Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

AT.PW SOLIMAN/UY/RICAFRENTE
Pre-week MAY 2022

DISCUSSION QUESTIONS

1. Which of the following statements is (are) incorrect inquiries of the previous auditor regarding
regarding assurance services? a. Facts that might bear on the integrity of
a. Assurance services can be provided either on management.
information or processes. b. The degree of cooperation the previous auditor
b. The third party who receives the assurance received from the client’s lawyer.
generally does not pay for the assurance received. c. An inquiry regarding disagreements with
c. Assurance services always involve a report by one management as to auditing procedures.
person to a third party on which an independent d. The predecessor auditor’s understanding as to the
organization provides assurance. reasons for the change of auditors.
d. All of the above.
8. Holding other planning considerations equal, a
2. A statement in a report such as “Nothing came to our decrease in the amount of misstatement in a class of
attention that would lead us to question the fairness of transactions that an auditor could tolerate most likely
the presentations” is referred to as a(n): would cause the auditor to _______________.
a. unqualified opinion. a. perform the planned auditing procedures closer to
b. disclaimer of opinion. the balance sheet date.
c. negative assurance. b. apply the planned substantive tests prior to the
d. positive assurance. balance sheet date.
c. increase the assessed level of control risk for
relevant financial statement assertion.
3. Which of the following meets the definition of an d. decrease the extent of auditing procedures to be
assurance engagement but does NOT need to be applied to the class of transactions.
performed in accordance to the Framework for
Assurance Engagement? 9. The CPA should not undertake an engagement if his fee
a. Engagements to testify in legal proceedings is to be based upon
regarding accounting, auditing, taxation, or other a. A percentage of audited net income.
matters. b. Per diem rates plus expenses.
b. Consulting (or advisory) engagements, such as c. The findings of a tax authority
management and tax consulting. d. The complexity of the service rendered.
c. The preparation of tax returns where no conclusion
conveying assurance is expressed. 10. Which of the following nonfinancial information would
d. Agreed-upon procedures engagements and an auditor most likely consider in performing analytical
compilations of financial or other information. procedures during the planning phase of an audit?
a. Square footage of selling space.
4. A typical objective of an operational audit is for the b. Turnover of personnel in the accounting
auditors to department.
a. determine whether the financial statements fairly c. Objectivity of audit committee members.
present the entity’s operations. d. Management’s plans to repurchase stock.
b. evaluate the feasibility of attaining the entity’s
operational objectives. 11. Evidence is generally considered appropriate when
c. make recommendations for improving a. it consists of written statements made by
performance. managers of the enterprise under audit.
d. report on the entity’s relative success in attaining b. it has the qualities of being relevant, objective, and
its profit maximization. free from known bias.
c. it has, been obtained by random selection.
5. Which of the following is correct about forensic audits? d. there is enough of it to afford a reasonable basis
a. All audit engagements are forensic in nature. for an opinion on financial statements.
b. Forensic audits are performed by law firms; they
are not performed by CPA firms. 12. Arrangements concerning which of the following are
c. Forensic audits are equivalent to compliance least likely to be included in engagement letter? A
audits. a. A predecessor auditor.
d. Forensic audits are usually performed in situations b. Fees and billing.
in which fraud has been found or suspected. c. CPA investment in client securities.
d. Other services to be provided in addition to the
6. Involves tracing a few transactions through the audit.
accounting system.
a. Test of controls 13. The management’s assessment of the entity’s ability to
b. Analytical procedures continue as a going concern covers a period of:
c. Walk-through test a. Not longer than 12 months from balance date.
d. Substantive procedures b. Not longer than 12 months from the date of audit
report.
7. Before accepting an audit engagement, you as the c. At least 12 months from the balance sheet date.
successor auditor would least likely make specific d. At least 12 months from the date of audit report.

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14. The audit program usually cannot be finalized until the 21. To obtain evidential matter about control risk, an
a. Consideration of the entity’s internal control has auditor selects tests from a variety of techniques
been completed. including
b. Engagement letter has been signed by the auditor a. Inquiry.
and the client. b. Calculations.
c. Reportable conditions have been communicated to c. Analytical procedures
the audit committee of the board of directors. d. Confirmations
d. Search for unrecorded liabilities has been
performed and documented. 22. The auditor is most likely to presume that a high risk
of a defalcation exists if
15. of the following situations will normally result to a. The client is a multinational company that does
decrease in the extent of audit procedures? business in numerous foreign countries.
a. Increase in the risk of material misstatement. b. The client does business with several related
b. Increase in the degree of assurance the auditor parties.
plans to obtain. c. Inadequate segregation of duties places an
c. Increase in materiality level. employee in a position to perpetrate and conceal
d. None of the above. thefts.
d. Inadequate employee training results in lengthy
16. Which of the following statements is incorrect EDP exception reports each month.
regarding the reliability of audit evidence?
a. Oral representation by the client management is 23. In assessing sampling risk, the risk of incorrect
not a valid evidence. rejection and the risk of assessing control risk too high
b. Audit evidence obtained directly by the auditor is (risk of under-reliance) on internal accounting control
more reliable than that one provided by the client relate to the
management. a. Efficiency of the audit.
c. The effectiveness of accounting and internal control b. Effectiveness of the audit.
adds to the reliability of internal audit evidence. c. Selection of the sample.
d. While internal audit evidence is considered to be d. Audit quality controls.
acceptable, the auditor usually prefers audit
evidence form external sources. 24. Which statement is correct regarding auditing fair value
measurements and disclosures?
17. A summary of findings rather than assurance is most a. Many measurements based on estimates, including
likely to be included in _______. fair value measurements, are inherently precise.
a. Examination report b. Assumptions used in fair value measurements are
b. Agreed-upon procedures report different in nature to those required when
c. Compilation report developing other accounting estimates.
d. Review report c. Underlying the concept of fair value measurements
is a presumption that the entity will be liquidated.
18. An auditor selects a sample from the file of shipping d. The measurement of fair value may be relatively
documents to determine whether invoices were simple for assets that are bought and sold in active
prepared. This test is performed to satisfy the audit and open markets.
objective of
a. Accuracy 25. When an auditor becomes aware of a possible illegal
b. Control act by client, the auditor should obtain an
c. Completeness understanding of the nature of the act to
d. Existence a. Evaluate the effect on the financial statements.
b. Determine the reliability of management’s
19. Which of the following is not done by an auditor when representation.
obtaining an understanding of an entity’s internal c. Consider whether other similar acts may have
control? occurred.
a. Identification of the types of potential d. Recommend remedial actions to the audit
misstatements that can occur. committee.
b. Consideration of the operating effectiveness of the
internal controls. 26. An entity's financial statements were misstated over a
c. Designation of substantive tests. period of years due to large amounts of revenue being
d. Consideration of factors that affect the risk of recorded in journal entries that involved debits and
material misstatements. credits to an illogical combination of accounts. The
auditor could most likely have been alerted to this
20. In obtaining an understanding of a manufacturing irregularity by
entity’s internal control over inventory balances, an a. Scanning the general journal for unusual entries.
auditor most likely would b. Performing a revenue cut-off test at year-end.
a. Analyze the liquidity and turnover ratios of the c. Tracing a sample of journal entries to the general
inventory. ledger.
b. Perform analytical procedures designed to identify d. Examining documentary evidence of sales returns
cost vaReyces. and allowances recorded after year-end.
c. Perform test counts of inventory during the entity’s
physical count. 27. Which of the following would not be an appropriate
d. Review the entity’s descriptions of inventory procedure for testing the general control activities of
policies and procedures. an information system?

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EXCEL PROFESSIONAL SERVICES, INC.

a. Inquiries of client personnel. 34. The auditor has assessed the level of control risk
b. Inspecting computer logs. (together with the assessed level of inherent risk) to
c. Testing for the serial sequence of source determine the acceptable level of detection risk for
documents. financial statement assertions for receivable account
d. Examination of the organizational chart to balances. As the acceptable level of detection risk
determine the segregation of duties. decreases, which of the following adjustments to the
accounts receivable audit program would the audit
28. Which of the following material events occurring team normally make?
subsequent to the balance sheet date would require an a. Change the nature of substantive tests to less
adjustment to the financial statements before they are efficient procedures, such as using negative rather
issued? than positive confirmations.
a. Sale of long-term debt or capital stock. b. Change the timing of the confirmation process to
b. Loss of a plant as a result of a flood. an interim date.
c. Major purchase of a business which is expected to c. Increase the sample size of the accounts for
double sales volume. confirmations.
d. Settlement of litigation, in excess of the recorded d. Change the sampling method from random to
liability. convenience sampling.

29. An auditor is concerned with completing various phases 35. An auditor will most likely estimate the tolerable failure
of the examination after the balance-sheet date. This rate in order to:
"subsequent period" extends to the date of the a. determine which type of sampling approach to use
a. Auditor's report. b. calculate the probable control risk
b. Final review of the audit working papers. c. determine the population to be tested
c. Public issuance of the financial statements d. determine the appropriate sample size
d. Delivery of the auditor's report to the client.
36. Identify the appropriate type of opinion to issue when
30. It exists when other information contradicts the auditor is satisfied that there is a remote likelihood
information contained in the audited financial of a loss resulting from the resolution of an uncertainty.
statements. a. Unqualified opinion.
a. Material inconsistency b. Unqualified opinion with a separate explanatory
b. Material misstatement of fact paragraph.
c. Material weaknesses c. Qualified opinion or disclaimer of opinion,
d. Misstatement depending on whether the uncertainty is
adequately disclosed.
31. Which of the following statements is (are) correct d. Qualified opinion or disclaimer of opinion,
regarding the auditor’s use of materiality as it applies depending upon the materiality of the loss.
to a financial statement audit?
a. The auditor is required to report all incidences of 37. The inability of the client to prepare certain audit
material fraud to the audit committee. requirements may most likely lead the auditor to
b. There is no difference between the peso amount of a. Withdraw from the engagement.
planning materiality when searching for a b. Express qualified opinion or a disclaimer.
defalcation versus searching for financial reporting c. Express qualified or adverse opinion.
fraud. d. Express unqualified opinion with explanatory
c. The auditor must consider qualitative factors such paragraph.
as whether senior management is involved in
determining the materiality of fraud. 38. A qualified opinion is appropriate when the auditor is
d. All of the statements are correct. satisfied that the overall financial statements are
a. fairly stated
32. Which of the following is not done by an auditor when b. materially misstated
obtaining an understanding of an entity’s internal c. misleading
control? d. fairly stated, even though there is an immaterial
a. Identification of the types of potential exception
misstatements that can occur.
b. Consideration of the operating effectiveness of the 39. Management's responsibility for the financial
internal controls. statements is
c. Designation of substantive tests. a. Implicitly represented in the auditor's standard
d. Consideration of factors that affect the risk of report.
material misstatements. b. Explicitly represented in the opening paragraph of
the auditor's standard report.
33. Some accounting estimates may involve relatively, low c. Explicitly represented in the responsibility of the
estimation uncertainty and may give rise to lower risks management paragraph of the auditor's standard
of material misstatements, such as those report.
a. are frequently made and updated because they d. Explicitly represented in the opinion paragraph of
relate to routine transactions. the auditor's standard report.
b. with fair value estimates for derivative financial
instruments not publicly traded. 40. Ramil has completed an examination of the financial
c. relating to the outcome of litigation. statements of Rey, Inc. Last year's financial statements
d. with fair value estimates for a highly specialized were examined by Vic, CPA. Since last year's financial
entity-developed model is used. statements will be presented for comparative purposes
with Vic's report, Ramil's report should

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a. State that the prior year's financial statements

were examined by another auditor.
b. State that the prior year's financial statements
were examined by Vic.
c. Not refer to the prior year's examination.
d. Refer to Vic's report only if the opinion was other
than unqualified.

End of AT.PW

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