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AUDITING THEORY J.G. SALOSAGCOL
PREWEEK QUIZZER 1 OCTOBER 2018

1. The objective of an audit of financial statements is

a. To assist an entity in the preparation of financial statements.
b. To express an opinion whether the financial statements are prepared, in all
material respects, in accordance with an identified financial reporting
framework.
c. To enable an auditor to state whether, on the basis of the procedures
performed, 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 an identified financial reporting
framework.
d. To guarantee that all material misstatements in the financial statements are
detected.

2. Which of the following best describes the reason why an independent auditor reports on financial
statements?
a. A management fraud may exist and it is more likely to be detected by
independent auditors.
b. Different interests may exist between the company preparing the
statements and the persons during the statements.
c. A misstatement of account balances may exist and is generally corrected
as the result of the independent auditor’s work.
d. A poorly designed internal control system may be in existence.

3. Which of the following statements does not describe a condition that creates a demand for auditing?
a. Conflict between an information preparer and a user can result in biased
information.
b. Information can have substantial economic consequences for a decision-
maker.
c. Expertise is often required for information preparation and verification
d. Users can directly assess the quality of information.

4. Material misstatements may emanate from all of the following except

a. fraud c. non-compliance with laws and
b. errors regulations
d.limitations of the audit

5. 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 unintentional mistakes or omissions, while fraud involves
. intentional misstatements.
c There is no difference as errors and frauds have the same meaning.
.
d Errors are more likely to provide an indication that an illegal act has
. occurred.

6. Which of the following statements best identifies the two types of fraud?
a. Theft of assets and employee fraud.
b. Misappropriation of asset and defalcation
c. Management fraud and fraudulent financial reporting
d. Fraudulent financial reporting and misappropriation of assets.
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7. Which of the following is not an example of fraud?
a.misappropriation of assets. c. Misinterpretation of facts
b. Recording transactions without substance. d. Omission of the effects of
transactions

8. Which of the following would be considered a fraud?

a. mistakes in the application of accounting principles
b. clerical mistakes in the accounting data underlying the financial statements
c. misappropriation of an asset or groups of assets
d. misinterpretations of facts that existed when the financial statements were
prepared
9. Fraudulent financial reporting is often called
a. management fraud. b. theft of assets. c. defalcation. d.
employee fraud.

10. When is the auditor responsible for detecting fraud?

a.When the fraud did not result from collusion.
b.When third parties are likely to rely on the client’s financial statements.
c. When the client’s system of internal control is judged by the auditor to be
inadequate.
d.When the application of PSA would have uncovered the fraud.

11. With respect to errors and fraud, the auditor should plan to
a.Search for errors that would have a material effect and for fraud that would
have either material or immaterial effect on the financial statements.
b.Search for fraud that would have a material effect and for errors that would
have either material or immaterial effect on the financial statements.
c.Search for errors or fraud that would have a material effect on the financial
statements.
d.Discover errors or fraud that have either material or immaterial effect on the
financial statements.

12. With respect to errors and fraud, which of the following should be part of an
auditor’s planning of the audit engagement?
a. planning to search for errors or fraud that would have a material or
immaterial effect on the financial statements
b. planning to discover errors or fraud that are either material or immaterial
c. planning to discover errors or fraud that are immaterial
d. planning to consider factors affecting the risk of material misstatement both
at the financial statement and the account balance level

13. The auditor is most likely to presume that a high-risk of a defalcation 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.

14. Because an examination in accordance with PSA is influenced by the possibility

of material errors, the auditor should conduct the examination with an attitude
of
a. Professional responsiveness c. Objective judgment
b. Conservative advocacy d. Professional skepticism
15. According to PSA 250, noncompliance refers to
a.intentional acts of one or more individuals which result in misstatement in
financial statements
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b.unintentional mistakes in the financial statements
c. personal misconduct by the entity’s management or employees
d.acts of omission or commission by the client which are contrary to prevailing
laws and regulations

16. In making a decision to accept or continue with a client, the auditor should
consider:
a b c d
Its competence YES YES YES YES
Its own independence YES NO YES NO
Its ability to service the client properly YES YES YES NO
The integrity of the client’s management YES YES NO YES

17. When an independent auditor is approached to perform an audit for the

first time, he or she should make inquiries of the predecessor auditor. Inquiries
are necessary because the predecessor may be able to provide the successor
with information that will assist the successor in determining whether
a. the predecessor’s work should be used
b. the company rotates auditors
c. in the predecessor’s opinion, control risk is low
d. the engagement should be accepted

18. When one auditor succeeds another, the successor auditor should request
the
a.Client to instruct its attorney to send a letter of audit inquiry concerning the
status of the prior year’s litigation, claims, and assessments.
b.Predecessor auditor to submit a list of internal accounting control weaknesses
that have not been corrected.
c.Client to authorize the predecessor auditor to allow a review of the
predecessor auditor’s working papers.
d.Predecessor auditor to update the prior year’s report to the date of the
change of auditors.

19. Which of the following should an auditor obtain from the predecessor
auditor prior to accepting an audit engagement?
a. Analysis of balance sheet accounts.
b. Analysis of income statement accounts.
c. All matters of continuing accounting significance.
d. Facts that might bear on the integrity of management.

20. Before accepting an audit engagement, a successor auditor should make

specific inquiries of the predecessor auditor regarding the predecessor’s
a. Awareness of the consistency in the application of generally accepted
accounting principles between periods.
b. Evaluation of all matters of continuing accounting significance.
c. Opinion of any subsequent events occurring since the predecessor’s audit
report was issued.
d. Understanding as to the reasons for the change of auditors.

21. According to PSA 210, the auditor and the client should agree on the terms
of engagement. The agreed terms would need to be recorded in an
a. memorandum to be placed in the permanent section of the auditing working
papers
b. engagement letter
c. client representation letter
d. comfort letter

22. The form and content of the engagement letters may vary for each client,
but they would generally include reference to all of the following, except:
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a. Objective and the scope of the audit of financial statements.
b. The fact that because of the inherent limitations of the audit, there is a risk
that material misstatement may remain undiscovered.
c. Type of opinion to be issued.
d. Responsibilities of the auditor and those of the management.

23. This involves developing an overall strategy for the expected conduct and
scope of the examination; the nature, extent, and timing of which vary with the
size and complexity, and experience with and knowledge of the entity
a. Audit planning c. Audit program
b. Audit procedure d. Audit working papers

24. When planning an examination, an auditor should

a. Consider whether the extent of substantive tests may be reduced based on
the results of the internal control questionnaire.
b. Make preliminary judgments about materiality levels for audit purposes.
c. Conclude whether changes in compliance with prescribed control procedures
justifies reliance on them.
d. Prepare a preliminary draft of the management representation letter.

25. In considering materiality for planning purposes, an auditor believes that

misstatements aggregating P100,000 would have a material effect on an entity’s
income statement, but that misstatements would have to aggregate P200,000 to
materially affect the balance sheet. Ordinarily, it would be appropriate to design
auditing procedures that would be expected to detect misstatements that
aggregate
a. P100,000 b. P150,000 c. P200,000
d. P300,000

26. “Tolerable misstatement” is the term used to indicate materiality at the:

a. balance sheet level. c. income statement level
b. account balance level. d. transactions level.

27. All else being equal, as the level of materiality decreases, the amount of evidence required will:
a. remain the same. c. decrease.
b. increase. d. fluctuate randomly.

28. In a financial statement audit, audit risk represents the probability that
a.internal control fails and the failure is not detected by the auditor’s procedures
b.the auditor unknowingly fails to modify an opinion on materiality misstated
financial statements
c. inherent and control risk cause errors that could be material to the financial
statements
d.the auditor is not retained to conduct a financial statement audit in the
succeeding year

29. In a financial statement audit, control risk represents

a. the susceptibility of an account balance to error that could be material
b. the risk that error could occur and not be prevented or detected by the
internal control structure
c. the risk that error could occur and not be detected by the auditor’s
procedures
d. the risk that the auditor fails to modify materially misstated financial
statements

30. Which of the following is not a component of a audit risk?

a Detection risk c Control risk
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. .
b Business risk d Inherent risk
. .

31. The risk that an auditor’s procedures will lead 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. Audit risk b. Inherent risk c. Control risk d. Detection
risk

32. What is the magnitude of audit risk if inherent risk is .50, control risk .40,
and detection risk .10?
a. .20 b. .10 c. .04 d. not
given

33. Which of the following best describes inherent risk?

a Auditors fail to discover a material misstatement in the course of their
. audit and do not modify their audit opinion.
b A company’s internal control fails to identify a material misstatement in a
. timely fashion.
c Auditing procedures fail to find a material misstatement.
.
d The possibility that a material misstatement will occur in any given
. account before considering internal control.

34. 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 c Control risk
. .
b Inherent risk d Detection risk
. .

35. Which of the following types of risk is significantly affected by the nature, amount and timing
of substantive auditing procedures?
a Inherent risk c Detection risk
. .
b Control risk d Sufficiency risk
. .

36. As the acceptable level of detection risk decreases, an auditor would

LEAST likely change
a. the timing of substantive tests by performing them at year-end.
b. the nature of substantive tests from a less effective to a more effective
procedure
c. the timing of tests of controls by performing them at several dates rather
than at one time
d. the extent of substantive tests such as using larger sample size

37. As the acceptable level of detection risk decreases the auditor may
a. perform tests of control at yearend rather than at interim
b. increase the level of inherent and control risks
c. design more effective substantive procedures
d. use larger sample size for tests of controls
38. Risk assessment procedures would include all of the following except
a.Inquiries of management and others within the entity.
b.Analytical procedures.
c.Observation and inspection.
d.Reperformance of client’s procedures.
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39. Analytical procedures used as of risk assessment procedure are performed
primarily to assist the auditor in
a. Identifying areas that may represent specific risks.
b. Obtaining knowledge about the design of internal control.
c. Obtaining knowledge about the operating effectiveness of the client’s
internal control.
d. Gathering corroborative evidence about the validity of an account balance.
40. The primary responsibility for establishing and maintaining an internal control
structure rests with
a.The external auditors
b.The internal auditors
c. Management and those charged with governance
d.The controller or the treasurer

41. Which of the following internal control objectives would be most relevant to
the audit?
a. Operational objective d. Administrative control
b. Compliance objective objective
c. Financial reporting
objective
42. An auditor’s consideration about internal control is whether
a. a specific control prevents or detects and corrects, material misstatements in
classes of transactions,
account balances or disclosures, and their related assertions.
b. a specific control contributes to efficiency and effectiveness of entity’s
operation.
c. the control reasonably ensures that the entity complies with government laws
and regulations.
d. the control prevents collusion among employees.

43. Inherent limitations in an internal control structure must be considered in

evaluating its effectiveness in preventing and detecting errors and fraud.
Inherent limitations do not include
a. Misunderstanding of instructions, mistakes of judgment, personal
carelessness, distraction, or fatigue.
b. Incompatible functions performed by the same person.
c. Collusion among employees.
d. Management override of certain policies or procedures.
44. When considering the effectiveness of a system of internal accounting control,
the auditor should recognize that inherent limitations do exist. Which of the
following is an example of an inherent limitation in a system of internal
accounting control?
a.The effectiveness of procedures depends on the segregation of employee
duties.
b.Procedures are designed to assure the execution and recording of transactions
in accordance with management’s authorization.
c.In the performance of most control procedures, there are possibilities of errors
arising from mistakes in judgment
d.Procedures for handling large numbers of transactions are processed by
electronic data processing equipment
45.Which of the following is not an element of an entity’s internal control structure?
a. Control risk
b. Control activities
c. Information and communication
d. The control environment
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46. The overall attitude and awareness of an entity’s board of directors concerning the importance of
the internal control structure usually is reflected in its
a. Computer-based controls c. Control environment
b. System of segregation of duties d. Safeguards over access to assets

47. Which of the following factors are included in an entity’s control environment?
BOD’s Assignment of Management Operating
Participation Responsibility Style
a. YES YES NO
b. YES NO YES
c. NO YES YES
d. YES YES YES

48. In evaluating the design of the entity’s internal control environment, the
auditor considers all of the following except
a. Integrity and ethical values
b. Commitment to competence
c. Organizational structure
d. Information and communications systems

49. Which of the following factors is included in an entity’s control environment?

Commitment to Segregation of Organizational
Competence Duties Structure
a. Yes Yes No
b. Yes No Yes
c. No Yes Yes
d. Yes Yes Yes

50. Which of the following statements best describes the entity’s risk assessment
process?
a.Entity’s process of identifying business risks relevant to financial reporting
objectives and deciding about actions to address those risks.
b.Entity’s assessment of audit risks affecting the financial statements.
c.Entity’s process of evaluating the risks of misstatements due to fraud.
d.Entity’s assessment of risks that internal control may fail to detect
misstatements affecting the financial statements.

51. The policies and procedures that help ensure that management directives are
carried out are referred to as the:
a. Control environment c. Monitoring of controls
b. Control activities d. Information system

52. Which of the following is not an example of control activities?

a. Personnel policies and procedurs
b. Authorization of transactions
c. Segregation of Duties
d. Safeguarding of assets

53. When obtaining understanding of the entity’s internal control, the auditor
should obtain knowledge about the system’s:
Design Implementation Operating effectiveness
a. Yes Yes Yes
b. Yes Yes No
c. Yes No No
d. Yes No Yes

54. Evaluating the design of the entity’s internal control would involve
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a. Considering whether the control, individually or in combination with other
controls, is capable of effectively preventing, or detecting and correcting,
material misstatements.
b. Determining whether control exists and the entity is using it.
c. Determining whether the control is operating effectively.
d. Determining the consistency of application of internal control procedures.

55. Obtaining knowledge about whether the control is implemented can best be
obtained by
a. Inquiry of client’s personnel.
b. Reading procedures manual
c. Tracing transactions through the information system relevant to financial
reporting.
d. Performing tests of control.

56. Tests of controls are directed towards control

Effectiveness Efficiency
a. Yes Yes
b. No No
c. Yes No
d. No Yes

57. Tests of controls are designed to obtain evidence to support the auditor’s assessment of control risk
a. at a high level c. at zero level
b. at less than high level d. at the maximum level

58. Which of the following is the correct order for performing the auditing
procedures A through C below
A = Tests of Controls
B = Preparation of a flowchart depicting the client’s internal control structure
C = Substantive tests
a. ABC b. ACB c. BAC d. BCA

59. The purpose of tests of controls is to provide reasonable assurance that

a. the extent of substantive testing is minimized
b. evidence will be obtained to determine an assessed level of control risk
c. errors and fraud are prevented or detected in a timely manner
d. the auditor has an understanding of the control environment
60. After documenting internal control in an audit engagement, the auditor may
perform tests on
a. those controls that the auditor plans to rely on
b. those controls in which deficiencies were identified
c. those controls that have a material effect on the financial statement balances
d. a random sample of the controls that were reviewed
61. The auditor is examining copies of sales invoices only for the initials of the
person responsible for checking the extensions. This is an example of a
a. test of controls c. dual purpose test
b. substantive test d. test of balances
62. Which of the following procedures most likely would be included as part of an
auditor’s test of controls
a.Inspection c. Confirmation
b. Reconciliation d. Analytical procedures
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63. After considering a client’s internal control, an auditor has concluded that the
system is well designed and is functioning as anticipated. Under these
circumstances, the auditor would most likely
a. cease to perform further substantive tests
b. not increase the extent of planned substantive tests
c. increase the extent of substantive tests
d. express an opinion about the effectiveness of the internal control

64. In considering internal control within the revenue/receipt cycle, what is the
purpose of a transaction walk through?
a.to assure that employees are performing assigned functions accurately
b.to confirm the auditor’s understanding of the internal control structure
c. to select documents for detailed tests of controls
d.to verify the results of the auditor’s sampling plan

65. The information obtained by the auditor in arriving at the conclusions on

which the audit opinion is based is called:
a. audit working papers c. audit assertions
b. audit evidence d.audit standards

66. It refers to the material (working papers) prepared by and for, or obtained and
retained by the auditor in connection with the performance of the audit.
a. Documentation
b. Accounting data
c. Audit report
d. Corroborative evidence

67. The sufficiency and appropriateness of evidential matter ultimately is based on the
a. Availability of corroborating data. c. Pertinence of the evidence.
b. PSA d. Judgment of the auditor.

68. An audit procedure that involves examining records, documents, or tangible assets is
a. computation b. tracing c. inspection d. observation

69. An audit procedure that consists of looking at the process or procedure being performed others is
called
a. inspection b. observation c. inquiry d. computation

70. Which of the following assertions does not relate to balances at period end?
a. Existence b. Occurence c. Rights and d. Valuation or
Obligation allocation

71. Management assertions are

a. directly related to PSA.
b. directly related to PFRS.
c. indirectly related to PSA.
d. indirectly related to PFRS.

72. If the objective of a test of details is to detect overstatements of sales, the

auditor should trace transactions from the
a. Cash receipts journal to the sales journal c. Source documents to the
accounting records
b. Sales journal to the cash receipts journal d. Sales journal to the
shipping documents

73. In determining whether transactions have been recorded, the direction of the
audit testing should be from the
a.General ledger balances c. Original source documents
b.Adjusted trial balance d. General journal entries
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74. Tests of details of balances are specific procedures intended to

a.identify the details of the internal control system.
b.prove that the accounts with material balances are classified correctly.
c.test for monetary errors in the financial statements.
d.prove that the trial balance is in balance.

75. Which of the following auditing procedures is least likely to disclose an understatement?
a. vouching b. tracing c. Confirming d. Counting
76. In the context of an audit of financial statements, substantive tests are audit
procedures that
a. may be eliminated under certain conditions
b. are designed to discover significant subsequent events
c. may be either tests of transactions, direct tests of financial balances, or
analytical tests
d. will increase proportionately with the auditor’s assessment of control risk
77. It involves analysis of significant ratios and trends including the resulting
investigation of fluctuations and relationships that are inconsistent with other
relevant information or which deviate from predicted amounts.
a. Reasonable test
b. Trend Analysis
c. Ratio Analysis
d. Analytical procedures

78. Analytical procedures can be used in the:

Planning Stage Testing phase Overall review
stage
a Yes Yes Yes
.
b Yes No Yes
.
c Yes No No
.
d No Yes No
.

79. When analytical procedures identify significant fluctuations or relationships that

are inconsistent with other relevant information or that deviate from predicted
amounts, the auditor should
a. withdraw from the engagement
b. assume that the financial statements contain material errors or fraud
c. examine all corroborating evidence available
d. conduct further investigation

80. Investigation of unusual fluctuations ordinarily begins with

a. inquiries of management
b. applying additional modified procedures
c. obtaining evidence to corroborate management’s representation
d. comparison of financial information with expectations

81. To comply with the requirement of PSA 520, analytical procedures should be
applied
a. in the planning and testing phases of the audit
b. in the testing and overall review stages of the audit
c. in the planning, testing, and overall review stages of the audit
d. in the planning and overall review stages of the audit
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82. Which of the following is not an information source for developing analytical procedures used in the
audit?
a Relationships among financial statement elements
.
b Relationships between financial and relevant non financial data
.
c Comparison of financial data with anticipated results (e.g., budget and
. forecasts)
d Comparison of current year financial data with projections for next year’s
. financial results

83. In testing the existence assertion, an auditor ordinarily works from the
a Financial statements to the potentially unrecorded items.
.
b Potentially unrecorded items to the financial statements
.
c Accounting records to the supporting evidence
.
d Supporting evidence to the accounting records.
.

84. Regardless of the assessed level of control risk, an auditor would perform some
a Test of control policies and procedures in order to determine their operating
. effectiveness
b Analytical procedures to verify the design of controls
.
c Substantive test to restrict detection risk for significant transactions classes.
.
d Dual-purpose tests to evaluate both the risk of monetary misstatement and
. preliminary control risk.

85. It involves the application of audit procedures to less than 100% of items within an account balance
or class of transactions to be able to draw conclusions about the characteristics of the entire population.
a. Incomplete tests c. Audit sampling
b. Selective testing d. Random testing

86. Principal methods of sampling selection include all of the following except
a. Haphazard b. Systematic c. random d.statistical
number

87. A method of sampling selection that involves selecting a group of contiguous items
from within the population is called
a. stratified selection c. block selection
b. systematic selection d. value-weighted selection

88. In which sampling method is the probability of selection of an item proportional to the size or the
value of the item (e.g., a P1,000 item is 10 times more likely to be selected than a P100 item)?
a. Discovery b. Ratio c. Value- weighted d. Stratified
sampling estimation sampling sampling

89. “Subsequent events” for reporting purposes are defined as events which occur
subsequent to the
a. Balance sheet date.
b. Date of the auditor’s report.
c. Balance sheet date but prior to the date of the auditor’s report.
d. Date of the auditor’s report and concern contingencies which are not reflected in
the financial statements.

90. The following events all occurred after the balance sheet date (6/30/18) but prior
to the auditor’s report (9/10/18). Which one would require an adjustment to the
account balances as of 6/30/18?
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a. Client will market a new series of equity securities (P2 million of preferred stock)
on 8/1/18.
b. Unused equipment on the books at 6/30/18 for P100,000 was disposed of 7/31/18
for P60,000.
c. Securities costing P30,000 held for temporary investment on 6/30/18 declined in
value by one-third when the market took a plunge on 8/15/18
d. Inventory valued at P100,000 on 6/30/18 was destroyed in a fire on 8/1/18

91. The date of the audit report is important because

a. The user has a right to expect that the auditor has performed certain procedures
to detect subsequent events that would materially affect the financial statements
through the date of the report
b. The auditor bills time to the client up to and including the audit report date, and
the statement to the client should reflect this date
c. PSAs require all audits to be performed on a timely basis
d. It should coincide with the date of the financial statements

92. The audit report should not be dated

a. Earlier than the date management approves the financial statement
b. Earlier than the date of issuance of the financial statements
c. Earlier than the date of the issuance of the audit report.
d. Later than the balance sheet date.

93. An auditor may reasonably issue a qualified opinion for

Inadequate Disclosure Scope Limitation
a. Yes Yes
b. No Yes
c. Yes No
d. No No

94. Which of the following circumstances will not affect the auditor’s opinion?
a. a limitation on the scope of the auditor’s work imposed by the client
b. a limitation on the scope of the auditor’s work imposed by the circumstances.
c. Disagreement with management about matters such as acceptability of the
accounting policies or the methods of their application.
d. Significant uncertainties affecting the financial statements.

95. If the auditor is unable to determine whether fraud or error has occurred because
of limitations imposed by the circumstances, the auditor would most likely issue a
report that contains:
a. An unmodified opinion
b. an unmodified opinion with an emphasis of a matter paragraph
c. a qualified opinion
d. an adverse opinion

96. If the results of the audit procedures do not enable the auditor to conclude that
the aggregate of uncorrected misstatements is not material and the management
refuses to adjust the financial statements, the auditor’s report should be modified to
include:
a. An unmodified opinion with explanatory paragraph
b. A disclaimer of opinion
c. Either qualified or disclaimer of opinion
d. Either qualified or adverse opinion

97. If the auditor is unable to sufficient appropriate evidence, the auditor’s report should include:
Qualified Opinion Adverse Opinion Disclaimer of
Opinion
a. YES NO YES
b. YES NO YES
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c. YES YES NO
d. NO YES NO

98. If material misstatements exist in the financial statements , the auditor’s report should
include:
Qualified Opinion Adverse Opinion Disclaimer of
Opinion
a. YES NO YES
b. YES NO YES
c. YES YES NO
d. NO YES NO

99. Which of the following statements is not correct about “emphasis of a matter
paragraph”?
a. The addition of such paragraph is to be construed as a modification of the
auditor’s report.
b. The addition of such paragraph does not affect the auditor’s opinion.
c. The paragraph would preferably be presented after the opinion paragraph.
d. The paragraph is normally used by the auditor to highlight certain items in
the financial statements.

100. When there are multiple uncertainties significantly affecting the financial
statements, the auditor’s report would most likely contain
a. an unmodified opinion c. A disclaimer of opinion
b. A qualified opinion d. An adverse opinion

101. Special Report does not apply to

a. Audits of financial statements prepared in accordance with the PFRS.
b. Audits of financial statements prepared in accordance with the cash receipts
and cash disbursement basis of accounting.
c. Audits engagement that involves expression of an opinion on one or more
components of the financial statements.
d. Reports on summarized financial statements derived from annual audited
financial statements.

102. Which of the following is not a special purpose audit engagement?

a. Reports on summarized financial statements.
b. Reports on financial statements prepared using other comprehensive basis of
accounting.
c. Reports on components of financial statements.
d. Reports on prospective financial statements.

103. Given one or more hypothetical assumptions, a responsible party may prepare, to
the best of its knowledge and belief, an entity’s expected financial position,
results of operations, and changes in cash flows. Such prospective financial
statements are known as
a. Pro forma financial statements c. Financial projections
b. Partial presentation d. Financial forecasts

104. Financial forecast is a prospective financial information prepared on the basis of:
Hypothetical A mixture of best-
Assumptions Best estimate and
estimate hypothetical
assumptions
a. Yes Yes Yes
b. Yes No Yes
c. Yes No No
d. No Yes No

105. Which of the following engagements would most likely require restriction as to the
distribution of the report?
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a. audit c. agreed-upon procedures
b. review d. compilation

106. The level of assurance that is provided by a CPA in an audit engagement is:
a. High b. Limited c. Moderate d. Low

107. The level of assurance that is provided by the CPA on a compilation report is
a. Low b. High c. moderate d.
none

108. If the CPA is not independent, which of the following engagements can be
accepted?
a. examination b. audit c. review d.
compilation

109. An accountant should perform analytical procedures during an engagements to

I Audit II Review III Compilation
a. Yes, Yes, Yes b. No, Yes, No c. Yes, Yes, No d.
Yes, No, No

110. Related services do not include

a. Review c. Agreed upon procedures
b. Compilation d. All of these are related services

111.Which of the following services provides moderate level of assurance?

a. Audit c. Agreed-upon procedures
b. Review d. Compilation

112.A report on factual findings is the end product of the auditor when performing
a. Examination c. Review
b. Audit d. Agreed-upon procedures

113.What level of assurance does an accountant give on compilation report?

a. None b. Low c. Moderate d. High

114.Which of the following procedures would an accountant most likely perform in a

compilation
engagement?
a. collect, classify and summarize financial information.
b. apply analytical procedures
c. assess risk components
d. test the accounting records

115.Which of the following procedures is not included in a review engagement?

a. inquiries of management
b. inquiries regarding subsequent events
c. procedures designed to identify unusual fluctuations
d. a study and evaluation of internal control

116.According to Philippine Standard on Auditing, 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

117.What level of assurance does the CPA provide under the following engagements?
Agreed-upon
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Audit Review procedure Compilation
a. High Moderate None None
b. High Limited Low None
c. Moderate Moderate None None
d. Negative None Low
Reasonable

118. The use of negative assurance on auditor’s report on the financial statements is:
a. a help in clarifying the auditor’s responsibilities.
b. not allowed by PSA.
c. tantamount to a disclaimer of opinion.
d. a widely accepted reporting practice

119. A CPA, while performing an audit, strives to achieve independence in appearance

in order to
a. Reduce risk and liability
b. Become independent in mind.
c. Maintain public confidence in the profession.
d. Comply with the generally accepted standards of fieldwork

120. The concept of materiality would be least important to an auditor in determining

a. transactions that should be reviewed
b. the need for disclosing a particular transaction or event
c. the extent of audit work planned for particular account
d. the effect of an auditor’s direct financial interest in a client

121. The primary factor that distinguishes a direct from an indirect financial interest
is the
a. Materiality of the amount involve
b. Control over investment decisions
c. Risk associated with such investment
d. Relationship between the investor and investee.

122. Ultimately, the decision as to whether the CPA is independent or not, will be
made by the
a. Client c. Public
b. Audit committee d. Auditor

123. Independence is required whenever a professional accountant performs:

a. professional services
b. assurance services
c. non-assurance services
d. tax consultancy services

124. SEC requires that lead engagement partners of listed entities be rotated at least
once every
a. 2 years c. 5 years
b. 3 years d. 7 years

125. Which of the following is not one of the qualifications of the members of the
Board of Accountancy?
a. He/She must be a natural-born CPA and a resident of the Philippines.
b. He/She must be a duly Certified Public Accountant with at least ten years of
experience in practice of accountancy.
c. 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
examination at the time of his appointment to the Board.
d. He/She must not be a director or officer of PICPA at the time of his
appointment.
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126. The following statements relate to the term of office of the chairman and the
members of the Board of Accountancy (BOA).
I. No person who has served two (2) successive complete terms shall be
eligible for reappointment until the lapse of one (1) year
II. Appointment to fill up an unexpired term is not to be considered a
complete term
III. A person may serve in the Board of Accountancy for eight consecutive
years.
IV. No person shall serve in the Board for more than 12 years.
a. All statements are true c. Only I and II are true
b. Only II and IV are true d. Only I, II and IV are true

127. The Board of Accountancy may issue certificate of registration and professional
identification card to any successful examinee:
a. Of unsound mind
b. Convicted by a court of political offense.
c. Guilty of immoral or dishonorable conduct.
d. Who has falsely represented himself/ herself in his /her application for
examination.

128. Who is not permitted by RA 9298 to practice public accountancy?

a. A general partnership.
b. A limited liability partnership.
c. A sole proprietorship.
d. A corporation, whose stockholders are all CPAs.

129. According to RA 9298, if a partner in a two-member partnership dies, the

surviving partner may continue to practice as an individual under the existing
firm title which includes the deceased partner’s name
a. For a period of time not to exceed five years.
b. For a period of time not to exceed two years.
c. Indefinitely.
d. Until the partnership pay-out to the deceased partner’s estate is terminated.

130. CPAs, firms and partnerships of CPAs engaged in the practice of public
accountancy including partners and staff members thereof, shall register with
the Commission and the Board, such registration to be renewed every three
years on or before
a. April 15 c. September 30
b. December 31 d. May 31

131. If the application for registration to practice public accountancy of Tiu, Tiu &
Co. CPAs, was approved on July 31, 2016, the registration shall expire on
a. September 30, 2018. c. July 31, 2019.
b. September 30, 2019. d. December 31, 2018

132. A certificate of accreditation shall be issued to CPA’s in public practice only upon showing, in
accordance with rules and regulations promulgated by the Board and approved by the PRC, that
such registration has acquired a minimum of ____ years meaningful experience in any of the areas
of public practice including taxation.
a. 2 b. 3 c. 4 d. 5
133. A registered professional shall be permanently exempted from CPE
requirements upon reaching the age of
a. 55 years old c. 65 years old
b. 60 years old d. 70 years old
134. A registered CPA who is working or practicing his/her profession or furthering
his/her studies abroad shall be temporarily exempted from compliance with CPE
requirements during the period of his/her stay abroad, provided that prior to the
date of renewal he/she has been out of the country for at least
a. Four years c. Three years
b. Two years d. One year
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135. Affixing the CPA’s seal and signature on the auditor’s report is an indication of:
a. CPA’s acceptance of responsibility for the financial statements audited.
b. Compliance by the CPA of the requisite accounting and auditing standards
and rules.
c. CPA’s accreditation to practice public accountancy.
d. Fair presentation of financial statements audited.