Compliments of Cebu CPAR Center, Inc. Tel. Nos.

(032) 345-0553

NAME:________________________________ SCORE:__________________

INSTRUCTION: Select the letter corresponding to the best answer.

1. Which statement is incorrect regarding the pronouncements of ASPC?

a. The pronouncements of the ASPC on auditing standards, practices and
procedures shall be in the form of PSA, Interpretations and IAPS.
b. An auditor may judge it necessary to depart from a PSA in order to more
effectively achieve the objective of an audit.
c. The Interpretations will have the same authority as the PSAs.
d. PAPS are not intended to have the authority of the Interpretations.

2. The auditor who audited and reported on the prior period's financial statements and
continues as the auditor for the current period.
a. Existing auditor c. Incoming auditor
b. Continuing auditor d. Predecessor auditor

3. Which of the following best describes “high level of assurance”?

a. It refers to the professional accountant having obtained sufficient external and
internal appropriate evidence to be satisfied that the subject matter is plausible
in the circumstances.
b. It refers to the professional accountant having obtained sufficient appropriate
evidence to conclude that the subject matter conforms in all material respects
with identified suitable criteria.
c. It refers to the professional accountant having obtained sufficient evidence to
conclude that he has no knowledge of any required modifications to be made in
the financial statements in order for them to conform of prescribed criteria.
d. It refers to the professional accountant having obtained evidence based on
procedures agreed upon between the practitioner and the intended users to be
satisfied that findings be reported to the intended users.

4. Which statement is incorrect regarding assurance engagement risk?

a. Engagement risk is the risk that the practitioner will express an inappropriate
conclusion that the subject matter conforms in all material respects with suitable
criteria.
b. Not all components of the engagement risk model will be significant for all
assurance engagements.
c. The extent to which the practitioner considers the relevant components of
engagement risk will be affected by the engagement circumstances.
d. Business risk is a part of engagement risk and affects the application of
Philippine Standard on Assurance Engagements.

5. In which of the following situations can third parties assume responsibility of the
auditor regarding association with financial information?
a. When the auditor was engaged to report on that information.
b. When the auditor refuses to the use of the auditor's name in a professional
connection.
c. Either a or b.
d. Neither a nor b.

6. Which of the following is least likely an application of maintaining an attitude of

professional skepticism?
a. The auditor makes a critical assessment, with a questioning mind, of the validity
of audit evidence obtained.
b. The auditor is alert to audit evidence that contradicts or brings into question the
reliability of documents or management representations.
c. In planning and performing an audit, the auditor assumes that management is
dishonest.
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.

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7. The audit engagement letter would least likely include reference to:
a. Unrestricted access to whatever records, documentation and other information
requested in connection with the audit.
b. The scope of the audit, including reference to applicable legislation, regulations,
or pronouncements of professional bodies to which the auditor adheres.
c. Any further agreements between the auditor and the client.
d. The form of any reports or other communication of results of the engagement.

8. Which of the following is least likely a factor that affects the extent of quality control
procedures?
a. The size of the firm.
b. The number of practice offices.
c. The type of clients that the firm serves.
d. The nature of the practice.

9. Working papers least likely

a. Assist in the planning and performance of the audit.
b. Assist in the supervision and review of the audit work.
c. Prevent misunderstandings with respect to the engagement.
d. Record the audit evidence resulting from the audit work performed to support the
auditor’s opinion.

10. Which statement is incorrect regarding the auditor’s responsibility to consider fraud
and error in the audit of financial statements?
a. The auditor should consider the risk of material misstatements in the financial
statements resulting from fraud or error.
b. The auditor is not and cannot be held responsible for the prevention of fraud and
error.
c. The risk of not detecting a material misstatement resulting from error is lower
than the risk of not detecting a material misstatement resulting from fraud.
d. The auditor is not entitled to accept records and documents as genuine.

11. Which of the following is least likely a fraud risk factor?

a. There is a high turnover of management, counsel or board members.
b. Management displays a significant disregard for regulatory authorities.
c. Management continues to employ ineffective accounting, information technology
or internal auditing staff.
d. Management continues to employ effective accounting, information technology or
internal auditing staff.

12. Which of the following circumstances least likely indicate the possibility of fraud or
error?
a. Management engages in frank communication with appropriate third parties,
such as regulators and bankers.
b. Evidence of an unduly lavish lifestyle by officers or employees.
c. Aggressive application of accounting principles.
d. Significant differences from expectations disclosed by analytical procedures.

13. Which statement is incorrect regarding the auditor’s consideration of laws and
regulations in an audit of financial statements?
a. In order to plan the audit, the auditor should obtain a specific understanding of
the legal and regulatory framework applicable to the entity and the industry and
how the entity is complying with that framework.
b. When the auditor becomes aware of information concerning a possible instance
of noncompliance, the auditor should evaluate the possible effect on the financial
statements.
c. If the auditor concludes that the noncompliance has a material effect on the
financial statements, and has not been properly reflected in the financial
statements, the auditor should express a qualified or an adverse opinion.

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d. The auditor may withdraw from the engagement when the entity does not take
the remedial action that the auditor considers necessary in the circumstances,
even when the noncompliance is not material to the financial statements.
14. Governance is the term used to describe the role of persons entrusted with the
supervision, control and direction of an entity. Which of the following is primarily
responsible for corporate governance of corporations covered by the SEC Code of
Corporate Governance and banks?
a. Audit Committee c. Chief executive officer
b. Board of Directors d. Stockholders

15. Which of the following is not a component of audit planning?

a. Developing audit programs.
b. Observing the client's annual physical inventory taking and making test counts of
selected items.
c. Making arrangements with the client concerning the timing of audit field work and
use of the client's staff in completing certain phases of the examination.
d. Obtaining an understanding of the business.

16. A knowledge of the business is a frame of reference within which the auditor
exercises professional judgment. This assists the auditor in carrying out the
following objectives:
I. Assessing risks and identifying problems.
II. Evaluating audit evidence.
III. Providing better service to the client.
IV. Planning and performing the audit effectively and efficiently.
a. I, II, III and IV
b. I, II and IV
c. I and Iv
d. I only

17. An 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 predecessor auditor. c. From the permanent file.
b. From the SEC. d. At the client’s premises.

18. The result of significant conditions, events, circumstances, actions or inactions that
could adversely affect the entity’s ability to achieve its objectives and execute its
strategies, or the setting of inappropriate objectives and strategies refers to
a. Business risk
b. Information risk
c. Audit risk
d. Risk assessment

19. Which statement is incorrect regarding the application of internal control components
to small entities?
a. Those charged with governance in small entities may not include an independent
or outside member.
b. Risk assessment process is likely to be less formal and less structured in small
entities than in larger ones.
c. Information systems and related business processes relevant to financial
reporting in small entities are likely to be less formal than in larger entities, but
their role is just as significant.
d. Ongoing monitoring activities of small entities are more likely to be formal and are
typically performed as a part of the overall management of the entity’s
operations.

20. Which of the following conditions and events least likely indicate the existence of
risks of material misstatement?
a. Changes in the supply chain.
b. Expanding into new locations.

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c. Inquiries into the entity’s operations or financial results by regulatory or

government bodies.
d. Consistency of the entity’s IT strategy and its business strategies.

21. The auditor should perform which of the following as risk assessment procedure?
a. Analytical procedures
b. Recalculation
c. Confirmation
d. Reperformance

22. Which of the following statements about materiality is incorrect?

a. The assessment of what is material is a matter of professional judgment.
b. When planning the audit, the auditor should consider what would make the
financial statements materially misstated.
c. The assessed level of materiality should not normally be revised by the auditor.
d. Materiality is addressed in the auditor’s report.

23. Which statement is correct regarding the nature, timing and extent of further audit
procedures as a response to the assessed risks of material misstatement at the
assertion level?
a. The higher the auditor’s assessment of risk, the less reliable and relevant is the
audit evidence sought by the auditor from substantive procedures.
b. All audit procedures can be performed prior to period end.
c. The timing of the audit procedures is of most importance in responding to the
assessed risks.
d. Increasing the extent of an audit procedure is effective only if the audit procedure
itself is relevant to the specific risk.

24. Which of the following situations will normally result to increase in the extent of audit
procedures?
a. Decrease in materiality level.
b. Decrease in the risk of material misstatement.
c. Decrease in the degree of assurance the auditor plans to obtain.
d. All of the above.

25. The auditor may omit test of controls

a. When testing the operating effectiveness of controls would be inefficient.
b. When the auditor’s risk assessment includes an expectation of the operating
effectiveness of controls.
c. When substantive procedures alone do not provide sufficient appropriate audit
evidence at the assertion level.
d. Under all circumstances.

26. Which statement is incorrect regarding the nature, timing and extent of tests of
controls?
a. The absence of misstatements detected by a substantive procedure does not
provide audit evidence that controls related to the assertion being tested are
effective.
b. When there are a number of controls for which the auditor determines that it is
appropriate to use audit evidence obtained in prior audits, the auditor should test
the operating effectiveness of those controls at least once in every third audit.
c. The more the auditor relies on the operating effectiveness of controls in the
assessment of risk, the greater is the extent of the auditor’s tests of controls.
d. Testing the operating effectiveness of controls is different from obtaining audit
evidence that controls have been implemented.

27. Which of the following shows an inappropriate relationship between the acceptable
level of detection risk and the combined level of inherent and control risk?
Auditor’s Assessment of
Acceptable level of
Inherent Risk Control Risk Detection Risk__
1. Low High Medium

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2. Low Medium Higher

3. High Low Lower
4. High Medium Lower

28. Which statement is incorrect regarding the auditor’s consideration of the entity’s
internal controls when auditing financial statements?
a. Not all of the entity’s objectives and controls are relevant to the auditor’s risk
assessment.
b. Controls over the completeness and accuracy of information produced by the
entity may be relevant to the audit if the auditor intends to make use of the
information in designing and performing further procedures.
c. Obtaining an understanding of an entity’s controls is normally sufficient to serve
as testing the operating effectiveness of controls.
d. Obtaining an understanding of internal control involves evaluating the design of a
control and determining whether it has been implemented.

29. Which of the following is likely to be of least importance to an auditor in reviewing the
internal control in a company with a CIS?
a. The segregation of duties within the data processing center.
b. The control over source documents.
c. The cost/benefit ratio of data processing operations.
d. The documentation maintained for accounting applications.

30. A CIS environment least likely affects

a. The procedures followed by the auditor in obtaining a sufficient understanding of
the accounting and internal control systems.
b. The consideration of inherent risk and control risk through which the auditor
arrives at the risk assessment.
c. The auditor’s design and performance of tests of control and substantive
procedures appropriate to meet the audit objective.
d. The overall objective and scope of an audit.

31. When a client auditor uses a report from the auditor of a service organization, the
client auditor:
a. Should refer the matter in a separate emphasis of matter paragraph of his
auditor’s report.
b. Should refer the matter by modifying the scope and opinion paragraphs of the
auditor’s report.
c. Should attach the copy of the service organization auditor’s report to his audit
report.
d. Makes no reference in his auditor’s report on the service organization.

32. The measure of the quantity of audit evidence refers to

a. Sufficiency c. Relevance
b. Appropriateness d. Reliability

33. Which statement is incorrect regarding the audit evidence?

a. The greater the risk, the more audit evidence is likely to be required.
b. The higher the quality, the more may be required
c. Merely obtaining more audit evidence may not compensate for its poor quality.
d. Obtaining audit evidence relating to a particular assertion is not a substitute for
obtaining audit evidence regarding another assertion.

34. An auditor is examining accounts receivable. What is the most competent type of
evidence in this situation?
a. Verifying that postings to the receivable account from journals have been made.
b. Receipt by the auditor of a positive confirmation.
c. No response received for a request for a negative confirmation.
d. Interviewing the personnel who record accounts receivable.

35. Which of the following factors is most important in determining the appropriateness
of audit evidence?

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a. The independence of the source of evidence.

b. The reliability of the evidence in meeting the audit objective.
c. The objectivity of the auditor gathering the evidence.
d. The quantity of the evidence obtained.
36. Which statement is incorrect regarding the auditor’s attendance at physical inventory
counting?
a. Where attendance is impracticable, due to factors such as the nature and
location of the inventory, documentation of the subsequent sale of specific
inventory items acquired or purchased after the physical inventory count is an
alternative procedure that may provide sufficient appropriate audit evidence.
b. The auditor would ordinarily observe count procedures and perform test counts.
c. The physical inventory count may be conducted at a date other than period end.
d. The auditor would test the final inventory listing to assess whether it accurately
reflects actual inventory counts.

37. The auditor should carry out procedures in order to become aware of any litigation
and claims involving the entity which may have a material effect on the financial
statements. Such procedures most likely include examination of
a. Interest expense account
b. Repairs and maintenance account
c. Legal expense account
d. Other expense account

38. External confirmation of an account receivable least likely provides evidence

regarding:
a. Existence
b. Rights
c. Cutoff
d. Valuation

39. In relation to opening balances, which of the following may cause the auditor to
disclaim his opinion?
a. The opening balances contain misstatements that could materially affect the
current period’s financial statements and such misstatements have not been
corrected.
b. The current period’s accounting policies have not been consistently applied in
relation to opening balances and the effect of such change is not properly
accounted for or disclosed.
c. The inability of the auditor to obtain sufficient appropriate audit evidence
concerning opening balances.
d. The assessed substantial doubt about the entity’s ability to continue as a going
concern as indicated by consistent negative cash flows.

40. Which statement is incorrect regarding the extent of reliance that the auditor places
on the results of analytical procedures?
a. The auditor may rely solely on analytical procedures for certain income and
expense items when they are not individually material.
b. Other procedures performed by the auditor in reviewing the collectibility of
accounts receivable, such as the review of subsequent cash receipts, might
confirm or dispel questions raised from the application of analytical procedures to
an aging of customers' accounts.
c. The auditor will ordinarily expect greater consistency in comparing discretionary
expenses, such as research or advertising, from one period to another than gross
profit margins.
d. If control risk is high, more reliance on tests of details of transactions and
balances than on analytical procedures in drawing conclusions on receivables
may be required.

41. The engagement letter documents and confirms:

I. The auditor’s acceptance of the appointment.
II. The objective and scope of the audit.
III. The extent of the auditor’s responsibilities to the client

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a. I and II only.
b. I and III only.
c. II and III only.
d. I, II, and III.
42. In substantive testing, which of the following would decrease sample size?
a b c d
Assessment of inherent risk Decrease Increase Increase Decrease
Reliance on internal controls Increase Decrease Decrease Increase
Tolerable error Decrease Increase Decrease Increase
Expected error Increase Decrease Increase Decrease
Risk of incorrect acceptance Decrease Increase Decrease Increase

43. In evaluating the assumptions on which the estimate is based, the auditor would
least likely pay particular attention to assumptions which are
a. Reasonable in light of actual results in prior periods.
b. Sensitive to variations.
c. Subjective.
d. Susceptible to material misstatement.

44. Which statement is correct regarding auditing fair value measurements and
disclosures?
a. Underlying the concept of fair value measurements is a presumption that the
entity is a going concern.
b. Fair value is normally the amount that an entity would receive or pay in a forced
transaction, involuntary liquidation, or distress sale.
c. Discounted cash flow analysis ordinarily is the best evidence of fair value.
d. For items valued by the entity using a valuation model, the auditor is expected to
substitute his or her judgment for that of the entity's management.

45. The auditor needs to be aware of the existence of related parties and transactions
between such parties. Which of the following is the least likely reason?
a. GAAP in the Philippines require disclosure in the financial statements of certain
related party relationships and transactions.
b. Related parties and transactions between such parties are considered unusual
features of business.
c. The source of audit evidence affects the auditor's assessment of its reliability.
d. A related party transaction may be motivated by other than ordinary business
considerations.

46. When a fact, that existed before the date of the report is discovered and the
management revises previously issued audited financial statements, the following
are appropriate except:
a. The new auditor’s report should contain the original date.
b. A new auditor’s report should include an emphasis of a matter paragraph that
refers to a note to the financial statements that discusses the reason for the
revision of the financial statements and to the earlier report issued by the auditor.
c. The performance of the procedures that are designed to obtain sufficient
evidence as to subsequent events would ordinarily be extended to the date the
revised financial statements are approved by the entity’s management.
d. The auditor is permitted to restrict the audit procedures regarding the financial
statements to the effects of the subsequent event that necessitated the revision.

47. Which of the following is not likely an element of management representation letter?
a. The letter is addressed to the auditor.
b. The letter would ordinarily be dated the same date as the auditor's report.
c. The letter would ordinarily be signed by the members of management who have
primary responsibility for the entity and its financial aspects.
d. The letter has opening, scope and opinion paragraphs.

48. Which statement is incorrect regarding management representation?

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a. Written representations requested from management may be limited to matters

that are considered either individually or collectively material to the financial
statements.
b. Representations by management cannot be a substitute for other audit evidence
that the auditor could reasonably expect to be available.
c. In certain instances, a representation by management may be the only audit
evidence which can reasonably be expected to be available.
d. If a representation by management is contradicted by other audit evidence, the
auditor should express qualified opinion or issue a disclaimer.

49. The auditor should consider whether the auditor’s own participation is sufficient to be
able to act as the principal auditor. For this purpose, which of the following would be
least likely considered?
a. The materiality of the portion of the financial statements which the principal
auditor audits.
b. The nature of business of the components.
c. The risk of material misstatements in the financial statements of the components
audited by the other auditor.
d. The performance of additional procedures regarding the components audited by
the other auditor resulting in the principal auditor having significant participation
in such audit.

50. Certain aspects of internal auditing may be useful to the external auditor in
determining:
a b c d
Nature of audit procedures Yes Yes Yes No
Timing of audit procedures Yes No No No
Extent of audit procedures Yes No Yes No

51. When planning to use the work of an expert, the auditor should assess the
professional competence of the expert. This will involve considering the expert's:
I. Professional certification or licensing by, or membership in, an appropriate
professional body.
II. Experience and reputation in the field in which the auditor is seeking audit
evidence.
III. Relationship to the entity.
a. I, II, III b. I and II c. I and III d. I only

52. Generally, for the auditor to issue an unqualified audit opinion, does each of the
following condition need to exist?
I. No significant scope restrictions.
II. All the segments of the financial statements are audited by the auditor.
III. Significant uncertainty about the financial statements does not exist.
IV. The financial statements, including the notes to financial statements, contain no
material departure from GAAP.
a. I and II b. I and IV c. I, III and IV d. All of the above

53. Which of the following is least likely a description of audit contained in the scope
paragraph of the auditor’s report?
a. Examining evidence to support the financial statement amounts and disclosures.
b. Assessing the accounting principles used in the preparation of the financial
statements.
c. Assessing the significant estimates made by management in the preparation of
the financial statements.
d. Evaluating the overall financial statement presentation.

54. When the financial statements of the prior period were not audited, the incoming
auditor should:
a. Insist that an audit of prior year’s financial statements must be made.
b. Not allow the inclusion of the corresponding figures in the financial statements of
the current period.

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c. Disclaim his opinion and treat the unaudited corresponding figures as basis of
scope limitation.
d. Obtain sufficient appropriate audit evidence that the corresponding figures meet
the requirements of the relevant financial reporting framework.’

55. It exists when other information, not related to matters appearing in the audited
financial statements, is incorrectly stated or presented.
a. Material misstatement of fact c. Material inconsistency
b. Material error d. Material deviation

56. The auditor’s report on summarized financial statements should include

a. An opinion as to whether the information in the summarized financial statements
is presented fairly, in all material respects.
b. An opinion as to whether the information in the summarized financial statements
is consistent with the audited financial statements from which it was derived.
c. A statement of negative assurance.
d. A description of the auditor’s factual findings including sufficient details of errors
and exceptions found.

57. The report by an auditor on an examination of prospective financial information least

likely contain
a. A statement of negative assurance as to whether the assumptions provide a
reasonable basis for the prospective financial information.
b. An opinion as to whether the prospective financial information is properly
prepared on the basis of the assumptions and is presented in accordance with
GAAP in the Philippines.
c. Appropriate caveats concerning the achievability of the results indicated by the
prospective financial information.
d. Date of the report which is the date the report has been completed.

58. Which of the following is not a basis of the auditor in determining the specific nature,
timing and extent of review procedures?
a. The extent to which a particular item is affected by management judgment
b. The materiality of transactions and account balances
c. Assessed level of control risk
d. Any knowledge acquired by carrying out reviews of the financial statements for
prior periods.

59. Pol, CPA, has significant indirect financial interest on Seral Corporation. Seral
Corporation engaged Pol to apply agreed-upon procedures on accounts receivable
and thereafter submit a Report of Factual Findings to a finance company. According
to Philippine Standards on Auditing that applies to this engagement, Pol
a. Should decline the engagement because of her lack of independence.
b. Should convince Seral Corporation to change the engagement to compilation due
to her lack of independence.
c. Perform agreed-upon procedures and withhold the findings due to her lack of
independence.
d. Can accept the engagement, issue the Report of Factual Finding and state in the
report her lack of independence.

60. The accountant should withdraw from the compilation engagement when
I. The accountant becomes aware that information supplied by management is
incorrect, incomplete, or otherwise unsatisfactory, and management refuses
to provide additional information.
II. The accountant becomes aware of material misstatements and appropriate
amendments are not made by the entity and the financial information is
considered to be misleading.
a. I and II b. I only c. II only d. Neither I nor II

61. The requirement for bank confirmation arises from the need of the bank's
management and its auditors to confirm the financial and business relationships
between the following:

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I. The bank and other banks within the same country.

II. The bank and other banks in different countries.
III. the bank and its non-bank customers.
a. I, II and III b. I and III c. I and II d. I only

62. Which of the following is least likely a control that may be built into the application
software in order to limit access to programs and data to authorized personnel?
a. The use of passwords.
b. A written policy of segregation of functions.
c. The use of hidden files and secret file names.
d. The use of cryptography.

63. Special Purpose Terminal used to initiate, validate, record, transmit and complete
various banking transactions
a. Automated teller machines c. Intelligent terminal
b. Point of sale devices d. Personal computers

64. Audit procedures in a database environment will be affected principally by

a. The type and significance of financial transactions being processed.
b. The nature of the database, the DBMS, the database administration tasks and
the applications.
c. The general CIS controls which are particularly important in a database
environment.
d. The extent to which the data in the database are used by the accounting system.

65. Which of the following Philippine Standards on Auditing does not apply to small
entities?
a. PSA 220 b. PSA 530 c. PSA 320 d. None of these

66. Which of the following fraud risk factors usually applies to small entities?
a. Management displays a significant disregard for regulatory authorities.
b. There is a strained relationship between management and the current or
predecessor auditor.
c. Management is dominated by a single person or a small group without
compensating controls such as effective oversight by those charged with
governance.
d. There is a history of securities law violations, or claims against the entity or its
management alleging fraud or violations of securities laws.

67. General CIS controls generally include:

I. Controls over processing and computer data files
II. Organization and management controls
III. Development and maintenance controls
IV. Delivery and support controls
V. Monitoring controls
VI. Controls over input
VII. Controls over output
a. All of the above c. I, II, III, IV and V
b. II, III, IV and V d. II, III and V

68. The applications of auditing procedures using the computer as an audit tool refer to
a. Integrated test facility c. Auditing through the computer
b. Data-based management system d. Computer assisted audit techniques

69. The auditor’s doing things which management ought to do may most likely create
a. Self-interest threat c. Advocacy threat
b. Self-review threat d. Familiarity threat

70. Which of the following is the most likely reason that prevent management from
preparing the auditor’s requirements?
a. Lack of manpower
b. Adequate financial resources.

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c. Highly trained accounting personnel.

d. Failure to attend PICPA seminars.

71. The inability of the client to prepare certain audit requirements may most likely lead
the auditor to
a. Withdraw from the engagement.
b. Express qualified opinion or a disclaimer.
c. Express qualified or adverse opinion.
d. Express unqualified opinion with explanatory paragraph.

72. Professional codes of ethics:

a. Are uncommon in professions other than public accounting.
b. Mandate ideal standards of behavior.
c. Are enforceable if based on standards of ideal behavior.
d. Mandate minimum standards of behavior.

73. According to the profession’s Rules of Conduct, an auditor would be considered

independent in which of the following instances?
a. The auditor’s checking account is held at a client financial institution.
b. The auditor, an attorney, serves as a client’s general counsel.
c. An employee of the auditor serves as the unpaid treasurer of a charitable
organization that is an audit client.
d. The client owes the auditor fees for two consecutive years.

74. Kolokoy, a CPA, has a law practice. Kolokoy has recommended one of his clients to
Kolokay, a CPA. Kolokay has agreed to pay Kolokoy 10% of the fee for services
rendered by Kolokay to Kolokoy’s client. Who, if anyone, is in violation of the Code
of Ethics?
a. Both Kolokoy and Kolokay c. Neither Kolokoy and Kolokay
b. Kolokoy only d. Kolokay only

75. Immediate family includes

a. Parent c. Non-dependent child
b. Sibling d. Spouse

76. The members of the assurance team 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.
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.

77. Which of the following will least likely create a threat to independence?
a. Deposits made by, or brokerage accounts of, a firm or a member of the
assurance team with an assurance client that is a bank, broker or similar
institution, provided the deposit or account is held under normal commercial
terms.
b. Arrangements to combine one or more services or products of the firm with one
or more services or products of the assurance client and to market the package
with reference to both parties.
c. Family and personal relationships between a member of the assurance team and
a director, an officer or certain employees.
d. A member of the assurance team, partner or former partner of the firm has joined
the assurance client.

78. The provision of accounting and bookkeeping services of a routine or mechanical

nature to divisions or subsidiaries of listed audit clients would not be seen as
impairing independence with respect to the audit client provided that the following
conditions are met, except
a. The services involve the exercise of judgment.

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 Compliments of Cebu CPAR Center, Inc. Tel. Nos. (032) 345-0553

b. The divisions or subsidiaries for which the service is provided are collectively
immaterial to the audit client.
c. The services provided are collectively immaterial to the division or subsidiary.
d. The fees to the firm, or network firm, from such services are collectively
insignificant.

79. Which statement is correct 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 six years.
b. No person who has served two (2) successive complete terms shall be eligible
for reappointment until the lapse of two (2) years.
c. A person may serve the BOA for not more than twelve years.
d. A member of the BOA may continuously serve office for more than nine years.

80. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff
members thereof shall register with the BOA and the PRC. If the application for
registration of AB and Co., CPAs was approved on August 30, 2005, the registration
will expire on
a. Sept. 30, 2007 c. Dec. 31, 2007
b. Dec. 31, 2008 d. Aug. 30, 2007

81. Which statement is incorrect regarding CPE requirements for renewal of professional
license?
a. The total CPE credit units required for CPAs shall be sixty (60) units for three (3)
years, provided that a minimum of fifteen (15) credit units shall be earned in each
year.
b. A registered professional shall be permanently exempted from CPE requirements
upon reaching the age of 65 years old.
c. A registered professional who is working abroad shall be temporarily exempted
from compliance with CPE requirement during his/her stay abroad, provided that
he/she is has been out of the country for at least one year immediately prior to
the date of renewal.
d. Those who failed to renew professional licenses for a period of five (5)
continuous years from initial registration, or from last renewal shall be declared
delinquent.

82. The APO shall submit its nominations with complete documentation to the
Commission not later than _____ prior to the expiry of the term of an incumbent
chairman or member.
a. 30 days b. 60 days c. 90 days d. 120 days

83. Which of the following is not represented in the Auditing and Assurance Standards
Council?
a. Board of Accountancy c. Bureau of Internal Revenue
b. Bangko Sentral ng Pilipinas d. Securities and Exchange Commission

84. Which of the following concepts is most useful in assessing the scope of an auditor's
program relating to various accounts?
a. Attribute sampling. c. Materiality.
b. The reliability of information. d. Management fraud.

85. In applying analytical procedures, the auditor discovered that gross profit as a
percent of sales declined sharply during the current year. A possible cause might be
a. A significant quantity of finished goods located in a distant warehouse was
inadvertently omitted from the ending inventory.
b. The client has significant amounts of obsolete inventory carried at full cost.
c. Recorded sales included goods that were shipped the following year.
d. Depreciation of office equipment was overstated.

86. Which of the following is an indicator of possible fraudulent financial reporting for the
purpose of inflating earnings?

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 Compliments of Cebu CPAR Center, Inc. Tel. Nos. (032) 345-0553

a. A ratio analysis discloses: (1) sales of P50 million and (2) cost of goods sold of
P25 million.
b. A cross-sectional analysis of common size statements discloses: (1) the firm's
ratio of cost of goods sold to sales is .4 and (2) the industry average ratio of cost
of goods sold to sales is .5.
c. A cross-sectional analysis of common size statements discloses: (1) the firm's
ratio of cost of goods sold to sales is .5 and (2) the industry average ratio of cost
of goods sold to sales is .4.
d. A trend analysis discloses: (1) sales increases of 50 percent and (2) cost of
goods sold increases of 25 percent.
87. 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.
88. Which of the following models expresses the general relationship of risks associated
with the auditor's evaluation of internal control (CR), study of the business and
application of analytical procedures (IR), and overall audit risk (AR), that would lead
the auditor to conclude that additional substantive tests of details of an account
balance are not necessary?
IR CR AR
a. 20% 60% 5%
b. 10% 70% 4.5%
c. 20% 40% 10%
d. 30% 40% 5.5%
89. A letter to the auditor in response to an inquiry is an example of
a. Physical evidence. c. Confirmation evidence.
b. Documentary evidence. d. Analytical evidence.
90. Which of the following would be least likely to be included in an auditor’s tests of
controls?
a. Documentation. c. Confirmation
b. Observation. d. Inquiry.
91. The following are few of the audit procedures taken from an audit program:
A. Confirm accounts payable directly with vendors.
B. Examine vendors’ invoices and other documentation.
C. Examine the internal auditor’s initials on monthly bank reconciliations as an
indication of whether they have been reviewed.
D. Compare the balance in payroll tax expense with previous years. The
comparison takes the increase in payroll tax rates into account.
The foregoing audit procedures are classified as Tests of Controls (TOC),
Substantive Tests of Transactions (STT), Analytical Procedures (AP), Tests of
Details of Balances (TDB):
a. STT, TDB, AP, TOC. c. STT, STT, TOC, TOC.
b. TDB, STT, TOC, AP. d. STT, STT, TOC, AP.
92. Which of the following is a true statement?
a. When the financial statements of the prior period have been audited by another
auditor, the current auditor must insist that there would be division of
responsibility with respect to audit.
b. When the financial statements of the prior period have been audited by another
auditor, the successor auditor must insist of the financial statements of the prior
periods.
c. The extent of audit procedures performed on the corresponding figures is
significantly less than for the audit of the current figures.
d. When the comparatives are presented as corresponding figures, the auditor must
specifically refer to the predecessor in the introductory paragraph of the auditor’s
report.

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 Compliments of Cebu CPAR Center, Inc. Tel. Nos. (032) 345-0553

93. What circumstance(s) would the auditor’s report make specific reference to the
corresponding figures?
I. When the auditor’s report on the prior period, as previously issued, included a
modified opinion and the matter which gave rise to the modification is unresolved.
II. If the prior period financial statements have not been revised and reissued, and the
corresponding figures have not been properly restated and/or appropriate
disclosures have not been made.
III. When the financial statements of prior period were unaudited and the incoming
auditor identifies that the corresponding figures are materially misstated but the
management refuses to revise them.
IV. In all cases where the corresponding figures are material to the current financial
statements.
a. All the above b. I, II and III c. I, II, V d. II, III and IV

94. Which of the following least likely requires an additional explanatory paragraph in a
standard unqualified report?
a. Substantial doubt about going-concern ability of the entity.
b. Emphasis of a matter.
c. Reports involving other auditors.
d. Auditor agrees with change in generally accepted accounting principles.

95. Subsequent to the date of the financial statements as part of his post-balance-sheet date
audit procedures, Eddie, CPA, learned that a recent fire caused heavy damage to one of
a client’s two plants; the loss will not be reimbursed by insurance. The newspapers
described the event in detail. The client did not disclose the event in the notes to
financial statements. Eddie most likely would express
a. Either a qualified or disclaimer of opinion.
b. Either a qualified or adverse opinion.
c. A disclaimer of opinion.
d. An unqualified opinion because disclosure in the financial statements is no longer
necessary since the event was reported in detail in the newspapers.

96. The 1136 Tenants case was chiefly important because of its emphasis on the legal
liability of the CPA when
a. Performing a review of financial statements.
b. An audit results in a disclaimer of opinion.
c. Preparing letters for underwriters.
d. An engagement letter is not obtained.

97. In a common law action against an accountant, the lack of privity is a viable defense if
the plaintiff
a. Bases his action upon fraud.
b. Is the accountant's client.
c. Is a creditor of the client who sues the accountant for negligence.
d. Can prove the presence of gross negligence which amounts to a reckless disregard
for the truth.

98. Which of the following conditions suggests auditor negligence?

a. Failure to detect errors occurring outside the internal control structure.
b. Failure to detect material errors under conditions of weak internal control.
c. Failure to detect collusive fraud perpetrated by members of middle management.
d. Failure to detect collusive fraud perpetrated by members of top management.

99. Which of the following statements is not true regarding the competence of audit
evidence?
a. Relevance is enhanced by an effective information system.
b. To be competent, evidence must be both valid and relevant.
c. Validity is related to the quality of the client’s information system.
d. Relevance must always relate to audit objectives.

100. An auditor's report that refers to a departure from generally accepted accounting
principles includes the language, “In our opinion, with the foregoing explanation, the
financial statements referred to above present fairly ...” This is a/an
a. Adverse opinion.
b. Qualified opinion.
c. Unqualified opinion with an explanatory paragraph.

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 Compliments of Cebu CPAR Center, Inc. Tel. Nos. (032) 345-0553

d. Example of inappropriate reporting.

 END 

ANSWER SECTION

01.A 21.A 41.D 61.A 81.C

02.B 22.C 42.D 62.B 82.B
03.B 23.D 43.A 63.A 83.C
04.D 24.A 44.A 64.D 84.C
05.D 25.A 45.B 65.D 85.A
06.C 26.B 46.A 66.C 86.D
07.C 27.C 47.D 67.B 87.D
08.C 28.C 48.D 68.D 88.C
09.C 29.C 49.B 69.A 89.C
10.D 30.D 50.A 70.A 90.C
11.D 31.D 51.B 71.B 91.B
12.A 32.A 52.B 72.D 92.C
13.A 33.B 53.A 73.A 93.B
14.B 34.B 54.D 74.A 94.C
15.B 35.B 55.A 75.D 95.B
16.A 36.A 56.B 76.D 96.D
17.B 37.C 57.D 77.A 97.C
18.A 38.D 58.C 78.A 98.B
19.D 39.C 59.D 79.C 99.A
20.D 40.C 60.A 80.C 100.D

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