AUDITING THEORY TEST BANK ASSURANCE SERVICES
1. Which of of the followin following g statements statements best best describe describess assurance assurance service services? s? A. Independent professional services that are intended to enhance the credibility of information to meet the needs of an intended user. B. Serv Servic ices es desi design gned ed to expr expres esss an opin opinio ion n on the the fair fairne ness ss of hist histori orica call fina financi ncial al statements based on the results of an audit. C. The The prep prepar arat atio ion n of fina financ ncia iall stat statem emen ents ts or the the coll collec ecti tion on,, clas classi sifi fica cati tion on,, and and summariation of other financial information. !. Services Services designed designed for the improvement improvement of operations, operations, resultin resulting g in better outcomes. outcomes. ". Whic Which h of the the foll followi owing ng is is not an assurance service? #. $xamination of prospective financial information information B. #udit of histori historical cal financial financial statements statements C. %eview %eview of of financ financial ial statem statement entss D. Compilati Compilation on of financi financial al informat information ion &. Suitable Suitable criteria criteria are re'uired re'uired for for reasonabl( reasonabl( consistent consistent evaluat evaluation ion or measuremen measurementt of the sub)ect matter of an assurance engagement. engagement. Which of the following following statements concerning the characteristics of suitable criteria is correct? correct? #. %eliable criteria contribute to conclusions that are clear, comprehensive, and not sub)ect to significantl( different interpretations. B. %elevant %elevant criteria criteria allow allow reasonabl( reasonabl( consistent consistent evaluati evaluation on or measurement measurement of the sub)ect matter including, where relevant, presentation and disclosure, when used in similar circumstances b( similarl( 'ualified practitioners. C. Neutral Neutral criteria criteria contribute contribute to conclusi conclusions ons that are free free from bias. !. Criteria Criteria are sufficientl sufficientl( ( complete complete when the( contribute contribute to conclusions conclusions that are clear, clear, comprehensive, and not sub)ect to different interpretations. *. +n an assurance assurance engageme engagement, nt, the outcome outcome of the evalu evaluation ation or measurem measurement ent of a sub)ect sub)ect matter against criteria is called A. Subject matter information B. Sub) Sub)ec ectt ma matt tter er C. #ssuran rance !. Conc Concllusio usion n . What t(pe t(pe of assurance assurance engage engagement ment is involve involved d when the practit practitioner ioner expresse expressess a positive form of conclusion? #. -imited assurance engagement B. ositiv ositive e assura assurance nce enga engagem gement ent C. Reason Reasonabl able e assuran assurance ce engagem engagement ent !. #bsolu #bsolute te assura assurance nce engage engagemen mentt /. What t(pe t(pe of assurance assurance engage engagement ment is involve involved d when the practit practitioner ioner expresse expressess a negative form of conclusion? #. %easonable assurance engagement B. 0egati 0egative ve assu assuran rance ce engag engageme ement nt C. #ssert #ssertion ionba based sed assuran assurance ce engageme engagement nt D. Limited Limited assurance assurance engagement engagement 2. Which of the following statements statements is true concerning evidence in an an assurance engagement? A. Sufficiency is the measure of the the uantity of evidence. B. #pprop #ppropria riaten teness ess is the measure measure of the 'ualit( 'ualit( of eviden evidence, ce, that is, its reliab reliabili ilit( t( and persuasiveness. C. The reliabil reliabilit( it( of evidence evidence is influenced influenced not not b( its nature nature but b( its its source. source. !. 3btaining 3btaining more evide evidence nce ma( compens compensate ate for its its poor 'ualit( 'ualit(..
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4. #ssuran #ssurance ce engag engageme ement nt ris5 ris5 is is the ris5 ris5 A. !hat the practitioner e"presses an inappropriate conclusion #hen the subject matter information is materially misstated. B. 3f expressing expressing an inappropr inappropriate iate conclusi conclusion on when the sub)ect sub)ect matter matter information information is is not materiall( misstated. C. Through loss loss from litigatio litigation, n, adverse adverse publicit(, publicit(, or other other events arising arising in connection connection with a sub)ect matter reported on. !. 3f expres expressin sing g an inappr inappropri opriate ate conclusi conclusion on when when the sub)ect sub)ect matter matter informat information ion is either materiall( misstated or not materiall( misstated. 6. %educing %educing assurance assurance engagement engagement ris5 ris5 to ero is ver( rarel( rarel( attaina attainable ble or cost benefici beneficial al as a result of the following factors, except #. The use of selective testing. B. The fact that much of the evidence evidence avail availabl able e to the practi practitio tioner ner is persua persuasiv sive e rather rather than conclusive. C. !he practition practitioner er may not have the reuired reuired assurance assurance $no#ledg $no#ledge e and s$ills to gather and evaluate evidence. !. The use of )udgment )udgment in gather gathering ing and evalu evaluati ating ng evide evidence nce and formin forming g conclu conclusio sions ns based on that evidence. 17. The hilippine hilippine 8ramewor5 8ramewor5 for #ssurance #ssurance $ngag $ngagements ements #. Contains basic principles, essential procedures, and related guidance for the performance of assurance engagements. %. Defi Define nes s an and d desc descri ribe bes s the the elem elemen ents ts an and d obje object ctiv ives es of an assur ssuran ance ce engagement& and identifies engagements to #hich 'SAs& 'SR(s& and 'SA(s apply. C. rovid rovides es a fra frame me of ref refere erence nce for C#s in public public practi practice ce when performi performing ng audits, audits, reviews, and compilations of historical financial information. !. $stablishes $stablishes standards standards and provides provides procedural procedural re'uiremen re'uirements ts for the performance of assurance engagements.
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AUDITING AND RELATED SERVICES
11. S%$ S%$ "*77 9$ngagem 9$ngagement entss to %eview %eview 8inanci 8inancial al Stateme Statements: nts:,, as ame amende nded d b( the ##SC ##SC in 8ebruar( "774, applies to #. %eviews of an( historical financial information of an audit audit client. %. Revie#s Revie#s of any historical historical financia financiall information information by a practitione practitionerr other than the entity entity s auditor. auditor. C. %eview %eviewss of historica historicall financi financial al or other other informat information ion b( a practi practitio tioner ner other than the entit( s auditor. auditor. !. %eviews %eviews of historical historical financia financiall or other informati information on of an audit client. client.
1". When perform performing ing a compil compilation ation engagement, engagement, the accounta accountant nt is reuired is reuired to to #. #ssess internal controls. B. ;a5e ;a5e in'u in'uir irie iess of ma mana nage geme ment nt to asse assess ss the the relia reliabi bili lit( t( and and comp comple lete tene ness ss of the the information provided. C.
1. The auditor auditor is is re'uired re'uired to mainta maintain in professio professional nal s5eptici s5epticism sm throughout throughout the the audit. audit. Which of the following statements concerning professional s5epticism is false? A. A belief that management and those charged #ith governance are honest and have integrity relieves the auditor of the need to maintain professional s$epticism. B. ;ainta ;aintaini ining ng profes professio sional nal s5eptic s5epticism ism througho throughout ut the audit audit red reduce ucess the ris5 of using using inappropria inappropriate te assumptions assumptions in determini determining ng the nature, timing, and extent extent of the audit procedures and evaluating the results thereof. C. rofessiona rofessionall s5epticism s5epticism is necessar( necessar( to the critical assessme assessment nt of audit evidence. evidence. !. rofes rofessio sional nal s5epti s5epticism cism is an attitu attitude de that that includ includes es 'uesti 'uestioni oning ng contrad contradict ictor( or( audit audit evidence obtained. 1/. Which Which of the follow following ing best descri describes bes the reason reason wh( indepe independe ndent nt auditors auditors report report on financial statements? #. # management fraud ma( exist and it is more li5el( to be detected b( independent auditors. %. Diff Differ eren entt inte intere rest sts s may e" e"iist bet# bet#ee een n the the com compan pany prep prepa arin ring the the statements and the persons using the statements. C. # misstatement misstatement of account account balances balances ma( exist exist and is generall( generall( corrected corrected as the result result of the independent independent auditors auditors wor5. !. oorl( designed designed internal internal control ma( be in existence existence..
12. Which of the followi following ng professiona professionals ls has primar( primar( responsib responsibilit ilit( ( for the performance performance of of an audit? #. The managing partner of the firm. B. The senio seniorr assign assigned ed to the the engage engagemen ment. t. C. The manag manager er assign assigned ed to the enga engagem gement ent.. D. !he partner partner in in charge charge of the the engagement engagement.. 14. What is the proper proper organia organiational tional role of of internal internal auditin auditing? g?
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A. !o serve as an independent& objective assurance and consulting consulting activity that that adds value to operations. B. To assist the the external external auditor auditor in order order to reduce reduce external external audit audit fees. C. To perform perform studies studies to assist assist in the attainm attainment ent of more effici efficient ent operatio operations. ns. !. To serve as the investi investigativ gative e arm of the audit audit committee committee of the board board of directors. directors.
16.
3perational audits audits generall( generall( have been conducted b( internal and C3# auditors, but ma( be performed b( certified certified public accountants. # primar( purpose of an operational audit is to provide A. A measure of management management performance in meeting organi)ational organi)ational goals. B. The The resu result ltss of inte intern rnal al exam examin inat atio ions ns of fina financ ncia iall and and acco accoun unti ting ng ma matt tter erss to a compan( s toplevel toplevel management. C. #id to the indepe independe ndent nt auditor, auditor, who is conducti conducting ng the examinat examination ion of the financ financial ial statements. !. # means of assurance assurance that that internal internal accounting accounting controls controls are functioni functioning ng as planned. planned.
"7. "7. Whic Which h of the follo followi wing ng terms terms best best descri describe bess the the audi auditt of a taxp taxpa( a(er er s retur return n b( a B+% B+% auditor? #. 3perational audit. B. +nte +ntern rnal al audi audit. t. C. Comp Compli lian ance ce aud audit it.. !. =ove =overnm rnmen entt audi audit. t.
"1. Which of the the following following stateme statements nts concerning concerning consulti consulting ng services services is false? false? #. The performance of consulting services for audit clients does not, in and of itself, impair the auditor s independence. independence. B. Consul Consultin ting g servic services es differ differ fundam fundament entall all( ( from the C# s functi function on of attest attesting ing to the assertions of other parties. C. Consultin Consulting g services ordinar ordinarily ily involve involve e"ternal e"ternal reporting reporting.. !. ;ost C#s, C#s, including including those who provide provide audit and tax services, services, also also provide provide consulting consulting services to their clients.
"". Which of the follow following ing is the most most appropriate appropriate action action to be ta5en ta5en b( a C# C# who has been as5ed to perform a consulting services engagement concerning the anal(sis of a potential merger if he>she has little experience with the industr( involved? A. Accept the engagement but he*she should conduct research or consult #ith others to obtain sufficient competence. B. !ecline !ecline the engageme engagement nt because because he>she he>she lac5s lac5s sufficient sufficient 5nowledge 5nowledge.. C. #ccep #cceptt the the enga engage geme ment nt and and issu issue e a repo report rt that that conta contain inss his> his>he herr opin opinio ion n on the the achievabilit( of the results of the merger. !. #ccept #ccept the engage engagemen mentt and perform perform it in accordanc accordance e with with hilip hilippin pine e Standa Standards rds on #uditing 9S#s:. "&. #n #. %. C. !.
ob)ectiv ob)ective e of a performance performance audit audit is to determine determine whether whether an entit( entit( s 3perational information is in accordance with government auditing standards. Specific Specific operating operating units are functionin functioning g economically economically and efficiently efficiently.. 8inancial 8inancial statemen statements ts present present fairl( fairl( the results results of operatio operations. ns. +nternal +nternal control control is ade'uatel ade'uatel( ( operating operating as designe designed. d.
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The internal auditing department s responsibilit( for deterring fraud is to #. $stablish an effective internal control s(stem. B. ;ainta ;aintain in interna internall cont control rol.. C. ("amine ("amine and evaluate evaluate the the system of of internal internal control. control. !. $xercise $xercise operating operating authorit( authorit( over fraud fraud prevention prevention activiti activities. es.
".
+nternal +nternal auditors auditors review review the the ade'uac( ade'uac( of the compan( compan( s internal internal control control s(stem s(stem primaril primaril( ( to #. elp determine the nature, timing, and extent of tests necessar( to achieve audit ob)ectives.
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%. Dete Determ rmin ine e #h #het ethe herr the the inte intern rnal al cont contro roll syst system em prov provid ides es reas reason onab able le assurance assurance that the company s objectives objectives and goals are met efficiently efficiently and economically. C. $nsure that that material material wea5nesses wea5nesses in the s(stem s(stem of internal internal control control are corrected. corrected. !. !etermine !etermine whether whether the internal control control s(stem ensures ensures that financial financial statements statements are fairl( presented.
THE ACCOUNTANCY ACCOUNTANCY PROFESSION PROFESSIO N
"/. The members members of the rofessiona rofessionall %egulator( %egulator( Board Board of #ccountanc( #ccountanc( shall shall be appointed appointed b( the #. hilippine +nstitute of C#s 9+C#:. B. rofessiona rofessionall %egulation %egulation Commission Commission 9%C:. C. 'reside 'resident nt of the the 'hili 'hilippi ppines nes.. !. #ssociation #ssociation of of C#s in ublic ublic ractice ractice 9#C# 9#C#:. :. "2. "2. The The foll follow owin ing g stat statem emen ents ts rela relate te to the the subm submis issi sion on of nomi nomina nati tion onss to the the Boar Board d of #ccountanc(. Which is correct? #. The #ccredited 0ational rofessional 3rganiation of C#s 9#3: shall submit its nominations to the president of the hilippines not later than sixt( 9/7: da(s prior to the expir( of the term of an incumbent chairman or member. B. The #3 shall shall submit submit its nominati nominations ons to the %C %C not later later than thirt( thirt( 9&7: da(s da(s prior prior to the expir( of the term of an incumbent chairman or member. C. +f the #3 fails fails to submit submit its own nomine nominee9s e9s:: to the %C withi within n the re'uired re'uired period period,, the %C in consultation with the Board of #ccountanc( shall submit to the president of the hilippines a list of five 9: nominees for each position. D. !here !here should should be adeua adeuate te docume documenta ntatio tion n to sho# sho# the ualifi ualificat cation ions s and primary field of professional activity of each nominee. "4. The following following stateme statements nts relate relate to the term term of office office of the chairman chairman and and members members of the Board of #ccountanc( 9B3#:. Which is false? false? #. The chairman and members of the B3# shall hold office for a term of three 9&: (ears. B. #n( vacanc( vacanc( occurring occurring within within the term term of a member member shall be fille filled d up for the unexpired unexpired portion of the term onl(. C. No person person #ho has served served t#o success successive ive complet complete e terms terms as chairm chairman an or member shall be eligible for reappointment until the lapse of t#o +,- years. !. #ppointment #ppointment to fill fill up an unexpired unexpired term is not to be conside considered red as a complete complete term. "6. The Board Board of #ccountanc( #ccountanc( has has the power to conduct conduct an oversig oversight ht into the 'ualit 'ualit( ( of audits audits of financial statements through a review of the 'ualit( control measures instituted b( auditors in order to ensure compliance with the accounting and auditing standards and practices. This power of the B3# is called A. uality assurance revie# revie# C. #ppraisal B. eer review !. @ualit( control &7. Which of the followin following g statements statements concerning concerning the issuance issuance of Certificate Certificatess of %egistration %egistration and rofessional +dentification Cards to successful examinees is correct? #. The Certificate of %egistration issued to successful examinees is renewable ever( three 9&: (ears. B. The rofessiona rofessionall +dentificati +dentification on Card issued issued to successful successful examinees examinees shall remain remain in full force and effect until withdrawn, suspended or revo5ed in accordance with %# 6"64. C. !he !he %/A %/A shal shalll not not regi regist ster er an and d issu issue e a Cert Certif ific icat ate e of Re Regi gist stra rati tion on an and d 'rofessiona 'rofessionall Identifica Identification tion Card to any successful successful e"aminee e"aminee of unsound unsound mind. !. The B3# ma(, after after the expirati expiration on of three 9&: (ears (ears from the date date of revocation revocation of a Certificate of %egistration, reinstate the validit( of a revo5ed Certificate of %egistration. &1. Which of the followin following g statements statements concerning concerning ownership ownership of wor5ing wor5ing papers papers is incorrect? incorrect?
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#. #ll wor5ing papers made b( a C# and his>her staff in the course of an examination remain remain the propert( of such C# in the absence of a written agreement agreement between the C# and the client to the contrar(. B. Wor5ing Wor5ing papers papers includ include e schedu schedules les and memorand memoranda a pre prepar pared ed and submit submitted ted b( the client of the C#. C. 0or$ing 0or$ing papers papers include include reports reports submitted submitted by a C'A to to his*her his*her client. client. !. Wor5ing Wor5ing papers shall shall be treated confidenti confidential al and privilege privileged d unless such documents documents are re'ui re' uire red d to be prod produce uced d throu through gh subp subpoe oena na issu issued ed b( an( an( cour court, t, tribu tribuna nal, l, or government regulator( or administrative bod(.
&". #n( person person who shall shall violate violate an( of the provisio provisions ns of the #ccoun #ccountan tanc( c( #ct or an( of its implementing rules and regulations promulgated b( the Board of #ccountanc( sub)ect to the approval of the %C, shall, upon conviction, be punished b( #. # fine of not more than 7,777. B. +mprisonment +mprisonment for a period period not exceeding exceeding two two (ears. (ears. C. A fine fine of not not less less than than '12& '12&22 222 2 or by impr impriisonm sonmen entt for for a peri period od not not e"ceeding t#o years or both. !. -etha -ethall in) in)ec ecti tion on.. &&. # partner partner surviving surviving the death death or withdrawal withdrawal of all the the other partners partners in a partnershi partnership p ma( continue to practice under the partnership name for a period of not more than how man( (ears after becoming a sole proprietor? #. 1 C. & %. , !. * &*. The death or disabil disabilit( it( of an individua individuall C# and>or and>or the dissolution dissolution and li'uida li'uidation tion of a firm or partnership of C#s shall be reported to the B3# not later than how man( da(s from the date of such death, dissolution or li'uidation. #. 1 C. /7 %. 32 !. 67 &. Which Which of the follow following ing statem statement entss concer concernin ning g a C# s disclo disclosur sure e of confiden confidentia tiall client client information is ordinaril( correct? A. Disclosure may be made made to any party on consent of the the client. B. !isc !isclo losu sure re shou should ld not not be ma made de even even if such such disc disclo losu sure re will will prot protec ectt the the C# C# s professional interests in legal proceedings. proc eedings. C. !isclo !isclosure sure should should be made onl( onl( if there there is a legal legal or professi professiona onall dut( to ma5e ma5e the disclosure. !. !isclosure !isclosure ma( be be made to an( an( government government agenc( agenc( without without subpoena subpoena..
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THE CPA S PROFESSIONAL PROFESSIONAL RESPONSIBILIT RESPONSIBILITIES IES
&/. Which Which of the follow following ing statem statement entss best explains explains wh( the C# profess profession ion has found found it essential to establish ethical standards and means for ensuring their observance? #.
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*1. Which Which of the follow following ing is an exampl example e of engage engagemen ments tspec pecifi ificc safegu safeguard ardss in the wor5 environment? #. #dvising partners and professional staff of those assurance clients and related entities from which the( must be independent. %. Disclo Disclosin sing g to those charge charged d #ith #ith govern governanc ance e of the client client the nature nature of service provided and e"tent of fees charged. C. # disc discip ipli lina nar( r( me mech chan anis ism m to prom promot ote e comp compli lian ance ce with with the the firm firm s poli polici cies es and and procedures. !. ublished ublished policies policies and procedures procedures to encourage encourage and empower empower staff staff to communicate communicate to senior levels within the firm an( issue relating to compliance with the fundamental principles that concerns them.
*". #ccording #ccording to Section Section "*7 of the Code of $thics, $thics, fees fees charged charged for assurance assurance engageme engagements nts should be a fair fair reflection of the value value of the wor5 involved. +n determining professional fees, the following should be ta5en into account, e"cept #. The time necessaril( occupied b( each person engaged on the wor5. %. !he outcome outcome or result result of a transact transaction ion or the result result of the the #or$ performed. performed. C. The s5ill s5ill and 5nowledg 5nowledge e re'uired re'uired for the the t(pe of wor5 wor5 involved involved.. !. The level level of training training and experience experience of the the persons necessar necessaril( il( engaged engaged on the wor5. wor5. *&. *&. 8ina 8inanc ncia iall inte intere rest stss ma ma( ( be held held thro throug ugh h an inte interm rmed edia iar( r( 9for 9for exam exampl ple, e, a coll collec ecti tive ve investment investment vehicle, vehicle, estate estate or trust:. When control over over the investment investment vehicle or the abilit( to influence investment decisions exists, the code defines that financial interest to be A. Direct financial interest. interest. B. ;ateri ;aterial al direct direct finan financia ciall interest interest.. C. +ndirect +ndirect financ financial ial intere interest. st. !. ;aterial ;aterial indirect indirect financial financial interest. interest. **. The concept concept of material materialit( it( is least least important important to to an auditor auditor when consideri considering ng the A. (ffects of a direct financial interest in the client upon the auditor s independence. B. !ecision !ecision whether whether to use positive positive or negative negative confirma confirmations tions of accounts accounts receivabl receivable. e. C. #de'ua #de'uac( c( of disc disclos losure ure of of a client client s illega illegall act. act. !. !iscover( !iscover( of wea5ne wea5nesses sses in in a client client s internal internal control. control.
*. # direct direct financ financial ial intere interest st or a material material indire indirect ct financi financial al interes interestt in the audit audit client client of a member of the audit team or his immediate famil( member ma( create a significant self interest interest threat. threat. Which of the following following safeguards safeguards would be least li5el( li5el( considered considered to eliminate the threat or reduce it to an acceptable level? A. Discuss the matter #ith #ith those charged #ith governance governance of the audit client. B. !ispose !ispose of the direct financi financial al interest interest prior to the individ individual ual becoming becoming a member member of the audit team. C. !ispose !ispose of the indirect indirect financial financial interest interest in total total or dispose dispose of a sufficient sufficient amount amount of it so that the remaining interest is no longer material prior to the individual becoming a member of the audit team. !. %emove %emove the member member of the audit audit team team from the audit audit engageme engagement. nt. */. When an immedi immediate ate famil( famil( member member of a member member of the assuran assurance ce team is a director director,, an officer, or an emplo(ee of the assurance client in a position to exert direct and significant influence over the sub)ect matter information of the assurance engagement, or was in such such a posi positi tion on duri during ng the the peri period od cove covere red d b( the the enga engage geme ment nt,, the the thre threat atss to independence can onl( be reduced to an acceptable level b( #. Where possible, structuring the responsibilities of the assurance team so that the profess profession ional al does does not deal deal with with matter matterss that that are within within the respon responsib sibili ilit( t( of the immediate famil( member.
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B. Withdrawing Withdrawing from the assurance assurance engagement engagement.. C. Removing Removing the indivi individual dual from from the the assurance assurance team. team. !. !isc !iscus ussi sing ng the the issu issue e with with thos those e char charge ged d with with gove govern rnan ance ce,, such such as the the audi auditt committee. *2. Which of the the following following would would not general generall( l( create create a threat threat to independen independence? ce? A. !he purchase of goods and services from an assurance client by the firm +or from a financial statement audit client by a net#or$ firm- or a member of the assurance team provided that the transaction is in the normal course of business and on an arm s length basis. basis. B. # partner partner or emplo(ee emplo(ee of the firm firm or a networ5 networ5 firm firm serves serves as Compan( Compan( Secretar( Secretar( for for a financial statement audit client. C. !eterminin !etermining g which recommenda recommendations tions of the the firm should should be implem implemented. ented. !. %eporting, %eporting, in a management management role, role, to those charged charged with with governance. governance.
*4. The followi following ng forms of assistanc assistance e to a financia financiall statem statement ent audit audit client client do not genera generall( ll( threaten the firm s independence, e"cept #. #nal(ing and accumulating information for regulator( reporting. B. #ssisting #ssisting in in resolving resolving account reconciliati reconciliation on problems. problems. C. Authori)i Authori)ing ng or or approvi approving ng transacti transactions. ons. !. #ssisting #ssisting in the preparati preparation on of consolidate consolidated d financial financial statements. statements.
*6. The following following statemen statements ts relate to the provisi provision on of taxation, taxation, internal internal audit audit or +T S(stems services to audit clients. Which is false? A. 'reparing calculations of current and deferred ta" liabilities +or assets- for an audit client for the purpose of preparing accounting entries that #ill be subseuently audited by the firm creates a self4interest threat. B. # selfr selfrevi eview ew threat threat ma ma( ( be created created when a firm, firm, or networ networ5 5 firm, provide providess intern internal al audit services to an audit client. C. The provision provision of services services b( a firm firm or networ5 firm firm to an audit audit client that that involve involve the design and implementation of financial information technolog( s(stems that are used to generate information information forming forming part of a client client s financial financial statements statements ma( create a selfreview threat. !. The The prov proviision sion of serv serviices ces in conn conne ectio ction n with with the the asse assess ssm ment, ent, desi design gn,, and implementation of internal accounting controls and ris5 management controls does not create a threat to independen independence ce provided that firm or networ5 networ5 firm personnel personnel do not perform management functions.
7. What threat threat to independen independence ce is created created when the litigatio litigation n support service servicess provided provided to an audit client include the estimation of the possible outcome and thereb( affects the amounts or disclosures to be reflected r eflected in the financial statements? A. Self4revie# threat B. #dvo #dvoca cac( c( thr threa eatt C. +ntim +ntimid idat atio ion n thre threat at !. 8ami 8amili liar arit it( ( threa threatt 1. What What threat threat to indepen independen dence ce ma( be create created d if fee feess due from from an assura assurance nce client client for profession professional al services remain unpaid for a long time, especiall( especiall( if a significan significantt part is not paid before the issue of the assurance report for the following (ear? #. #dvocac( threat %. Self4 Self4in inte tere rest st threat threat C. +ntim +ntimid idat atio ion n thre threat at !. Self Selfr rev evie iew w threa threatt ". These are fees fees calculate calculated d on a predetermi predetermined ned basis basis relating relating to the outcome outcome or result result of a transaction or the result of the wor5 performed.
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A. B. C. !.
Contingent fees 8ixed fe fees rede redete term rmin ined ed fees fees Comm Commis issi sion ons. s.
&. #s defined defined in the Code Code of $thics, $thics, what what is the communicat communication ion to the public public of informat information ion as to the services or s5ills s5ills provided provided b( professiona professionall accountants in public public practice practice with a view to procuring professional business? A. Advertising B. ublicit cit( C. Soli Solici cita tati tion on !. ;ar5et ;ar5eting ing profes professio sional nal servic services es *. #s defined defined in the Code Code of $thics, $thics, what what is the communicat communication ion to the public public of facts facts about a profes professio sional nal accoun accountan tantt which which are not design designed ed for the delibe deliberate rate promoti promotion on of that that professional accountant? #. #dvertising %. 'ubl 'ubliicity city C. Soli Solici cita tati tion on !. ;ar5et ;ar5eting ing profes professio sional nal servic services es
. Which of of the followin following g statements statements concerni concerning ng publicit( publicit( is incorrect? incorrect? #. Boo5lets and other documents bearing the name of a professional accountant and giving technical information for the assistance of staff or clients ma( be issued to such persons, other professional accountants or other ot her interested parties. %. 'rofe 'rofess ssio iona nall acco accoun unta tant nts s #h #ho o au auth thor or boo$s boo$s or arti articl cles es on prof profes essi sion onal al subjec subjects ts may may state state their their name name and profes professio sional nal uali ualific ficati ations ons55 give give the name of their organi)ation5 and give any information as to the services that the firm provides. C. #ppr #pprop opri riat ate e news newspa pape pers rs or ma maga gai ine ness ma ma( ( be used used to info inform rm the the publ public ic of the the establishment of a new practice, of changes in the composition of a partnership of professional accountants in public practice, or of an( alteration in the address of a practice. !. # professional professional accountan accountantt ma( develop develop and maintain maintain a website in the +nternet +nternet in such suitable length and st(le which ma( also include announcements, press releases, publications and such other necessar( and factual information. /. # professio professional nal accounta accountant nt in publi publicc practice practice is allowed allowed to #. %efer to, use or cite actual or purported testimonials b( third parties. B. ublish ublish services services in billboard billboard 9e.g., tarpauli tarpaulin, n, streamers, streamers, etc.: advertise advertisements ments.. C. ublis ublish h and compare compare fees with other other C#s or C# firms firms or compare compare those those service servicess with those provided b( another firm or C# practitioner. D. Info Inform rm inte intere rest sted ed part partie ies s thro throug ugh h an any y medi medium um that that a part partne ners rshi hip p or salaried employment of an accountancy nature is being sought. 2. #fter evaluat evaluating ing the significa significance nce of the threat threat created b( an actual actual or threatened threatened litiga litigation, tion, the following safeguards should be applied to reduce the threat to an acceptable level, except #. !isclosing to the audit committee, or others charged with governance, the t he extent and nature of the litigation. B. +f the litigat litigation ion involv involves es a member member of the assuran assurance ce team, removin removing g that that indivi individua duall from the assurance team. C. +nvolving +nvolving an additiona additionall professiona professionall accountant accountant in the firm who was not not a member of the assurance team to review the wor5 w or5 or otherwise advise as necessar(. D. 0ithdra# 0ithdra# from& from& or refuse to accept& accept& the assurance assurance engageme engagement. nt. 4. The following following statements statements relate relate to the the provision provision of of legal legal services services to an an audit audit client. client. Which is incorrect?
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A. !he provision of legal services to an audit client involving matters that #ould not be e"pected to have a material effect on the financial statements may create a self4revie# threat. B. -egal -egal serv servic ices es to supp support ort an audi auditt clie client nt in the the exec executi ution on of a tran transa sacti ction on 9e.g 9e.g., ., contract support: ma( create a selfreview threat. C. #cti #cting ng for for an audi auditt clie client nt in the the reso resolu luti tion on of a disp disput ute e or liti litiga gati tion on in such such circumstances when the amounts involved are material in relation to the financial statem statement entss of the audit audit client client would would create create advoca advocac( c( and selfr selfrevi eview ew threats threats so significant no safeguards could reduce the threats thr eats to an acceptable level. !. The appointment appointment of a partner partner or an emplo(ee emplo(ee of the firm firm or networ5 networ5 firm as =eneral =eneral Counsel for legal affairs to an audit client would create selfreview and advocac( threats that are so significant no safeguards could reduce the threats to an acceptable level. 6. The followi following ng circum circumsta stance ncess create create advocac advocac( ( threat threatss for a profess profession ional al accountan accountantt in public practice except #. romoting shares in an audit client. B. #cting #cting as an advoca advocate te on behalf behalf of an audit audit client client in litiga litigatio tion n or disput disputes es with third third parties. C. #cting as as campaign campaign manager manager for the presiden presidentt of a client who who is running for for a public office. D. A memb member er of the the assu assura ranc nce e team team ha havi ving ng a sign signif ific ican antt clos close e busi busine ness ss relationship #ith an assurance client.
/7. The primar( primar( purpose purpose of establishing establishing 'ualit( 'ualit( control control policies policies and procedures procedures for decidin deciding g whether to accept a new client c lient is to #. #nticipate before performing an( fieldwor5 whether an un'ualified opinion can be expressed. B. $nable $nable the C# firm firm to attest attest to the reliabi reliabilit( lit( of the the client. client. C. Satisf( Satisf( the C# firm firm s dut( to the public public concerni concerning ng the acceptance acceptance of of new clients. clients. D. 6inimi)e the the li$elihood of association association #ith clients clients #hose management lac$s integrity.
/1. /1. #s define defined d in S@C S@C 1, what what is a proce process ss compri comprisi sing ng an ongoin ongoing g cons consid ider erat atio ion n and and evalua evaluatio tion n of the firm s s(stem s(stem of 'ualit 'ualit( ( contro control, l, includ including ing a per period iodic ic inspec inspectio tion n of a select selection ion of comple completed ted engage engagemen ments, ts, design designed ed to provid provide e the firm firm with with rea reason sonabl able e assurance that its s(stem of 'ualit( control is operating effectivel(? A. 6onitoring B. +nsp +nspe ecti ction C. $ngage $ngagemen mentt 'ualit( 'ualit( contro controll review review !. Supe Superv rvis isio ion n
/". Which element element of a s(stem s(stem of 'ualit( 'ualit( control control is addressed addressed b( the the establishme establishment nt of policies policies and procedure proceduress design designed ed to provid provide e the firm firm with with rea reason sonabl able e assura assurance nce that that it has suffic sufficien ientt per personn sonnel el with with the compet competenc ence, e, capabi capabilit lities ies,, and commit commitmen mentt to ethica ethicall principles? #. ;onitoring B. -eadership -eadership respons responsibil ibilities ities for for 'ualit( 'ualit( within within the firm C. 7u 7uma man n reso resour urce ces s !. $ngage $ngagemen mentt perf perform ormanc ance e /&. 8or audits audits of financia financiall statem statement entss of listed listed entiti entities, es, the engageme engagement nt partne partnerr should should not issue the auditor s report until the completion of the A. (ngagement uality Control Control Revie# B. ;ana ;anage geme ment nt %evi %eview ew C. $ngage $ngagemen mentt Team Team %eview %eview !. $ngage $ngagemen mentt artne artnerr %eview %eview
/*. Who should should ta5e responsibi responsibilit( lit( for for the overall overall 'ualit( 'ualit( on each audit audit engagement? engagement?
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#. %. C. !.
$ngagement 'ualit( control reviewer (ngage (ngagemen mentt partn partner er $nga $ngage geme ment nt team team C# firm
/. The engageme engagement nt partne partnerr should should ta5e responsib responsibili ilit( t( for the direct direction ion,, superv supervisi ision, on, and performance performance of the audit engagement engagement in compliance compliance with professiona professionall standards standards and regula reg ulator tor( ( and legal legal re' re'uir uireme ements nts,, and for the auditor auditor s rep report ort that is issued issued to be appropriate in the circumstances. Supervision includes the following, except #. Trac5ing the progress of the audit engagement. B. #ddressing #ddressing significa significant nt issues arising arising during the audit audit engagement, engagement, considering considering their their significance, and modif(ing the planned approach appropriatel(. C. Informing Informing the members members of the engagemen engagementt team of their responsi responsibili bilities. ties. !. +dentif(in +dentif(ing g matters for consultation consultation or considerati consideration on b( more experienced experienced engagement engagement team members during the audit engagement.
THE FINANCIAL STATEMENT STATEMENT AUDIT: AUDIT: CLIENT ACCEPTANCE ACCEPTANCE AND PLANNING
//. //. Whic Which h of the the foll followi owing ng woul would d an audi audito torr most most li5e li5el( l( use in dete determ rmin inin ing g the the audi audito torr s preliminar( )udgment about materialit(? #. The anticipated sample sie of the planned substantive tests. %. !he entity entity s annual annuali)ed i)ed interi interim m financi financial al statem statements. ents. C. The results results of the internal internal control control 'uestionnair 'uestionnaire. e. !. The contents contents of the the managemen managementt representat representation ion letter. letter.
/2.
Which of the following following statements concerning materialit( is not correct? #. When establishing the overall audit strateg(, the auditor shall determine materialit( materialit( for the financial statements as a whole. B. +f, in the specific specific circumstances circumstances of the the entit(, entit(, there is one or more particu particular lar classes classes of transac transactio tions, ns, accoun accountt balance balancess or disclo disclosur sures es for which which missta misstatem tement entss of lesser lesser amounts than materialit( for the financial statements as a whole could reasonabl( be expected to influence the economic decisions of users ta5en on the basis of the financial statements, the auditor shall also determine the materialit( level or levels to those particular classes of transactions, account balances or disclosures. C. !eterminin !etermining g materialit( materialit( involves involves the exercise exercise of professiona professionall )udgment. )udgment. D. !he materialit materiality y level for the financial financial statements statements as a #hole determined determined in the planning stage of the audit should not be affected by changes in the circumstances of the engagement.
/4. #nal(tical #nal(tical procedures procedures used used in plannin planning g an audit audit should should focus focus on #. %educing the scope of tests of controls and substantive tests. B. roviding roviding assurance assurance that potential potential material material misstate misstatements ments will be identifi identified. ed. C. (nha (nhanc ncin ing g the the au audi dittor s unde nderst rstan and ding ing of the the clie client nt s bus busines iness s an and d identifying areas of potential ris$. !. #ssessing #ssessing the ade'uac( ade'uac( of the avail available able evident evidential ial matter. matter.
/6. Which of the the following following would would not be conside considered red an anal(ti anal(tical cal procedure? procedure? #. $stimating pa(roll expense b( multipl(ing the number of emplo(ees b( the average hourl( wage rate and the total hours wor5ed.
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%. 'rojecting 'rojecting an error rate rate by comparing comparing the results results of a statistica statisticall sample sample #ith the actual population characteristics. C. Comput Computing ing accounts accounts receivab receivable le turnover turnover b( divid dividing ing credit credit sales sales b( the average average net receivables. !. !eveloping !eveloping the expected expected sales sales based based on the sales trend trend of the prior five five (ears. (ears. 27. 27. Whic Which h of the the foll followi owing ng audi auditi ting ng proce procedu dure ress most most li5e li5el( l( woul would d assi assist st an audi audito torr in identif(ing related part( transactions? #. +nspecting correspondence with law(ers for evidence of unreported contingent liabilities. B.
RISK ASSESSMENTS AND INTERNAL CONTROL
2&. # measure measure of how willing willing the audito auditorr is to accept accept that the finan financia ciall statemen statements ts ma( be materiall( misstated after the audit is completed and an unmodified opinion has been issued is the #. +nherent ris5. %. Accept Acceptabl able e audi auditt ris$. ris$. C. Cont Contro roll ris5 ris5.. !. !e !ete tecti ction on ris5 ris5.. 2*.
Which Which of of the the foll followi owing ng is not not one of the three primar( ob)ectives of effective internal control? #. %eliabilit( of financial reporting. B. $fficienc( $fficienc( and effe effective ctiveness ness of operati operations. ons. C. Compli Complianc ance e with laws laws and regul regulati ations ons.. D. Assurance Assurance of elimi eliminati nation on of business business ris$. ris$.
2.
Which of the following following statements concerning the relevance of various t(pes of controls to a financial statement audit is correct? #. #ll controls are ordinaril( relevant to a financial financial statement audit. B. Controls Controls over safeguardi safeguarding ng of assets and liabili liabilities ties are of primar( primar( importance, importance, while while controls over the reliabilit( of financial reporting ma( also be relevant. C. Cont Contro rols ls over over the the reli reliab abil ilit ity y of fina financ ncia iall repo report rtin ing g are are ordi ordina nari rily ly most most directly relevant to a financial statement audit& but other controls may also be relevant. !. #n auditor auditor ma( ordinaril( ordinaril( ignore ignore a consideration consideration of controls controls when a substantive substantive audit audit approach is ta5en.
2/. #n auditor auditor should should conside considerr two 5e( issue issuess when obtainin obtaining g an unders understan tandin ding g of a client client s internal controls. These issues are #. The effectiveness and efficienc( of the controls.
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B. The fre'uen fre'uenc( c( and and effectiv effectiveness eness of the controls. controls. C. !he design design and and implemen implementatio tation n of the the controls. controls. !. The implemen implementatio tation n and efficie efficienc( nc( of the the controls. controls. 22. #uthoriati #uthoriations ons can can be either either general general or specifi specific. c. Which of the the following following is not an example of a general authoriation? #. #utomatic reorder points for raw materials inventor(. %. A sales sales manager manager s authori authori)ati )ation on for for a sales sales return. return. C. Credit Credit limits limits for various various classes classes of of transactio transactions. ns. !. # sales sales price price list list for mercha merchandi ndise. se.
24. #n auditor auditor should should obtain obtain sufficient sufficient 5nowledge 5nowledge of an an entit( s information information s(stem, s(stem, includi including ng the related business processes relevant to financial reporting, to understand the #. olicies used to detect the concealment of fraud. %. 'rocess 'rocess used to prepare prepare significan significantt accounting accounting estimate estimates. s. C. Safeguards Safeguards used used to limit limit access access to compute computerr facilities facilities.. !. rocedures rocedures used used to assure proper proper authori authoriatio ation n of transaction transactions. s.
26. Which Which of the follow following ing control controlss most most li5el( li5el( would would provid provide e rea reasona sonable ble assuran assurance ce that all credit sales transactions of an entit( are recorded? #. The accounting department supervisor controls the mailing of monthl( statements to customers and investigates an( differences reported b( customers. B. The accounting accounting department department superviso supervisorr independentl independentl( ( reconciles, reconciles, on a monthl( monthl( basis, basis, the accounts receivable subsidiar( ledger to the accounts receivable control account. C. !he !he bill billin ing g depa depart rtme ment nt supe superv rvis isor or matc matche hes s pren prenum umbe bere red d ship shippi ping ng documents #ith entries in the sales journal. !. The billing billing department department supervisor supervisor sends sends copies of approve approved d sales orders orders to the credit department for comparison to authoried credit limits and current customer account balances.
47. Which of the the following following control control activi activities ties in an an entit( entit( s revenue>rec revenue>receipt eipt c(cle c(cle would would provide provide reasonable assurance that all billed sales are correctl( posted to the accounts receivable ledger? #. $ach shipment of goods on credit is supported b( a prenumbered sales invoice. B. The accounts accounts receivable receivable subsidiar subsidiar( ( ledger is reconcile reconciled d dail( to the accounts accounts receivabl receivable e control account in the general ledger. C. Dail Daily y sale sales s summ summar arie ies s are are comp compar ared ed to dail daily y post postin ings gs to the the acco accoun unts ts receivable ledger. !. $ach sales sales invoice invoice is supported supported b( a prenumbere prenumbered d shipping shipping document. document.
41. 41. Whic Which h of the the foll follow owin ing g cont contro rols ls is not not usua usuall ll( ( perf perfor orme med d in the the acco accoun unts ts pa(a pa(abl ble e department? #. +ndicating on the voucher the affected asset and expense accounts to be debited. B. #pproving #pproving vouchers vouchers for pa(ment pa(ment b( having having an authorie authoried d emplo(ee emplo(ee sign the vouchers vouchers.. C. Accountin Accounting g for unused prenumbere prenumbered d purchase purchase orders and receivi receiving ng reports. reports. !. ;atchi ;atching ng the vendor vendor s invoic invoice e with with the related related purchase purchase re'uisi re'uisitio tion, n, purchase purchase order, order, and receiving report.
4".
#fter gaining gaining an understandi understanding ng of internal control control and assessing assessing the ris5s of material material misstateme misstatement, nt, an auditor decided decided to perform tests of controls. controls. The auditor auditor most li5el( decided that #. #dditional evidence to support a further reduction in control ris5 is not available. available. %. It is not possible possible or practicable practicable to reduce reduce the ris$s of material material misstat misstatement ement at the the asse assert rtio ion n leve levell to an acce accept ptab ably ly lo# lo# level level #ith #ith au audi ditt evid eviden ence ce obtained only from substantive test procedures. C. There were man( man( internal internal control wea5ne wea5nesses sses that could could allow misstateme misstatements nts to enter the accounting s(stem.
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!. #n incre increas ase e in the the asse assesse ssed d leve levell of contr control ol ris5 ris5 is )ust )ustif ifie ied d for for cert certai ain n fina financ ncia iall statement assertions. 4&. #n auditor auditor ma( decide decide to assess assess control ris5 ris5 at the maximum maximum level for for certain asserti assertions ons because the auditor believes A. Controls are unli$ely to pertain pertain to the assertions. B. The entit entit( ( s control control compo componen nents ts are inte interrel rrelate ated. d. C. Sufficient Sufficient appropriat appropriate e audit evidence evidence to support the assertio assertions ns is li5el( to be availab available. le. !. ;ore emphasis emphasis on tests tests of controls controls than substantive substantive tests tests is warranted. warranted.
4*. Which of the followi following ng statements statements is correct correct concerning concerning an an auditor auditor s assessment assessment of of control control ris5? A. Assessing control ris$ may be performed concurrently during an audit #ith obtaining an understanding understanding of the entity s internal control. control. B. $vidence $vidence about about the operation operation of controls controls in prior prior audits audits ma( not be considere considered d during the current (ear s assessment of control ris5. C. The basis basis for an auditor auditor s conclusions conclusions about about the assessed assessed level level of control control ris5 ris5 need not not be documented unless control ris5 is assessed at the maximum level. !. The lower lower the assesse assessed d level of control control ris5, the less less assura assurance nce the evidenc evidence e must must provide that the controls are operating effectivel(.
4.
+n performi performing ng tests of the operati operating ng effectiv effectivene eness ss of an entit( entit( s control controls, s, an audito auditorr selects from a variet( of techni'ues, including A. Reperformance and observation. B. +n'uir( +n'uir( and and anal(t anal(tica icall procedu procedures res.. C. Compar Compariso ison n and and confi confirma rmatio tion. n. !. +nspect +nspection ion and and verif verifica icatio tion. n.
4/.
Which of the followin following g tests of controls controls most li5el( li5el( would help help assure an auditor auditor that goods shipped are properl( billed? #. Scan the sales )ournal for se'uential and unusual entries. %. ("amine ("amine shipping shipping documents documents for for matching matching sales sales invoices. invoices. C. Compare Compare the accounts accounts receivab receivable le ledger ledger to dail( dail( sales sales summaries. summaries. !. +nspect unused unused sales sales invoices invoices for for consecutive consecutive prenumber prenumbering. ing.
42. 42. When When ther there e are are nume numero rous us prop proper ert( t( and and e'ui e'uipm pmen entt tran transa sacti ction onss duri during ng the the (ear (ear,, an auditor who plans to assess control ris5 r is5 at a low level usuall( performs #. Tests of controls and extensive tests of propert( and e'uipment balances at the end of the (ear. B. #nal(tical #nal(tical procedures procedures for for current (ear (ear propert( propert( and e'uipmen e'uipmentt transactions. transactions. C. !ests of controls controls and and limited limited tests of current current year year property property and euipment euipment transactions. !. #nal(tical #nal(tical procedures procedures for for propert( propert( and e'uipment e'uipment balances balances at the end end of the (ear.
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8RA9D AND (RR/R 44. 44. $rro $rrorr incl includ udes es #. $ngaging in complex transactions that are structured to misrepresent the financial position or financial performance of the entit(. B. Concea Concealin ling, g, or not disclos disclosing ing,, facts facts that could affect affect the amounts amounts recorded recorded in the financial statements. C. An incorrect accounting estimate arising from oversight or misinterpretation of facts. !. +ntenti +ntentiona onall misapp misapplic licati ation on of accoun accountin ting g polici policies es relati relating ng to amount amounts, s, classi classific ficati ation, on, manner of presentation, or disclosure.
46. 8raud involvi involving ng one or more members members of managem management ent or those charged charged with with governance governance is referred to as A. 6anagement fraud. C. 8ra 8raudu udulen lentt financ financial ial repo reporti rting. ng. B. $mplo(ee fraud. !. ;isappropriation of assets. 67. The auditor auditor is concerned concerned with fraud fraud that causes causes a material material misstate misstatement ment in the financia financiall statements statements.. There are two t(pes of intentional intentional misstatement misstatementss that are relevant to the auditor misstatements resulting from fraudulent financial reporting and misstatements resulting from #. ;anagement fraud. B. $m $mpl plo( o(ee ee frau fraud. d. C. 6isapp 6isapprop ropria riatio tion n of assets assets..
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!. Collusion Collusion within within the the entit( entit( or with with third partie parties. s. 61. 8raudulent 8raudulent financial financial reporting reporting involve involvess intentional intentional misstateme misstatements nts including including omissions omissions of amounts amounts or disclosures disclosures in financial financial statement statementss to deceive deceive financial financial statement statement users. +t ma( be accomplished in a number of wa(s, including #. $mbeling receipts. B. Stealing Stealing ph(sica ph(sicall assets assets or intell intellectual ectual propert(. propert(. C. Asing Asing an an entit( entit( s asset assetss for for perso personal nal use. use. D. 6anipula 6anipulation& tion& falsifica falsification& tion& or alteration alteration of accounting accounting records or supporting supporting documentation from #hich the financial statements are prepared.
6".
The following following are examples examples of fraud fraud ris5 factors factors relating relating to misstatements misstatements arising arising from misappropriation of assets, except A. Recurring negative cash flo#s from operating activities #hile reporting earnings and earnings gro#th. B. +nade'uate +nade'uate ph(sical ph(sical safeguard safeguardss over cash, investme investments, nts, inventor(, inventor(, or fixed fixed assets. C. +nade'uate +nade'uate segreg segregation ation of of duties duties or independ independent ent chec5s. chec5s. !. #dverse #dverse relationship relationship between between the entit( entit( and emplo(e emplo(ees es with access access to cash or other assets susceptible to theft created b( recent changes made to emplo(ee compensation or benefit plans.
6&. 3pportuniti 3pportunities es to misappro misappropriat priate e assets assets increase increase when when there are are #. nown or anticipated future emplo(ee la(offs. B. romotions, romotions, compensa compensation, tion, or other other rewards inconsis inconsistent tent with expectat expectations. ions. C. %ecent or anticipa anticipated ted changes changes to emplo(ee emplo(ee compensati compensation on or benefit benefit plans. D. Inventory Inventory items that that are small small in si)e& of high high value& or in high demand. demand. 6*. Which Which of the followi following ng condition conditionss or event eventss ma( create create incentive incentives>p s>pres ressure suress to commit commit fraud? #. +nade'uate s(stem of authoriation and approval of transactions. B. -ac5 of mandator( mandator( vacati vacations ons for emplo(ee emplo(eess performing performing 5e( control control functions. functions. C. ("ce ("cess ssiv ive e pres pressu sure re on man anag agem emen entt or oper operat atin ing g pers person onne nell to meet meet financial targets established by those charged #ith governance& including sales or profitability incentive goals. !. +nade'uate +nade'uate access controls controls over over automated automated records records.. 6.
When the auditor identifies identifies a misstatement in the financial statements, the auditor should consider whether such a misstatement ma( be indicative of fraud and if there is such an indication, the auditor should A. Consider the implications of the misstatement misstatement in relation to other aspects of the audit. B. Withdr Withdraw aw from from the engage engagemen ment. t. C. Communicate Communicate the informa information tion to regulator( regulator( and and enforcement enforcement authoriti authorities. es. !. %eport the the matter matter to the person person or persons persons who made made the audit audit appointme appointment. nt.
AUDITING IN A CIS/IT ENVIRONMENT
6/. The use of a computer computer changes changes the processing processing,, storage, storage, and communica communication tion of financial financial information. # C+S environment environment ma( affect the following, e"cept #. The accounting and internal control s(stems of the entit(. %. !he overall overall objective objective and and scope scope of an audit. audit. C. The auditor auditor s design design and performa performance nce of tests tests of control control and and substantive substantive procedures procedures to satisf( the audit ob)ectives. !. The specific specific procedu procedures res to obtain 5nowle 5nowledge dge of the entit( entit( s accoun accountin ting g and interna internall control s(stems.
62. The followi following ng are benefits benefits of of using using +Tbased +Tbased controls controls,, e"cept #. #bilit( to process large volume of transactions. %. /ver4relia /ver4reliance nce on computer4g computer4generat enerated ed reports. reports. C. #bilit( #bilit( to replace replace manual manual controls controls with compute computerbas rbased ed controls. controls. !. %eduction %eduction in misstatemen misstatements ts due to consistent consistent processing processing of transacti transactions. ons. 64. Which of the following following statements statements concerni concerning ng the +nternet +nternet is incorrect? incorrect? #. The +nternet is a shared public networ5 that enables communication with other entities and individuals around the world.
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%. !he Interne Internett is a privat private e net#or$ net#or$ that that only only allo# allo#s s access access to author authori)e i)ed d persons or entities. C. The +nte +ntern rnet et is inte interop roper erab able le,, which which me mean anss that that an( an( comp comput uter er conn connec ecte ted d to the the +nternet can communicate with an( other computer connected to the +nternet. !. The +nternet +nternet is a worldwide worldwide networ5 that that allows allows entities entities to engage in in ecommerce>e ecommerce>e business activities. 66.
The auditor auditor shall conside considerr the entit( s C+S environment environment in designi designing ng audit procedure proceduress to reduce ris5 to an acceptabl( acceptabl( low level. Which of the following statements statements is incorrect is incorrect?? #. The auditor s specific audit ob)ectives do not change whether financial information is processed manuall( or b( computer. %. !he methods methods of applying applying audit audit procedures procedures to gather gather audit evidence evidence are not not influenced by the methods of computer processing. C. The audi audito torr ma ma( ( use use eith either er ma manu nual al audi auditt proc proced edur ures es,, compu compute ter ras assi sist sted ed audi auditt techni'ues 9C##Ts:, or a combination of both to obtain sufficient appropriate audit evidence. !. +n some C+S environment environments, s, it ma( be difficult difficult or impossible impossible for the auditor auditor to obtain certain data for inspection, in'uir(, or confirmation without the aid of a computer.
177. # characteristic that distinguishes computer processing from manual processing is #. The potential for s(stematic error is ordinaril( greater in manual processing than in computeried processing. B. $rrors or fraud fraud in computer computer processing processing will be detected detected soon soon after their their occurrences. occurrences. C. ;ost ;ost comp comput uter er s(st s(stem emss are are desi design gned ed so that that tran transa sact ctio ion n trai trails ls usef useful ul for for audi auditt purposes do not exist. D. Computer Computer processing processing virtually virtually eliminates eliminates the occurrence occurrence of computational computational errors normally associated #ith manual processing.
171. Which of the following statements most li5el( represents a disadvantage disadvantage for an entit( that maintains data files on personal computers 9Cs: rather than manuall( prepared files? #. +t is usuall( more difficult to compare recorded accountabilit( with the ph(sical count c ount of assets. B. %andom %andom error associate associated d with with proces processin sing g simila similarr transa transacti ctions ons in differ different ent wa(s is usuall( greater. C. #ttention #ttention is focused focused on the accurac( accurac( of the programmin programming g process rather rather than errors errors in individual transactions. D. It is usually usually easier easier for unauthori)ed unauthori)ed persons to access and alter the files.
17". 17". The internal internal control controlss over over comput computer er proces processin sing g includ include e both both manual manual procedure proceduress and procedures procedures designed designed into computer programs programs 9programmed 9programmed control procedures:. procedures:. These manual and programmed control procedures comprise the general C+S controls and C+S application controls. The purpose of general C+S controls is to #. $stablish specific control procedures over the accounting applications in order to provide reasonable assurance that all transactions are authoried and recorded and are processed completel(, accuratel(, and on a timel( basis. %. (stabl (stablish ish a frame# frame#or$ or$ of overal overalll contro controls ls over the CIS activit activities ies and to provid provide e a reason reasonabl able e level level of assura assurance nce that that the overal overalll object objective ives s of internal control are achieved. C. rov rovid ide e reas reason onab able le assu assura rance nce that that s(st s(stem emss are are deve develo lope ped d and and ma main inta tain ined ed in an authoried and efficient manner. !. rovide rovide reasonable reasonable assurance assurance that access access to data and computer programs programs is restricted restricted to authoried personnel.
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17&. #n entit( has recentl( recentl( converted converted its purchasing purchasing c(cle c(cle from a manual process process to an online computer s(stem. Which of the following following is a probable result associated associated with conversion to the new +T s(stem? A. !raditional duties are are less separated. B. +ncreas +ncreased ed process processing ing time. time. C. %educti %eduction on in in the entit( entit( s ris5 ris5 expo exposure sure.. !. +ncreas +ncreased ed proce processi ssing ng errors errors..
17*. #n entit( entit( should plan plan the ph(sical ph(sical location location of its its computer computer facilit(. facilit(. Which of the followi following ng is the primar( consideration for selecting a computer site? #. +t should be in the basement or on the ground floor. B. +t should should maximie maximie the visibil visibilit( it( of the computer. computer. C. +t should minimie minimie the distance distance that that data control control personnel personnel must travel travel to deliver deliver data and reports and be easil( accessible b( a ma)orit( of compan( personnel. D. It should should provi provide de securi security. ty. 17. 17. #n entit( entit( install installed ed antivir antivirus us software software on all its personal personal compute computers. rs. The softwar software e was designed to prevent initial infections, stop replication attempts, detect infections after their occurrence, mar5 affected s(stem components, and remove viruses from infected components. The ma)or ris5 in rel(ing rel(ing on antivirus software is that it ma( #. Consume too man( s(stem resources. B. +nterfe +nterfere re with with s(stem s(stem operat operation ions. s. C. Not dete detect ct certa certain in virus viruses. es. !. ;a5e software software install installation ation too comple complex. x.
AUDIT OBJECTIVES, PROCEDURES,EVIDENCE, AND DOCUMENTATION
17/. Which of the following following should should be considered b( the auditor auditor in deciding deciding which means 9or combination of means: to use in selecting items for testing? +. The ris5 of material material missta misstatemen tementt related related to the the assertion assertion being being tested. tested. ++. #udit #udit eff effici icienc enc(. (. #. + onl( C. Both + and ++ B. ++ onl( !. 0e 0either + nor ++ 172. The 'uantit( 'uantit( of audit evidence evidence needed needed is affected b( the ris5 of misstatemen misstatementt and also b( the 'ualit( of such audit evidence. The reliabilit( of audit evidence is influenced b( its source and b( its nature and is dependent on the individual circumstances under which it is obtained.
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A. Both statements are true. B. Both statements are false.
C. TrueD 8alse. !. 8alseD True.
174. Which of the following following is a false statement statement about about audit ob)ective ob)ectives? s? A. There should be a onetoone relationship between audit ob)ectives and procedures. B. #udit #udit ob)ectiv ob)ectives es should should be develope developed d in light of manage managemen mentt assert assertion ionss about about the financial statement components. C. Selection Selection of tests to meet meet audit ob)ective ob)ectivess should depend depend upon the understandi understanding ng of internal control. !. The auditor auditor should should resolve resolve an( substanti substantial al doubt doubt about an( an( of managemen managementt s material material financial statement assertions.
176. Which of the following following statement statementss concerning concerning evidential evidential matter matter is true? true? #. #ppropriate evidence supporting management s assertions should be convincing rather than merel( persuasive. B. $ff $ffect ectiv ive e intern internal al control control contri contribut butes es little little to the reliabil reliabilit( it( of the evidenc evidence e create created d within the entit(. C. The cost of obtainin obtaining g evide evidence nce is not an importan importantt considera consideratio tion n to an auditor auditor in deciding what evidence should be obtained. D. # client s accounting records cannot be considered sufficient evidence to t o support the financial statements.
117. Which of the following following t(pes t(pes of audit evidence evidence is the most persuasive? persuasive? #. renumbered purchase order forms. B. Client Client wor5shee wor5sheets ts supporti supporting ng cost cost alloca allocations. tions. C. Ban5 statements obtained from the client. !. Client Client repres represent entati ation on letter letter.. 111. Which of the following following generaliations generaliations does not relate relate to the appropriateness of evidence? evidence? #. #udit evidence from external sources 9for example, confirmation received r eceived from a third part(: is more reliable than that generated internall(. %. #n auditor s opinion, to be economicall( useful, is formed for med within reasonable time and based on evidence obtained at a reasonable cost. C. #udit evidence evidence generated generated internall internall( ( is more reliable reliable when the related related accounting accounting and internal control s(stems are effective. !. #udit #udit evidence evidence obtaine obtained d direct directl( l( b( the auditor auditor is more more reliab reliable le than that obtained obtained from the entit(.
11". $ach of the followin following g might, b( itself, itself, form a valid valid basis for an auditor auditor to decide decide to omit a test except for the A. !ifficult( and expense involved in testing a particular item. B. #ssess #ssessmen mentt of control control ris5 ris5 at a low low level. level. C. +nher +nheren entt ris5 ris5 invol involve ved. d. !. %elationshi %elationship p between the the cost of obtaining obtaining evidence evidence and and its usefulness. usefulness.
11&. +n which of the following following circumstanc circumstances es would the use of the negative negative form of accounts accounts receivable confirmation most li5el( be )ustified? #. # substantial number of accounts ma( be in dispute and the accounts receivable balance arises from sales to a few ma)or customers. B. # subs substa tant ntia iall numb number er of acco accoun unts ts ma ma( ( be in disp disput ute e and and the the acco accoun unts ts rece receiv ivab able le balance arises from sales to man( customers with small balances. C. # small number number of accounts accounts ma( be in dispute dispute and the accounts accounts receiv receivabl able e balance balance arises from sales to a few ma)or customers. D. # small number of accounts ma( be in dispute and the accounts receivable balance arises from sales to man( customers with small balances.
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11*. Which of the following following statements statements is correct concerning the use of negative confirmat confirmation ion re'uests? A. Anreturned negative confirmation re'uests rarel( provide significant explicit evidence. B. 0egative 0egative confirmati confirmation on re'uests re'uests are effective effective when when detection detection ris5 is low. low. C. Anretur Anreturned ned negati negative ve confir confirmat mation ion re' re'ues uests ts indica indicate te that that altern alternati ative ve proced procedure uress are necessar(. !. 0ega 0egati tive ve confi confirm rmat atio ion n re'u re'ues ests ts are are effe effecti ctive ve when when unde underst rstat atem emen ents ts of acco accoun untt balances are suspected. 11. Which of the following most li5el( would would give the most assurance concerning the valuation valuation and allocation assertion of accounts receivable? #.
112. To gain assurance assurance that all inventor( inventor( items items in a client s inventor( inventor( listing listing schedule schedule are valid, valid, an auditor most li5el( would vouch #. +nventor( tags noted during the auditor s observation to items listed in the inventor( listing schedule. B. +nven +nvento tor( r( tags tags note noted d duri during ng the the audi audito torr s obse observ rvat atio ion n to item itemss list listed ed in rece receiv ivin ing g reports reports and vendors invoices. invoices. C. +tems +tems listed listed in the inventor( inventor( listing listing schedul schedule e to invent inventor( or( tags and the audito auditorr s recorded count sheets. !. +tems listed listed in receiving receiving reports reports and vendors vendors invoices invoices to the inventor( inventor( listing listing schedule. schedule.
114. 114. Which Which of the follow following ing is not an audit audit procedur procedure e that that the indepen independen dentt audito auditorr would would perform with respect to litigation, claims, and assessments? #. +n'uire of and discuss with management the policies and procedures adopted for litigation, claims, and assessments. B. 3btai 3btain n from from ma mana nage geme ment nt a desc descri ript ptio ion n and and eval evalua uati tion on of liti litiga gati tion on,, clai claims ms,, and and assessments that existed at the balance sheet date. C. 3btain assuranc assurance e from management management that that if has disclosed disclosed all unassert unasserted ed claims claims that the law(er has advised are probable of assertion and must be disclosed. D. Confir Confirm m direct directl( l( with with the client client s law(e law(err that that all claims claims have have bee been n record recorded ed in the financial statements.
116. 116. #udit #udit documen documentat tation ion ma( be record recorded ed on paper paper or on ele electro ctronic nic or other other media. media. The following are examples of audit documentation, except #. #udit programs B. -etters -etters of of confirm confirmation ation and representa representation tion C. Corresponden Correspondence ce 9including 9including email email:: concerning concerning significa significant nt matters matters D. The entit( s accounting accounting records
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1"7. The completion completion of the assembl assembl( ( of the final audit audit file file after the date date of the auditor auditor s report does not ordinaril( involve A. The performance of new audit procedures or the drawing of new conclusions. B. Sorting, Sorting, collating collating and and crossref crossreferenci erencing ng wor5ing wor5ing papers. papers. C. !eleting !eleting or or discardi discarding ng supersed superseded ed document documentation. ation. !. Signing Signing off on completion completion chec5lis chec5lists ts relating relating to the file assembl( assembl( process process..
AUDIT SAMPLING
1"1. #udit sampling sampling involves involves the #. Selection of all items over a certain amount.
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%. #pplication of audit procedures to less than 177E of items within a class of transactions or an account balance such that all items have a chance of selection. C. #pplicatio #pplication n of audit procedure proceduress to all items items that comprise comprise a class of transacti transactions ons or an account balance. !. #pplicatio #pplication n of audit procedure proceduress to all items items over a certain certain amount and those those that are unusual or have a histor( of error. 1"". opulation opulation,, as defined in S# &7, means means the entire set of data from which which a sample is selected and about which the auditor wishes to draw conclusions. +t is important for the auditor to ensure that the population is +. #ppropriate #ppropriate to the the ob)ecti ob)ective ve of of the audit procedure. procedure. ++. ++. Comp Comple lete te.. #. + onl( B. ++ onl(
C. Both + and ++ !. 0e 0either + nor ++
1"&. #n advantage of statistical over nonstatistical sampling methods in tests of controls is that the statistical methods #. #fford greater assurance than a nonstatistical sample of e'ual sie. %. rovide an ob)ective basis for 'uantitativel( evaluating sampling ris5s. C. Can more easil( easil( convert convert the sample sample into a dualpur dualpurpose pose test useful useful for substanti substantive ve testing. !. $liminate $liminate the need need to use )udgment )udgment in determining determining appropri appropriate ate sample sample sies. sies. 1"*. Which of the following following best illustra illustrates tes the concept of sampling sampling ris5? ris5? A. # randoml( chosen sample ma( not be representative of the population population as a whole on the characteristic of interest. B. #n auditor auditor ma( select audit audit procedures procedures that that are not appropriat appropriate e to achieve achieve the specific specific ob)ective. C. #n auditor auditor ma( fail fail to recogni recognie e errors in in the documents documents examined examined for for the chosen chosen sample. !. The documents documents related related to the chosen chosen sample ma( ma( not be available available for for inspection. inspection. 1". 1". Which Which of the followin following g statis statistic tical al selectio selection n techni techni'ue 'uess is lea least st desira desirable ble for use b( an auditor? #. S(stematic selection C. Bloc5 selection B. Stratified selection !. Se'uential selection
COMPLETING THE AUDIT AND POST-AUDIT RESPONSIBILITIES
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1"/. #nal(tical procedures used in the overall review review stage of the audit generall( include #. %etesting controls that appeared to be ineffective during the assessment of control ris5. %. Consid Consideri ering ng unusua unusuall or unexpe unexpecte cted d accoun accountt balance balancess that that were were not pre previo viousl usl( ( identified. C. =athering =athering evidence evidence concerning concerning account account balances balances that have have not changed from from the prior (ear. !. erfor erformin ming g tests tests of transa transacti ctions ons to corrobo corroborat rate e manage managemen mentt s financ financial ial statemen statementt assertions.
1"2. 1"2. #nal(t #nal(tica icall procedu procedures res performe performed d in the overall overall review review stage stage of an audit audit sugges suggestt that that several several accounts accounts have unexpected relation relationships ships.. The results of these procedures procedures most li5el( indicate that #. The communication with the audit committee should be revised. B. +rregularit +rregularities ies exist exist among the relevan relevantt account account balances. balances. C. #dditional substantive tests of details are re'uired. re'uired. !. +nternal +nternal control activi activities ties are not not operating operating effectivel effectivel(. (. 1"4. Which of the following following events most li5el( indicates indicates the existence of related parties? A. ;a5ing a loan without scheduled terms for repa(ment r epa(ment of the funds. B. !iscussing !iscussing merger merger terms terms with a compan( compan( that is is a ma)or ma)or competitor. competitor. C. Selling Selling real estate estate at a price that that differs differs significant significantl( l( from its boo5 boo5 value. value. !. Borrowing Borrowing a large large sum of mone( mone( at a variabl variable e rate of interes interest. t. 1"6. #n auditor searching for related part( part( transactions should obtain an understanding of each subsidiar( s relationship to the total entit( because #. This ma( permit the audit of intercompan( account balances to be performed as of concurrent dates. B. This ma( reveal reveal whether whether particular particular transacti transactions ons would have have ta5en place place if the parties parties had not been related. C. The busi busine ness ss stru structu cture re ma ma( ( be deli delibe bera rate tel( l( desi design gned ed to obsc obscure ure rela relate ted d part( part( transactions. !. +ntercom +ntercompan pan( ( transa transacti ctions ons ma( have have bee been n consum consummat mated ed on terms terms e'uiva e'uivalen lentt to arm slength slength transaction transactions. s.
1&7. #fter determining that a related related part( transaction has, in fact, occurred, an auditor should A. 3btain an understanding of the business purpose of the transaction. B. Substantiate Substantiate that the transact transaction ion was was consummated consummated on terms terms e'uivalen e'uivalentt to an arm s length transaction. C. #dd a separat separate e paragraph paragraph to to the auditor auditor s report report to explain explain the the transactio transaction. n. !. erform erform anal(tical anal(tical procedures procedures to verif( verif( whether whether similar transacti transactions ons occurred, occurred, but were not recorded.
1&1. Which of the following following statements best best describes the date of the financial financial statements? statements? #. The date on which those with the recognied authorit( assert that the( have prepared the entit( s complete set of financial statements, statements, including the related notes, and that the( have ta5en responsibilit( for them. B. The date that that the auditor auditor s report and and audited audited financial financial statement statementss are made avail available able to third parties. C. The date of the end of the latest period covered b( the financial statements, which is normall( the date of the most recent balance sheet in the financial statements sub)ect to audit. !. The date on which the auditor auditor has obtained obtained sufficient sufficient appropria appropriate te audit evidence evidence on which to base the opinion on the financial statements.
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1&". Which of the following following procedures would an auditor most li5el( perform perform to obtain evidence evidence about the occurrence of subse'uent events? A. +n'uiring as to whether an( unusual ad)ustments were made after the date of the financial statements. B. Confirming Confirming a sample sample of material material accounts receivab receivable le established established after after the date of the financial statements. C. Comparing Comparing the financia financiall statements statements being being reported reported on with those of the prior prior period. period. !. +nvestigati +nvestigating ng personnel personnel changes in the accounting accounting department department occurring occurring after the date of the financial statements. 1&&. Which of the following following statement statementss best expresses expresses the auditor auditor s responsibil responsibilit( it( with respect respect to facts discovered after the date of the auditor auditor s report but before the date the financial statements are issued? #. The auditor should amend the financial statements. B. +f the facts discove discovered red will material materiall( l( affect affect the financia financiall statem statement ents, s, the audito auditorr should issue a new report which contains either a 'ualified opinion or an adverse opinion. C. The audito auditorr should should consid consider er whethe whetherr the financi financial al statem statement entss nee need d ame amendm ndment ent,, discuss the matter with management, and consider ta5ing actions appropriate in the circumstances. !. The auditor auditor should should withdraw withdraw from from the engagement engagement..
1&*. 1&*. #fte #fterr issu issuin ing g a repo report rt,, an audi audito torr has has no obli obliga gati tion on to ma ma5e 5e cont contin inui uing ng in'u in'uir irie iess or perform other procedures concerning the audited financial statements, unless #. 8inal determinations or resolutions are made of contingencies that had been disclosed in the financial statements. B. +nformation +nformation about about an event event that that occurred occurred after the the date of of the auditor auditor s report comes comes to the auditor auditor s attention. attention. C. The control control environm environment ent changes changes after after issuance issuance of of the report. report. D. +nformation, which existed at the report date and ma( affect the report, comes to the auditor auditor s attention. attention.
1&. 1&. Which Which of the follow following ing events events occurrin occurring g after the issuance issuance of an audito auditorr s rep report ort most li5el( li5el( would cause cause the audito auditorr to ma5e ma5e furthe furtherr in'uir in'uiries ies about about the pre previo viousl usl( ( issued issued financial statements? #. # technological development that could affect the entit( s future futur e abilit( to continue as a going concern. B. The entit entit( ( s sale sale of a subs subsid idia iar( r( that accou account ntss for for &7E of the the enti entit( t( s conso consoli lida date ted d sales. C. The discover( of information regarding a contingenc( that existed before the financial statements were issued. !. The final resolut resolution ion of a lawsuit lawsuit disclosed disclosed in the notes notes to the financial financial statements. statements.
1&/. Which of the following following statemen statements ts best describes describes the auditor auditor s responsibili responsibilit( t( concerning concerning the appropriateness of the going concern assumption in the preparation of the financial statements? #. The auditor s responsibilit( is to ma5e a specific assessment of the entit( s abilit( to continue as a going concern. B. The auditor auditor s responsibi responsibilit( lit( is to to predict predict future events events or conditio conditions ns that ma( ma( cause the entit( to cease to continue as a going concern. C. The auditor s responsibilit responsibilit( ( is to consider the appropriat appropriateness eness of management management s use of the going concern assumption assumption and consider whether there are material uncertainties uncertainties about the entit( s abilit( to continue continue as a going concern concern that need to be disclosed disclosed in the financial statements. !. The auditor auditor s responsi responsibil bilit( it( is to give a guaran guarantee tee in the audit audit report report that the entit( entit( has the abilit( to continue as a going concern.
1&2. Which of the following following conditions conditions or events most li5el( li5el( would cause an auditor auditor to have substantial doubt about an entit( s abilit( to continue as a going concern? A. Cash flows from operating activities are negative.
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B. Stoc5 dividends dividends replace replace annual annual cash dividends. dividends. C. Significan Significantt related related part( transactions transactions are are pervasive pervasive.. !. %esearch %esearch and developme development nt pro)ects pro)ects are are postpone postponed. d.
1&4. Which of the following following conditions conditions or events most li5el( li5el( would cause an auditor auditor to have substantial doubt about an entit( s abilit( to continue as a going concern? #. %estrictions on the disposal of principal assets are present. %. Asual trade credit from suppliers is denied. C. Significan Significantt related related part( transactions transactions are are pervasive pervasive.. !. #rrea #rrearages rages in in principal principal stoc5 stoc5 divide dividends nds are paid. paid.
1&6. Which of the following following audit procedures procedures would most li5el( li5el( assist an auditor in identif(ing identif(ing conditions and events that ma( indicate indicate there could be substantial doubt about about an entit( s abilit( to continue as a going concern? #. Confirmation of ban5 balances. B. Confirmatio Confirmation n of accounts accounts receiva receivable ble from from ma)or ma)or customers. customers. C. %econciliat %econciliation ion of interes interestt expense expense with with debt outstan outstanding. ding. D. %eview of compliance with terms of debt agreements.
1*7. When an auditor auditor concludes concludes that there is substantia substantiall doubt about a continuing continuing audit audit client s abilit abilit( ( to contin continue ue as a going going concern concern for a rea reason sonabl able e per period iod of time, time, the auditor auditor s responsibilit( is to A. Consider the ade'uac( of disclosure about the client s possible inabilit( to continue as a going concern. B. +ssue a 'ualifie 'ualified d or adverse opinio opinion, n, depending depending upon materia materialit( lit(,, due to the possible possible effects on the financial statements. C. %eport %eport to the client client s audit commit committee tee that manag manageme ement nt s accountin accounting g estimate estimatess ma( need to be ad)usted. !. %eissue %eissue the prior prior (ear (ear s auditor auditor s report report and add add an emphasi emphasiss of matter matter paragra paragraph ph that specificall specificall( ( refe refers rs to substantial substantial doubt and going concern. concern.
1*1. 1*1. When When an audit audit is made made in accord accordanc ance e with with genera generall( ll( accepted accepted auditin auditing g standa standards rds,, the auditor should alwa(s #. 3bserve the ta5ing of ph(sical inventor( on the balance sheet date. date. %. 3btain certain written representations from management. C. $mplo( $mplo( anal(ti anal(tical cal procedure proceduress as substa substanti ntive ve tests to obtain obtain evidenc evidence e about about specif specific ic assertions related to account balances. !. !ocum !ocumen entt the the unde unders rsta tand ndin ing g of the the clie client nt s inte interna rnall cont control rol and the the basi basiss for for all all conclusions about the assessed level of control ris5 for financial statement assertions.
1*". 1*". When When consid consideri ering ng the use of manageme management nt s writte written n rep repres resent entati ations ons as audit audit evidence evidence about the completeness assertion, an auditor should understand that such representations #. Constitute sufficient appropriate audit evidence to support the assertion when considered in combination with a sufficientl( low assessed level of contro l ris5. B. #re not part part of the audit audit evidence evidence considere considered d to support support the assertion. assertion. C. %eplace %eplace a low assessed assessed level level of control ris5 ris5 as audit evidence evidence to support support the assertio assertion. n. D. Complement, but do not replace, substantive tests designed to support the assertion.
1*&. 1*&. # writ writte ten n repr repres esen enta tati tion on from from a clie client nt s ma mana nage geme ment nt that that,, am amon ong g othe otherr ma matt tter ers, s, ac5now ac5nowled ledges ges respon responsib sibili ilit( t( for the fair fair pre presen sentat tation ion of financ financial ial statem statement ents, s, should should normall( be signed b( the #. Chief financial officer and the chair of the board of directors. %. Chief executive officer and the chief financial officer. C. Chief executi executive ve officer, officer, the chair chair of the the board of directo directors, rs, and the the client client s law(er. law(er. !. Chair of of the audit audit committe committee e of the board of of directors. directors.
1**. The date of the management representation representation letter should coincide with the date of the #. Statement of 8inancial osition B. -atest -atest relat related ed part( part( tran transac sactio tion n C. #uditor s report !. -atest interim interim financial financial informatio information n
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1*. Which of the following following statements concerning management representations is incorrect? A. %epresentations b( management can be a substitute for other audit evidence that the auditor could reasonabl( expect to be available. B. +f the audito auditorr is unable unable to obtain obtain suffic sufficien ientt approp appropria riate te audit eviden evidence ce regardin regarding g a matter, which has, or ma( have, a material effect on the financial statements and such audit evidence is expected to be available, this will constitute a limitation in the scope of the audit, even if a representation from management has been received on the matter. C. +f a repr repres esen enta tati tion on b( ma mana nage geme ment nt is contr contrad adic icte ted d b( othe otherr audi auditt evid eviden ence ce,, the the auditor should investigate the circumstances and, when necessar(, reconsider the reliabilit( of other representations b( management. !. The auditor auditor s wor5in wor5ing g papers papers would would ordina ordinaril ril( ( includ include e a summar( summar( of oral oral discussio discussions ns with management or written representations from management.
1*/. What t(pe t(pe of opinion opinion should be expressed expressed if the the client s management management refuses refuses to provide provide a representation that the auditor considers necessar(? A. @ualified opinion or a disclaimer of opinion. B. @ualified @ualified opinion opinion or or an adverse adverse opini opinion. on. C. #dverse #dverse opinio opinion n or a disclaime disclaimerr of opinion. opinion. !. An'ual An'ualifi ified ed opinio opinion. n.
1*2. 1*2. The The prim primar ar( ( reas reason on an audito auditorr re'u re'ues ests ts that that letter letterss of in'u in'uir ir( ( be sent to a clie client nt s attorne(s is to provide the auditor with #. # description and evaluation of litigation, claims, and assessments that existed at the balance sheet date. B. The attorne(s attorne(s opinions opinions of the client client s historical historical experi experiences ences in in recent recent similar similar litigati litigation. on. C. Corroboration of the information furnished b( management about litigation, claims, and assessments. !. The probable probable outcome of asserted asserted claims claims and pending pending or threatened threatened litigation. litigation.
1*4. The letter letter of audit audit in'uir( in'uir( should be #. repared and sent b( the auditor. %. repared b( management and sent b( the auditor. C. repar repared ed and and sent sent b( manage managemen ment. t. !. repared repared b( the auditor auditor and sent sent b( management management.. 1*6. The refusal refusal of a client s law(er to provide provide a representati representation on on the legalit( legalit( of a particular particular act committed b( the client is ordinaril( #. roper grounds to withdraw from the engagement. B. +nsufficien +nsufficientt reason to modif( modif( the auditor auditor s report report because because of the law(er law(er s obligatio obligation n of confidentialit(. C. Considered to be a scope limitation. !. Suffic Sufficien ientt rea reason son to issue issue a sub)ec sub)ectt to opinio opinion. n.
17. 17. ;anage ;anagemen mentt s ref refusa usall to give the audit auditor or permissi permission on to commun communica icate te with the entit( entit( s legal counsel is most li5el( to lead to #. #n adverse opinion. B. # 'ualifi 'ualified ed opinion opinion or an adverse adverse opinio opinion. n. C. #n un'ual un'ualifi ified ed opinio opinion. n. D. # 'ualified opinion or a disclaimer of opinion.
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THE AUDITOR S REPORT ON FINANCIAL STA STATEMENTS
11. The followin following g statements statements relate relate to to the date date of the the auditor auditor s report. report. Which is is false? false? #. The auditor should date the report as of the completion date of the audit. B. The date date of the audito auditorr s report report should should not be earlie earlierr than than the date date on whic which h the the financial statements are signed or approved b( management. C. The date of the audito auditorr s rep report ort should should not be later than the date on which the financial statements are signed or approved b( management. !. The date date of the audito auditorr s report report should should alwa(s alwa(s be later later than the date date of the financ financial ial statements 9i.e., the balance sheet date:.
1". +n which of the following following circumstances circumstances would would an auditor most li5el( li5el( add an emphasis emphasis of matter paragraph to the auditor auditor s report while expressing an un'ualified opinion? A. There is a substantial doubt about the entit( s abilit( to continue as a going concern. B. ;anagement ;anagement s estimates estimates of of the effects effects of of future events events are unreason unreasonable able.. C. 0o depreciati depreciation on has been been provided provided in the financi financial al statement statements. s. !. Cer Certai tain n transa transacti ctions ons cannot cannot be tested tested becaus because e of manageme management nt s record recordss retent retention ion polic(.
1&. # note to the financial financial statements statements of the rudent rudent Ban5 indicates indicates that all all of the records relati relating ng to the ban5 s busine business ss operati operations ons are stored stored on magnet magnetic ic dis5s, dis5s, and that that no emerge eme rgenc( nc( bac5up bac5up s(stems s(stems or duplic duplicate ate dis5s dis5s are stored stored becaus because e the ban5 and its auditors auditors consider consider the occurrence of a catastrophe catastrophe to be remote. Based upon upon this note, the auditor s report should express #. # 'ualified opinion C. #n adverse opinion %. #n unmodified opinion !. # sub)ect to opinion
1*. When would would the auditor auditor refer refer to the wor5 wor5 of an apprais appraiser er in the auditor auditor s report? report? A. #n adverse opinion is expressed based on a difference of opinion between the client and the outside appraiser as to the value of certain assets. B. # disclaime disclaimerr of opinion opinion is expresse expressed d because because of a scope limitat limitation ion impose imposed d on the auditor b( the appraiser. C. # 'ualifie 'ualified d opinion opinion is expresse expressed d because because of a matter matter unrela unrelated ted to the wor5 of the appraiser. !. #n un'ualifie un'ualified d opinion is expressed expressed and and an emphasis emphasis of matter paragrap paragraph h is added to disclose the use of of the appraiser appraiser s wor5.
1. 1. When When audite audited d financ financial ial statemen statements ts are presente presented d in a documen documentt 9e.g., 9e.g., annual annual rep report ort:: containing other information, the auditor A. Should read the other information to consider whether it is inconsistent with the audited financial statements. B. a ass no resp respon onsi sibi bili lit( t( for the the othe otherr info inform rmat atio ion n beca becaus use e it is not part part of the basi basicc financial statements. C. as an obligatio obligation n to perform auditin auditing g procedures procedures to corroborate corroborate the other other informatio information. n. !. +s re'uired re'uired to express express a 'ualif 'ualified ied opinio opinion n if the other inform informati ation on has a materi material al misstatement of fact. 1/. #n auditor auditor concludes that there there is a material material inconsisten inconsistenc( c( in the other information information in an annual annual report to shareholders shareholders containing containing audited audited financial financial statements. statements. +f the auditor concludes that the financial statements do not re'uire revision, but the client refuses to revise or eliminate the material inconsistenc(, the auditor ma(
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#. !isclaim an opinion on the financial statements after explaining the material inconsistenc( in an emphasis of matter paragraph. %. %evise %evise the audito auditorr s rep report ort to includ include e an other other matter matter paragrap paragraph h descri describin bing g the material inconsistenc(. C. $xpress $xpress a 'ualified 'ualified opinio opinion n after discussi discussing ng the matter matter with the client client s directors. directors. !. Cons Consid ider er the the ma matt tter er clos closed ed beca becaus use e the the othe otherr info inform rmat atio ion n is not not in the the audi audite ted d statements.
12. 12. +n which which of the the foll follow owin ing g situ situat atio ions ns woul would d an audi audito torr ordi ordina nari ril( l( choos choose e betwe between en expressing a 'ualified opinion or an adverse opinion? #. The auditor wishes to emphasie an unusuall( important subse'uent event. %. The financial financial statements statements fail to disclose disclose information information that is re'uired re'uired b( hilippine hilippine 8inancial %eporting Standards. C. $vents $vents disclose disclosed d in the financ financial ial stateme statements nts cause the audito auditorr to have substanti substantial al doubt about the entit( s abilit( to continue as a going concern. !. The auditor auditor did not observe observe the entit( entit( s ph(sical ph(sical invent inventor( or( and is unable unable to become become satisfied as to its balance b( other auditing procedures.
14. #n auditor should should disclose the substantive substantive reasons reasons for expressing expressing an adverse opinion opinion in the Basis for #dverse 3pinion paragraph #. 8ollowing the opinion paragraph. %. receding the opinion paragraph. C. 8ollow 8ollowing ing the introd introduct uctor( or( parag paragrap raph. h. !. Within Within the notes notes to the financia financiall statemen statements. ts. 16. The predecessor predecessor auditor, auditor, who is satisfied satisfied after after properl( communicati communicating ng with the incoming incoming auditor, auditor, has reissued reissued his>her his>her auditor auditor s report on prior prior (ear financia financiall statements. statements. The predecesso predecessorr auditor s report should #. %efer to the wor5 of the incoming auditor in the scope and opinion paragraphs. B. %efer to the the report of of the incoming incoming auditor auditor onl( onl( in the scope scope paragraph paragraph.. C. %efer %efer to both the wor5 and the report report of the incoming incoming audito auditorr onl( in the opinion opinion paragraph. D. 0ot refer to the report or the wor5 of the incoming auditor.
1/7. 1/7. The follow following ing statement statementss relate relate to unaudi unaudited ted prior (ear (ear financ financial ial statemen statements ts that that are presented in comparative comparative form with audited audited current (ear financial financial statements. Which is incorrect? #. The incoming auditor should state in the auditor s report that the comparative financial statements are unaudited. %. The incoming auditor need not perform audit procedures regarding opening balances of the current period. C. Clear disclosur disclosure e in the financial financial statements statements that the comparati comparative ve financial financial statement statementss are unaudited is encouraged. !. +n situat situation ionss where where the incomin incoming g audito auditorr identi identifie fiess that that the prior prior (ear (ear unaudi unaudited ted figures are materiall( misstated, the auditor should re'uest management to revise the prior prior (ear (ear s figure figuress or if manage managemen mentt ref refuse usess to do so, appropri appropriate atel( l( modif( modif( the report.
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OTHER REPORTING RESPONSIBILITIES
1/1. 8inancial 8inancial statements statements of an entit( entit( that have been reviewe reviewed d b( an accountant should should be accompanied b( a report stating that a review #. rovides onl( limited assurance that the financial statements statements are fairl( presented. B. +ncl +nclud udes es exam examin inin ing, g, on a test test basi basis, s, info inform rmat atio ion n that that is the the repr repres esen enta tati tion on of management. C. Consis Consists ts princi principal pall( l( of in'uir in'uiries ies of compan compan( ( person personnel nel and ana anal(t l(tica icall procedu procedures res applied to financial data. !. !oes !oes not contem contempla plate te obtain obtaining ing corrobo corroborat rating ing evidenti evidential al matter matter or appl(i appl(ing ng certai certain n other procedures ordinaril( performed during an audit. 1/". 1/". #n accounta accountant nt s rep report ort on a review review of the financ financial ial statem statement entss of an entit( entit( should should state state that the accountant #. !oes not express an opinion or an( form of limited assurance on the financial statements. %. Cond Conduct ucted ed the the revi review ew in acco accord rdan ance ce with with the the hil hilip ippi pine ne Stan Standa dard rd on %evi %eview ew $ngagements. C. 3btaine 3btained d rea reason sonabl able e assura assurance nce about whether whether the financ financial ial stateme statements nts are fre free e of material misstatements. !. $xamin $xamined ed evidenc evidence, e, on a test basis, suppor supportin ting g the amounts amounts and disclosu disclosures res in the financial statements.
1/&. 8inancial 8inancial statements statements of an entit( entit( that have been reviewe reviewed d b( an accountant should should be accompanied b( a report stating that #. The scope of the in'uir( and anal(tical procedures performed b( the accountant has not been restricted. %. The financial statements are the responsibilit( of the compan( compan( s management. C. # review review include includess examin examining ing,, on a test test basis, basis, eviden evidence ce supporti supporting ng the amount amountss and disclosures in the financial statements. !. # review is greater greater in scope than than a compilation, compilation, the the ob)ective ob)ective of which is to present present financial statements that are free of material misstatements.
1/*. When compiling compiling the financial financial statement statementss of an entit(, an accountant accountant should #. %eview agreements with financial institutions for restrictions on cash balances. %. Anderstand the accounting principles and practices practices of the entit( s industr(. C. +n'uire +n'uire of 5e( personnel personnel concerning concerning related related parties parties and subse'u subse'uent ent events. events. !. erform erform ratio anal(se anal(sess of the financial financial data data of comparable comparable prior prior periods. periods.
1/. When compiling compiling an entit( entit( s financial financial statements, statements, an accountant accountant would be least least li5el( li5el( to A. erform anal(tical procedures designed to identif( relationships that appear to be unusual. B. %ead the compiled compiled financi financial al statements statements and conside considerr whether the( the( appear appear to include ade'uate disclosure. C. 3btain 3btain an ac5now ac5nowled ledgme gment nt from from manage managemen mentt of its responsi responsibil bilit( it( for the financia financiall statements.
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!. lan the wor5 wor5 so that that an effective effective engage engagement ment will will be performe performed. d. 1//. 1//. Which Which of the follow following ing should should not be includ included ed in an accounta accountant nt s rep report ort based based upon the compilation of an entit( s financial statements? statements? #. # statement that a compilation of the compan( s financial statements was made in accordance with the hilippine Standard on %elated Services applicable to compilation engagements. B. # statement statement that manageme management nt is responsible responsible for for the financial financial statement statements. s. C. # statement statement that the the accountant accountant has not not audited audited or reviewed reviewed the the statements. statements. D. # statement that the accountant does not express an opinion but provides onl( negative assurance on the statements.
1/2. #n accountant accountant ma( accept an engagement engagement to appl( agreed agreedupon upon procedures procedures that are not sufficient to express an opinion on one or more specified accounts or items of a financial statement provided that #. The accountant s report does not enumerate the procedures performed. B. The financia financiall statem statement entss are prepare prepared d in accordanc accordance e with with a compreh comprehens ensive ive basis basis of accounting other than generall( accepted accounting principles. C. !istribution of the accountant s report is restricted. !. The accounta accountant nt is also the entit( entit( s continuin continuing g auditor. auditor.
1/4. When an accountant accountant examines examines prospectiv prospective e financial financial statements statements,, the accountant accountant s report should include a separate paragraph that A. Contains an opinion as to whether the prospective financial statements are properl( prepared on the basis of the assumptions and are presented in accordance with generall( accepted accounting principles in the hilippines. B. rovides rovides an explanati explanation on of the difference differencess between between an examination examination and an an audit. C. States States that that the accoun accountan tantt is respons responsibl ible e for event eventss and circumsta circumstance ncess up to 1 (ear after the the report s date. !. !isclaims !isclaims an opinion opinion on whether whether the assumptions assumptions provide provide a reasonable reasonable basis basis for the prospective financial statements.
1/6. The following following statements statements relate relate to the examination examination of prospectiv prospective e financial informatio information. n. Which is false? A. The audi auditor tor shou should ld expr expres esss an opin opinio ion n as to wheth whether er the the resu result ltss shown shown in the the prospective financial information will be achieved. B. Before Before acceptin accepting g an engage engagemen mentt to examin examine e prospe prospecti ctive ve financ financial ial informa informatio tion, n, the auditor should consider the intended use of the information. C. The auditor auditor should not accept, accept, or should should withdraw withdraw from, an engagem engagement ent to examine examine prospective financial information when the assumptions are clearl( unrealistic. !. When in the auditor auditor s )udgment )udgment an appropria appropriate te level level of satisfactio satisfaction n has been obtaine obtained, d, the audito auditorr is not pre preclu cluded ded from from expres expressin sing g positi positive ve assura assurance nce reg regard arding ing the assumptions.
127. Which of the following following is a prospective financial information for general general use upon which an accountant ma( appropriatel( report? #. 8inancial pro)ection B. arti artial al pre prese sent ntat atio ion n C. ro form forma a fi finan nancia ciall state statemen mentt D. 8inancial forecast (ND
