a. An engagement should not be accepted after the fiscal
year-end.
b. It is an acceptable practice to carry out substantial
parts of the examination at interim dates.
c. An inventory count must be observed at the balance
sheet date.
d. The client's audit committee should not be told of the
specific audit procedures that will be performed.
52. An initial (first-time) audit requires more audit time to complete
than a recurring audit. One of the reasons for this is that
a. New auditors are usually assigned to an initial audit.
b. A larger proportion of customer accounts receivable need
to be confirmed on an initial audit.
c. The client's business, industry, and internal control
are unfamiliar to the auditor and need to be carefully
studied.
d. Predecessor auditors need to be consulted.
53. Which of the following is not required by PSA No. 315,
"Consideration of Fraud in a Financial Statement Audit"?
a. Conduct a continuing assessment of the risks of material
misstatement due to fraud throughout the audit.
b. Conduct a discussion by the audit team of the risks of
material misstatement due to fraud.
c. Conduct inquiries of the audit committee as to their views
about the risks of fraud and their knowledge of any fraud
or suspected fraud.
d. Conduct the audit with professional skepticism,
which includes an attitude that assumes balances are
incorrect until verified by the auditor.
54. Inherent risk is defined as the susceptibility of an account
balance or class of transactions to error that could be material
assuming that there were no related internal controls. Of the
following conditions, which one does not increase inherent risk?
a. The board of directors approved a substantial bonus for
the president and chief executive officer, and also
approved an attractive stock option plan for themselves.
b. The client has entered into numerous related party
transactions during the year under audit.
AT – Prelim Rev (875 MCQs) Red Sirug
c. Internal control over shipping, billing, and recording
of sales revenue is weak.
d. The client has lost a major customer accounting for
approximately 30% of annual revenue.
55. Which of the following is true?
a. Auditors are responsible for detecting all fraudulent
financial reporting.
b. Auditors must specifically consider fraud risk from
overstating liabilities.
c. Auditors must specifically consider fraud risk from
management override of controls.
d. All of the above are true
56. Which of the following is an example of fraudulent financial
reporting?
a. The treasurer diverts customer payments to his personal
due, concealing his actions by debiting an expense
account, thus overstating expenses.
b. Company management changes inventory count tags
and overstates ending inventory, while understating
cost of goods sold.
c. An employee steals inventory and the “shrinkage” is
recorded in cost of goods sold.
d. An employee steals small tools from the company and
neglects to return them; the cost is reported as a
miscellaneous operating expense.
57. The type of transactions that ordinarily have a high inherent
risk because they involve management judgments or
assumptions are referred to as
a. Estimation transactions.
b. Nonroutine transactions.
c. Related-party transactions.
d. Routine transactions.
58. Professional skepticism
a. Assumes that management is either dishonest or
assumes unquestioned honesty.
b. Either assumes that management is honest or dishonest.
c. Neither assumes that management is dishonest nor
assumes unquestioned honesty.
d. None of the above is a correct statement
59. Which of the following conditions identified during fieldwork of
an audit is most likely to affect the auditor’s assessment of the
risk of misstatement due to fraud?
a. Year-end adjusting journal entries.
b. Checks for significant amounts outstanding at year-end.
c. Missing documents.
d. Computer generated documents.
60. Which of the following best describes what is meant by the
term “fraud risk factor?”
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 a. Factors whose presence indicates that the risk of fraud is
high.
b. Factors whose presence requires modification of planned
audit procedures.
c. Factors whose presence often have been observed in
circumstances where frauds have occurred.
d. Reportable conditions identified during an audit.
61. Which of the following may cause management to intentionally
understate profits?
a. Management wants to create "cookie jar" reserves for a
rainy day.
b. The company is under scrutiny by tax authorities.
c. The company is suffering a large loss and wants to take a
"big bath."
d. All of the above
62. Which of the following characteristics most likely would
heighten an auditor’s concern about the risk of intentional
manipulation of financial statements?
a. Turnover of senior accounting personnel is low.
b. Insiders recently purchased additional shares of the
entity’s stock.
c. Management places substantial emphasis on meeting
earnings projections.
d. The rate of change in the entity’s industry is slow.
63. Which of the following statements reflects an auditor’s
responsibility for detecting misstatements due to errors and
fraud?
a. An auditor is responsible for detecting employee errors
and simple fraud, but not for discovering fraud involving
employee collusion or management override.
b. An auditor should design the audit to provide
reasonable assurance of detecting misstatements
due to errors and fraud that are material to the
financial statements.
c. An auditor should plan the audit to detect misstatements
due to errors and fraud that are caused by departures
from GAAP.
d. An auditor is not responsible for detecting misstatements
due to errors and fraud unless the application of GAAS
would result in such detection.
64. An auditor is required to obtain a basic understanding of the
client's internal control to plan the audit. The auditor may then
decide to perform tests of controls on all internal control
procedures
a. That would aid in preventing fraud.
b. Documented in the flowchart.
c. Considered to be weaknesses that might allow errors to
enter the accounting system.
d. Considered to be strengths for which the auditor
desires further reduction in the assessed level of
control risk.
AT – Prelim Rev (875 MCQs) Red Sirug
65. When considering fraud risk factors relating to management’s
characteristics, which of the following is least likely to indicate
a risk of possible misstatement due to fraud?
a. Failure to correct known reportable conditions on a timely
basis.
b. Use of unusually conservative accounting practices.
c. Nonfinancial management’s preoccupation with the
selection of accounting principles.
d. Significant portion of management’s compensation
represented by bonuses based upon achieving unduly
aggressive operating results.
66. With respect to errors and fraud, the auditor should plan to
a. Search for errors or fraud that would have a material
effect on the financial statements.
b. Discover errors or fraud that would have a material
effect on the financial statements.
c. Search for errors that would have a material effect and for
fraud that would have either material or immaterial effects
on the financial statements.
d. Search for fraud that would have a material effect and for
errors that would have either material or immaterial
effects on the financial statements.
67. Auditor responsibility for identifying "direct effect" illegal acts
differs from their responsibility for detecting
a. Errors.
b. Indirect-effect illegal acts.
c. Fraud.
d. Management fraud.
68. Management’s attitude toward aggressive financial reporting
and its emphasis on meeting projected profit goals most likely
would significantly influence an entity’s control environment
when
a. External policies established by parties outside the entity
affect its accounting practices.
b. Management is dominated by one individual who is
also a shareholder.
c. Internal auditors have direct access to the board of
directors and the entity’s management.
d. The audit committee is active in overseeing the entity’s
financial reporting policies.
69. Which of the following is least likely to be required on an audit?
a. Review accounting estimates for biases.
b. Test appropriateness of journal entries and adjustment.
c. Make a legal determination of whether fraud has
occurred.
d. Evaluate the business rationale for significant unusual
transactions.
70. Which of the following is most likely to be an overall response
to fraud risks identified in an audit?
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 a. Supervise members of the audit team less closely and
rely more upon judgment.
b. Only use certified public accountants on the engagement.
c. Place increased emphasis on the audit of objective
transactions rather than subjective transactions.
d. Use less predictable audit procedures.
71. The most likely explanation why the auditor’s examination
cannot reasonably be expected to bring all illegal acts by the
client to the auditor’s attention is that
a. Illegal acts are perpetrated by management override of
internal control.
b. Illegal acts by clients often relate to operating
aspects rather than accounting aspects.
c. The client’s internal control may be so strong that the
auditor performs only minimal substantive testing.
d. Illegal acts may be perpetrated by the only person in the
client’s organization with access to both assets and the
accounting records.
72. Which of the following relatively small misstatements most
likely could have a material effect on an entity’s financial
statements?
a. A piece of obsolete office equipment that was not retired.
b. An illegal payment to a foreign official that was not
recorded.
c. A petty cash fund disbursement that was not properly
authorized.
d. An uncollectible account receivable that was not written
off.
73. Which of the following might be considered a "red flag"
indicating possible fraud in a large manufacturing company
with several subsidiaries?
a. A consistent record of above average return on
investment for all subsidiaries
b. The existence of a financial subsidiary
c. Use of separate bank accounts for payrolls by each
subsidiary
d. Complex sales-transactions and transfers of funds
between affiliated companies
74. Warning signs that cause the auditor to question management
integrity must be taken seriously and pursued vigorously.
Which of the following may lead the auditor to suspect
management dishonesty?
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.
c. A new statutory regulation making customer licenses
more difficult to obtain may adversely affect the client's
operations.
d. The president and chief executive officer of the client
corporation has held numerous meetings with the
AT – Prelim Rev (875 MCQs) Red Sirug
controller for the purpose of discussing accounting
practices that will maximize reported profits.
75. Which of the following methods may be used to commit
fraudulent financial reporting?
a. Understate liabilities
b. Fail to provide adequate disclosure
c. Overstate revenues
d. Each of the above can be used to commit fraudulent
financial reporting
76. The absence of which of the following internal controls
increases the opportunity for fraud?
a. Appropriate segregation of duties or independent checks
b. Job applicant screening for employees with access to
assets
c. Mandatory vacations for employees with access to assets
d. The absence of any of the above increases the
opportunity for fraud
77. Whom should auditors contact when they suspect a fraud?
a. Senior management
b. Expected perpetrators of the fraud
c. Audit committee of the board of directors
d. A and C
78. Auditors would normally interview all but which of the following
individuals as part of their assessment of fraud risk?
a. Senior management
b. Audit committee
c. Various employees whose duties do not include normal
financial reporting responsibilities
d. All of the above
79. After studying and evaluating a client's existing internal control,
an auditor has concluded that the policies and procedures are
well-designed and functioning as intended. Under these
circumstances, the auditor would most likely
a. Perform further control tests to the extent outlined in the
audit program.
b. Determine the control policies and procedures that should
prevent or detect errors and fraud.
c. Set detection risk at a higher level than would be set
under conditions of weak internal control.
d. Set detection risk at a lower level than would be set under
conditions of weak internal control.
80. An audit plan is a
a. Detailed plan of analytical procedures and all substantive
tests to be performed in the course of the audit.
b. Generic document that auditing firms have developed to
lead the process of the audit through a systematic and
logical process.
c. Budget of the time that should be necessary to complete
each phase of the audit procedures.
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 d. Document that provides an overview of the company
and a general plan for the audit work to be
accomplished, timing of the work, and other matters
of concern to the audit.
81. An audit program is
a. A generic document that auditing firms have developed to
lead the process of the audit through a systematic and
logical process.
b. An overview of the company and a general plan for the
audit work to be accomplished.
c. The detailed plan of audit procedures to be
performed in the course of the audit.
d. A budget of the time that should be necessary to
complete each phase of the audit procedures.
82. Which of the following concepts is most useful in assessing
the scope of an auditor's program relating to various accounts?
a. Attribute sampling
b. Management fraud
c. Materiality
d. The reliability of information
83. One of the primary roles of an audit program is to
a. Provide for a standardized approach to the audit
engagement.
b. Serve as a tool for planning, directing, and
controlling audit work.
c. Document an auditor's understanding of the internal
control.
d. Delineate the audit risk accepted by the auditor.
84. The principal reason for developing a written audit program is
to help assure that the
a. Audit work is properly supervised.
b. Audit report contains only significant findings.
c. Audit work is properly planned and documented.
d. Work of different auditors is properly coordinated.
85. An auditor should design the written audit program so that
a. All material transactions will be selected for substantive
testing.
b. Substantive tests prior to the balance sheet date will be
minimized.
c. Each account balance will be tested under either tests of
controls or tests of transactions.
d. The audit procedures selected will achieve specific
audit objectives.
86. In the preparation of an audit program, which of the following
items is not essential?
a. Assessment of inherent risk
b. The preparation of a budget identifying the costs of
resources needed
c. A review of material from prior audits
AT – Prelim Rev (875 MCQs) Red Sirug
d. An understanding of controls established by management
87. Which of the following is not a consideration in the
development of audit programs?
a. Internal control over the recording of plant asset additions
and repairs and maintenance expenditures is found to be
weak.
b. The members of the board of directors are elected by
the stockholders during the annual meeting.
c. The client is a private university located in Southern
Philippines.
d. The client constructed a major addition to its central
manufacturing facility during the year under audit.
88. The element of the audit planning process most likely to be
agreed upon with the client before implementation of the audit
strategy is the determination of the
a. Procedures to be undertaken to discover litigation, claims,
and assessments.
b. Timing of inventory observation procedures to be
performed.
c. Evidence to be gathered to provide a sufficient basis for
the auditor's opinion.
d. Pending legal matters to be included in the inquiry of the
client's attorney.
89. When a CPA expresses an opinion on the financial statements,
his responsibilities extend to
a. The underlying wisdom of the client's management
decision.
b. Active participation in the implementation of the advice
given to the client.
c. An ongoing responsibility for the client's solvency.
d. Whether the results of the client's operating
decisions are fairly presented in the financial
statements.
90. The accuracy of information included in the footnotes that
accompany the audited financial statements of a company
whose shares are traded on a stock exchange is the primary
responsibility of
a. The stock exchange officials.
b. The company's management.
c. The independent auditor.
d. The Securities and Exchange Commission.
91. The responsibility for adopting sound accounting policies,
maintaining adequate internal control, and making fair
representations in the financial statements rests
a. With management
b. With the independent auditor
c. Equally with management and the auditor
d. With the internal audit department.
92. Audit standards require an auditor to:
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 a. Perform procedures that are designed to detect all
instances of fraud.
b. Provide reasonable assurance that the financial
statements are not materially misstated.
c. Issue an unqualified opinion only when the auditor is
satisfied that no instances of fraud have occurred.
d. Design the audit program to meet financial statement
users' expectations concerning fraud.
93. Generally, the decision to notify parties outside the client's
organization regarding an illegal act is the responsibility of the
a. Outside legal counsel.
b. Independent auditor.
c. Management.
d. Internal auditors.
94. If requested to perform a review engagement for a nonpublic
entity in which an accountant has an immaterial direct financial
interest, the accountant is
a. Independent because the financial interest is immaterial
and, therefore, may issue a review report.
b. Not independent and, therefore, may not issue a
review report.
c. Not independent and, therefore, may not be associated
with the financial statements.
d. Not independent and, therefore, may issue a review
report, but may not issue an auditor's opinion.
95. Solicitation consists of the various means that CPA firms use
to engage new clients. Which one-of the following would not
be an example of solicitation?
a. Advertisements in the yellow pages of a phone book.
b. Accepting new clients that approach the firm.
c. Taking prospective clients to lunch.
d. Offering seminars on current tax law changes to potential
clients.
96. Quality control procedures are applicable to the individual
audit engagement. The implementation of such quality control
procedures is responsibility of the:
a. CPA firm.
b. Engagement team.
c. Quality control reviewer.
d. Manager assigned to the engagement.
97. Which of the following statements is incorrect?
a. In an audit, the independent auditor attempts to
corroborate assertions made by the company’s
management in connection with each account, class of
transactions, and disclosures found in a set of financial
statements.
b. Because of the attest function, financial statements
are the responsibility of the independent auditor.
c. The term “materiality” refers to any factor of a size or type
that would impact an outside decision-maker’s decision
AT – Prelim Rev (875 MCQs) Red Sirug
about a set of financial statements.
d. The role of the independent auditor is to gain sufficient
appropriate evidence so as to provide reasonable
assurance that material misstatements do not exist in any
of the assertions made by management.
98. Which of the following activities is not prohibited for the CPA
firm's attestation service clients?
a. Referral fees on audit jobs.
b. Competitive bidding on audit jobs.
c. Contingent fees on audit jobs.
d. Commissions for obtaining client services on audit jobs.
99. Family and personal relationships between a member of the
assurance team and a director, an officer or certain
employees, depending on their role, of the assurance client,
least likely create
a. Self-review threat.
b. Self-interest threat.
c. Intimidation threat.
d. Familiarity threat.
100. The Code of Professional Ethics states, in part, that a CPA
should maintain integrity and objectivity. Objectivity refers to
the CPA's ability to
a. Insist on all matters regarding audit procedures.
b. Determine the materiality of items.
c. Determine accounting practices that were consistently
applied.
d. Maintain an impartial attitude on all matters which
come under his review.
SET 6
1. Conflict between financial statement users and auditors often
arises because of the
a. High cost of performing an audit.
b. Expectation gap.
c. Technical vocabulary which the auditor uses in the report.
d. Placement of the auditor's report in the back of the
client's annual report where it is hard to locate.
2. Which of the following is best considered a fraud?
a. Inability to provide due diligence.
b. Intentional misrepresentation of financial information.
c. Declining to finish work on client in light of a valid contract.
d. Not acting professionally while performing services.
3. Anyone identified to the auditor by name prior to the audit who
is to be the principal recipient of the auditor's report is a
a. Primary beneficiary.
b. Third party.
c. Foreseen beneficiary.
d. Secondary beneficiary.
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4. A director, an officer or an employee of the assurance client in
a position to exert direct and significant influence over the
subject matter of the assurance engagement has been a
member of the assurance team or partner of the firm. This
situation least likely create
a. Self-interest threat.
b. Advocacy threat.
c. Intimidation threat.
d. Familiarity threat.
5. A former officer, director or employee of the assurance client
serves as a member of the assurance team. This situation will
least likely create
a. Self-interest threat.
b. Self-review threat.
c. Familiarity threat.
d. Intimidation threat.
6. A professional accountant has a professional duty or right to
disclose confidential information in each of the following,
except:
a. To disclose to BIR fraudulent scheme committed by
the client on payment of income tax.
b. To comply with technical standards and ethics
requirements.
c. To comply with the quality review of a member body or
professional body
d. To respond to an inquiry or investigation by a member
body or regulatory body.
7. Which of the following is not likely a threat to independence?
a. Acting as an advocate on behalf of an assurance client in
litigation or in resolving disputes with third parties.
b. Long association of a senior member of the assurance
team with the assurance client.
c. Threat of replacement over a disagreement with the
application of an accounting principle.
d. Owning immaterial indirect financial interest in an
audit client.
8. Examples of circumstances that may create self-interest threat
include:
a. Contingent fees relating to assurance engagements.
b. A direct financial interest or material indirect financial
interest in an assurance client.
c. A loan or guarantee to or from an assurance client or any
of its directors or officers.
d. All of the above
9. Examples of circumstances that may create self-review threat
least likely include
a. Potential employment with an assurance client.
b. Preparation of original data used to generate financial
statements or preparation of other records that are the
subject matter of the assurance engagement.
c. A member of the assurance team being, or having
recently been, an employee of the assurance client in a
position to exert direct and significant influence over the
subject matter of the assurance engagement.
d. Performing services for an assurance client that directly
affect the subject matter of the assurance engagement.
10. A CPA-lawyer, acting as a legal counsel to one of his audit
client, is an example of
a. Advocacy threat
b. Familiarity threat
c. Self-interest threat
d. Self-review threat
11. Examples of circumstances that may create familiarity threat
least likely include
a. A former partner of the firm being a director, officer of the
assurance client or an employee in a position to exert
direct and significant influence over the subject matter of
the assurance engagement.
b. Dealing in, or being a promoter of, share or other
securities in an assurance client.
c. A member of the assurance team having an immediate
family member or close family member who is a director
or officer of the assurance client.
d. A member of the assurance team having an immediate
family member or close family member who, as an
employee of the assurance client, is in a position to exert
direct and significant influence over the subject matter of
the assurance engagement.
12. The following are modifications made to the IFAC Code to
consider Philippine regulatory requirements and
circumstances, except
a. The period for rotation of the lead engagement
partner was changed from five to seven years.
b. Advertising and solicitation by individual professional
accountants in public practice were not permitted in the
Philippines.
c. Additional examples relating to anniversaries and
websites
wherein publicity is acceptable, as provided in boa
resolution 19, series of 2000, were included.
d. Payment and receipt of commissions were not permitted
in the Philippines.
13. The network firms are required to be independent of the client
a. For assurance engagements provided to an audit
client.
b. For assurance engagements provided to clients that are
not audit clients, when the report is not expressly
restricted for use by identified users.

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 c. For assurance engagements provided to clients that are
not audit clients, when the assurance report is expressly
restricted for use by identified users.
d. All of the above
14. Which of the following is incorrect regarding independence?
a. Independence consists of independence of mind and
independence in appearance.
b. Independence is a combination of impartiality,
intellectual honesty and a freedom from conflicts of
interest.
c. Independence of mind is the state of mind that permits
the provision of an opinion without being affected by
influences that compromise professional judgment,
allowing an individual to act with integrity, and exercise
objectivity and professional skepticism.
d. Independence in appearance is the avoidance of facts
and circumstances that are so significant a reasonable
and informed third party, having knowledge of all relevant
information, including any safeguards applied, would
reasonably conclude a firm's or a member of the
assurance team's integrity, objectivity or professional
skepticism had been compromised.
15. A CPA firm is considered independent when it performs which
of the following services for a publicly-traded audit client?
a. Serving as a member of the client's board of directors.
b. Determining which accounting policies will be adopted by
the client.
c. Accounting information system design and
implementation.
d. Tax return preparation as approved by the board of
directors.
16. In connection with the examination of financial statements, an
independent auditor could be responsible for failure to detect a
material fraud if
a. Statistical sampling techniques were not used on the
audit engagement.
b. The fraud was perpetrated by one client employee, who
circumvented the existing internal control.
c. The auditor planned the work in a hasty and
inefficient manner.
d. Accountants performing important parts of the work failed
to discover a close relationship between the treasurer
and the cashier.
17. Which of the following conditions suggests auditor negligence?
a. Failure to detect collusive fraud perpetrated by members
of middle management.
b. Failure to detect collusive fraud perpetrated by members
of top management.
c. Failure to detect errors occurring outside the internal
control structure.
d. Failure to detect material errors under conditions of
AT – Prelim Rev (875 MCQs) Red Sirug
weak internal control.
18. Which of the following statements is correct?
a. Sufficiency refers to the quality of evidence, while
appropriateness refers to the quantity of evidence.
b. The reliability of evidence is influenced not by its nature
but by its source.
c. The performance of consulting services for audit
clients does not, in and of itself, impair the auditor’s
independence.
d. A belief that management and those charged with
governance are honest and have integrity relieves the
auditor of the need to maintain professional scepticism.
19. Which of the following statements is correct?
a. The fair presentation of audited financial statements in
accordance with applicable financial reporting framework
is an implicit part of the auditor’s responsibility.
b. Professional judgment can be used as the justification for
the decisions made by the auditor that are not otherwise
supported by the facts and circumstances of the
engagement or sufficient appropriate evidence.
c. Appropriateness is the measure of the quality of evidence,
that is, its reliability and persuasiveness.
d. Most CPAs, including those who provide audit and
tax services, also provide consulting services to their
clients.
20. Individual CPAs, Firms or Partnerships of CPAs, including
partners and staff members thereof shall register with the BOA
and the PRC. Assuming that the application for registration of
Sisip and Co., CPAs was approved on August 30, 2005, which
of the following is true?
a. The registration will expire on Dec. 31, 2007.
b. The registration must be renewed on September 30,
2007.
c. The registration will expire on August 30, 2007 since the
validity of the certificate of registration is three years.
d. The registration will expire on Dec. 31, 2007 which is also
the last day of renewal of certificate of registration.
21. Auditor’s responsibility for detecting noncompliance is limited
to those:
a. Direct-effect noncompliance.
b. Material direct-effect noncompliance.
c. Material indirect-effect noncompliance.
d. All noncompliance since they affect the financial
statements directly or indirectly.
22. Auditors would perform the following steps in which order?
a. Determine audit risk; assess control risk; determine
detection risk; set materiality.
b. Set materiality; assess control risk; determine detection
risk; determine audit risk.
c. Set materiality; determine audit risk; assess control
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 risk; determine detection risk.
d. Determine audit risk; set materiality; assess control risk;
determine detection risk.
23. Which of the following statements is an not an example of an
inherent limitation of internal control?
a. The effectiveness of control procedures depends on
segregation of duties.
b. Errors may arise from mistakes in judgments.
c. Most internal controls tend to be directed at routine
transactions rather than non-routine transactions.
d. The cost-benefit relationship is a primary criterion in
designing internal control,
24. Compliance with the independence requirement is necessary
whenever a CPA performs:
a. Non-assurance services
b. Professional services
c. Tax consultancy services
d. Assurance services
25. It is acceptable for the auditor to prepare:
a. The financial statements for the client.
b. The notes to financial statements for the client.
c. A draft of the financial statements for the client.
d. A draft of the financial statements and notes to the
financial statements for the client.
26. When an accountant performs more than one level of service,
he generally should issue a report that is appropriate for:
a. The lowest level of service rendered.
b. A compilation engagement.
c. The highest level of service rendered.
d. A review engagement.
27. An accountant who reviews the financial statements should
issue a report stating that a review
a. Is substantially less in scope than an audit.
b. Provides negative assurance that the internal control is
functioning as designed.
c. Provides only a limited assurance that the financial
statements are fairly presented.
d. Is substantially more in scope than a compilation
28. Which of the following is required to be performed in an audit
but not in review engagement?
a. Complying with the "Code of Professional Ethics for
Certified Public Accountants" promulgated by the Board
of Accountancy
b. Planning the engagement
c. Agreeing on the terms of engagement
d. Studying and evaluating internal control structure
29. Which statement is incorrect regarding procedures and
evidence obtained in a review engagement?
AT – Prelim Rev (875 MCQs) Red Sirug
a. The auditor should apply judgment in determining the
specific nature, timing and extent of review procedures.
b. The auditor should apply the same materiality
considerations as would be applied if an audit opinion on
the financial statements were being given.
c. There is a greater risk that misstatements will not be
detected in an audit than in a review.
d. The judgment as to what is material is made by reference
to the information on which the auditor is reporting and
the needs of those relying on that information, not to the
level of assurance provided.
30. Which of the following is not a document or record that should
be examined early in the engagement?
a. Corporate charter and by-laws.
b. Contracts.
c. Management letter.
d. Minutes of board of directors' and stockholders' meetings.
31. Philippine Standards on Auditing require auditors to assess
the risk of material misstatements due to fraud
a. For first-time audits.
b. Sufficient to find any frauds which may exist.
c. For every audit.
d. Whenever it would be appropriate.
32. In connection with the examination of financial statements, an
independent auditor could be responsible for failure to detect a
material fraud if
a. Accountants performing important parts of the work failed
to discover a close relationship between the treasurer
and the cashier.
b. The auditor planned the work in a hasty and
inefficient manner.
c. Statistical sampling techniques were not used on the
audit engagement.
d. The fraud was perpetrated by one client employee, who
circumvented the existing internal control.
33. Which of the following is not true regarding planning in an
electronic environment?
a. The definition of auditing is not changed
b. The purposes of auditing is not changed
c. The procedures used are not changed
d. Auditing standards are not changed
34. Which of the following concepts of materiality is incorrect?
a. Materiality is based on quantitative and non-quantitative
factors.
b. Materiality is a matter of professional audit judgment.
c. Materiality does not apply if internal control is highly
effective.
d. Materiality is more closely related to the fieldwork and
reporting standards than to general standards.
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35. Which of the following statements is incorrect about materiality?
a. The concept of materiality recognizes that some matters
are important for fair presentation of financial statements
in conformity with GAAP, while other matters are not
important.
b. An auditor considers materiality for planning
purposes in terms of the largest aggregate level of
misstatements that could be material to any one of
the financial statements.
c. Materiality judgments are made in light of surrounding
circumstances and necessarily involve both quantitative
and qualitative judgments.
d. An auditor’s consideration of materiality is influenced by
the auditor’s perception of the needs of a reasonable
person who will rely on the financial statements.
36. After discovering that a related-party transaction exists, the
auditor should be aware that the
a. Transaction is assumed to be outside the ordinary course
of business.
b. Substance of the transaction could be significantly
different from its form.
c. Adequacy of disclosure of the transaction is secondary to
its legal form.
d. Financial statements should recognize the legal form of
the transaction rather than its substance.
37. Auditors focus on
a. Areas where the risk of material errors and irregularities
is least.
b. Areas where the risk of material errors and
irregularities is greatest.
c. All areas equally.
d. A random selection of all areas.
38. Audit risk components consist of inherent, control and
detection risks. Which of them is are dependent variable(s)?
a. Inherent risk
b. Control risk
c. Detection risk
d. Inherent and control risks
39. The risk that the audit will fail to uncover a material
misstatement is eliminated
a. When the auditor has complied with generally accepted
auditing standards.
b. If a client has strong internal controls.
c. If a client follows generally accepted accounting
principles.
d. Under no circumstances.
40. The probability of an auditor's procedures leading to the
conclusion that a material error does not exist in an account
balance when, in fact, such error does exist is referred to as
a. Prevention risk.
AT – Prelim Rev (875 MCQs) Red Sirug
b. Inherent risk.
c. Control risk.
d. Detection risk.
41. Which of the following does an auditor least likely perform in
assessing audit risk?
a. Understand the economic substance of significant
transactions completed by the client.
b. Understand the entity and the industry in which it
operates.
c. Gather audit evidence in support of recorded
transactions.
d. Obtain an understanding of the client's system of internal
control.
42. Which of the following is most likely to be an overall response
to fraud risks identified in an audit?
a. Supervise members of the audit team less closely and
rely more upon judgment.
b. Use less predictable audit procedures.
c. Use only certified public accountants on the engagement.
d. Place increased emphasis on the audit of objective
transactions rather than subjective transactions.
43. If the auditor is convinced that the client has an excellent
internal control structure, the amount of audit evidence to be
gathered.
a. Can be significantly less than where internal control
is not adequate.
b. Will not be affected since the auditor must arrive at an
independently determined opinion.
c. Must be increased to support the auditor's belief.
d. Is not determinable.
44. Why should the auditor plan more work on individual accounts
as lower acceptable levels of both audit risk and materiality
are established?
a. To find smaller errors
b. To find larger errors
c. To increase the tolerable error in the accounts
d. To decrease the risk of overreliance
45. Which of the following most accurately summarizes what is
meant by the term “material misstatement?”
a. Fraud and direct-effect illegal acts.
b. Fraud involving senior management and material fraud.
c. Material error, material fraud, and certain illegal acts.
d. Material error and material illegal acts.
46. The risk of fraudulent financial reporting increases in the
presence of
a. Substantial increases in sales.
b. Incentive systems based on operating income.
c. Improved control systems.
d. Frequent changes in suppliers.
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 a. Before June 30. 2008
47. Which of the following is most likely to be considered a risk b. After June 30, 2008
factor relating to fraudulent financial reporting? c. Before January 1,2008
a. Domination of management by top executives. d. After January 1, 2008
b. Negative cash flows from operations.
c. Large amounts of cash processed. 53. Which of the following is not explicitly referred to in the Code
d. Small high-dollar inventory items. of Ethics as source of technical standards?
a. Commission on Audit (COA)
48. When planning the audit, if the auditor has no reason to b. Auditing and Assurance Standards Council (AASC)
believe that illegal acts exist, the auditor should c. Securities and Exchange Commission (SEC)
a. Make inquiries of management regarding their d. Relevant legislation
policies and their knowledge of violations, and then
rely on normal audit procedures to detect errors, 54. In designing written audit programs, an auditor should
irregularities, and illegalities. establish specific audit objectives that relate primarily to the
b. Still include some audit procedures designed specifically a. Financial statement assertions.
to uncover illegalities. b. Timing of audit procedures.
c. Ignore the topic. c. Cost-benefit of gathering evidence.
d. Include audit procedures which have a strong probability d. Selected audit techniques.
of detecting illegal acts.
55. An audit program provides proof that
49. Which statement best describes the emphasis of the systems a. Sufficient appropriate evidence was obtained.
and substantive approaches in the audit plan? b. The work was adequately planned.
a. A thoroughly designed systems approach to auditing can c. There was a proper study and evaluation of internal
eliminate the need for any substantive procedures. control.
b. The systems approach focuses on detailed testing of d. There was compliance with generally accepted standards
specific accounts for accuracy, while the substantive of reporting.
approach is the testing controls to make sure they are
effective. 56. The audit program usually cannot be finalized until the
c. The systems approach focuses on testing controls to a. Reportable conditions have been communicated to the
make sure they are effective, while the substantive audit committee of the board of directors.
approach is the detailed testing of specific accounts b. Engagement letter has been signed by the auditor and
for accuracy. the client.
d. The systems approach focuses on the use of computer c. Consideration of the entity’s internal control has
systems to aid in the audit while the substantive approach been completed.
focuses on more manual tests. d. Search for unrecorded liabilities has been performed and
documented.
50. Audit programs should be designed so that
a. Most of the required procedures can be performed as 57. A person or firm possessing special skill, knowledge and
interim work. experience in a particular field excluding accounting and
b. The audit evidence gathered supports the auditor’s auditing.
conclusions. a. Quality control reviewer
c. Inherent risk is assessed at a sufficiently low level. b. Multiskilled personnel
d. The auditor can make constructive suggestions to c. Expert
management. d. Taxation specialist

51. The decision as to how much evidence to be accumulated for 58. The Code of Ethics for Professional Accountants in the
a given set of circumstances is: Philippines is applicable to professional services in the
a. Provided in the Philippines Standards on Auditing. Philippines on or before:
b. Provided by following GAAP a. December 31, 2009
c. One requiring professional judgment b. July 1, 2004
d. Determined by statistical analysis c. June 30, 2008
d. June 30, 2009
52. The revised Code of Ethics is mandatory for all CPAs and is
applicable to professional services performed in the 59. Which part of the Code of Ethics applies to professional
Philippines on or: accountants in public practice?

AT – Prelim Rev (875 MCQs) Red Sirug Page 49 of 77

 a. Part A b. Be relied upon to disclose violations of truth-in-lending act.
b. Part B c. Encompass a plan to search actively for illegalities which
c. Part A and Part B relate to operating aspects.
d. Part C d. Not be relied upon to provide assurance that illegal
acts will be detected.
60. This fundamental ethical principle prohibits association of
professional accountants with reports, returns, 66. Which of the following statements is true?
communications and other information that contains materially a. It is usually equally difficult for the auditor to uncover
false or misleading information or statements. errors or irregularities.
a. Integrity b. It is usually easier for the auditor to uncover irregularities
b. Objectivity than errors.
c. Professional competence and due care c. It is usually easier for the auditor to uncover errors
d. Professional behavior than irregularities.
d. Usually, none of the above statements is true.
61. The principle professional competence and due care imposes
which of the following obligations on professional accountants? 67. The audit should not assume that management is dishonest,
a. To maintain professional knowledge and skill at the but the possibility of dishonesty must be considered." This is
level required to ensure that a client or employer an example of
receives competent professional service. a. Due diligence.
b. To comply with relevant laws and regulations and avoid b. Unprofessional behavior.
any action that discredits the profession. c. An attitude of professional skepticism.
c. Not to override or compromise his professional or d. An ethical requirement.
business judgment because of bias, conflict of interest or
undue influence of others. 68. In discovering material management fraud and an equally
d. To be fair and truthful. material error, the audit plan
a. Cannot be expected to provide the same degree of
62. Attainment of professional competence requires the following, assurance.
except: b. Provide no assurance of detecting either.
a. Initially, a high standard of education. c. Should be expected to provide the same degree of
b. Specific education, training, and examination in assurance.
professionally relevant subjects. d. Should provide complete assurance of detection.
c. Whether prescribed or not, a period of work experience.
d. A continuing awareness and an understanding of 69. In comparing management fraud with employee fraud, the
relevant technical professional and business auditor's risk of failing to discover the fraud is
developments. a. Greater for employee fraud because of the larger number
of employees in the organization.
63. A draft of statement, studies or standards should be discussed b. Greater for employee fraud because of the higher crime
by the Council en banc. How many members of the AASC are rate among blue collar workers.
required to approve the draft for exposure? c. Greater for management fraud because of
a. Eight management's ability to override existing internal
b. Ten controls.
c. Twelve d. Greater for management fraud because managers are
d. Majority inherently smarter than employees.

64. How many members of the AASC are needed to approved the
exposed draft as PSA
a. At least 8
b. At least 10
c. At least 12
d. Majority of the regular members
65. An auditor's examination performed in accordance with
generally accepted auditing standards generally should
a. Be expected to provide assurance that illegal acts will be
detected where internal control is effective.
70. The risk that the audit will fail to uncover a material
misstatement is eliminated
a. When the auditor has complied with generally accepted
auditing standards.
b. If client has good internal control.
c. If client follows generally accepted accounting principles.
d. Under no circumstances.
71. The practitioner’s report on an assurance engagement should
always include the following, except

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 a. A description of the engagement and identification of the
subject matter
b. Identification of the standards under which the
engagements was conducted.
c. Identification of the criteria.
d. Reference to the work of an expert.
72. Which of the following is required if the professional
accountant uses experts who are not professional accountants?
a. The professional accountant is discouraged to engage
the services of experts who are not a professional
accountant.
b. The ultimate responsibility for the professional service is
assumed by the expert who is not a professional
accountant.
c. The professional accountant must take steps to see
that such experts are aware of the ethical
requirements of the profession.
d. Experts who are not professional accountants need not
be informed of ethical requirements because they are not
members of the Accountancy profession.
73. Which of the following is expected of AASC to do?
a. AASC should normally expose its opinion on specific
queries from a practicing CPA.
b. AASC should normally expose a proposed interpretation
of statements.
c. To make the statements on Philippine Standards on
Auditing operative, the final statement shall be
submitted to the Board of Accountancy for approval.
d. When it is deemed necessary to expose a statement for a
comment on proposed interpretations of statements, the
exposure period is understandably shorter than those of
the regular drafts of standards.
74. Required auditor communication to the Audit Committee
concerning noncompliance with laws and regulations that
were detected includes:
a. All those which are not adequately addressed by
management.
b. All those that constitute management fraud.
c. All material items.
d. Any of such acts.
75. Firm includes the following except:
a. A sole practicing professional accountant,
b. An entity that controls a partnership of professional
accountants.
c. An entity controlled by a partnership of professional
accountants.
d. A sole practitioner, partnership or corporation of
professional accountants.
76. The term professional accountant in public practice includes
the following, except:
AT – Prelim Rev (875 MCQs) Red Sirug
a. A sole proprietor providing professional services to a
client.
b. Each partner or person occupying a position similar to
that of a partner staff in a practice providing professional
services to a client.
c. Professional accountants employed in the public
sector having managerial responsibilities.
d. A firm of professional accountants in public practice.
77. The term receiving accountant includes the following, except;
a. A professional accountant in public practice to whom
existing accountant has referred tax engagement.
b. A professional accountant in public practice to whom the
client of the existing accountant has referred audit
engagement.
c. A professional accountant in public practice who is
consulted in order to meet the needs of the client.
d. A professional accountant in public practice
currently holding an audit appointment or carrying
out accounting, taxation, consulting or similar
professional services for a client.
78. A primary purpose for establishing a code of ethics within a
professional organization is to:
a. Demonstrate the acceptance of responsibility Jo the
interest of those served by the profession.
b. Reduce the likelihood that members of the profession will
be sued for substandard work.
c. Ensure that all members of the profession posses
approximately the same level of competency.
d. Require members of the profession to exhibit loyalty in all
matters pertaining to the affairs of the organization.
79. The communication to the public of facts about a professional
accountant which are not designed for the deliberate
promotion of that professional accountant.
a. Publicity
b. Indirect promotion
c. Advertising
d. Solicitation
80. Advertising, as defined in the Code of Ethics, means
a. The communication to the public of facts about a
professional accountant which are not designed for the
deliberate promotion of that professional accountant.
b. The approach to a potential client for the purpose of
offering professional services.
c. The communication to the public of information as to
the services or skills provided by professional
accountants in public practice with a view to
procuring professional business.
d. Any of the given choices.
81. Which of the following is least likely the basis of determining
audit fees?
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 a. The skill and knowledge required for the type of work
involved.
b. The degree of responsibility and urgency that the work
entails.
c. The expected outcome of the engagement.
d. The required level of training and experience of the
person engaged on the work.
82. Though PSAs do not provide "hard and fast rules," they
provide subjective guidance which allow the auditors to:
a. Only apply those standards that are important to the audit.
b. Use adequate professional judgment when applying
the standards.
c. Tailor their audit to procedures requested by
management.
d. Accurately interpret the Code of Ethics for CPAs.
83. Which one of the following is not a key attribute that is
essential to perform an assurance service?
a. Independence
b. Accounting skills
c. Established criteria or standards
d. Subject matter knowledge
84. Upon completion of a typical audit, the auditor has
a. No assurance that all material errors and fraud have been
found.
b. A low level of assurance that all material errors and fraud
have been found.
c. High level of assurance that all material errors and
fraud have been found.
d. Total assurance that al material errors and fraud have
been found.
85. An investor, while reading the financial statements of Star
Corporation, learned that the statements are accompanied by
an unqualified auditor's report. From this the investor may
conclude that:
a. The auditor has ascertained that Silver's financial
statements have been prepared accurately.
b. The auditor is satisfied that Silver is operationally efficient.
c. Any disputes over significant accounting issues have
been settled to the auditor's satisfaction.
d. Informative disclosures in the financial statements but not
necessarily in the notes to financial statements are to be
regarded as reasonably adequate.
86. A CPA should maintain objectivity and be free of conflicts of
interest when performing:
a. All attestation services, but not other professional
services.
b. All attestation and tax services, but not other professional
services.
c. Audits, but not any other professional services.
d. All professional services.
AT – Prelim Rev (875 MCQs) Red Sirug
87. Which of the following has primary responsibility for the
performance of an audit?
a. The partner in charge of the engagement
b. The senior assigned to the engagement
c. The managing partner of the firm
d. The manager assigned to the engagement
88. The most common type of audit report contains a(n):
a. Unqualified opinion.
b. Qualified opinion.
c. Adverse opinion.
d. Disclaimer of opinion.
89. Assurance services involve all the following except:
a. Improving the quality of information for decision purposes.
b. Improving the quality of the decision model used.
c. Improving the relevance of information.
d. Implementing a system that improves the processing
of information.
90. Which of the following is the broadest and most inclusive
concept?
a. Audits of financial statements.
b. Internal control audit.
c. Assurance services.
d. Compilation services.
91. Whenever a CPA professional is engaged to perform an audit
of financial statements according to Philippine Standards on
Auditing, he required to comply with those standards in order
to
a. Eliminate audit risk.
b. Eliminate the professional judgment in resolving audit
issues.
c. Have a measure of the quality of audit performance.
d. To reduce the audit program to be prepared by the
auditor.
92. Certain fundamental beliefs called "postulates" underlie
auditing theory. Which of the following is not a postulate of
auditing?
a. Economic assertions can be verified.
b. The auditor acts exclusively as an auditor.
c. An audit has a benefit only to the owners.
d. No long-term conflict exists between the auditor and the
management of the entity under audit.
93. In all cases, audit reports must
a. Communicate the auditor’s finding to the general public.
b. Be signed by the individual who performed the audit
procedures.
c. Certify the accuracy of the quantitative information which
was audited.
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 d. Inform readers of the degree of correspondence
between the quantifiable information and the
established criteria.
94. The framework for auditing and related services as addressed
by PSA excludes
a. Review
b. Compilation
c. Tax services
d. Agreed upon procedure
95. It refers to the level of auditor’s satisfaction as to the reliability
of an assertion being made by one party for use by another
party.
a. Confidence level
b. Assurance level
c. Reasonableness level
d. Tolerable level
96. Which of the following is true of the report based on agreed-
upon-procedures?
a. The report is restricted to those parties who have
agreed to the procedures to be performed.
b. The CPA provides the recipients of the report limited
assurance as to reasonableness of the assertion(s)
presented in the financial information.
c. The report states that the auditor has not recognized any
basis that requires revision of financial statements.
d. The report should state that the procedures performed
are limited to analytical procedures and inquiry.
97. The three types of attestation services are:
a. Audits, review, and compilations
b. Reviews, compilations, and other attestation services
c. Audits, compilations, and other attestation services
d. Audits, reviews, and other attestation services
98. Which of the following types of audit uses as its criteria laws
and regulations?
a. Financial statement audit
b. Operational audit
c. Compliance audit
d. Financial audit
99. Which of the following least likely limits the auditor’s ability to
detect material misstatement?
a. The inherent limitations of any accounting and internal
control system.
b. Most audit evidences are conclusive rather than
being persuasive.
c. Audit is based on testing
d. Audit procedures that are effective in detecting ordinary
misstatements are ineffective in detecting intentional
misstatements.
AT – Prelim Rev (875 MCQs) Red Sirug
100. Examples of circumstances that may create familiarity threat
least likely include
a. A member of the assurance team having an immediate
family member or close family member who is a director
or officer of the assurance client.
b. A member of the assurance team having an immediate
family member or close family member who, as an
employee of the assurance client, is in a position to exert
direct and significant influence over the subject matter of
the assurance engagement.
c. A former partner of the firm being a director, officer of the
assurance client or an employee in a position to exert
direct and significant influence over the subject
matter of the assurance engagement.
d. Dealing in, or being a promoter of, share or other
securities in an assurance client.
SET 7
1. In "auditing" accounting data, the auditor is concerned with
a. Analyzing the financial information to be sure that it
complied with government requirement.
b. Determining if fraud has occurred.
c. Determining whether recorded information properly
reflects the economic events that occurred during the
accounting period.
d. Determining if taxable income has been calculated
correctly.
2. Which one of the following is an example of management
expectations from the independent auditors?
a. An expert providing a written communication as the
product of the engagement.
b. Individuals who perform day-to-day accounting functions
on behalf of the company.
c. AN active participant in management decision-making.
d. An internal source of expertise on financial and other
matters.
3. Broadly defined, the subject matter of any audit consists of
a. Financial statements.
b. Assertions.
c. Operating data.
d. Economic data.
4. An engagement in which a CPA firm arranges for a critical
review of its practices by another CPA firm.
a. Attestation engagement
b. Peer review engagement
c. Quality control engagement
d. Quality assurance engagement
5. The risk associated with a company's survival and profitability
is referred to as:
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 a. Information risk
b. Business risk
c. Control risk
d. Detection risk
6. An operational audit differs in many ways from an audit of
financial statements. Which of the following is the best
example of these differences?
a. Operation audits do not ordinarily result in the preparation
of a report.
b. The usual audit of financial statement covers the four
basic financial statements whereas the operational audit
is usually limited either the balance sheet or the income
statement.
c. The boundaries of an operation audit are often drawn
from an organization chart and are not limited to a
single accounting period.
d. The operational audit deals with operating profit while
financial audit considers both the operating and net
profits.
7. The audit of historical financial statements should be
conducted by the CPA professionals in accordance with
a. The auditor's judgment.
b. The audit program.
c. Philippine Financial Reporting Standards.
d. Philippine Standards on Auditing.
8. In determining the primary responsibility of the external auditor
for an audit of a company's financial statements, the auditor
owes primary allegiance to:
a. The management of the audit client because the auditor
is hired and paid by management.
b. The audit committee of the audit client because that
committee is responsible for coordinating and reviewing
all audit activities within the company.
c. Stockholders, creditors, and the investing public.
d. The Auditing and Assurance Standards Council, because
it determines auditing standards and auditor's
responsibility.
9. Assurance services may include which of the following?
a. Attesting to financial statements
b. Examination of the economy and efficiency of
governmental operations
c. Evaluation of a division's performance for management
d. All of the given choices
10. The auditor of financial statements must make very difficult
interpretations regarding authoritative literature. Additionally,
the auditor must
a. Proceed beyond PFRS to assess how the economic
activity is portrayed in the financial statements.
b. Force management to make certain decisions regarding
their financial statements.
AT – Prelim Rev (875 MCQs) Red Sirug
c. Disregard independence in order to find the underlying
truth of the evidence.
d. Establish new criteria by which financial statements may
be compared.
11. Which one of the following is not a part of the attest process?
a. Evaluating evidence against objective criteria
b. Gathering evidence about assertions
c. Proving the accuracy of the books and records
d. Communicating the conclusions reached
12. Which one of the following is not a reason why the users of
financial statements desire for an independent assessment of
the financial statement presentation?
a. Complexity of transactions affecting the financial
statements
b. Lack of criteria on which to base information
c. Remoteness of the user from the organization
d. All of them are potential reasons
13. An audit which determines whether organizational policies are
being followed and whether external mandates are being met
is referred to as
a. A financial audit
b. A compliance audit.
c. An operational audit.
d. None of the above
14. Which of the following factors most likely would cause a CPA
to decline a new audit engagement?
a. The CPA does not understand the entity's operations and
industry.
b. The CPA is unable to review the predecessor auditor's
working papers.
c. Management is unwilling to permit inquiry of its legal
counsel.
d. Management acknowledges that the entity has had
recurring operating losses.
15. Auditing standards are
a. Statutory in nature.
b. Rules imposed by the Securities and Exchange
Commission.
c. General guidelines to help auditors.
d. Rules imposed by the PICPA.
16. Which of the following best describes what is meant by
generally accepted auditing standards?
a. Pronouncements issued by the Auditing and Assurance
Standards Council.
b. Rules acknowledged by the accounting profession
because of their universal compliance.
c. Procedures to be used to gather evidence to support
financial statements.
d. Measures of the quality of the auditor's performance.
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17. Generally Accepted Auditing Standards (GAAS) and
Philippine Standards on Auditing (PSA) should be looked
upon by practitioners as
a. Ideals to work towards, but which are not achievable.
b. Benchmarks to be used on all audits, reviews, and
compilations.
c. Maximum standards which denote excellent work.
d. Minimum standards of performance which must be
achieved on each audit engagement.
18. Competence as a certified public accountant includes all of the
following except
a. Consulting others if additional technical information is
needed.
b. Possessing the ability to supervise and evaluate the
quality of staff work.
c. Having the technical qualifications to perform an
engagement.
d. Warranting the infallibility of the work performed.
19. Which one of the following attributes is required of an auditor
in relation to audit clients?
a. Loyalty
b. Rationalization
c. Independence
d. Bias
20. To be independent, the auditor:
a. Must be impartial when dealing with the client.
b. Cannot place any reliance on the client's verbal and
written assertions.
c. Is responsible only to third-party users of the financial
statements.
d. Cannot perform any consulting services for an audit client.
21. Practitioner's independence:
a. Minimizes risk.
b. Defends against liability
c. Helps achieve public confidence
d. Achieves compliance with the standards of fieldwork.
22. The exercise of due professional care requires that an auditor
a. Uses error-free judgment.
b. Considers internal control, including tests of controls.
c. Examines all corroborating evidence available.
d. Be responsible for fulfilling his or her duties
diligently and carefully.
23. The exercise of due professional care requires that an auditor
a. Critically review the judgment exercised at every
level of supervision.
b. Attain the proper balance of professional experience and
formal education.
c. Reduce control risk below the maximum.
AT – Prelim Rev (875 MCQs) Red Sirug
d. Examine all available corroborating evidence.
24. The exercise of due professional care requires that an auditor
a. Use error-free judgment.
b. Consider internal control, including tests of controls.
c. Critically review the work done at every level of
supervision.
d. Examine all corroborating evidence available.
25. An auditor who accepts an audit engagement and does not
possess the industry expertise of the business entity, should
a. Engage financial experts familiar with the nature of the
business entity.
b. Obtain a knowledge of matters that relates to the
nature of the entity's business.
c. Refer a substantial portion of the audit to another CPA
who will act as the principal auditor.
d. First inform management that an unqualified opinion
cannot be issued.
26. Which of the following underlies the application of generally
accepted auditing standards, particularly the standards of
fieldwork and reporting?
a. Element of corroborating evidence
b. Element of reasonable assurance
c. Elements of materiality and risk
d. Element of internal control
27. Which of the following is the authoritative body designated to
promulgate auditing standards?
a. Financial Reporting Standards Council
b. PICPA
c. Association of CPAs in Public Practice and PICPA
d. Auditing and Assurance Standards Council
28. Which of the following mostly describes the function of AASC?
a. To monitor full compliance by auditors to PSAs.
b. To assist the Board of Accountancy in conducting
administrative proceedings on erring CPAs in audit
practice.
c. To promulgate auditing standards, practices and
procedures that shall be generally accepted by the
accounting profession in the Philippines.
d. To undertake continuing research on both auditing and
financial accounting in order to make them responsive to
the needs of the public.
29. The Philippine Standards on Auditing issued by the Auditing
and Assurance Standards Council (AASC)
a. Are interpretations of generally accepted auditing
standards
b. Are the equivalent of laws for audit practitioners.
c. Must be followed in all situations.
d. Are optional guidelines which an auditor may choose to
follow or not follow when conducting an audit.
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30. Which of the following statements best describes the primary
purpose of Philippines Standards on Auditing?
a. They are authoritative statements, enforced through the
Code of Ethics for Professional Accountants, that are
intended to limit the degree of auditor judgment.
b. They are procedural outlines which are intended to
narrow the areas of inconsistency and divergence of
auditor opinion.
c. They are guides intended to set forth auditing procedures
that are applicable to a variety of situations.
d. They are interpretations which are intended to clarify
the meaning of "generally accepted auditing
standards."
31. In financial statement audits, the audit process should be
conducted in accordance with
a. Philippine Financial Reporting Standards
b. International Accounting Standards
c. Philippine Standards on Auditing
d. Philippine Accounting Standards
32. The Philippine Standards on Auditing issued by AASC
a. Need to be applied on all audit related.
b. Require that in no circumstances would an auditor may
judge it necessary to depart from a PSA, even though
such a departure may result to more effective
achievement of the objective of an audit.
c. Apply to independent examination of financial
statements of any entity when such an examination is
conducted for the purpose of expressing an opinion.
d. Must not apply to other related activities of auditors.
33. An auditor needs not abide by a Philippines Standard on
Auditing if the auditor believes that
a. The amount is insignificant.
b. The requirement of the PSA is impractical to perform.
c. The requirement of the PSA is impossible to perform.
d. Any of the above three is correct.
34. Auditing standards differ from auditing procedures in that
procedures relate to:
a. Measures of performance
b. Acts to be performed.
c. Audit judgments.
d. Audit principles.
35. Every independent audit engagement involves both auditing
standards and auditing procedures. The relationship between
the two may be illustrated by how they apply from
engagement to engagement. The best representation of this
application is that, from one audit engagement to the next,
a. Auditing standards are applied uniformly but auditing
procedures may vary.
b. Auditing standards may vary but auditing procedures are
AT – Prelim Rev (875 MCQs) Red Sirug
applied uniformly.
c. Auditing standards are applied uniformly but auditing
procedures are optional.
d. Both auditing standards and auditing procedures are
applied uniformly.
36. Generally accepted accounting principles (GAAP) are
distinguished from generally accepted auditing standards
(GAAS) in that:
a. GAAP are the principles auditors follow when conducting
an audit, while GAAS are the standards for presentation
of financial statements and underlying transactions.
b. GAAP are the principles for presentation of financial
statements and underlying transactions, while GAAS
are the standards that the auditors should follow
when conducting an audit.
c. When GAAP are violated, sufficiently strong GAAS may
make up for most GAAP deficiencies.
d. GAAP are promulgated by the SEC, while GAAS are
promulgated by the PFRC.
37. How frequent can a professional accountants have press and
other media releases commemorating their anniversaries in
public practice by informing the public of their achievements or
accomplishments in contributing toward nation building or
enhancing the image or standards of the accounting
profession?
a. 2 years
b. 3 years
c. 5 years
d. 6 years
38. Which of the following is not allowed to be included in a
website of a firm of professional accountants?
a. Names of partners/principals with their educational
attainment.
b. Membership in any professional body.
c. Awards received
d. Listings of the firm's clients.
39. In their fiduciary role, the professional accountants owe their
primary loyalty to:
a. The accounting profession
b. The general public
c. The client
d. Government regulatory agencies
40. Which of the following is a distinguishing mark of the
accountancy profession?
a. A drive to excellence
b. Acceptance of the responsibility to act in the public
interest
c. Professional objectivity
d. Professional skepticism
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41. A professional accountant is likened to a prudent father to his
son. This relates to what fundamental principle?
a. Professional competence and due care
b. Confidentiality
c. Integrity
d. Objectivity
42. Which fundamental principle is seriously threatened by an
engagement that is compensated based on the net proceeds
on loans received by the client from a commercial bank?
a. Integrity
b. Objectivity
c. Professional behavior
d. Confidentiality
43. Which of the following values is not necessary for a
professional accountant?
a. Honesty
b. Objectivity
c. Integrity
d. A primary commitment to self-interest
44. Professional accountants may encounter problems in
identifying unethical behavior or in resolving an ethical conflict.
When faced with significant ethical issues, professional
accountants should do the following, except
a. Follow the established policies of the employing
organization to seek a resolution of such conflict
b. Review the conflict problem with the immediate superior if
the organization's policies do not resolve the ethical
conflict.
c. If the problem is not resolved with the immediate
superior and the professional accountant determines
to go to the next higher managerial level, the
immediate superior need not be notified of the
decision.
d. Seek counseling and advice on a confidential basis with
an independent advisor or the applicable professional
accountancy body or regulatory body to obtain an
understanding of possible courses of action.
45. As a resolution of the conflict in the application of fundamental
principles, the auditor, after considering the ethical issues and
relevant facts may do any of the following, except:
a. Must immediately resign from the engagement or the
employing entity.
b. Should weigh me consequences of each possible course
of action.
c. Should consult with other appropriate persons within the
firm or employing organization for help to finally resolve
the matter.
d. The professional accountant may wish to obtain
professional advice from, the relevant professional body
without breaching confidentiality if significant conflict
cannot be resolved.
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46. Which of the following is incorrect regarding integrity and
objectivity?
a. Integrity implies not merely honesty but fair dealing and
truthfulness.
b. The principle of objectivity imposes the obligation on all
professional accountants to be fair, intellectually honest
and free of conflicts of interest.
c. Professional accountants serve in many different
capacities and should demonstrate their objectivity in
varying circumstances.
d. Professional accountants should neither accept nor
offer any gifts or entertainment.
47. If a professional accountant is billing an audit client a number
of hours greater than those actually worked, which of the
following fundamental principles is likely violated?
a. Objectivity
b. Integrity
c. Professional due care
d. Confidentiality
48. Which of the following is not a function of the Board of
Accountancy as specified in the Philippine Accountancy Act of
2004?
a. To investigate violations of the Accountancy Law and the
rules and regulations promulgated therewith.
b. To look from time to time into the conditions affecting the
practice of the accountancy profession.
c. To create and direct accrediting agencies that are
entrusted the functions of reviewing higher
educational institutions' policies and practices
leading to accreditation/reaccreditation of BSA
program.
d. To determine and prescribe minimum requirements
leading to the admission of candidates to the CPA
licensure examination.
49. All of the following are represented to the Financial Reporting
Standards Council, except:
a. Securities and Exchange Commission
b. Bureau of Internal Revenue
c. Commission on Higher Education
d. Board of Accountancy
50. A CPA whose certificate of registration has been revoked:
a. Can no longer be reinstated.
b. Is automatically reinstated as a CPA by the PRC after two
years if he has acted in an exemplary manner.
c. May be reinstated by the Professional Regulation
Commission after two years if he has acted in an
exemplary manner.
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 d. May be reinstated as a CPA by the Board of
Accountancy after two years if he has acted in an
exemplary manner.
51. The Philippine Accountancy Act of 2004 provides that all
Working papers made during an audit shall be the property of
the auditor. These working papers shall include the following,
except:
a. Working papers prepared by the CPA and his staff.
b. Analysis and schedule prepared and submitted to the
auditor by his client's staff.
c. Excerpts or copies of documents furnished to the auditor.
d. Any report submitted by the auditor to his client.
52. Who are required to apply for accreditation with the
Professional Regulation Commission if the applicant is a
partnership of Professional Accountants?
a. Managing partner only
b. All partners only
c. Partners and staff members
d. Partners, principals, and staff members
53. Individual CPAs, Firms or Partnerships of CPAs, including
partners and staff members thereof shall register with the BOA
and the PRC. If the accreditation of Velasco and Co., CPAs,
was renewed on September 30, 2008, the next renewal must
be on or before:
a. September 30, 2010
b. September 30, 2011
c. December 31, 2010
d. December 31, 2011
54. The APO shall renew its Certificate of Accreditation once
every how many years after the date of the Resolution
granting the petition for re-accreditation and the issuance of
the said certificate upon submission of the requirements?
a. 2 years
b. 3 years
c. 4 years
d. 6 years
55. Engagement letters are widely used in practice for
professional engagements of all types. The primary purpose
of the engagement letter is to
a. Remind management of its primary responsibility over the
financial statements.
b. Satisfy the requirements of the Code of Professional
Conduct for CPAs.
c. Provide a starting point for the auditor's preparation of the
preliminary audit program.
d. Provide a written record of the agreement with the
client as to the services to be provided.
56. Which of the following is not likely a quality control procedure
on consultation?
AT – Prelim Rev (875 MCQs) Red Sirug
a. Identifies areas and specialized situations where
consultation is required and encourages personnel to
consult with or in use authoritative sources on other
complex matters.
b. Designates individuals as specialists to serve as
authoritative sources and define their authority in
consultative situations.
c. Assigns an appropriate person or persons to be
responsible for assigning personnel to audits.
d. Specifies the extent of documentation to be provided for
the result of consultation in those areas and specialized
situations where consultation is required.
57. According to Philippine Standards on Auditing, because there
are inherent limitations in an audit that affect the auditor's
ability to detect material misstatements, the auditor is:
a. Neither a guarantor nor an insurer of financial
statements.
b. A guarantor but not an insurer of the statements.
c. An insurer but not a guarantor of the statements.
d. Both a guarantor and an insurer of the financial
statements.
58. The working papers prepared by a CPA in connection with an
audit engagement are owned by the CPA, subject to certain
limitations. The rationale for this rule is to
a. Protect the working papers from being subpoenaed.
b. Provide the basis for excluding admission of the working
papers as evidence because of the privileged
communication rule.
c. Provide the CPA with evidence and documentation
which may be helpful in the event of a lawsuit.
d. Establish a continuity of relationship with the client
whereby indiscriminate replacement of CPAs is
discouraged.
59. The responsibility for adopting sound accounting policies,
maintaining adequate internal control, and making fair
representations in the financial statements rests
a. With the management.
b. With the independent auditor.
c. Equally with management and the auditor.
d. With the internal audit department.
60. The ordinary examination of financial statements is not
primarily designed to disclose defalcations and other
irregularities although their discovery may result. Normal audit
procedures are more likely to detect a fraud arising from
a. Collusion on the part of several employees.
b. Failure to record cash receipts for services rendered.
c. Forgeries on company checks.
d. Theft of inventories.
61. A principal purpose of a letter of representation from
management is to
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 a. Serve as an introduction to company personnel and an
authorization to examine the records.
b. Discharge the auditor from legal liability for his
examination.
c. Confirm in writing management's approval of limitations
on the scope of the audit.
d. Remind management of its primary responsibility for
financial statements.
62. The auditor should not assume that management is dishonest,
but the possibility of dishonesty must be considered." This is
an example of
a. Expectation gap.
b. An attitude of professional skepticism.
c. Due diligence.
d. An ethical requirement.
63. Which of the following statements is true?
a. It is usually easier for the auditor to uncover irregularities
than errors.
b. It is usually easier for the auditor to uncover errors
than irregularities.
c. It is usually equally difficult for the auditor to uncover
errors or irregularities.
d. Usually, none of the given statements is true.
64. Generally, the decision to notify parties outside the client's
organization regarding a noncompliance with laws and
regulations
a. Independent auditor.
b. Management.
c. Outside legal counsel.
d. Internal auditors.
65. An audit made in accordance with Philippine Standards on
Auditing generally should
a. Be expected to provide assurance that noncompliance
with laws and regulations will be detected if the internal
control is effective.
b. Be relied upon to disclose indirect-effect noncompliance
with laws and regulations.
c. Encompass a plan to search actively for noncompliance
with laws and regulations which relate to operating
aspects.
d. Not be relied upon to provide assurance that all
noncompliance with laws and regulations will be
detected.
66. An auditor who believes that a material irregularity may exist
should initially
a. Discuss the matter with those believed to be involved in
the perpetration of material irregularity.
b. Discuss the matter with a higher level of management.
c. Withdraw from the engagement.
d. Consult legal counsel.
AT – Prelim Rev (875 MCQs) Red Sirug
67. When management refuses to disclose in the financial
statements noncompliance to laws and regulations which are
identified by the independent auditor, the CPA may be
charged with unethical conduct for
a. Withdrawing from the engagement.
b. Issuing a disclaimer of opinion.
c. Failure to uncover the noncompliance to laws and
regulations during the prior audits.
d. Reporting these activities to the audit committee.
68. A procedure in which a quality control partner periodically
tests the application of quality control procedures is most
directly related to which quality control element?
a. Engagement performance
b. Independence, integrity, and objectivity
c. Monitoring
d. Personnel management
69. The work of each assistant needs to be reviewed by personnel
of at least equal competence. Which of the following is not one
of the objectives of this requirement?
a. The conclusions expressed are consistent with the result
of the work performed and support the opinion.
b. The work performed and the results obtained have been
adequately documented.
c. The audit objectives have been achieved.
d. All available evidences have been obtained,
evaluated and documented.
70. Which of the following statements is true when the CPA has
been engaged to do an attestation engagement?
a. The CPA firm is engaged and paid by the client; therefore,
the firm has primary responsibility to be an advocate for
the client.
b. The CPA firm is engaged and paid by the client, but
the primary beneficiaries of the audit are the
statement users.
c. Should a situation arise where there is no convincing
authoritative standard available, and there is a choice of
actions which could impact client's financial statements
either positively or negatively, the CPA is free to endorse
the choice which is best in the client's interest.
d. As long as CPA firms are competent, it is not required
that they remain unbiased.
71. When CPAs are able to maintain an independent attitude in
fulfilling their responsibility, it is referred to as independence in
a. Fact.
b. Appearance.
c. Conduct.
d. Total.
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72. When the users of financial statements have confidence in the
independence of the CPA, it is referred to as in independence
in
a. Fact.
b. Appearance.
c. Conduct.
d. Total.
73. When determining whether independence is impaired because
of an ownership interest in client company, materiality will
affect whether ownership is a violation of rule of independence
a. In all circumstances.
b. Only for direct ownership.
c. Only for indirect ownership.
d. Under no circumstances.
74. A professional accountant has a professional duty or right
disclose confidential information in each of the following,
except:
a. To comply with technical standards and ethics
requirements.
b. To disclose to the Bureau of Internal Revenue any
fraudulent scheme committed by the client on
payment of income tax.
c. To comply with the quality review of a member body or
professional body
d. To respond to an inquiry or investigation by a member
body or regulatory body.
75. Which of the following best describes the passing of
confidential information from a client to its auditor? The
information:
a. Should in no circumstances be conveyed to third parties.
b. Is not legally protected and can be subpoenaed by a
competent court.
c. Can only be released for peer reviews after receiving
permission from the client.
d. Should be conveyed to the public if it affects the
"correctness" of the financial statements.
76. A member in public practice may perform for a contingent fee
any professional services for a client for whom the member or
member's firm performs
a. An audit.
b. A review.
c. A compilation used only by management.
d. An audit of prospective financial information.
77. Which one of the following contingent fee is allowed?
a. All services performed by a CPA film.
b. Non-attestation services.
c. Non-attestation services, unless the CPA firm was
also performing attestation services for the same
client.
d. Attestation services.
AT – Prelim Rev (875 MCQs) Red Sirug
78. When the auditor issues an erroneous opinion as a
consequence of an underlying failure to comply with the
requirements of generally accepted auditing standards, it
results to
a. Business failure.
b. Audit failure.
c. Audit risk.
d. All of them
79. The responsibility for the fairness of the financial assertions
that are embodied in the financial statements and in the notes
to the financial statements rests:
a. With the audit committee.
b. With management.
c. With Securities and Exchange Commission.
d. Equally with management and the stockholders.
80. When preparing the financial statements, it is acceptable for
the auditor to prepare
a. The footnotes for client.
b. The statement for client.
c. A draft of the statements and footnotes for client.
d. A draft of the statements for client.
81. Which of the following statements best describes the auditor's
responsibility regarding the detection of material errors and
frauds?
a. The auditor is responsible for the failure to detect material
errors and frauds only when such failure results from the
misapplication of generally accepted accounting
principles.
b. The auditor is responsible for the failure to detect material
errors and frauds only when the auditor fails to confirm
receivables or observe inventories.
c. The audit should be designed to provide reasonable
assurance that material errors and frauds are
detected.
d. Extended auditing procedures are required to detect
unrecorded transactions even if there is no evidence that
material errors and frauds may exist.
82. The auditor has considerable responsibility for notifying users
as to whether or not the statements are properly stated. This
imposes upon the auditor a duty to
a. Provide reasonable assurance that material
misstatements will be detected.
b. Be an insurer of the fairness in the statements.
c. Be a guarantor of the fairness in the statements.
d. Be equally responsible with management for the
preparation of the financial statements.
83. The factor that distinguishes an error from an irregularity is
a. Whether it is peso amount or a process.
b. Whether it is a caused by the auditor or the client.
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 c. Materiality.
d. Intent.
84. The reason why an auditor accumulates evidence is to
a. Defend himself in the event of a lawsuit.
b. Justify the conclusions he has otherwise reached.
c. Satisfy the requirements of the bureau of internal revenue.
d. Enable him to reach conclusions about the fairness
of the financial statements and issue an appropriate
audit report.
85. The auditor gives an audit opinion on the fair presentation of
the financial statements and associates his or her name with
them when, on the basis of adequate evidence, the auditor
concludes that the financial statements are unlikely to mislead
a. A prudent user.
b. Management.
c. The reader.
d. Investors.
86. The probability that an auditor's procedures leading to the
conclusion that a material error does not exist in an account
balance when, in fact, such error does exist is referred to as
a. Prevention risk.
b. Detection risk.
c. Inherent risk.
d. Control risk.
87. Which of the following is not included in an audit engagement
letter?
a. Objectives of the engagement
b. Representations that the financial statements were
prepared in accordance with PFRS
c. Management's responsibilities
d. A clear explanation of the services to be performed on
the engagement
88. Which of the following is least likely included in an auditor’s
inquiry of management while obtaining information to identify
the risks of material misstatement due to fraud?
a. Are financial reporting operations controlled by and
limited to one location?
b. Does it have knowledge of fraud or suspect fraud?
c. Does it have programs to mitigate fraud risks?
d. Has it reported to the audit committee the nature of the
company's internal control?
89. Which of the following should the auditors normally interview
as part of their assessment of fraud risk?
a. Senior management
b. Audit committee
c. Various employees whose duties financial reporting
responsibilities
d. All of the given choices
AT – Prelim Rev (875 MCQs) Red Sirug
90. An audit plan is a
a. Detailed plan of analytical procedures and all substantive
tests to be performed in the course of the audit.
b. Document that provides an overview of the company
and a general plan for the audit work to be
accomplished, timing of the work, and other matters
of concern to the audit.
c. Generic document that auditing firms have developed to
lead the process of the audit through a systematic and
logical process.
d. Budget of the time that should be necessary to complete
each phase of the audit procedures.
91. There is generally an agreement within the auditing profession
and the courts that the auditor
a. Is both a guarantor and an insurer of the financial
statements.
b. Is a guarantor but not an insurer of the statements.
c. Is an insurer but not a guarantor of the statements.
d. Is neither a guarantor nor an insurer of financial
statements.
92. The auditor is not liable to his client for
a. Negligence.
b. Bad faith.
c. Errors of judgment
d. Dishonesty.
93. Which of the following services provides the highest level of
assurance to third parties about a company's financial
statements?
a. Audit.
b. Review.
c. Compilation.
d. Each of the above provides the same level of assurance.
94. Most accounting and auditing professionals agree that when
an audit has failed to uncover material misstatements, and
the wrong type of audit opinion is issued, the audit firm
a. Has failed to follow generally accepted auditing standards
(GAAS).
b. Should be asked to defend the quality of the audit.
c. Deserves to lose the lawsuit.
d. Should not be held responsible for the financial loss
suffered loss suffered by others.
95. The objective of quality control mandates that a public
accounting firm should establish policies and procedures for
professional development which provide reasonable
assurance that all entry-level personnel
a. Prepare working papers which are standardized in form
and content.
b. Will advance within the organization.
c. Develop specialties in specific areas of public accounting.
d. Have the knowledge required to enable them to fulfill
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 responsibilities assigned.
96. 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. Allowing staff to select the assignments of their choice to
promote better client relationships.
c. 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.
d. Requiring timely identification of the staffing
requirements of specific engagements so that
enough qualified personnel can be made available.
97. The provision of services by a firm or network firm to an audit
client that involve the design and implementation of financial
information technology systems that are used to generate
information forming part of a client's financial statements may
most likely create
a. Self-interest threat.
b. Self-review threat.
c. Intimidation threat.
d. Familiarity threat,
98. When determining whether independence is impaired because
of an ownership interest in client company,' materiality will
affect whether ownership is a violation of rule of independence
a. In all circumstances.
b. Only for direct ownership.
c. Only for indirect ownership.
d. Under no circumstances.
99. A successor auditor is required to communicate with the
previous auditor. The primary concern in this communication
is
a. Information which will help the successor auditor in
determining whether the client management has
integrity.
b. To learn about client by examining predecessor's working
papers.
c. To enable successor auditor to perform a more efficient
audit.
d. To save successor auditor time and money in gathering
data.
100. Which statement is incorrect regarding the Code of Ethics for
Professional Accountants in the Philippines?
a. Professional accountants refer to persons who are
Certified Public Accountants (CPA) and who hold a valid
certificate issued by the Board of Accountancy.
b. Where a national statutory requirement is in conflict
with a provision of the IFAC Code, the IFAC Code
AT – Prelim Rev (875 MCQs) Red Sirug
requirement prevails.
c. The Code of Ethics for Professional Accountants in the
Philippines is mandatory for all CPAs and is applicable to
professional services performed in the Philippines on or
after January 1, 2004.
d. Professional accountants should consider the ethical
requirements as the basic principles which they should
follow in performing their work.
SET 8
1. What will an auditor who has been proposed for an audit
engagement usually do prior to accepting a new client?
a. Draft the financial statements of the client as a measure
of goodwill.
b. With the permission from the prospective client,
contact the predecessor auditor to determine if there
are any disagreements between the client and the
audit firms.
c. Obtain the potential client's permission to talk to the
former auditor and review work papers.
d. Perform a peer review on the potential client in
accordance with professional standards.
2. Which of the following statements is true with regard to the
relationship among audit risk, audit evidence, and materiality?
a. The lower the inherent risk and control risk, the lower the
aggregate materiality threshold.
b. Under conditions of high inherent and control risk,
the auditor should place more emphasis on obtaining
external evidence and should reduce reliance on
internal evidence.
c. Where inherent risk is high and control risk is low, the
auditor may safely ignore inherent risk.
d. Aggregate materiality thresholds should not change
under conditions of changing risk levels.
3. Which of the following is most likely to be an overall response
to fraud risks identified in an audit?
a. Supervise members of the audit team less closely and
rely more upon judgment.
b. Use less predictable audit procedures.
c. Use only certified public accountants on the engagement.
d. Place increased emphasis on the audit of objective
transactions rather than subjective transactions.
4. Which of the following represents a procedure that the auditor
may use because plausible relationships among financial
statement balances are expected to exist?
a. Attributes testing
b. Enterprise risk assessment
c. Inherent tests of control
d. Analytical review
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5. Which of the following statements is incorrect regarding
obtaining an understanding of the entity and its environment?
a. Obtaining an understanding of the entity and its
environment is an essential aspect of performing an audit
in accordance with PSAs.
b. Understanding of the entity and its environment
establishes frame of reference within which the auditor
plans the audit and exercises professional judgment
about assessing risks of material misstatement in the
financial statements and responding to those risks
throughout the audit.
c. The auditor's primary consideration is whether the
understanding that has been obtained is sufficient to
assess the risks of material misstatement in the financial
statements and to design and perform further audit
procedures.
d. The depth of the overall understanding that is
required by the auditor in performing the audit is at
least equal to that possessed by management in
managing the entity.
6. Inquiries directed towards those charged with governance
may most likely
a. Relate to their activities concerning the design, and
effectiveness of the entity's internal control and whether
management has satisfactorily responded to any findings
from these activities.
b. Help the auditor understand the environment in
which the financial statements are prepared.
c. Relate to changes in the entity's marketing strategies,
sales trends, or contractual arrangements with its
customers.
d. Help the auditor in evaluating the appropriateness of the
selection and application of certain accounting policies.
7. The underlying reason for a code of professional conduct for
any profession is
a. That it is required by congress.
b. The need for public confidence in the quality of
service of the profession.
c. That it provides a safeguard to keep unscrupulous people
out.
d. That it allows Professional Regulation Commission to
have a yardstick to measure deficient performance.
8. Professional accountants may encounter problems in
identifying unethical behavior or in resolving an ethical conflict.
When faced with significant ethical issues, professional
accountants should do the following, except
a. Follow the established policies of the employing
organization to seek a resolution of such conflict.
b. Review the conflict problem with the immediate superior if
the organization's policies do not resolve the ethical
conflict.
c. If the problem is not resolved with the immediate
AT – Prelim Rev (875 MCQs) Red Sirug
superior and the professional accountant determines
to go to the next higher managerial level, the
immediate superior need not be notified of the
decision.
d. Seek counseling and advice on a confidential basis with
an independent advisor or the applicable professional
accountancy body or regulatory body to obtain an
understanding of possible courses of action.
9. While assessing the risk of material misstatement, the auditors
identity risks, relate risk to what could go wrong, consider the
magnitude of risks and:
a. Assess the risk of misstatements due to noncompliance
to laws and regulations.
b. Consider the complexity of the transactions involved.
c. Consider the likelihood that the risks could result in
material misstatements.
d. Determine materiality level.
10. Which of the following is least likely considered a financial
statement audit risk factor?
a. Management operating and financing decisions are
dominated by top management.
b. A new client with no prior audit history.
c. Rate of change in the entity's industry is rapid.
d. Profitability of the entity relative to its industry is
inconsistent.
11. Which of the following is most likely to be considered a risk
factor relating to fraudulent financial reporting?
a. Low turnover of senior management.
b. Extreme degree of competition within the industry.
c. Capital structure including various operating subsidiaries.
d. Sales goals in excess of any of the preceding three years.
12. Which of the following is correct concerning requirements
about auditor's communications about fraud?
a. Fraud that involves senior management should be
reported directly to the audit committee regardless of
the amounts involved.
b. All fraud with a material effect on the financial statements
should be reported directly by the auditor to the SEC
c. Fraud with a material effect on the financial statements
should ordinarily be disclosed by the auditor through the
use of an emphasis of a matter paragraph added to the
audit report.
d. The auditor has no responsibility to disclose fraud outside
the entity under any circumstances.
13. Which of the following factors most likely would heighten an
auditor's concern about the risk of fraudulent financial
reporting?
a. Large amounts of liquid assets that are easily convertible
into cash.
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 b. Low growth and profitability as compared to other entity's 19. It involves a study or evaluation of the quality of audit of
in the same industry. financial statements through a review of quality control
c. Financial management's participation in the initial measures established by on CPA firms and individual CPAs in
selection of accounting principles. public practice to ensure compliance with accounting and
d. An overly complex organizational structure involving auditing standards and practices
unusual lines of authority. a. External audit
b. Compliance audit
14. Which of the following is most likely to be an overall response c. Peer review
to fraud risks identified in an audit? d. Quality review
a. Only use certified public accountants on the engagement.
b. Place increased emphasis on the audit of objective 20. Which of the following risks is entirely a quality criterion based
transactions rather than subjective transactions. on professional judgment?
c. Supervise members of the audit team less closely and a. Inherent risk
rely more upon judgment. b. Control risk
d. Use less predictable audit procedures. c. Detection risk
d. Audit risk
15. A principal purpose of a letter of representation from
management is to 21. Inherent risk is not a characteristic of the
a. Remind management of its primary responsibility for a. Major types of transactions.
financial statements. b. Client’s business.
b. Serve as an introduction to company personnel and an c. Substantive procedures.
authorization to examine the records. d. Effectiveness of the client’s accountants.
c. Discharge the auditor from legal liability for his
examination. 22. Misstatements must be compared to some measurement base
d. Confirm in writing management's approval of limitations before a decision can be made about the materiality of the
on the scope of the audit. failure to follow GAAP. A commonly accepted measurement
base would be
16. Should the auditor uncover circumstances during the audit a. Net income.
that may cause suspicions of management fraud, the auditor b. Total assets.
must c. Working capital.
a. Withdraw from engagement. d. All of the above.
b. Issue an adverse opinion.
c. Issue a disclaimer. 23. The primary deliverable of an engagement to perform based
d. Evaluate their implications and consider the need to on procedures prescribed by the intended user of the report
modify audit evidence. is/are:
a. The Review Report
17. In connection with the element of professional development, a b. Report of Factual Findings
CPA firm's system of quality control should ordinarily provide c. Management Letter
that all personnel d. The financial statements
a. Possess judgment, motivation, and adequate experience.
b. Seek assistance from persons having appropriate level 24. Fraudulent financial reporting is often called:
of knowledge, judgment, and authority. a. Theft of assets
c. Demonstrate compliance with peer review directives. b. Employee fraud
d. Have the knowledge required to enable them to fulfill c. Management fraud
responsibilities assigned. d. Defalcation

18. The implementation of quality control procedures that are 25. The ordinary examination of financial statements is not
applicable to the individual audit engagement is the primarily designed to disclose defalcations and other
responsibility of the irregularities although their discovery may result. Normal audit
a. CPA firm. procedures are more likely to detect a fraud arising from
b. Engagement quality control reviewer. a. Theft of inventories.
c. Expert contracted by the firm in connection with the audit b. Collusion on the part of several employees.
engagement. c. Failure to record cash receipts for services rendered.
d. Engagement team. d. Forgeries on company checks.

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26. Working papers prepared by a CPA in connection with an
audit engagement are owned by the CPA, subject to certain
limitations. The rationale for this rule is to
a. Protect the working papers from, being subpoenaed.
b. Provide the CPA with evidence and documentation
which may be helpful in the event of a lawsuit.
c. Provide the basis for excluding admission of the working
papers as evidence because of the privileged
communication rule.
d. Establish a continuity of relationship with the client
whereby indiscriminate replacement of CPAs is
discouraged.
27. The auditor's responsibility for failure to detect fraud arises
a. Whenever the amounts involved are material.
b. When such failure clearly results from
noncompliance to generally accepted auditing
standards.
c. Only when such failure clearly results from negligence so
gross as to sustain an inference of fraud on the part of
the auditor.
d. Only when the examination was specifically designed to
detect fraud.
28. The factor that distinguishes constructive fraud from actual
fraud is
a. Materiality.
b. Quality of internal control.
c. Type of error or irregularity.
d. Intent.
29. If a CPA recklessly abandons standards of due care and
diligence while performing an audit, he or she may be held
liable to unknown third parties for:
a. Gross negligence.
b. Fraudulent misconduct.
c. Gross misconduct.
d. Contributory negligence.
30. Of the following statements, which best distinguishes ordinary
negligence from gross negligence?
a. The more material the undetected error the greater the
likelihood of ordinary negligence.
b. Gross negligence is most probable when the auditor fails
to detect errors that occurred under conditions of strong
internal control.
c. Failure to detect material errors, whether internal control
is strong or weak, suggests gross negligence.
d. Failure to exercise reasonable care denotes ordinary
negligence, whereas failure to exercise minimal care
indicates gross negligence.
31. An auditor who believes that a material irregularity may exist
should initially
a. Consult legal counsel.
AT – Prelim Rev (875 MCQs) Red Sirug
b. Discuss the matter with those believed to be involved in
the perpetration of the material irregularity.
c. Discuss the matter with a higher level of management.
d. Withdraw from the engagement.
32. Which of the following statements is correct concerning the
auditor's responsibility with respect to illegal acts?
a. An auditor must design tests to detect both direct-effect
and indirect-effect illegal acts.
b. An auditor must design tests to detect both immaterial
and material direct-effect illegal acts.
c. An auditor must design tests to obtain reasonable
assurance of detecting material direct-effect illegal
acts.
d. An auditor must design tests to detect both material
direct-effect and material indirect-effect illegal acts.
33. If specific information comes to an auditor's attention that
implies the existence of possible illegal acts that could have a
material, but indirect effect on-the financial statements, the
auditor should next
a. Report the matter to an appropriate level of management
at least one level above those involved.
b. Apply audit procedures specifically directed to
ascertaining whether an illegal act has occurred.
c. Seek the advice of an informed expert qualified to
practice law as to possible contingent liabilities.
d. Discuss the evidence with the client's audit committee, or
others with equivalent authority.
34. When planning the audit, if the auditor has no reason to
believe that illegal acts exist, the auditor should
a. Include audit procedures which have a strong probability
of detecting illegal acts.
b. Make inquiries of management regarding their
policies and regarding their knowledge of violations,
and then rely on normal audit procedures to detect
errors, irregularities, and illegalities.
c. Still include some audit procedures designed specifically
to uncover illegalities.
d. Ignore the topic.
35. When the auditor knows that an illegal act has occurred, the
auditor must
a. Issue an adverse opinion.
b. Withdraw from the engagement.
c. Report it to the proper government authorities.
d. Consider the effects on the financial statements,
including the adequacy of disclosure.
36. Assurance services differ from consulting services in that they
I. Focus on providing advice.
II. Involve monitoring of one party by another.
a. I only.
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 b. II only.
c. Both I and II.
d. Neither I nor II.
37. For assurance engagements which are neither audits nor
reviews of historical financial information, the following
standard applies:
a. PSAs
b. PSAEs
c. PSREs
d. PSRSs
38. Unlike consulting services, in assurance services:
a. There is confirmation that financial statement assertions
are accurate.
b. Misstated account balances are generally corrected by an
independent audit.
c. Ineffective internal controls may exist.
d. Competing interests may exist between management
and the users of statements.
39. The attest function:
a. Is an essential part of every engagement performed by a
CPA.
b. Includes the preparation of a written report of the
CPA's conclusion.
c. Requires a complete review of all transactions during the
period under examination.
d. Requires a review of a sample of transactions during the
period under examination.
40. Which of the following is an assurance service?
a. Performance measurement
b. Systems design and installation
c. Tax planning
d. Personal financial planning
41. Non-assurance engagements include all of the following
services, except:
a. Agreed-upon procedures engagements.
b. Compilations of financial or other information.
c. Management and tax consulting.
d. Examination of prospective financial information.
42. Unlike consulting services, assurance services:
a. Make recommendation to management.
b. Report on how to use information.
c. Are two-party contracts.
d. Report on the quality of information.
43. Identify the correct statement.
a. Accounting services do not provide attestation.
b. Management consulting services provide attestation in all
cases.
c. An audit provides limited assurance by attesting to the
AT – Prelim Rev (875 MCQs) Red Sirug
fairness of the client's assertions.
d. A review provides positive assurance by attesting the
reliability of the client's assertions.
44. An attestation engagement is one in which a CPA is engaged
to:
a. Assemble prospective financial statements based on the
assumptions of the entity's management without
expressing any Testify as an expert witness in accounting,
auditing or tax matters, given certain stipulated facts.
b. assurance.
c. Issue a written communication expressing a
conclusion about the reliability of a written assertion
that is the responsibility of another party.
d. Provide tax advice or prepare a tax return based on
financial information the CPA has not audited or reviewed.
45. Assurance engagements encompass the following types of
services, except:
a. Audit of historical financial statements.
b. Review engagements.
c. Management consulting.
d. Attestation services.
46. Criteria that are embodied in laws or regulations, or issued by
authorized or recognized bodies of experts that follow a
transparent due process are called:
a. Suitable criteria
b. General criteria
c. Established criteria
d. Specifically developed criteria
47. Which of the following is not a characteristic of suitable criteria?
a. Completeness
b. Neutrality
c. Relevance
d. Comparability
48. The criteria to be used for a particular engagement can either
be established or specifically developed. Established criteria
are those
a. Designed for the purpose of the engagement.
b. Embodied in laws or regulations or issued by autho-
rized or recognized bodies of experts that follow a
transparent due process.
c. Made available to the intended users.
d. Not made available to the intended users.
49. A practitioner should accept an assurance engagement only if
a. The practitioner's conclusion is to be contained in a
written report.
b. The subject matter is the responsibility of either the
intended users or the practitioner.
c. The subject matter is in the form of financial information.
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 d. The criteria to be used are not available to the intended procedures engagement?
users. a. No assurance.
b. Low.
50. Assurance engagement risk is the risk c. Moderate.
a. Of expressing an inappropriate conclusion when the d. Reasonable.
subject matter information is not materially misstated.
b. That the practitioner expresses an inappropriate 57. The term "accountant" has been used by Auditing and
conclusion when the subject matter information is Assurance Standards Council to refer to a CPA in public
materially misstated. practice who is engaged to:
c. Of expressing an inappropriate conclusion when the a. Audit financial statements.
subject matter information is either materially misstated or b. Review financial statements.
not materially misstated. c. Apply agreed-upon procedures.
d. Through loss from litigation, adverse publicity, or other d. Compile financial statements.
events arising in connection with a subject matter
reported on. 58. Which of the following best describes relationships among
auditing, attest and assurance services?
51. The following are components of assurance engagement risk, a. Attest is a type of auditing service.
except b. Assurance is a type of attest service.
a. Detection risk c. Auditing is a type of assurance service.
b. Business risk d. Auditing and attest services represent two distinctly
c. Inherent risk different types of services.
d. Control risk
59. Which of the following is the single feature that most clearly
52. The predominant type of attestation service performed by distinguishes auditing, attestation, and assurance:
CPAs is: a. CPA's approach to the service.
a. Audit. b. Type of service.
b. Review. c. Scope of services.
c. Compilation. d. Training necessary to perform the service.
d. Management consulting.
60. For assurance engagements regarding historical financial
53. Which of the following is incorrect regarding a compilation information, reasonable assurance engagements are called:
engagement? a. Review engagements.
a. The CPA uses his auditing expertise to collect, b. Audit engagements.
classify and summarize financial information. c. Compilation engagements.
b. The CPA should exercise due care. d. Agreed-upon procedures engagements.
c. The engagement ordinarily entails reducing detailed data
to a manageable and understandable form. 61. In some assurance engagements, the evaluation or
d. The procedures performed do not enable the accountant measurement of the subject matter is performed by the
to express any form of assurance. responsible party, and the subject matter information is in the
form of an assertion by the responsible party that is made
54. The type of assurance that is provided by the CPA on a available to intended users. These engagements are called
compilation report is: a. Recurring engagements
a. Limited assurance. b. Non-assurance engagements
b. No assurance. c. Direct reporting engagements
c. Low assurance. d. Assertion-based engagements
d. Negative assurance.
62. What type of assurance engagement is involved when the
55. A report on factual findings is the end product of the auditor practitioner expresses a positive form of conclusion?
when performing: a. Positive assurance engagement
a. Audit. b. Limited assurance engagement
b. Review. c. Reasonable assurance engagement
c. Agreed-upon procedures. d. Absolute assurance engagement
d. Compilation.
63. What type of assurance engagement is involved when the
56. What assurance is provided by the auditor in an agreed-upon practitioner expresses a negative form of conclusion?

AT – Prelim Rev (875 MCQs) Red Sirug Page 67 of 77

 a. Negative assurance engagement
b. Assertion-based assurance engagement
c. Limited assurance engagement
d. Reasonable assurance engagement
64. Assurance engagements involve:
a. Two separate parties: a professional accountant and
intended users.
b. Two separate parties: a professional accountant and a
responsible party.
c. Three separate parties: a practitioner, a
responsible party and intended users.
d. Three separate parties: a professional accountant, a
responsible party, and intended users.
65. The auditor's evaluation of the likelihood of material employee
fraud is normally done initially as a part of
a. The assessment of whether to accept the audit
engagement.
b. Understanding the entity's internal control structure.
c. The Tests of Controls.
d. The Tests of Transactions.
66. In which circumstance is a CPA firm's independence most
likely to be impaired?
a. An individual on the audit has a close relative who is a
receptionist for the client.
b. The father of the audit senior holds a material financial
interest in the client of which the senior is unaware.
c. The spouse of a staff member on the audit has an
immaterial common stock investment in the audit
client.
d. The partner in charge of the office's compensation is
affected by office profitability, a portion of which arises
from this audit.
67. Which of the following partners is least likely to be considered
a "covered member" for purposes of rendering assurance
service to of Company A, a nonaudit client, performed by the
head office of a national CPA firm?
a. The partner in charge of the Davao office.
b. The partner in charge of the entire CPA firm.
c. A partner in the Cebu office of the CPA firm who
maintains a small, immaterial investment in Company
A.
d. A partner in the Davao office who worked on the
Company A for a different assurance engagement in
previous years, but currently has no responsibilities with
respect to the engagement
68. While performing services for their clients, professionals have
always had a duty to provide a level of care which is
a. Reasonable.
b. Greater than average.
c. Superior.
AT – Prelim Rev (875 MCQs) Red Sirug
d. Guaranteed to be free from error.
69. The principal issue to be resolved in cases involving alleged
negligence is usually
a. The amount of the damages suffered by the users of the
financial statements.
b. Whether to impose punitive damages on defendant.
c. The level of care required to be exercised.
d. Whether defendant was involved in fraud.
70. Privity of contract exists between the
a. Auditor and the Securities and Exchange Commission.
b. Auditor and client.
c. Auditor and third parties.
d. All of the above
71. A CPA is criminally liable if he
a. Refuses to turn over the schedules or working papers
prepared by the client staff to the client.
b. Performs an audit in a negligent manner.
c. Intentionally allows an omission of a material fact
required to be stated in a financial statement.
d. Was not able to submit the audited financial statements
on time.
72. The auditor's defense of contributory negligence is most likely
to prevail when
a. Third party injury has been minimal.
b. The client is privately held as contrasted with a public
company.
c. Undetected errors have resulted in materially misleading
financial statements.
d. The auditor fails to detect fraud resulting from
management override of the control structure.
73. An expectation of the public is that the auditor will recognize
that the primary users of audit services are:
a. The employees
b. The investors and creditors
c. The SEC
d. The board of directors
74. The overriding objective of the International Auditing
Standards that are issued by the International Auditing
Practices Committee of the IFAC is
a. To override a country’s regulations governing the audit
of financial statements.
b. To improve the uniformity of auditing practices and
related services throughout the world.
c. To provide a uniform application of specific audit
procedures that are acceptable worldwide.
d. To replace generally accepted auditing standards.
75. Management’s assertions in the financial statements are
relevant to the audit process because:
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 a. They provide evidence that auditors have prepared
financial statements in accordance with GAAP
b. They embody the audit procedures that will be
performed by the audit engagement team.
c. They include representations of financial statements
in accordance with the applicable reporting criteria
d. They relate to regulator’s expectations about audit
results.
76. A CPA firm is considered independent when it performs which
of the following services for a publicly traded audit client?
a. Serving as a member of the client’s board of directors.
b. Accounting information system design
implementation.
c. Tax return preparation as approved by the board of
directors.
d. Determining which accounting policies will be adopted
by the client.
77. Jessie Cruz, CPA, forgot to test a client’s assessment of
goodwill impairment during an audit. Such an act is probably
an example of:
a. Due diligence
b. Reckless professional behavior
c. Ordinary negligence
d. Fraud
78. Similar to auditors in the CPA realm, internal auditors also
strive to possess:
a. Independence
b. Competence
c. Objectivity
d. All of the above
79. A review engagement differs in scope as compared to an audit
due to
a. The subject matter of the audit.
b. The quantity and type of evidence obtained.
c. Ethical requirements with respect to independence.
d. The users of the financial statements.
80. Which of the following statements concerning the intended
user of a professional accountant's report is incorrect?
a. The responsible party and the intended user may both be
within the same organization.
b. The intended user should never be established by
agreement between the practitioner and the
responsible party or those engaging or employing
the practitioner.
c. In some circumstances, the intended user may be
established by law.
d. The responsible party may also be one of the intended
users.
81. The network firms are required to be independent of the client
AT – Prelim Rev (875 MCQs) Red Sirug
a. For assurance engagements provided to an audit
client.
b. For assurance engagements provided to clients that are
not audit clients, when the report is not expressly
restricted for use by identified users.
c. For assurance engagements provided to clients that are
not audit clients, when the assurance report is expressly
restricted for use by identified users.
d. All of the above
82. One difference between auditors and other professionals is
that most professionals
and a. Need not be concerned about remaining independent.
b. Do not have requirements for continuing education
beyond college.
c. Do not have to pass a rigorous examination.
d. Are not expected to act in public interest.
83. The Code of Professional Conduct would be violated if a
member accepted a fee for services and the fee was
a. Fixed by a public authority.
b. Based on a price quotation submitted in competitive
bidding.
c. Based on the result of judicial proceedings.
d. Payable after a specified finding was attained.
84. For which of the following services is a CPA professional
required to be independent?
a. Audits of historical financial statements
b. Review services
c. Examination of prospective financial statements
d. All of the above
85. For which of the following services is a CPA professional not
required to be independent?
a. Tax returns preparation
b. Audits of historical financial statements
c. Review engagement
d. Examination of a forecast
86. It occurs when a firm or a member of the assurance team
could benefit from a financial interest in, or other self-interest
conflict with, an assurance client.
a. Self-interest threat
b. Self-review threat
c. Advocacy threat
d. Familiarity threat
87. The CPA title was conceived and created, under the first
accountancy law, for professional accountants engaged in
which of the following?
a. Accounting education
b. Public accounting
c. Management accounting
d. Government accounting
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 promotes, or may be perceived to promote, an assurance
88. Regarding practice of accountancy, which of the following client's position or opinion to the point that objectivity may,
certificates is issued to a CPA first, a certificate of registration or may be perceived to be, compromised.
or a certificate of accreditation?
a. Certificate of registration 94. Eman, a CPA, has a law practice. Eman has recommended
b. Certificate of accreditation one of his clients to Noel, a CPA. Noel has agreed to pay
c. Both are issued at the same time Eman 10% of the fee for services rendered by Noel to Eman's
d. Neither are issued to CPAs. client. Who, if anyone, is in violation of the Code of Ethics?
a. Both Eman and Noel
89. Examples of circumstances that may create self-interest threat b. Eman only
include: c. Neither Eman and Noel
a. Contingent fees relating to assurance engagements. d. Noel only
b. A direct financial interest or material indirect financial
interest in an assurance client. 95. If a member of the assurance team, or their immediate family
c. A loan or guarantee to or from an assurance client or any member receives, by way of, for example, an inheritance, gift
of its directors or officers. or, as a result of a merger, a direct financial interest or a
d. All of the above material indirect financial interest in the assurance client, a
self-interest threat would be created. The following safeguards
90. Which of the following least likely create "self-interest threat"? should be applied to eliminate the threat or reduce it to an
a. Undue dependence on total fees from an assurance acceptable level:
client. a. Disposing of the financial interest at the earliest practical
b. Concern about the possibility of losing the engagement. date.
c. Having a close business relationship with an assurance b. Removing the member of the assurance team from the
client. assurance engagement.
d. Pressure to reduce inappropriately the extent of work c. Either a or b
performed in order to reduce fees d. Neither a nor b

91. The integrated national professional organization of Certified 96. Occurs when, by virtue of a close relationship with an
Public Accountants accredited by the BOA and the PRC per assurance client, its directors, officers or employees, a firm or
PRC accreditation No. 15 dated October 2, 1975. a member of the assurance team becomes too sympathetic
a. Philippine Institute of Certified Public Accountants to the client's interests.
(PICPA) a. Self-interest threat
b. Auditing and Assurance Standards Council (AASC) b. Self-review threat
c. Financial Reporting Standards Council (FRSC) c. Advocacy threat
d. Education Technical Council (ETC) d. Familiarity threat

92. A CPA-lawyer, acting as a legal counsel to one of his audit 97. A former officer, director or employee of the assurance client
client, is an example of serves as a member of the assurance team. This situation will
a. Self-interest threat least likely create
b. Self-review threat a. Self-interest threat.
c. Advocacy threat b. Self-review threat.
d. Familiarity threat c. Intimidation threat.
d. Familiarity threat.
93. Intimidation threat
a. Is not a threat to independence. 98. Immediate family includes
b. Occurs when a member of the assurance team may a. Parent.
be deterred from acting objectively and exercising b. Sibling.
professional skepticism by threats, actual or c. Non-dependent child.
perceived, from the directors, officers or employees d. Spouse.
of an assurance client.
c. Occurs when, by virtue of a close relationship with an 99. Which of the following is not likely a threat to independence?
assurance client, its directors, officers or employees, a a. Acting as an advocate on behalf of an assurance client in
firm or a member of the assurance team becomes too litigation or in resolving disputes with third parties.
sympathetic to the client's interests. b. Long association of a senior member of the assurance
d. Occurs when a firm, or a member of the assurance team, team with the assurance client.

AT – Prelim Rev (875 MCQs) Red Sirug Page 70 of 77

 c. Threat of replacement over a disagreement with the examining a sample of evidence.
application of an accounting principle. c. The work, under taken by the auditor is permeated by
d. Owning immaterial indirect financial interest in an judgment.
audit client. d. Fatigue and human weaknesses can cause
auditors to overlook pertinent evidence.
SET 9
7. Which of the following is not one of the general principles
1. This is the traditional service provided by CPA firms. governing the audit of financial statements?
a. Tax services a. The auditor should conduct the audit in accordance with
b. Compilation PSA.
c. Reviews b. The auditor should comply with the Philippine Code of
d. Audits Professional Ethics.
c. The auditor should plan and perform the audit with an
2. The billing arrangement based on actual time spent by audit attitude of professional skepticism.
engagement team is d. The auditor should obtain sufficient appropriate
a. Flat sum basis evidence primarily through inquiry and analytical
b. Per diem basis procedures to be able to draw reasonable conclusions.
c. Maximum fee basis
d. Retainer basis 8. Which of the following statements does not properly describe
an element of the theoretical framework of auditing?
3. Professionals are expected to conduct themselves at a higher a. An audit benefits the public.
level than b. The data to be audited can be verified.
a. Anyone else. c. Auditors act on behalf of management.
b. Their clients. d. Short-term conflicts may exist between managers who
c. Most other members of society. prepare data and auditors who examine the data.
d. Most other members of their profession.
9. Which of the following criteria is unique to the independent
4. A candidate who fails in two (2) complete CPA examinations auditor's attest function?
shall be: a. Independence.
a. Reverted to undergraduate status. b. General competence.
b. Forever banned from taking another set of examinations c. Due professional care.
c. Considered as having passed the examination, under the d. Familiarity with the particular industry of each client.
rule of efforts and professional mercy.
d. Required to take a refresher course before making 10. Auditing is based on the assumption that financial data are
another attempt at the CPA Board exams. verifiable. Data are verifiable when two or more qualified
individuals,
5. Which of the following statements is correct concerning an a. Working together, can prove, beyond doubt, the
auditor's responsibilities regarding financial statements? accuracy of the data.
a. The auditor's report should provide an assurance as to the b. Working independently, can prove, beyond
future viability of the entity. reasonable doubt, the truthfulness of the data.
b. Making suggestions that are adopted about the form c. Working independently, each reach essentially
and content of an entity's financial statements impairs an similar conclusions.
auditor's independence. d. Working together, can agree upon the accuracy of the
c. An auditor's responsibilities for audited financial data.
statements are confined to the expression of the
auditor's opinion. 11. The QRC shall have the following functions:
d. The fair presentation of audited financial statements in a. Conduct quality control review on applicants for
accordance with an applicable financial reporting registration to practice public accountancy and
framework is an implicit part of the auditor's render a report on such quality review.
responsibilities. b. Mete out sentences of imprisonment to CPAs who fail to
present a valid system of quality control.
6. Which of the following statements does not properly c. Revoke the certificate of registration and professional ID
describe a limitation of an audit? of an individual CPA, firm, or partnership of CPAs who
a. Many financial statement assertions cannot be audited. have not observed quality control measures and who has
b. Many audit conclusions are made on the basis of

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 not complied with the standards of quality prescribed for
the practice of public accountancy.
d. All of these.
12. The need for independent audits of financial statements can
be attributed to all of the following conditions except:
a. Validity
b. Remoteness
c. Consequence
d. Complexity of subject matter
13. The underlying conditions that create demand by users for
reliable information include the following except:
a. Decisions are not time-sensitive.
b. Transactions that are numerous and complex.
c. Users separated from accounting records by distance
and time.
d. Financial decisions that are important to investors and
users.
14. Why does a company choose to have an independent
auditor report on its financial statements?
a. Independent auditors will always detect management
fraud.
b. Independent auditors guarantee the accuracy of the
financial statements.
c. The company preparing the statements may have a
vested interest in reporting certain results.
d. An independent audit is designed to search for
deficiencies in the company's internal controls.
15. Which of the following statements does not describe a
condition that creates a demand for auditing?
a. Users can directly assess the quality of information.
b. Information can have substantial economic
consequences for a decision maker.
c. Expertise is often required for information preparation
and verification.
d. Conflict between an information preparer and a user can
result in biased information.
16. Information risk refers to the risk that
a. The client may not be able to remain in business.
b. Errors and frauds would not be detected by the auditor's
procedures.
c. The auditor may express an unqualified opinion on
financial statements that are material misstated.
d. The client's financial statements may be materially
false and misleading.
17. Which of the following is a cause of information risk?
a. Voluminous data.
b. Biases and motives of the provider of information.
c. Remoteness of the information.
d. Each of the above is a cause of information risk.
AT – Prelim Rev (875 MCQs) Red Sirug
18. In financial statement audits, the audit process should be
conducted in accordance with
a. The audit program
b. Philippine Accounting Standards
c. Philippine Standards on Auditing
d. Philippine Financial Reporting Standards
19. The overall objective of forensic auditing is to
a. Attest to the efficiency with which resources are
employed
b. Assist members of the organization in the effective
discharge of their responsibilities
c. Unearth the truth and provide evidence in legal and
financial disputes
d. Provide assurance that financial data have been
accurately recorded
20. Which of the following types of auditing is performed most
commonly by CPA's on a contractual basis?
a. Internal auditing
b. Income tax auditing
c. External auditing
d. Government auditing
21. Which of the following types of audits is performed to
determine whether an entity's financial statements are fairly
stated in conformity with generally accepted accounting
principles?
a. Operational audit
b. Compliance audit
c. Performance audit
d. Financial statement audit
22. Which of the following has the primary responsibility for the
fairness of the representations made in the financial statements?
a. Audit committee
b. Client's management
c. Independent auditor
d. Board of Accountancy
23. The best statement of the responsibility of the auditor with
respect to audited financial statement is:
a. The auditor's responsibility on fair presentation of
financial statements is limited only up to the date
of the audit report.
b. The auditor's responsibility is confined to the
expression of opinion on the financial statements
audited.
c. The responsibility over the financial statements rests with
the management and the auditor assumes responsibility
with respect to the notes of financial statements.
d. The auditor is responsible only to his qualified opinion but
not for any other type of opinion.
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24. The level of assurance provided by a professional b. Financial statements
accountant on an audit report is: c. Assertions about economic actions and events
a. Low d. Operating data
b. Reasonable
c. Moderate 31. Auditing is based on the assumption that financial data and
d. None statements are
a. Verifiable
25. Reasonable assurance means: b. In conformity with the identified applicable financial
a. Gathering of all available corroborating evidence for the reporting framework
auditor to conclude that there are no material c. Presented fairly
misstatements in the financial statements, taken as a d. Consistently applied
whole.
b. Gathering of the audit evidence necessary for the auditor 32. The firm should establish a system of quality control designed
to conclude that the financial statements, taken as a to provide it with reasonable assurance regarding:
whole, are free from any misstatements. a. Compliance with professional standards
c. Gathering of the audit evidence necessary for the auditor b. Compliance with regulatory and legal requirements
to conclude that the financial statements are free of c. Appropriateness of reports issued by the firm or
material unintentional misstatements. engagement partners
d. Gathering of the audit evidence necessary for the d. All of the above
auditor to conclude that there are no material
misstatements in the financial statements, taken as a 33. A process designed to provide an objective evaluation, before
whole. the report is issued, of the significant judgments the
engagement team made and the conclusions they reached in
26. Which of the following is one of the limitations of an audit? formulating the report.
a. Nature of evidence obtained a. Peer review
b. Inadequacy of the accounting records b. Inspection
c. Confidentiality of information c. Engagement quality control review
d. Scope limitations imposed by the entity d. Monitoring

27. Which of the following statements does not properly
describe a limitation of an audit?
a. Many audit conclusions are made on the basis of
examining a sample of evidence.
b. The work, under taken by the auditor is permeated by
judgment.
c. Fatigue and human weaknesses can cause
auditors to overlook pertinent evidence.
d. Many financial statement assertions cannot be audited.
34. A process comprising an ongoing consideration and
evaluation of the firm's system of quality control, including a
periodic inspection of a selection of completed engagements,
designed to enable the firm to obtain reasonable assurance
that its system of quality control is operating effectively.
a. Inspection
b. Monitoring
c. Peer review
d. Engagement quality control review

28. Financial statements audits: 35. The firm should obtain written confirmation of compliance with
a. Reduce the cost of capital its policies and procedures on independence from all firm
b. Report on compliance with laws and regulations personnel required to be independent by the Code of Ethics at
c. Assess management's efficiency least:
d. Overlook information risk a. Annually
b. Every 3 years
29. In relation to auditing, which of the following is an incorrect c. Every 2 years
phrase? d. Every 5 years
a. Auditing is a systematic process.
b. Auditing subjectively obtains and evaluates evidence. 36. The firm should obtain acceptance and continuance
c. Auditing evaluates evidence regarding assertions. information as it considers necessary in the following
d. Auditing communicates results to interested users. circumstances:
a. When accepting an engagement with a new client
30. Broadly defined, the subject matter of any audit consists b. When deciding whether to continue an existing
of engagement
a. Economic data

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 c. When accepting a new engagement with an existing b. Communicating with the prospective client's prior auditor
client to inquire about any disagreements with the client.
d. All of these. c. Understanding the client's reasons for obtaining an audit.
d. Determining the likelihood of issuing an unqualified
37. The following methods are most likely to develop capabilities audit opinion on the client's financial statements.
and competence, except:
a. Professional education. 44. Which of the following is incorrect regarding professional
b. Continuing professional development, including training. competence?
c. Work experience and coaching by less experienced a. Professional accountants may portray themselves as
staff having expertise or experience they do not possess.
d. Self-study modules on professional accounting and b. Professional competence may be divided into two
auditing literature. separate phases.
c. The attainment of professional competence requires
38. Consultation is usually undertaken for: initially a high standard of general education.
a. Difficult or contentious matters. d. The maintenance of professional competence requires a
b. Matters for which there is readily available support. continuing awareness of development in the accountancy
c. Matters for which the judgment of the engagement leader profession.
is deemed sufficient.
d. Straightforward matters involving accounting and auditing. 45. The following procedures relate to Skills and Competence,
except
39. The standard-setting body whose chairman had been or a. Identify criteria which will be considered in evaluating
presently a senior accounting practitioner in any scope of individual performance and expected proficiency.
accounting practice is b. Provide procedures for maintaining the firm's
a. AASC standards of quality for the work performed.
b. FRSC c. Establish qualifications and guidelines for evaluating
c. PICPA potential hirees at each professional level.
d. ACPAPP d. Provide, to the extent necessary, programs to fill the
firm's needs for personnel with expertise in specialized
40. The chairman and the members of the AASC and FRSC shall and industries.
have a term of
a. 1 year. 46. It is essential that users regard CPA firms as
b. 3 years. a. Competent.
c. 3 years with no renewal. b. Unbiased.
d. 3 years renewable for another term. c. Technically proficient.
d. All of the above
41. The benefits of an operational audit generally include all of
the following except 47. The Code of Professional Ethics states, in part, that a CPA
a. Decreased costs. should maintain integrity and objectivity. Objectivity refers to
b. Increased revenue the CPA's ability to
c. Increased productivity. a. Determine accounting practices that were consistently
d. Increased reliability of the financial statements. applied.
b. Maintain an impartial attitude on all matters which
42. The auditor is required to comply with all PSAs relevant to the come under his review.
audit of an entity's financial statements. A PSA is relevant to c. Determine the materiality of items.
the audit when: d. Insist on all matters regarding audit procedures.
I. The PSA is in effect.
II. The circumstances addressed by the PSA exist. 48. A professional accountant may be associated with a tax return
a. I only that
b. II only a. Contains a false or misleading statement.
c. Either I or II b. Contains statements or information furnished recklessly
d. Both I and II or without any real knowledge of whether they are true or
false.
43. Preplanning the audit involves several key activities which c. Omits or obscures information required to be submitted
include the following except: and such omission or obscurity would mislead the
a. Investigating the client's background. revenue authorities.

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 d. Uses of estimates if such use is generally acceptable
or if it is impractical under the circumstances to
obtain exact data.
49. Prior to beginning the field work on a new audit engagement in
which a CPA does not possess expertise in the industry in
which the client operates, the CPA should
a. Reduce audit risk by lowering the preliminary levels of
materiality.
b. Design special substantive tests to compensate for the
lack of industry expertise.
c. Engage financial experts familiar with the nature of the
industry.
d. Obtain a knowledge of matters that relates to the
nature of the entity's business.
50. Which of the following is not one of the duties of the
Commission on Audit
a. Keep the general accounts of the government
b. Promulgate accounting rules and regulations
c. Define the scope of its audit and examination
d. Assume fiscal responsibility for the government and
its instrumentalities
51. The early appointment of the independent auditor has many
advantages to the auditor and the client. Which of the
following advantages is least likely to occur as a result of early
appointment of the auditor?
a. The auditor will be able to plan the audit work so that it
may be done expeditiously.
b. The auditor will be able to complete the audit work in
less time.
c. The auditor will be able to better plan for the observation
of the physical inventories.
d. The auditor will be able to perform the examination more
efficiently and will be finished at an early date after the
year-end.
52. Which of the following is the most likely first step an auditor
would perform at the beginning of an initial audit engagement?
a. Prepare a rough draft of the financial statements and of
the auditor's report.
b. Study and evaluate the system of internal administrative
control.
c. Tour the client's facilities and review the general
records.
d. Consult with and review the work of the predecessor
auditor prior to discussing the engagement with the client
management.
53. An extensive understanding of the client's business and
industry and knowledge about the company's operations are
essential for doing an adequate audit. For a new client, most
of this information is obtained
a. From the Securities and Exchange Commission.
AT – Prelim Rev (875 MCQs) Red Sirug
b. From the predecessor auditor.
c. From the permanent file.
d. At the client's premises.
54. When the continuing auditor intends to use information about
the entity and its environment obtained in prior periods, the
auditor should:
a. Assess control risk as "high" for the assertions affected
by the prior-period information.
b. Seek permission with the client in using the prior period
information obtained by the auditor.
c. Determine whether changes have occurred that may
affect the relevance of such information in the
current audit.
d. Determine whether to equitably reduce the audit fee due
to lower audit effort expended during the engagement.
55. Relevant industry conditions include the following, except:
a. The market and competition, including demand, capacity
and price competition.
b. Regulatory framework for a regulated industry.
c. Cyclical or seasonal activity.
d. Product technology relating to the entity's products.
56. An auditor obtains an understanding of the entity and its
environment in order to
a. Make constructive suggestions concerning improvements
to the client's internal control.
b. Understand the events and transactions that may
have an effect on the client's financial statements.
c. Evaluate whether the aggregation of known
misstatements causes the financial statements taken as a
whole to be materially misstated.
d. Develop an attitude of professional skepticism concerning
management's financial statement assertions.
57. Maintaining or providing access to adequate reference
libraries and other authoritative sources is a procedure that is
most likely performed to comply with the policy of
a. Monitoring
b. Ethical requirements
c. Assignment
d. Consultation
58. A process designed to provide an objective evaluation, before
the report is issued, of the significant judgments the
engagement team made and the conclusions they reached in
formulating the report is called:
a. Inspection
b. Documentation
c. Monitoring
d. Engagement quality control review
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59. A CPA firm would be reasonably assured of meeting its
responsibility to provide professional services that conform
with professional standards by:
a. Maintaining an attitude of independence in its
engagements.
b. Adherence to generally accepted auditing standards.
c. Having an appropriate a system of quality control.
d. Continuing professional education.
60. At the beginning of the current audit engagement, the auditor
should perform key preplanning activities which include all of
the following except:
a. Performing procedures regarding client acceptance or
continuance.
b. Evaluating compliance with ethical requirements.
c. Establishing an understanding of the terms of the
engagement.
d. Considering internal control.
61. When a CPA is approached to perform an audit for the first
time, the CPA should make inquiries of the predecessor
auditor. This is a necessary procedure because the
predecessor may be able to provide the successor with
information that will assist the successor in determining
a. Whether, in the predecessor's opinion, internal control of
the company has been satisfactory.
b. Whether the engagement should be accepted.
c. Whether the predecessor's work should be utilized.
d. Whether the company follows the policy of rotating its
auditors.
62. Which of the following will an auditor least likely discuss with
the former auditors of a potential client prior to acceptance?
a. Disagreements with management regarding accounting
principles
b. Integrity of management
c. Fees charged for services
d. Reasons for changing audit firms
63. Which of the following statements are factors to consider
whether the firm has the capabilities, competence, time and
resources to undertake a new audit engagement from a
prospective client:
I. Firm personnel have knowledge of relevant
industries.
II. The firm has sufficient personnel with the necessary
capabilities and competence.
III. Experts are available, if needed.
IV. The firm is able to complete the engagement within
the reporting deadline.
a. I and II only
b. II and IV only.
c. II, III and IV only
d. I, II, III and IV
AT – Prelim Rev (875 MCQs) Red Sirug
64. The element of the audit planning process most likely to be
agreed upon with the client before implementation of the audit
strategy is the determination of the
a. Methods of statistical sampling to be used in confirming
accounts receivable.
b. Pending legal matters to be included in the inquiry of the
client's attorney.
c. Evidence to be gathered to provide a sufficient basis for
the auditor's opinion.
d. Schedules and analyses to be prepared by the
client's staff.
65. The understanding between the client and the auditor as to
the degree of responsibilities to be assumed by each is
normally set forth in a(an)
a. Management letter.
b. Representation letter.
c. Engagement letter.
d. Comfort letter.
66. Which of the following best describes the purpose of the
engagement letter?
a. The engagement letter conveys to management the
detailed steps to be applied in the audit process.
b. The engagement letter relieves the auditor of some
responsibility for the exercise of due care.
c. By clearly defining the nature of the engagement, the
engagement letter helps avoid and resolve
misunderstandings between CPA and client
regarding the precise nature of the work to be
performed and the type of report to be issued.
d. The engagement letter should be signed by both the
client and the CPA and should be used only for
independent audits.
67. Which of the following statements would least likely appear in
an auditor's engagement letter?
a. Our engagement is subject to the risk that material errors,
fraud, and defalcations, if they exist, will not be detected.
b. During the course of our audit we may observe
opportunities for economy in, or improved controls over,
your operations.
c. After performing our preliminary analytical
procedures we will discuss with you the other
procedures we consider necessary to complete the
engagement.
d. Fees for our services are based on our regular per diem
rates, plus travel and other out-of-pocket expenses.
68. Which of the following is an element of "directing an audit
assistant" objective?
a. Identifying in advance the staffing requirements of a
particular audit engagement.
b. Resolving any differences in professional judgment
between audit personnel.
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 c. Resolution of differences in audit findings.
d. Informing assistants of their responsibilities and the
objectives of the procedures they are to perform.
69. A CPA establishes quality control policies and procedures for
deciding whether to accept a new client or continue to perform
services for a current client. The primary purpose for
establishing such policies and procedures is
a. To enable the auditor to attest to the integrity or reliability
of a client.
b. To comply with the quality control standards established
by regulatory bodies.
c. To minimize the likelihood of association with
clients whose management lacks integrity.
d. To lessen the exposure to litigation resulting from failure
to detect irregularities in client financial statements.
70. Which of the following is prohibited by the Code of
Professional Ethics for CPAs?
a. Use of a firm name which includes the name of a retired
partner.
b. Accepting an engagement or employment which one
cannot reasonably expect to complete or discharge
with professional competence.
c. Announcement in a newspaper of the opening of a public
accounting office.
d. Engaging in civic activities during business hours.
71. Which of the following statements best describes why the
profession of certified public accountants has deemed it
essential to promulgate a code of ethics and to establish a
mechanism for enforcing observance of the code?
a. The law requires an establishment of a code of ethics.
b. A distinguishing mark of a profession is its
acceptance of responsibility to the public.
c. A prerequisite to success is the establishment of an
ethical code that stresses primarily the professional's
responsibility to clients and colleagues.
d. An essential means of self-protection for the profession is
the establishment of flexible ethical standards by the
profession.
72. Which of the following is not one of the qualifications of the
members of the Board of Accountancy?
a. He/She must not be a director or officer of PICPA at the
time of his appointment.
b. He/She must be a natural-born citizen and a resident of
the Philippines.
c. He/She must be a duly Certified Public Accountant
with at least ten years of experience in practice of
public accountancy.
d. He/She must not have any direct or indirect pecuniary
interest in any school, college, university, or institution
offering a BS Accountancy course or institution
conducting review classes in preparation for the licensure
AT – Prelim Rev (875 MCQs) Red Sirug
examination at the time of his appointment to the Board.
73. The following statements relate to the RA 9298. Which
statement is true?
a. The Professional Regulation Commission has the
authority to remove any member of the Board of
Accountancy for negligence, incompetence, or any other
just cause.
b. No person shall be appointed as a member of the
Board of Accountancy unless he has been in the
practice of accountancy for at least 10 years, among
others.
c. Insanity is not a ground for proceeding against a CPA.
d. After three years, subject to certain conditions, the Board
of Accountancy may order the reinstatement of a CPA
whose certificate of registration has been revoked.
74. Special/temporary permit may be issued by the Board to the
following persons except:
a. A foreign CPA engaged as a professor or lecturer in the
fields essential to accountancy education in the
Philippines.
b. A foreign CPA called for consultation or specific purpose
which is essential for the development of the country and
that there are no Filipino CPAs qualified for such
consultation or specific purpose.
c. A foreign CPA who can prove that the country of
which he or she is a citizen admits citizens of the
Philippines to the practice of the same profession
without restriction.
d. A foreign CPA with specialization in any branch of
accountancy and his/her service is essential for the
advancement of accountancy in the Philippines.
75. The following statements relate to RA 9298. Which statement
is true?
a. Insanity is not a ground for proceeding against a CPA.
b. The Professional Regulation Commission has the
authority to remove any member of the Board of
Accountancy for negligence, incompetence, or any other
just cause.
c. A person shall be considered to be in the
professional practice of accounting if, as an officer in
a private enterprise, he makes decisions requiring
professional accounting knowledge.
d. After three years, subject to certain conditions, the Board
of Accountancy may order the reinstatement of a CPA
whose certificate of registration has been revoked.
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