At - Prelim Rev (875 MCQS) Red Sirug Page 1 of 85
At - Prelim Rev (875 MCQS) Red Sirug Page 1 of 85
At - Prelim Rev (875 MCQS) Red Sirug Page 1 of 85
Appropriateness
PRELIM REVIEWER
(875 Multiple Choice Questions) 7. Which of the following best describes due care?
a. Reasonable infallibility
b. Tact in avoiding legal liability
SET 1 c. Requisite skill and diligence
d. Freedom from undue influence
1. Which of the following engagements is covered by the
Framework for Assurance Engagements? 8. Users of financial statements demand independent audit
a. Consulting engagements because
b. Preparation of tax returns a. Users demand assurance that fraud does not exist.
c. Independent financial statements audit b. Management may not be objective in reporting.
d. Agreed-upon procedures c. Users expect auditors to correct management errors.
d. Management relies on the auditor to improve internal
2. Independent auditing can best be described as a control.
a. Subset or branch of accounting.
b. Professional activity that measures and communicates 9. An audit of financial statements is conducted to determine
financial accounting data. if the
c. A discipline or professional activity that attests to a. Organization is operating efficiently and effectively
the fair presentation of financial statements. b. Client's internal control is functioning as intended.
d. Regulatory activity that prevents the issuance of c. Auditee is following specific procedures or rules set
improper financial information. down by some higher authority
d. Overall financial statements are stated in
3. An auditor should not render a report on: accordance with an identified financial reporting
a. Client internal control. framework.
b. Management performance.
c. The achievability of forecasts. 10. An audit designed to determine the extent to which the desired
d. Quarterly financial information. results of an activity established by the legislative or other
authorizing body are being achieved.
4. The assumption underlying an audit of financial statements a. Economy audit
is that they will be used by b. Efficiency audit
a. Different groups for different purposes. c. Program results audit
b. The general public in making investment decisions. d. Financial-related audit
c. The board of directors as basis of declaring cash
dividends. 11. Which of the following methods is most commonly used to
d. The regulatory agencies to verify information that is reduce information risk?
relevant to their supervisory functions. a. Allow users to verify information.
b. Allow all users to prepare the statements.
5. On every audit engagement, the CPA should comply with c. Users share information risk with management.
applicable PSAs d. Have the financial statements audited.
a. Without exception.
b. Except in examinations that result in a qualified report. 12. Which of the following best describes the primary purpose of
c. Except in examinations of interim financial statements. audit procedures?
d. Except in circumstances where the CPA is associated a. To detect errors or fraud
with unaudited financial statements. b. To comply with generally accounting principles
c. To gather sufficient, appropriate evidence
6. It refers to the attribute or quality of audit evidence. d. To verify the accuracy of account balances
a. Sufficiency
b. Relevance 13. It is essential that users regard CPA firms as:
c. Reliability a. Competent.
94. The Chairpersons of the FRSC and the AASC shall be 100. Foreign CPAs
appointed by: a. Are allowed to practice accountancy in the Philippines
a. The Philippine Institute of Certified Public Accountants. without restriction.
b. The President of the Republic of the Philippines. b. Are never allowed to practice accountancy in the
c. The Professional Regulatory Board of Accountancy. Philippines.
d. The Professional Regulation Commission. c. May be allowed to practice accountancy in the Philippines,
but only in areas outside public practice.
95. A candidate successfully passes the Board exams if he/she d. May be allowed to practice accountancy in the
obtains Philippines, subject to the rules and regulations on
a. A general average of sixty-five percent (65%). reciprocity.
b. A general average of seventy-five percent (75%).
c. A general average of seventy-five percent (75%) in at SET 2
least a majority of the subjects given in the Board exams.
d. A general average of seventy-five percent (75%), with 1. These are independent professional services that improve the
no grades lower than sixty-five percent (65%) in any quality of information for decision-making.
given subject. a. Audit services
b. Assurance services
96. In the event a candidate obtains the rating of seventy-five c. Attestation services
percent (75%) and above in at least a majority of subjects as d. Management consultancy
provided for in RA9298, and one subject has a rating of 64%,
he shall be considered as: 2. Which of the following types of audits is performed most
a. A failed candidate. frequently by CPAs on a fee basis and for more than one
b. A conditioned candidate. client?
c. A successful passer of the CPA Board exams. a. Government audits
d. Cannot be determined without additional information b. Compliance audits
c. Internal audits
97. A certificate under seal, bearing a registration number, issued d. Financial statement audits
to an individual, by the PRC, upon recommendation by the
BOA, signifying that the individual has complied with all the 3. The independent auditor lends credibility to client
legal and procedural requirements for such issuance: financial statements by
a. Certificate of accreditation a. Stating in the auditor’s management letter that the
b. Certificate of registration examination was made in accordance with PSAs
c. Certificate of quality review b. Attaching an auditor’s opinion to the client’s
d. Certificate of identification financial statements.
c. Testifying under oath about client financial statements.
98. This bears the registration number, date of issuance with an d. Maintaining clear-cut distinctions between
17. The three commonly-sought types of assurance services are 23. A CPA should not submit unaudited financial statements of a
a. Audits, reviews, and compilations. non-public entity to a client or others unless, as a minimum,
b. Audits, reviews, and other assurance services. the CPA complies with the provisions applicable to
c. Audits, compilations, and other assurance services. a. Audit engagements.
d. Reviews, compilations, and other assurance services. b. Review engagements.
c. Assurance engagements.
18. Which of the following statements is true? d. Compilation engagements.
a. Assurance engagements do not require independence.
b. The term “auditor” is broader in scope compared to the 24. You own Dude, Inc., which manufactures wooden tables. You
term “practitioner.” need to hire some accountants to prepare your monthly
c. Assurance engagements performed by professional financial statements. The preparation of your financial
accountants are intended to enhance the credibility statements is referred to as a(n)
of information. a. Audit.
d. The degree or level of assurance that may be provided by b. Review.
the practitioner is inversely related to the scope of c. Compilation.
procedures performed and their results. d. Special report.
19. Which of the following forms may be the subject matter of 25. Distribution of a report is always restricted when
assurance engagements? a. Negative assurance is given.
a. Behavior b. A review has been performed.
b. Historical financial information c. There is a positive expression of opinion.
c. Systems and processes d. Agreed-upon procedures have been performed.
d. All of the above
26. Which of the following methods is most commonly used to
20. Engagement risk is influenced by the risks associated with the reduce information risk?
following except a. Allow all users to prepare the statements.
a. Nature and form of the subject matter. b. Allow users to verify information.
b. Nature and form of the criteria applied to the subject c. Have the financial statements audited.
matter. d. Users share information risk with management.
c. Unreasonably low professional fee.
d. Nature and extent of the process used to collect and 27. The phrase in our opinion in the auditor’s report is intended to
evaluate evidence. inform users that auditors
a. Guarantee fair presentation of the financial statements.
21. Absolute assurance is not attainable as a result of such b. Act as insurers of the accuracy of the financial statements.
factors as: c. Certify the material presented in the statements by
a. The use of judgment. management.
b. The use of selective testing. d. Based their conclusions about the statements on
c. The inherent limitations of control systems. professional judgment.
d. All of the above
28. The need for assurance services arises because:
22. If the auditor learns that an entity is inappropriately using the a. There is a potential bias in providing information.
auditor’s name in association with financial information, he/she b. Economic transactions are less complex than they were a
should: decade ago.
a. Remain silent. c. There is a consonance of interests of the preparer and
b. Seek legal advice if necessary. the user of the financial statements.
c. Require management to cease doing so. d. Most users today have access to the system that
generates the financial statements they use.
41. The risk that the auditor's own work will lead to the decision 46. Which statement is incorrect regarding the term of office of the
that material misstatements do not exist in the financial chairman and the members of the Board of Accountancy
statements, when in fact such misstatements do exist, is (BOA)?
a. Control risk a. The Chairman and members of the Board shall hold
b. Detection risk office for a term of three years.
c. Inherent risk b. A person may serve the BOA for not more than twelve
d. Audit risk years.
c. A member of the BOA may continuously serve office
42. With respect to the concept of materiality, which one of the for more than nine years.
following statements is correct? d. No person who has served two (2) successive complete
a. Materiality is a matter of professional judgment. terms shall be eligible for reappointment until the lapse of
b. Materiality is determined by reference to AASC's one (1) year.
guidelines.
c. Materiality depends on the nature of a transaction rather 47. The BOA shall submit to the PRC the ratings obtained by each
than the peso amount of the transaction. candidate within how many calendar days after the
d. Materiality depends only on the peso amount of an item examination?
relative to other items in the financial statements. a. 5 days
b. 10 days
43. The following statements relate to the Board of Accountancy. c. 15 days
Which statement is correct? d. 30 days
a. The Board consists of a Chairman and six members.
b. The chairman and members are appointed by the 48. Which of the following is not one of the grounds for
President of the Philippines upon recommendation of proceedings against a CPA?
PICPA. a. Insanity.
c. Majority of the board members shall as much as possible b. Immoral or dishonorable conduct.
be in public practice. c. Gross negligence or incompetence in the practice of his
d. The Professional Regulation Commission may remove profession.
from the Board any member whose certificate to practice d. Engaging in public practice while being employed in
has been removed or suspended. a private enterprise.
44. The APO shall submit its nominations with complete 49. The primary duty to enforce the provisions of RA 9298 and its
documentation to the Commission not later than ______ prior IRR rests with
to the expiry of the term of an incumbent chairman or member. a. The PRC
a. 30 days b. The BOA
b. 60 days c. The AASC
c. 90 days d. The PRC and BOA
d. 120 days
50. The PICPA shall renew its Certificate of Accreditation once
45. A member of the BOA shall, at the time of his/her appointment, every how many years after the date of the Resolution
possess the following qualifications, except granting the petition for re-accreditation and the issuance of
a. Must be a natural-born citizen and resident of the the said certificate upon submission of the requirements?
Philippines. a. 2 years
b. Must not be a director or officer of the APO at the time of b. 3 years
his/her appointment. c. 4 years
85. Which of the following does not belong to the group: 91. Which of the following is a violation of the code of professional
a. Independence of mind ethics for certified public accountants?
b. Independence of fact a. A CPA permits his/her name to be used in a client's
c. Independence in mental attitude advertising as having verified financial data and/or
d. Independence in appearance statistical facts with respect to the client's products.
b. Based on information obtained in an audit, a CPA
86. Safeguards that may eliminate or reduce threats to reports an illegal act of his client to government
independence to an acceptable level fall in the following authorities.
categories except: c. Three years after a partner has retired, the remaining
a. Safeguards created by the profession, legislation or partners continue to practice under a firm name that
regulation includes the name of the retired partner. The retired
95. As used in Republic Act No. 9298, this term refers to the 100. An engagement quality control review is required to be
area of practice of accountancy performed:
a. Section a. Immediately after the re-assessment of control risk.
b. Sector b. At engagement completion after the report is issued.
c. Segment c. For all audits of financial statements of listed entities.
d. Line d. For all types of audits, regardless of the subject matter of
the engagement.
24. An unqualified conclusion is not appropriate for either 29. PSRE 2400 (Engagements to Review Financial Statements),
reasonable or limited assurance engagement when: as amended by the AASC in February 2008, applies to
I. Circumstances prevent the practitioner from obtaining a. Reviews of any historical financial information of an audit
evidence required to reduce assurance engagement risk to client.
the appropriate level. b. Reviews of historical financial or other information by a
II. The responsible party or the engaging party imposes a practitioner other than the entity's auditor.
restriction that prevents the practitioner from obtaining c. Reviews of historical financial or other information of an
evidence required to reduce assurance engagement risk to audit client.
the appropriate level. d. Reviews of any historical financial information by a
a. I only practitioner other than the entity's auditor.
b. II only
c. Either I or II 30. When performing a compilation engagement, the accountant
d. Neither I nor II is required to
a. Make inquiries of management to assess the reliability
25. Reducing assurance engagement risk to zero is very rarely and completeness of the information provided.
attainable or cost beneficial as a result of the following factors, b. Assess internal controls.
except c. Verify matters and explanations.
a. The use of selective testing. d. Obtain a general knowledge of the business and
b. The fact that much of the evidence available to the operations of the entity.
practitioner is persuasive rather than conclusive.
c. The practitioner may not have the required assurance 31. Each page of the financial information compiled by the
knowledge and skills to gather and evaluate evidence. accountant should include the following reference, except
d. The use of judgment in gathering and evaluating a. "Unaudited"
evidence and forming conclusions based on that evi- b. "Compiled, Negative Assurance Expressed"
dence. c. "Compiled without Audit or Review"
d. "Refer to Compilation Report"
26. Which of the following standards are to be applied, as
appropriate, in the audit of historical financial information? 32. An auditor may accept an engagement to perform specified
a. PSAEs procedures on the specific subject matter of specified
b. PSREs elements, accounts, or items of a financial statement if
c. PSAs a. The report does not list the procedures performed.
d. PSRSs b. The auditor is also the entity's continuing auditor.
36. The Philippine Framework for Assurance Engagements 41. What is the most likely course of action that will be taken by
a. Provides a frame of reference for CPAs in public practice an auditor in assessing management integrity?
when performing audits, reviews, and compilations of a. Tour the client premises.
historical financial information. b. Research the prospective client’s related parties.
b. Contains basic principles, essential procedures, and c. Research the background and histories of officers
related guidance for the performance of assurance d. Review the minutes of the board of directors
engagements.
c. Establishes standards and provides procedural 42. Which of the following is an example of an assurance
requirements for the performance of assurance en- engagement?
gagements. a. Management advisory services
d. Defines and describes the elements and objectives of b. Reporting on financial statements prepared using
an assurance engagement, and identifies other comprehensive basis of accounting.
engagements to which PSAs, PSREs, and PSAEs c. compilation of financial information
apply. d. preparation of tax returns
37. The procedures employed in doing compilation are: 43. Which of the following services provides a moderate level of
a. Designed to enable the accountant to express a limited assurance about the client's financial statements?
44. When an independent auditor is approached to perform an 48. Which of the following factors would most likely cause a CPA
audit for the first time, he/she should make inquiries of the to decide not to accept a new audit engagement?
predecessor auditor. Inquiries are necessary because the a. The CPA’s lack of understanding of the prospective
predecessor may be able to provide the successor with client’s internal auditor’s computer-assisted audit
information that will assist the successor in determining techniques.
whether b. Management’s disregard of its responsibility to
a. A certain amount of audit fee will be acceptable to the maintain an adequate internal control environment.
client. c. The CPA’s inability to determine whether related-party
b. An unqualified opinion may be issued. transactions were consummated on terms equivalent to
c. The audit documentation by the predecessor auditor can arm’s-length transactions.
be utilized. d. Management’s refusal to permit the CPA to perform
d. The engagement proposal should be accepted. substantive tests before the year-end.
45. Before accepting an audit engagement, a successor auditor 49. The following are fundamental principles that are mostly
should make specific inquiries of the predecessor auditor applied when performing procedures on acceptance of new
regarding the predecessor's clients except:
a. Evaluation of all matters of continuing accounting a. Confidentiality.
significance. b. Professional competence.
b. Understanding as to the reasons for the change of c. Independence.
auditors. d. Professional competence and due care.
c. Awareness of the consistency in the application of GAAP
between periods. 50. Before continuing the client relationship, the auditor should
d. Opinion of any subsequent events occurring since the perform the following except:
predecessor's audit report was issued. a. Communicate with the predecessor auditor.
b. Evaluate client in case of change of client’s business.
46. Before accepting an engagement to audit a new client, a CPA c. Evaluate client’s integrity.
is required to obtain d. Evaluate financial condition of the client.
a. An understanding of the prospective client’s industry and
business. 51. A successor auditor most likely would make specific inquiries
b. The prospective client’s signature to the engagement of the predecessor auditor regarding
letter. a. Specialized accounting principles of the client's industry.
c. A preliminary understanding of the prospective client’s b. Disagreements with management as to auditing
control environment. procedures.
d. The prospective client’s consent to make inquiries of c. The competency of the client's internal audit staff.
the predecessor auditor, if any. d. The uncertainty inherent in applying sampling procedures.
47. Before accepting an audit engagement, a successor auditor 52. Which of the following will an auditor least likely discuss with
should make specific inquiries of the predecessor auditor the former auditors of a potential client prior to acceptance?
regarding a. Disagreements with management regarding accounting
a. Disagreements the predecessor had with the client principles
concerning auditing procedures and accounting b. Integrity of management
principles. c. Fees charged for services
b. The predecessor’s evaluation of matters of continuing d. Reasons for changing audit firms
accounting significance.
53. Prior to the acceptance of an audit engagement with a client
57. Prior to beginning fieldwork on a new audit engagement in 62. An engagement letter should be written before the start of an
which a CPA does not possess industry expertise, the CPA audit because
should a. It specifies the client's responsibility for preparing
a. Obtain knowledge of matters that relate to the nature schedules and making the records available to the auditor.
of the entity's business and industry. b. It may limit the auditor's legal liability by specifying the
72. The relationship between materiality and audit risk is: 78. Which of the following statements best describes the auditor's
a. Indeterminable responsibility to detect material errors and fraud?
b. Direct. a. The auditor is responsible for the failure to detect material
c. Inverse. errors and frauds only when such failure results from the
d. Materiality and audit risk have no relationship misapplication of generally accepted accounting
principles.
73. An auditor should design a written audit program so that: b. The auditor is responsible for the failure to detect material
a. All material transactions will be selected for substantive errors and frauds only when the auditor fails to confirm
testing. receivables or observe inventories.
b. Substantive tests prior to the balance sheet date will be c. The audit should be designed to provide reasonable
minimized. assurance that material errors and fraud are detected.
c. The audit procedures selected will achieve specific d. Extended auditing procedures are required to detect
audit objectives. unrecorded transactions even if there is no evidence that
d. Each account balance will be tested under either tests of material errors and frauds may exist.
controls or tests of transactions.
79. Which of the following procedures would an auditor be most
74. Audit programs are modified to suit the circumstances on likely to perform in planning a financial statement audit?
particular engagements. A complete audit program for an a. Reviewing investment transactions of the audit period to
engagement generally should be developed determine whether related parties were created.
a. Prior to beginning the actual audit work. b. Performing analytical procedures to identify areas
b. After the auditor has completed an evaluation of the that may represent specific risks.
existing internal accounting control. c. Obtaining a written representation letter from the client to
c. After reviewing the client's accounting records and emphasize management's responsibilities.
procedures. d. Reading the minutes of stockholder and director meetings
d. When the audit engagement letter is prepared. to discover whether any unusual transactions have
occurred.
75. Which of the following is not a potential effect of an auditor's
decision that a lower acceptable audit risk is appropriate? 80. A CPA is conducting the first audit of a client’s financial
a. More evidence is required. statements. The CPA hopes to reduce the audit work by
b. Less evidence is required. consulting with the predecessor auditor and reviewing the
c. Special care is required in assigning experienced staff. predecessor's working papers. This procedure is
d. Review of the working papers by personnel who were not a. Acceptable if the CPA refers in the audit report to reliance
assigned to the engagement. upon the predecessor auditor's work.
b. Required if the CPA is to render an unqualified opinion.
76. To obtain an understanding of a continuing client’s business in c. Unacceptable because the CPA should bring an
planning an audit, an auditor most likely would independent viewpoint to a new engagement.
a. Read specialized industry journals. d. Acceptable if the client and the predecessor auditor
b. Review prior year working papers and the permanent agree to it.
file for the client.
c. Reevaluate the client’s internal control environment. 81. PSA 315 requires that the auditor should obtain an
d. Perform tests of details of transactions and balances. understanding of relevant industry, regulatory and other
external factors including the applicable financial reporting
98. The 1986 Constitution provides that the Chairman and 2. Which of the following best describes the passing of
Commissioners of the Commission on Audit shall be confidential information from a client to its auditor? The
a. All lawyers information:
23. The audit work performed by each assistant should be 29. The establishment of an overall audit strategy involves
reviewed to determine whether it was adequately performed I. Determining the characteristics of the engagement that
and to evaluate whether the define its scope.
a. Results are consistent with the conclusions to be II. Ascertaining the reporting objectives of the engagement
presented in the auditor's report. to plan the timing of the audit and the nature of the
b. Audit procedures performed are approved in the communications required.
professional standards. III. Considering the important factors that will determine the
c. Audit has been performed by persons having adequate focus of the engagement team's efforts.
technical training and proficiency as auditors. a. I and II only
d. Auditor's system of quality control has been maintained at b. I and III only
a high level. c. II and III only
d. I, II, and III
24. Risk assessment procedures include the following, except
a. Analytical procedures. 30. In the planning stage of an audit engagement, the auditor is
b. Confirmation of accounts receivable. required to perform audit procedures to obtain an
c. Observation and inspection. understanding of the entity and its environment, including its
d. Inquiries of management internal control. These procedures are called
a. Substantive tests
25. PSA 315 requires: b. Tests of controls
a. Obtaining an understanding of the entity and its c. Risk assessment procedures
environment d. Dual-purpose tests
b. Identifying and assessing the risks of material
misstatement 31. In planning the audit engagement, the auditor should consider
c. Discussion among engagement team members about the each of the following, except
risk of material misstatement in the financial statements. a. Matters relating to the entity's business and the industry
d. All of the above in which it operates.
b. Materiality level and audit risk.
26. A time budget is an estimate of the total hours an audit is c. The kind of opinion (unmodified, qualified, or adverse)
expected to take. The following are among the factors to be that is likely to be expressed.
considered in developing this budget, except d. The entity's accounting policies and procedures.
a. Client's size as indicated by its gross assets, sales,
number of employees. 32. The auditor's understanding of the entity and its environment
b. Location of client facilities. consists of an understanding of the following aspects except
c. The competence and experience of available staff. a. Industry, regulatory, and other external factors, including
d. Whether the audit is performed during the interim or the applicable financial reporting framework.
at year-end. b. Nature of the entity, including the entity's selection and
application of accounting policies.
44. The nature of the entity refers to the following, except: 49. Existing accountant, as defined in the Code of Ethics, means
a. The types of investments that it is making and plans to a. A professional accountant employed in industry,
make. commerce, the public sector or education.
b. Other external factors, such as general economic b. Those persons who hold a valid certificate issued by the
conditions. Board of Accountancy.
c. The way that the entity is structured and how it is c. A professional accountant in public practice
financed. currently holding an audit appointment or carrying
d. The entity's operations, its ownership, and governance. out accounting, taxation, consulting or similar
professional services for a client.
45. These result from significant conditions, events, d. A sole proprietor, or each partner or person occupying a
circumstances, actions or inactions that could adversely affect position similar to that of a partner and each staff in a
the entity’s ability to achieve its objectives and execute its practice providing professional services to a client
strategies or through the setting of inappropriate objectives irrespective of their functional classification (e.g., audit,
and strategies. tax or consulting) and professional accountants in a
a. Business failure practice having managerial responsibilities.
b. Information risk
c. Business obstacles 50. How did the Code of Ethics define public interest?
d. Business risk a. A distinguishing mark of a profession is the acceptance of
its responsibility to the public.
46. These are the operational approaches by which management b. The accountancy profession's public consists of clients,
intends to achieve its objectives. credit grantors, governments, employers, employees,
a. Business risk approaches investors, the business and financial community, and
b. Strategies others who rely on the objectivity and integrity of
c. Planning methods professional accountants.
d. Operational plans. c. The collective well-being of the community of people
and institutions the professional accountant serves.
47. The auditor's understanding of the entity and its environment d. The standards of the accountancy profession are
consists an understanding of the following aspects: heavily determined by the public interest.
a. Industry, regulatory and other external factors, including
the applicable financial reporting framework 51. Independent auditors of financial statements perform audits
b. Nature of the entity, including the entity's selection and that reduce and control
application of accounting policies a. Business risk faced by investors
b. Information risk faced by investors
c. Complexity of financial statements
53. Which of the following best describes the operational audit? 59. The overall objective of internal auditing is to
a. It requires the constant review by internal auditors of the a. Attest to the efficiency with which resources are
administrative controls as they relate to operations of employed.
the company. b. Ascertain that controls are costs justified.
b. It concentrates on implementing financial and c. Provide assurance that financial data have been
accounting control in a newly organized company. accurately recorded.
c. It concentrates on seeking out aspects of d. Assist members of the organization in the effective
operations in which waste would be reduced by the discharge of their responsibilities.
introduction of controls.
d. It attempts and is designed to verify the fair 60. Internal auditing is an independent appraisal function
presentation of a company's results of operations. established within an organization to examine and evaluate its
activities. To that end, internal auditing provides assistance to
54. What is the proper organizational role of internal auditing? a. External auditors
a. To serve as an independent, objective assurance and b. Stockholders
consulting activity that adds value to operations. c. Management and the board of directors
b. To assist the external auditor in order to reduce external d. Government
audit fees.
c. To perform studies to assist in the attainment of more 61. An audit which is undertaken in order to determine whether
efficient operations. the auditee is following specific procedures or rules set down
d. To serve as the investigative arm of the audit committee by some higher authority is classified as a(n)
of the board of directors. a. Audit of financial statements.
b. Compliance audit.
55. Which of the following is not one of the limitations of an audit? c. Operational audit.
a. The use of testing d. Production audit.
b. Limitations imposed by client
c. Human error 62. The most important function of operational audit report is to:
d. Nature of evidence that the auditor obtains a. Direct management to take specified actions.
b. State the auditor’s opinion or conclusion.
56. Which of the following terms does not belong to the group c. Report findings and recommendations.
a. Financial audit d. Report the objective of the audit.
b. Internal audit
c. External audit 63. Operational audit differs in many ways from an audit of
d. Independent audit financial statements. Which of the following is the best
example of one of these differences?
57. By providing high level of assurance on audit reports on
77. There are four conditions that give rise to the need for 81. The internal auditing profession has advanced primarily as a
independent audits of financial statements. One of these result of
conditions is consequence. In this context, consequence a. Increased interest by Bachelor of Science in Accoun-
means that the: tancy (BSA) graduates and experienced auditors.
a. Users of the statements may not fully understand the b. The limitation of financial statement audit scope.
consequences of their actions. c. Job qualification specifications that include added emphasis
b. Auditor must anticipate all possible consequences on background knowledge and skills.
of the report issued. d. Increased complexity and sophistication of business
c. Impact of using different accounting methods may operations.
not be fully understood by the users of the statements.
d. Financial statements are used for important 82. A typical objective of an operational audit is for the auditor to
decisions. a. Determine whether the financial statements fairly
present the entity's operations.
78. One of the conditions that give rise to a demand for an b. Evaluate the feasibility of attaining the entity's
external audit of financial statements is expertise. Which operational objectives.
of the following best describes the meaning of expertise as c. Make recommendation for improving performance.
used in this context? d. Report on the entity's relative success in maximizing
86. Which of the following activities is not prohibited for the CPA 91. When a CPA who is not independent is associated with
firm's attestation service clients? financial statements, he would be precluded from expressing
a. Competitive bidding on audit jobs. an opinion because
b. Contingent fees on audit jobs. a. The public would be aware of his lack of independence
c. Commissions for obtaining client services on audit jobs. and would place little or no faith in his opinion.
d. Referral fees on audit jobs. b. He would place himself in the position of suffering an
adverse decision in a possible liability suit.
87. If requested to perform a review engagement for a nonpublic c. He would be in the position of auditing his own work.
entity in which an accountant has an immaterial direct financial d. Any auditing procedures he might perform would not
interest, the accountant is be in accordance with generally accepted auditing
a. Independent because the financial interest is immaterial standards.
and, therefore, may issue a review report.
b. Not independent and, therefore, may not be associated 92. In which of the following circumstances would a CPA be
with the financial statements. bound by ethics to refrain from disclosing any confidential
c. Not independent and, therefore, may not issue a information obtained during the course of a professional
review report. engagement?
94. The objective of governmental effectiveness or program 98. The work of each assistant needs to be reviewed by personnel
auditing is to determine if the desired results of a program of at least equal competence. Which of the following is not one
are being achieved. What is the first step in conducting of the objectives of this requirement?
such an audit? a. The conclusions expressed are consistent with the result
a. Identify the legislative intent of the program being of the work performed and support the opinion.
audited. b. The work performed and the results obtained have been
b. Collect quantifiable data on the program's success adequately documented.
or failure. c. The objectives of the audit procedures have been
c. Determine the time frame to be audited. achieved.
d. Evaluate the system used to measure results. d. All available evidences have been obtained,
evaluated and documented.
95. Which of the following statements is a standard
applicable to financial statement audits in accordance 99. Every independent audit engagement involves both auditing
with Government Auditing Standards? standards and auditing procedures. The relationship between
a. An auditor should briefly describe in the auditor's report the the two may be illustrated by how they apply from
method of statistical sampling used in per forming tests engagement to engagement. The best representation of this
of controls and substantive tests. application is that, from one audit engagement to the next,
b. An auditor should report on the scope of the a. Both auditing standards and auditing procedures are
auditor's testing of internal control. applied uniformly.
c. An auditor should determine the extent to which b. Auditing standards are applied uniformly but auditing
the entity's programs achieve the desired level of procedures are optional.
results. c. Auditing standards are applied uniformly but auditing
procedures may vary.
10. In relation to audit planning, the auditor should document the 16. The following statements relate to the auditor's responsibility
following: for the detection of errors and fraud. Which of the statement
a. The overall audit strategy. is correct?
b. The detailed audit plan. I. Due to the inherent limitations of the audit, there is a
c. Significant changes made during the audit engagement. possibility that material misstatements in the financial
d. All of the answers statements may not be detected.
II. The subsequent discovery of material misstatement of
11. Audit programs generally include procedures to test actual the financial information resulting from fraud or error does
transactions and resulting balances. These procedures are not, in itself, indicate that the auditor failed to follow the
primarily designed to basic principles and essential procedures of an audit.
a. Detect irregularities that result in misstated financial a. I only
statements. b. II only
b. Test the adequacy of internal control. c. Both statements are true
c. Gather corroborative evidence. d. Both statements are false
d. Obtain information of informative disclosures.
17. Which of the following is not an assurance that the auditors
12. An audit process is a well-defined methodology for organizing give to the parties who rely on the financial statements?
an audit to ensure that a. Auditors know how the amounts and disclosures in the
a. The evidence gathered is both sufficient and competent. financial statements were produced.
b. All appropriate audit objectives are specified. b. Auditors gathered enough evidence to provide a
c. All appropriate audit objectives are met. reasonable basis for forming an opinion.
d. All of these c. Auditors give assurance that the financial statements
are accurate.
13. For a particular assertion, control risk is the risk that d. If the evidence allows the auditors to do so, auditors give
a. Controls will not detect a material misstatement that assurance in the form of opinion, as to whether the
occurs. financial statements taken as a whole are fairly presented
b. Audit procedures will fail to detect a weak control system. in conformity with GAAP.
c. The prescribed control procedures will not be applied
uniformly. 18. Material misstatements in financial statements may arise from
d. A material misstatement will occur in the accounting all of the following except
process. a. Fraud
b. Error
14. Which of the following is most likely to require special planning c. Limitations of the audit
considerations related to asset valuation? d. Noncompliance with laws and regulations
a. Accelerated depreciation methods are used for
amortizing the costs of factory equipment. 19. Which of the following is an example of an error?
a. Defalcation
44. In assessing the technical competence of an internal auditor, 49. Which of the following statements concerning audit planning is
an external auditor most likely would obtain information about incorrect?
the a. Planning is a continual and iterative process.
a. Organizational level to which the internal auditor reports. b. Planning is a discrete phase of an audit.
b. Quality of working paper documentation, reports, and c. In a recurring audit, planning often begins shortly after (or
recommendations. in connection with) the completion of the previous audit
c. Influence of management on the internal auditor's duties. and continues until the completion of the current audit
d. Entity's commitment to integrity and ethical values. engagement.
d. In planning an audit, the auditor considers the timing of
45. Given that an audit in accordance with generally accepted certain planning activities and audit procedures that are
auditing standards is influenced by the possibility of material to be completed prior to the performance of further audit
errors and fraud, the auditor should conduct the audit with an procedures.
attitude of
a. Professional responsiveness. 50. The generally accepted auditing standards of fieldwork pertain
b. Conservative advocacy. most directly to:
c. Professional skepticism. a. Improving internal control as a result of the audit.
d. Objective judgment. b. Due professional care in the performance of the audit.
c. The required training and proficiency of the auditors.
46. The primary difference between financial statement errors and d. The planning of the audit.
fraud is that
a. Errors are intentional misstatements by management, 51. With respect to the auditor's planning of a year-end
53. Which of the following is not required by PSA No. 315, 57. The type of transactions that ordinarily have a high inherent
"Consideration of Fraud in a Financial Statement Audit"? risk because they involve management judgments or
a. Conduct a continuing assessment of the risks of material assumptions are referred to as
misstatement due to fraud throughout the audit. a. Estimation transactions.
b. Conduct a discussion by the audit team of the risks of b. Nonroutine transactions.
material misstatement due to fraud. c. Related-party transactions.
c. Conduct inquiries of the audit committee as to their views d. Routine transactions.
about the risks of fraud and their knowledge of any fraud
or suspected fraud. 58. Professional skepticism
d. Conduct the audit with professional skepticism, a. Assumes that management is either dishonest or
which includes an attitude that assumes balances are assumes unquestioned honesty.
incorrect until verified by the auditor. b. Either assumes that management is honest or dishonest.
c. Neither assumes that management is dishonest nor
54. Inherent risk is defined as the susceptibility of an account assumes unquestioned honesty.
balance or class of transactions to error that could be material d. None of the above is a correct statement
assuming that there were no related internal controls. Of the
following conditions, which one does not increase inherent risk? 59. Which of the following conditions identified during fieldwork of
a. The board of directors approved a substantial bonus for an audit is most likely to affect the auditor’s assessment of the
the president and chief executive officer, and also risk of misstatement due to fraud?
approved an attractive stock option plan for themselves. a. Year-end adjusting journal entries.
b. The client has entered into numerous related party b. Checks for significant amounts outstanding at year-end.
transactions during the year under audit. c. Missing documents.
c. Internal control over shipping, billing, and recording d. Computer generated documents.
of sales revenue is weak.
d. The client has lost a major customer accounting for 60. Which of the following best describes what is meant by the
approximately 30% of annual revenue. term “fraud risk factor?”
a. Factors whose presence indicates that the risk of fraud is
55. Which of the following is true? high.
a. Auditors are responsible for detecting all fraudulent b. Factors whose presence requires modification of planned
financial reporting. audit procedures.
73. Which of the following might be considered a "red flag" 78. Auditors would normally interview all but which of the following
indicating possible fraud in a large manufacturing company individuals as part of their assessment of fraud risk?
with several subsidiaries? a. Senior management
a. A consistent record of above average return on b. Audit committee
investment for all subsidiaries c. Various employees whose duties do not include normal
b. The existence of a financial subsidiary financial reporting responsibilities
c. Use of separate bank accounts for payrolls by each d. All of the above
subsidiary
d. Complex sales-transactions and transfers of funds 79. After studying and evaluating a client's existing internal control,
between affiliated companies an auditor has concluded that the policies and procedures are
well-designed and functioning as intended. Under these
74. Warning signs that cause the auditor to question management circumstances, the auditor would most likely
4. A director, an officer or an employee of the assurance client in 9. Examples of circumstances that may create self-review threat
a position to exert direct and significant influence over the least likely include
subject matter of the assurance engagement has been a a. Potential employment with an assurance client.
member of the assurance team or partner of the firm. This b. Preparation of original data used to generate financial
situation least likely create statements or preparation of other records that are the
a. Self-interest threat. subject matter of the assurance engagement.
b. Advocacy threat. c. A member of the assurance team being, or having
c. Intimidation threat. recently been, an employee of the assurance client in a
d. Familiarity threat. position to exert direct and significant influence over the
subject matter of the assurance engagement.
5. A former officer, director or employee of the assurance client d. Performing services for an assurance client that directly
serves as a member of the assurance team. This situation will affect the subject matter of the assurance engagement.
81. Which of the following is least likely the basis of determining 86. A CPA should maintain objectivity and be free of conflicts of
audit fees? interest when performing:
a. The skill and knowledge required for the type of work a. All attestation services, but not other professional
involved. services.
b. The degree of responsibility and urgency that the work b. All attestation and tax services, but not other professional
entails. services.
c. The expected outcome of the engagement. c. Audits, but not any other professional services.
d. The required level of training and experience of the d. All professional services.
person engaged on the work.
87. Which of the following has primary responsibility for the
82. Though PSAs do not provide "hard and fast rules," they performance of an audit?
provide subjective guidance which allow the auditors to: a. The partner in charge of the engagement
a. Only apply those standards that are important to the audit. b. The senior assigned to the engagement
b. Use adequate professional judgment when applying c. The managing partner of the firm
the standards. d. The manager assigned to the engagement
c. Tailor their audit to procedures requested by
management. 88. The most common type of audit report contains a(n):
d. Accurately interpret the Code of Ethics for CPAs. a. Unqualified opinion.
b. Qualified opinion.
83. Which one of the following is not a key attribute that is c. Adverse opinion.
essential to perform an assurance service? d. Disclaimer of opinion.
a. Independence
b. Accounting skills 89. Assurance services involve all the following except:
c. Established criteria or standards a. Improving the quality of information for decision purposes.
d. Subject matter knowledge b. Improving the quality of the decision model used.
c. Improving the relevance of information.
84. Upon completion of a typical audit, the auditor has d. Implementing a system that improves the processing
a. No assurance that all material errors and fraud have been of information.
found.
b. A low level of assurance that all material errors and fraud 90. Which of the following is the broadest and most inclusive
have been found. concept?
c. High level of assurance that all material errors and a. Audits of financial statements.
fraud have been found. b. Internal control audit.
d. Total assurance that al material errors and fraud have c. Assurance services.
been found. d. Compilation services.
85. An investor, while reading the financial statements of Star 91. Whenever a CPA professional is engaged to perform an audit
Corporation, learned that the statements are accompanied by of financial statements according to Philippine Standards on
an unqualified auditor's report. From this the investor may Auditing, he required to comply with those standards in order
conclude that: to
a. The auditor has ascertained that Silver's financial a. Eliminate audit risk.
statements have been prepared accurately. b. Eliminate the professional judgment in resolving audit
b. The auditor is satisfied that Silver is operationally efficient. issues.
c. Have a measure of the quality of audit performance.
93. In all cases, audit reports must 99. Which of the following least likely limits the auditor’s ability to
a. Communicate the auditor’s finding to the general public. detect material misstatement?
b. Be signed by the individual who performed the audit a. The inherent limitations of any accounting and internal
procedures. control system.
c. Certify the accuracy of the quantitative information which b. Most audit evidences are conclusive rather than
was audited. being persuasive.
d. Inform readers of the degree of correspondence c. Audit is based on testing
between the quantifiable information and the d. Audit procedures that are effective in detecting ordinary
established criteria. misstatements are ineffective in detecting intentional
misstatements.
94. The framework for auditing and related services as addressed
by PSA excludes 100. Examples of circumstances that may create familiarity threat
a. Review least likely include
b. Compilation a. A member of the assurance team having an immediate
c. Tax services family member or close family member who is a director
d. Agreed upon procedure or officer of the assurance client.
b. A member of the assurance team having an immediate
95. It refers to the level of auditor’s satisfaction as to the reliability family member or close family member who, as an
of an assertion being made by one party for use by another employee of the assurance client, is in a position to exert
party. direct and significant influence over the subject matter of
a. Confidence level the assurance engagement.
b. Assurance level c. A former partner of the firm being a director, officer of the
c. Reasonableness level assurance client or an employee in a position to exert
d. Tolerable level direct and significant influence over the subject
matter of the assurance engagement.
d. Dealing in, or being a promoter of, share or other
96. Which of the following is true of the report based on agreed-
securities in an assurance client.
upon-procedures?
a. The report is restricted to those parties who have
SET 7
agreed to the procedures to be performed.
b. The CPA provides the recipients of the report limited
assurance as to reasonableness of the assertion(s) 1. In "auditing" accounting data, the auditor is concerned with
presented in the financial information. a. Analyzing the financial information to be sure that it
c. The report states that the auditor has not recognized any complied with government requirement.
basis that requires revision of financial statements. b. Determining if fraud has occurred.
d. The report should state that the procedures performed c. Determining whether recorded information properly
are limited to analytical procedures and inquiry. reflects the economic events that occurred during the
accounting period.
97. The three types of attestation services are:
26. Which of the following underlies the application of generally 31. In financial statement audits, the audit process should be
accepted auditing standards, particularly the standards of conducted in accordance with
fieldwork and reporting? a. Philippine Financial Reporting Standards
a. Element of corroborating evidence b. International Accounting Standards
b. Element of reasonable assurance c. Philippine Standards on Auditing
c. Elements of materiality and risk d. Philippine Accounting Standards
d. Element of internal control
32. The Philippine Standards on Auditing issued by AASC
27. Which of the following is the authoritative body designated to a. Need to be applied on all audit related.
promulgate auditing standards? b. Require that in no circumstances would an auditor may
a. Financial Reporting Standards Council judge it necessary to depart from a PSA, even though
b. PICPA such a departure may result to more effective
c. Association of CPAs in Public Practice and PICPA achievement of the objective of an audit.
d. Auditing and Assurance Standards Council c. Apply to independent examination of financial
statements of any entity when such an examination is
28. Which of the following mostly describes the function of AASC? conducted for the purpose of expressing an opinion.
a. To monitor full compliance by auditors to PSAs. d. Must not apply to other related activities of auditors.
b. To assist the Board of Accountancy in conducting
administrative proceedings on erring CPAs in audit 33. An auditor needs not abide by a Philippines Standard on
practice. Auditing if the auditor believes that
c. To promulgate auditing standards, practices and a. The amount is insignificant.
procedures that shall be generally accepted by the b. The requirement of the PSA is impractical to perform.
accounting profession in the Philippines. c. The requirement of the PSA is impossible to perform.
d. To undertake continuing research on both auditing and d. Any of the above three is correct.
financial accounting in order to make them responsive to
the needs of the public. 34. Auditing standards differ from auditing procedures in that
procedures relate to:
29. The Philippine Standards on Auditing issued by the Auditing a. Measures of performance
and Assurance Standards Council (AASC) b. Acts to be performed.
a. Are interpretations of generally accepted auditing c. Audit judgments.
standards d. Audit principles.
b. Are the equivalent of laws for audit practitioners.
c. Must be followed in all situations. 35. Every independent audit engagement involves both auditing
d. Are optional guidelines which an auditor may choose to standards and auditing procedures. The relationship between
follow or not follow when conducting an audit. the two may be illustrated by how they apply from
55. Engagement letters are widely used in practice for 59. The responsibility for adopting sound accounting policies,
professional engagements of all types. The primary purpose maintaining adequate internal control, and making fair
of the engagement letter is to representations in the financial statements rests
a. Remind management of its primary responsibility over the a. With the management.
financial statements. b. With the independent auditor.
b. Satisfy the requirements of the Code of Professional c. Equally with management and the auditor.
Conduct for CPAs. d. With the internal audit department.
c. Provide a starting point for the auditor's preparation of the
preliminary audit program. 60. The ordinary examination of financial statements is not
d. Provide a written record of the agreement with the primarily designed to disclose defalcations and other
client as to the services to be provided. irregularities although their discovery may result. Normal audit
procedures are more likely to detect a fraud arising from
56. Which of the following is not likely a quality control procedure a. Collusion on the part of several employees.
on consultation? b. Failure to record cash receipts for services rendered.
a. Identifies areas and specialized situations where c. Forgeries on company checks.
consultation is required and encourages personnel to d. Theft of inventories.
consult with or in use authoritative sources on other
complex matters. 61. A principal purpose of a letter of representation from
b. Designates individuals as specialists to serve as management is to
authoritative sources and define their authority in a. Serve as an introduction to company personnel and an
consultative situations. authorization to examine the records.
c. Assigns an appropriate person or persons to be b. Discharge the auditor from legal liability for his
responsible for assigning personnel to audits. examination.
d. Specifies the extent of documentation to be provided for c. Confirm in writing management's approval of limitations
the result of consultation in those areas and specialized on the scope of the audit.
situations where consultation is required. d. Remind management of its primary responsibility for
financial statements.
57. According to Philippine Standards on Auditing, because there
are inherent limitations in an audit that affect the auditor's 62. The auditor should not assume that management is dishonest,
ability to detect material misstatements, the auditor is: but the possibility of dishonesty must be considered." This is
a. Neither a guarantor nor an insurer of financial an example of
statements. a. Expectation gap.
b. A guarantor but not an insurer of the statements. b. An attitude of professional skepticism.
c. An insurer but not a guarantor of the statements. c. Due diligence.
d. Both a guarantor and an insurer of the financial d. An ethical requirement.
statements.
63. Which of the following statements is true?
58. The working papers prepared by a CPA in connection with an a. It is usually easier for the auditor to uncover irregularities
audit engagement are owned by the CPA, subject to certain than errors.
limitations. The rationale for this rule is to b. It is usually easier for the auditor to uncover errors
a. Protect the working papers from being subpoenaed. than irregularities.
68. A procedure in which a quality control partner periodically 73. When determining whether independence is impaired because
tests the application of quality control procedures is most of an ownership interest in client company, materiality will
directly related to which quality control element? affect whether ownership is a violation of rule of independence
a. Engagement performance a. In all circumstances.
b. Independence, integrity, and objectivity b. Only for direct ownership.
c. Monitoring c. Only for indirect ownership.
97. The provision of services by a firm or network firm to an audit 1. What will an auditor who has been proposed for an audit
client that involve the design and implementation of financial engagement usually do prior to accepting a new client?
information technology systems that are used to generate a. Draft the financial statements of the client as a measure
information forming part of a client's financial statements may of goodwill.
most likely create b. With the permission from the prospective client,
a. Self-interest threat. contact the predecessor auditor to determine if there
b. Self-review threat. are any disagreements between the client and the
c. Intimidation threat. audit firms.
d. Familiarity threat, c. Obtain the potential client's permission to talk to the
former auditor and review work papers.
98. When determining whether independence is impaired because d. Perform a peer review on the potential client in
of an ownership interest in client company,' materiality will accordance with professional standards.
affect whether ownership is a violation of rule of independence
a. In all circumstances. 2. Which of the following statements is true with regard to the
b. Only for direct ownership. relationship among audit risk, audit evidence, and materiality?
c. Only for indirect ownership. a. The lower the inherent risk and control risk, the lower the
d. Under no circumstances. aggregate materiality threshold.
b. Under conditions of high inherent and control risk,
99. A successor auditor is required to communicate with the the auditor should place more emphasis on obtaining
previous auditor. The primary concern in this communication external evidence and should reduce reliance on
is internal evidence.
a. Information which will help the successor auditor in c. Where inherent risk is high and control risk is low, the
determining whether the client management has auditor may safely ignore inherent risk.
integrity. d. Aggregate materiality thresholds should not change
b. To learn about client by examining predecessor's working under conditions of changing risk levels.
papers.
33. If specific information comes to an auditor's attention that 38. Unlike consulting services, in assurance services:
implies the existence of possible illegal acts that could have a a. There is confirmation that financial statement assertions
material, but indirect effect on-the financial statements, the are accurate.
auditor should next b. Misstated account balances are generally corrected by an
a. Report the matter to an appropriate level of management independent audit.
at least one level above those involved. c. Ineffective internal controls may exist.
b. Apply audit procedures specifically directed to d. Competing interests may exist between management
ascertaining whether an illegal act has occurred. and the users of statements.
c. Seek the advice of an informed expert qualified to
practice law as to possible contingent liabilities. 39. The attest function:
d. Discuss the evidence with the client's audit committee, or a. Is an essential part of every engagement performed by a
others with equivalent authority. CPA.
b. Includes the preparation of a written report of the
34. When planning the audit, if the auditor has no reason to CPA's conclusion.
believe that illegal acts exist, the auditor should c. Requires a complete review of all transactions during the
a. Include audit procedures which have a strong probability period under examination.
of detecting illegal acts. d. Requires a review of a sample of transactions during the
b. Make inquiries of management regarding their period under examination.
policies and regarding their knowledge of violations,
and then rely on normal audit procedures to detect 40. Which of the following is an assurance service?
errors, irregularities, and illegalities. a. Performance measurement
c. Still include some audit procedures designed specifically b. Systems design and installation
to uncover illegalities. c. Tax planning
d. Ignore the topic. d. Personal financial planning
35. When the auditor knows that an illegal act has occurred, the 41. Non-assurance engagements include all of the following
auditor must services, except:
a. Issue an adverse opinion. a. Agreed-upon procedures engagements.
b. Withdraw from the engagement. b. Compilations of financial or other information.
c. Report it to the proper government authorities. c. Management and tax consulting.
d. Consider the effects on the financial statements, d. Examination of prospective financial information.
including the adequacy of disclosure.
42. Unlike consulting services, assurance services:
36. Assurance services differ from consulting services in that they a. Make recommendation to management.
I. Focus on providing advice. b. Report on how to use information.
c. Are two-party contracts.
II. Involve monitoring of one party by another.
d. Report on the quality of information.
a. I only.
b. II only. 43. Identify the correct statement.
c. Both I and II. a. Accounting services do not provide attestation.
d. Neither I nor II. b. Management consulting services provide attestation in all
90. Which of the following least likely create "self-interest threat"? 95. If a member of the assurance team, or their immediate family
a. Undue dependence on total fees from an assurance member receives, by way of, for example, an inheritance, gift
client. or, as a result of a merger, a direct financial interest or a
b. Concern about the possibility of losing the engagement. material indirect financial interest in the assurance client, a
c. Having a close business relationship with an assurance self-interest threat would be created. The following safeguards
client. should be applied to eliminate the threat or reduce it to an
d. Pressure to reduce inappropriately the extent of work acceptable level:
performed in order to reduce fees a. Disposing of the financial interest at the earliest practical
date.
91. The integrated national professional organization of Certified b. Removing the member of the assurance team from the
Public Accountants accredited by the BOA and the PRC per assurance engagement.
PRC accreditation No. 15 dated October 2, 1975. c. Either a or b
a. Philippine Institute of Certified Public Accountants d. Neither a nor b
(PICPA)
b. Auditing and Assurance Standards Council (AASC) 96. Occurs when, by virtue of a close relationship with an
c. Financial Reporting Standards Council (FRSC) assurance client, its directors, officers or employees, a firm or
d. Education Technical Council (ETC) a member of the assurance team becomes too sympathetic
to the client's interests.
92. A CPA-lawyer, acting as a legal counsel to one of his audit a. Self-interest threat
client, is an example of b. Self-review threat
a. Self-interest threat c. Advocacy threat
b. Self-review threat d. Familiarity threat
c. Advocacy threat
d. Familiarity threat 97. A former officer, director or employee of the assurance client
serves as a member of the assurance team. This situation will
93. Intimidation threat least likely create
a. Is not a threat to independence. a. Self-interest threat.
b. Occurs when a member of the assurance team may b. Self-review threat.
be deterred from acting objectively and exercising c. Intimidation threat.
professional skepticism by threats, actual or d. Familiarity threat.
perceived, from the directors, officers or employees
of an assurance client. 98. Immediate family includes
c. Occurs when, by virtue of a close relationship with an a. Parent.
assurance client, its directors, officers or employees, a b. Sibling.
firm or a member of the assurance team becomes too c. Non-dependent child.
sympathetic to the client's interests. d. Spouse.
d. Occurs when a firm, or a member of the assurance team,
promotes, or may be perceived to promote, an assurance 99. Which of the following is not likely a threat to independence?
client's position or opinion to the point that objectivity may, a. Acting as an advocate on behalf of an assurance client in
or may be perceived to be, compromised. litigation or in resolving disputes with third parties.
b. Long association of a senior member of the assurance
94. Eman, a CPA, has a law practice. Eman has recommended team with the assurance client.
one of his clients to Noel, a CPA. Noel has agreed to pay c. Threat of replacement over a disagreement with the
Eman 10% of the fee for services rendered by Noel to Eman's application of an accounting principle.
client. Who, if anyone, is in violation of the Code of Ethics? d. Owning immaterial indirect financial interest in an
a. Both Eman and Noel audit client.
35. The firm should obtain written confirmation of compliance with 41. The benefits of an operational audit generally include all of
its policies and procedures on independence from all firm the following except
personnel required to be independent by the Code of Ethics at a. Decreased costs.
least: b. Increased revenue
a. Annually c. Increased productivity.
b. Every 3 years d. Increased reliability of the financial statements.
c. Every 2 years
d. Every 5 years 42. The auditor is required to comply with all PSAs relevant to the
audit of an entity's financial statements. A PSA is relevant to
36. The firm should obtain acceptance and continuance the audit when:
information as it considers necessary in the following I. The PSA is in effect.
circumstances: II. The circumstances addressed by the PSA exist.
a. When accepting an engagement with a new client a. I only
b. When deciding whether to continue an existing b. II only
engagement c. Either I or II
c. When accepting a new engagement with an existing d. Both I and II
client
d. All of these. 43. Preplanning the audit involves several key activities which
include the following except:
37. The following methods are most likely to develop capabilities a. Investigating the client's background.
and competence, except: b. Communicating with the prospective client's prior auditor
a. Professional education. to inquire about any disagreements with the client.
b. Continuing professional development, including training. c. Understanding the client's reasons for obtaining an audit.
c. Work experience and coaching by less experienced d. Determining the likelihood of issuing an unqualified
staff audit opinion on the client's financial statements.
d. Self-study modules on professional accounting and
auditing literature. 44. Which of the following is incorrect regarding professional
competence?
38. Consultation is usually undertaken for: a. Professional accountants may portray themselves as
a. Difficult or contentious matters. having expertise or experience they do not possess.
b. Matters for which there is readily available support. b. Professional competence may be divided into two
c. Matters for which the judgment of the engagement leader separate phases.
is deemed sufficient. c. The attainment of professional competence requires
d. Straightforward matters involving accounting and auditing. initially a high standard of general education.
d. The maintenance of professional competence requires a
39. The standard-setting body whose chairman had been or continuing awareness of development in the accountancy
presently a senior accounting practitioner in any scope of profession.
accounting practice is
a. AASC 45. The following procedures relate to Skills and Competence,
b. FRSC except