ACT631 Assurance Principles, Professional Ethics and Good Governance

1. Recording, Classifying, and summarizing economic events in a logical manner for the purpose of
providing financial information for decision making is commonly called:
A. Finance
B. Auditing
C. Accounting
D. Economics

2. Broadly defined, the subject matter of any audit consists of

A. Financial statements
B. Economic data
C. Assertions
D. Operating Data

3. The criteria for evaluating quantitative information vary. For example, 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
D. Regulations of the Securities and Exchange Commission

4. Under GAAS, which of the following reflects a concept from the general group?
A. The confirmation of accounts receivable
B. Completing an internal control questionnaire
C. The initial planning of the audit with the audit partner, manager, senior, staff and client personnel
D. The assignment of audit personnel to an engagement where they have no financial interest

5. What is the general character of the three generally accepted auditing standards classified as standards
of the field work?
A. The competence of persons performing the audit
B. Criteria for the content of the auditor’s report on financial statements and related footnote
disclosures.
C. The criteria of audit planning and evidence-gathering
D. The need to maintain an independence in mental attitude in all matters relating to the audit

6. While performing audit services for their clients, professional accountants have a duty to provide a
level of care which is
A. Reasonable C. Superior
B. Greater than average D. Guaranteed to be free from error

7. Which of the following statements is correct regarding errors and fraud?

A. An error is unintentional, whereas fraud is intentional
B. Frauds occur more often than errors in financial statements
C. Errors are always fraud and frauds are always errors
D. Auditors have more responsibility for finding fraud than errors

8. The term “error” refers to unintentional misrepresentation of financial information. Examples of

errors are when
I. Assets have been misappropriated
II. Transactions without substance have been recorded
III. Records and documents have been manipulated and falsified
IV. The effects of the transactions have been omitted from the records

A. All of the above statements are true C. All of the above statements are false
B. Only statements I and III are true D. Only statements II and IV are true

9. The level of assurance provided by an audit of detecting a material misstatement is referred to as:

A. Reasonable assurance C. Absolute assurance

B. Moderate assurance D. Negative assurance

10. Management assertions are:

A. Directly related to the financial reporting framework used by the company
B. Stated in the footnotes to the financial statements
C. Explicitly expressed representations about the company’s financial condition
 ACT631 Assurance Principles, Professional Ethics and Good Governance

D. Provided to the auditor in the assertions letter, but are not disclosed on the financial
Statements

11. Which of the following statements is not correct?

A. It would be a violation of the completeness assertion if management would record a sale that did
not take place
B. The completeness assertion deals with matters opposite from those of the existence assertion
C. The completeness assertion is concerned with the possibility of omitting items from the financial
statements that should have been included
D. The existence assertion is concerned with inclusion of amount that should not have been

12. Which of the following statements is correct?

A. Existence relates to whether the amounts in accounts are understated
B. Completeness relates to whether balance exist
C. Existence relates to whether the amounts included exist
D. Occurrence relates to whether the amounts in accounts occurred in the proper year

13. In performing an audit of financial statements, the auditor should obtain knowledge of the client’s
business sufficient to
A. Make constructive suggestion concerning improvements in internal control
B. Identify transactions and events that may affect the financial statements
C. Develop an attitude of professional skepticism
D. Assess the level of control risk

14. To obtain an understanding of a continuing client’s business in planning audit, an auditor most likely
would
A. Perform tests of detail of transactions and balances
B. Review prior year working papers and the permanent file for the client
C. Read specialized industry journals
D. Re-evaluate the client’s internal control system

15. Information about the client’s business appropriately assists the auditor in:
Assessing risks and Planning and performing Evaluating audit
Identifying potential the audit effectively and evidence problems
efficiently
A. YES YES YES
B. YES NO YES
C. NO YES YES
D. YES YES NO

16. The primary responsibility for establishing and maintaining an internal control rests with
A. The external auditors C. Management and those charged with governance
B. The internal auditors D. The controller of the treasurer

17. Which of the following is not one of the three primary objectives of effective internal control?
A. Reliability of financial reporting
B. Efficiency and effectiveness of operations
C. Compliance with laws and regulations
D. Assurance of elimination of business risks

18. Which statement is correct concerning the relevance of various types of controls to a financial audit?
A. An auditor may ordinarily ignore a consideration of controls when a substantive audit approach is
taken
B. Control over the reliability of financial supporting are ordinarily most directly relevant to an audit
but other controls may also be relevant
C. Controls over safeguarding of assets and liabilities are of primary importance, while controls over
the reliability financial reporting may also be relevant
D. All controls are ordinarily relevant to an audit

19. Evidence is usually more persuasive for balance sheet accounts when it is obtained:
A. As close to the balance sheet date as possible
B. Only from transactions occurring on the balance sheet date
C. From various time throughout the client’s year
 ACT631 Assurance Principles, Professional Ethics and Good Governance

D. From the time period when transactions in that account were most numerous during the fiscal
period

20. Often, auditor procedures result in significant differences being discovered by the auditor. The auditor
should investigate further if:
Significant differences are not Significant differences are
expected but do exist expected but do not exist
A. YES YES
B. NO NO
C. YES NO
D. NO YES

21. Auditors may decide to replace tests of details with analytical procedures when possible because the:
A. Analytical procedures are more reliable
B. Analytical procedures are considerably less expensive
C. Analytical procedures are more persuasive
D. Tests of details are more difficult to interpret

22. One of the causes of non-sampling error is

A. Failure to draw a random sample
B. Failure to draw a representative sample
C. The use of inappropriate or ineffective audit procedures
D. The use of attributes sampling instead of variables sampling

23. Which of the following is the risk that audit tests will not uncover existing expectations in a sample?
A. Sampling risk C. Audit risk
B. Non-sampling risk D. Detection risk

24. Which of the following constitutes audit sampling?

A. Selecting and examining specific items to determine whether or not a particular procedure is
being performed
B. Examining items to obtain information about matters such as the client’s business, the nature of
transactions, accounting and internal control systems
C. Examining items whose values exceed a certain amount so as to verify a large proportion of the
total amount of an account balance or class of transactions
D. Applying audit procedures to less than 100% of items within an account balance or class of
transactions such that all sampling units have a chance of selection

25. An auditor has the responsibility to actively search for subsequent events that occur subsequent to the.
A. Balance sheet date
B. Date of the auditor’s report
C. Balance sheet date, but prior to the audit report
D. Date of the management representation letter

26. When completing the audit, the auditor performs procedures designed to identify subsequent events
that may require adjustment of, or disclosure in, the financial statements. Accordingly
Those that provide evidence about Those that are indicative of conditions
Conditions that existed at period end that arose subsequent to period end
A. Will require adjustment Will require adjustment
B. Will require adjustment Will require disclosure
C. Will require disclosure Will require disclosure
D. Will require disclosure Will require adjustment

27. Which of the following procedures should an auditor generally perform regarding subsequent events?
A. Compare the latest available interim financial statements with the financial statements being
audited
B. Send second requests to the client’s customers who failed to respond to initial accounts receivable
C. Communicate material weaknesses in the internal control structure to the client’s audit committee
D. Review the cut-off bank statements for several months after the year-end

28. Pronouncement of Auditing and Assurance Standard Council (AASC) do not cover?
A. Review engagement C. Consultancy
B. Compilation engagement D. Agreed – upon procedures engagement
 ACT631 Assurance Principles, Professional Ethics and Good Governance

29. Which of the following best describes “related services”?

A. Audit and Review of financial statements
B. Assurance and Audit engagements
C. Compilation and agreed – upon procedures engagements
D. Review, compilation and agreed – upon procedures engagements

30. The auditor’s satisfaction as to the reliability of an assertion being made by one party’s called?
A. Assurance C. Precision
B. Audit risk D. Materiality

31. The concept of limited assurance is provided for in which of the following engagements?
A. Audit C. Compilation
B. Review D. Agreed – upon procedures

32. The code of professional ethics for CPAs promulgated by the Board of Accountancy applies to
A. All CPAs in public practice
B. All CPAs in government
C. All CPAs in public practice and employed in private business
D. All CPAs in public practice, employed in private business and industry, in the government, and in
education.

33. The underlying reason for a code of professional ethics is

A. That is required by legislation.
B. To provide the licensing agencies with a basis for measuring the performance of the practitioners.
C. The need for public confidence in the quality of service of the profession
D. That it provides a safeguard against unscrupulous people.

34. The CPA profession deemed it necessary to establish a code of ethics and a mechanism for its
enforcement because:
A. An ethical conduct that stresses the CPA’s responsibility to clients and colleagues is a
prerequisite to success.
B. A requirement of law provides that CPA’s establish a code of ethics.
C. Acceptance of responsibility to the public is a distinguishing mark of a profession
D. The establishment of flexible ethical standards provides self – protection for CPAs

35. Which of the following statements is true when the CPA has been engaged to perform an audit of
financial statements?
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
those who rely on the financial statements.
C. Should a situation arise when there is no convincing authorized standard available, and there is a
choice of actions which could impact a client’s financial statements, the CPA is free to endorse the
choice which is the investor’s interests.
D. The CPA firm’s paramount concern should be the interest of the client

36. Which of the following statements best describes assurance services?

A. Independent professional services that are intended to enhance the credibility of information to
meet the needs of an intended user.
B. Services designed to express an opinion on the fairness of historical financial statements based on
the results of an adult.
C. The preparation of financial statements or the collection, classification, and summarization of
other financial information.
D. Services designed for the improvement of operations, resulting in better outcomes.

37. Which of the following is not an assurance service?

A. Examination of prospective financial information
B. Audit of historical financial statements
C. Review of financial statements
D. Compilation of financial information

38. In an assurance engagement, the outcome of the evaluation or measurement of a subject matter
against criteria is called
 ACT631 Assurance Principles, Professional Ethics and Good Governance

A. Subject matter information C. Assurance

B. Subject matter D. Conclusion

39. The objective of a review of financial statements is

A. To enable the auditor to express on opinion whether the financial statements are prepared, in all
material respects, in accordance with generally accepted accounting principles in the Philippines.
B. For the auditor to carry out 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.
C. For the accountant to use accounting expertise, as opposed to auditing expertise, to collect classify
and summarize financial information.
D. To enable an auditor to state whether, on the basis of procedures which do not provide all the
evidence that would be required in an audit, anything has come to the auditor’s attention that causes
the auditor to believe that the financial statements are not prepared, in all material respects, in
accordance with generally accepted accounting principles in the Philippines (negative assurance).

40. 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.

41. Engagement letter for a review of financial statements least likely includes
A. The objective of the service being performed
B. The fact that the engagement cannot be relied upon to disclose errors, illegal acts or other
irregularities, for example, fraud or defalcations that may exist.
C. A statement that an audit is not being performed and that an audit opinion will not be expressed.
D. The fact that because of the test nature and other inherent limitations of an audit, together with the
inherent limitations of any accounting and internal control system, there is an unavoidable risk that
even some material misstatement may remain undiscovered.

42. An auditor’s standard report on a review of the financial statements of a nonpublic entity should state
that
A. The auditor does not express an opinion or any form of limited assurance on the financial
statements
B. Nothing has come to the auditor’s attention based on the review that causes the auditor to believe
the financial statements are not presented fairly, in all material respects in accordance with generally
accepted accounting principles in the Philippines.
C. The auditor obtained reasonable assurance about whether the financial statements are free of
material misstatement
D. The auditor examined evidence, on a test basis, supporting the amounts and disclosures in the
financial statements

43. The amount of audit fees depends 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.

44. An audit involves ascertaining the degree of correspondence between assertions and established
criteria. In case of financial statement audit, which of the following is not valid criterion?
A. Philippine Standards on Auditing
B. Authoritative Financial reporting framework
C. International Accounting Standards
D. Accounting standards generally accepted in the Philippines

45. Whenever a CPA professional is engaged to perform an audit of financial statements according to
Philippine Standard on Auditing, he is required to comply with those standards in order to
A. Eliminate audit risk
B. Have a measure of the quality of audit performance
C. To reduce the auditor’s responsibility
D. Eliminate the professional judgment in resolving Audit issues

46. An audit of financial statements is conducted to determine if the

 ACT631 Assurance Principles, Professional Ethics and Good Governance

A. Organization is operating efficiently and effectively

B. Auditee is following specific procedures or rules set down by some higher authority
C. Overall financial statements are stated in accordance with an identified financial reporting
framework
D. Client’s internal control is functioning as intended

47. In the auditing environment, failure to meet auditing standards is often:

A. An accepted practice
B. A suggestion of negligence
C. Conclusive evidence of negligence
D. Tantamount to criminal behavior

48. Audit standard requires an auditor to:

A. Perform procedures that are designed to detect all instance of fraud
B. Provide reasonable assurance that the financial statements are not materially misstated
C. Issue an unmodified opinion only when the auditor is satisfied that no instances of fraud have
occurred
D. Design the audit program to meet financial statements user’s expectations concerning fraud

49. Which of the following underlies the application of generally accepted auditing standards, particularly
the standards of field work and reporting?
A. Element of internal control C. Element of reasonable assurance
B. Element of materiality and risk D. Element of corroborating evidence

50. Material misstatements may emanate from all of the following except
A. Fraud C. Noncompliance with laws and regulations
B. Error D. Inadequacy of accounting records