PRTC Final Pre-board Exam in Auditing Theory 1. The independent auditor lends credibility to client financial statements by a. Stating in the auditor’s management letter that the examination was made in accordance with generally accepted auditing standards b. Maintaining a clear-cut distinction between management’s representation and the auditor’s representations c. Attaching an auditor’s opinion to the client’s financial statements d. Testifying under oath about client financial information 2. The independent auditor’s opinion helps establish the credibility of the financial statements. The independent auditor’s opinion is an assurance as to the efficiency or effectiveness with which management has conducted the affairs of the entity. a. The first statement is false, the second statement is true b. The first statement is true, the second statement is true c. The first statement is false, the second statement is false d. The first statement is true, the second statement is false 3. Fraudulent financial reporting involves intentional misstatements or omissions of amounts or disclosure in the financial statements to deceive financial statement users. Fraudulent financial reporting most likely involve a. A mistake in gathering or processing data from which financial statements are prepared b. An incorrect accounting estimate arising from oversight or misinterpretation of facts c. Intentional misapplication of accounting principles relating to measurement, recognition, classification, presentation or disclosure d. Embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for goods and services not received 4. Certain management characteristics may heighten the auditor’s concern about the risk of material misstatements. The characteristic that is least likely to cause concern is that management a. Operating and financing decisions are made by numerous individuals b. Commits to unduly aggressive forecasts c. Has an excessive interest in increasing the entity’s stock price through use of unduly aggressive accounting practices d. Is interested in inappropriate methods of minimizing earnings for tax purposes 5. Which of the following inquiries are auditors required to make of management regarding fraud? a. Whether management has ever intentionally violated the securities law b. Whether management has any knowledge of fraud that has been perpetrated on or within the entity c. Management’s attitudes toward its employees d. Auditors are not required to make inquiries of management relating to fraud 6. The regular examination of financial statements is not primarily designed to disclose fraud and other irregularities although their discovery may result. Normal audit procedures are more likely to detect a fraud arising from a. Forgeries on company checks b. Failure to record cash receipts for services rendered c. Theft of inventories d. Collusion on the part of several employees 7. Example of the type of information that may come to the auditor’s attention that may indicate that noncompliance with laws or regulations has occurred least likely include a. Payments for unspecified services or loans to consultants, related parties, employees or government employees b. Payments for goods or services made to the country from which the goods or services originated c. Purchasing at prices significantly above or below market price d. Sales commissions or agent’s fees that appear excessive in relation to those ordinarily paid by the entity or in its industry or to the services actually received
8. Detection of noncompliance, regardless of materiality, requires considerations of the following: a. b. c. d. Integrity of management Yes Yes Yes No Possible effect on other aspects of the audit Yes Yes No Yes Legal determination of the act of noncompliance Yes No Yes No 9. In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm’s clients. Which quality control objective would this be most likely to satisfy? a. Professional relationship c. Independence b. Supervision d. Advancement 10. Who should take responsibility for the overall quality on each audit engagement? a. Engagement quality control review c. Engagement team b. Engagement partner d. CPA firm 11. Which of the following is least likely a source of information about a potential new audit client? a. The predecessor auditor c. Industry journal b. Management d. The new auditor’s permanent file 12. It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably before a. The performance of substantive testing c. The completion of audit b. The commencement of the engagement d. Before the issuance of audit report 13. On recurring audits, the auditor may decide not to send a new engagement letter each year. However, he might decide to send a new letter when a. There is a change in the auditors who will assist in the conduct of the audit. b. There is a change in the financial reporting framework. c. There is a change in the client’s accounting policy for inventories. d. There is a change in the estimated life of the client’s property and equipment. 14. Which of the following is not included in an engagement letter? a. Limitation in the scope of examination as imposed by client b. Limitation in the scope of examination as imposed by circumstances c. Restrictions on auditor’s liability, when such possibility exists d. Satisfactory title to assets, liens on assets and assets pledged 15. Which of the following statements relating to the appropriateness of evidence is always true? a. Evidence gathered by an auditor from outside an enterprise is reliable. b. Accounting data developed under satisfactory conditions of internal control are more relevant than data developed under unsatisfactory internal control conditions. c. Oral representations made by management are not valid evidence. d. Evidence gathered by auditors must be both reliable and relevant to be considered appropriate. 16. Reperformance a. Consists of looking at a process or procedure being performed by others b. Consists of seeking information of knowledgeable person, both financial and non-financial, throughout the entity or outside the party c. Is the process of obtaining a representation of information or of an existing condition directly from a third party d. Is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control 17. Assertions are representations of management that are embodied in financial statement components. They can either be explicit or implicit. Which of these assertions is not about valuation or allocation? a. Property is recorded at historical cost. b. Trade accounts receivable in the balance sheet are stated at net realizable value. c. Notes payable in the balance sheet include all such obligations of the entity. d. Property cost is systematically allocated to appropriate accounting period. 18. Several types of documentary evidence were received by the auditor, but of these only one is considered most reliable.
a. Working papers prepared by the chief accountant and reviewed personally by the VP for finance. b. A check issued by the treasurer with the payee’s endorsement, included with the statement mailed by the bank directly to the auditor. c. A delivery receipt issued by the shipping department, signed by the customer, with an accompanying copy of the sale invoice. d. Confirmation of the balance of accounts payable mailed by and returned directly to the auditor. 19. Which of the following is correct? a. The evidence that the auditor accumulates remains the same from audit to audit, but the general objectives vary, depending on the circumstances. b. The general audit objectives remain the same from audit to audit, but the evidence varies, depending on the circumstances. c. The circumstances may vary from audit to audit, but the evidence accumulated remains the same. d. The general audit objectives may vary from audit to audit, but the circumstances remain the same. 20. Which of the following relates to rights and obligations assertion? a. The entity holds or controls the rights to assets, and liabilities are the obligations of the entity. b. All assets, liabilities and equity interests that should have been recorded have been recorded. c. Transactions and events that have been recorded have occurred and pertain to the entity. d. Assets, liabilities and equity interests are included in the financial statements at appropriate amounts. 21. Analytical procedures used in planning an audit focus on a. Understanding the business and in identifying areas of potential risk b. Detecting material misstatements in the financial statements c. Obtaining audit evidence about the suitability of design and effective operation of the accounting and internal control systems d. Whether the financial statements as a whole are consistent with the auditor’s knowledge of the business 22. The auditor notices significant fluctuations in key elements of the company’s financial statements. If management is unable to provide an acceptable explanation, the auditor should a. Withdraw from the engagement b. Consider the matter a scope limitation c. Perform additional audit procedures to investigate the matter further d. Intensify the examination with the expectation of detecting management fraud 23. Which of the following is not a typical analytical review procedure? a. Study of relationships of financial information with relevant nonfinancial information b. Comparison of financial information with similar information regarding the industry in which the entity operates c. Comparison of recorded amounts of major disbursements with appropriate invoices d. Comparison of recorded amounts of major disbursements with budgeted amounts 24. An auditor obtains knowledge about a new client’s business and its industry to a. Make constructive suggestions concerning improvements to the client’s internal control b. Develop an attitude of professional skepticism concerning management’s financial statement assertions c. Evaluate whether the aggregation of known misstatements causes the financial statements takes as a whole to be materially misstated d. Understand the events and transactions that may have an effect on the client’s financial statements 25. The nature and extent of planning will vary according to the following, except a. Size of the entity b. Complexity of the entity c. Auditor’s experience with the entity d. All of the above will affect the nature and extent of planning 26. The overall audit plan includes:
a. A description of the nature, timing, and extent of planned risk assessment procedures sufficient to assess the risk of material misstatement b. A description of the nature, timing and extent of planned further audit procedures at the assertion level for each material class of transactions, account balances and disclosures c. Both a and b d. Neither a nor b 27. The concepts of audit risk and materiality are interrelated and must be considered together by the auditor. Which of the following is true? a. Audit risk is the risk that the auditor may unknowingly express a modified opinion when in fact the financial statements are fairly stated. b. The phrase in the auditor’s standard report “present fairly, in all material respects, in conformity with generally accepted accounting principles” indicates the auditor’s belief that the financial statements taken as a whole are not materially misstated. c. If misstatements are not important individually but are important in the aggregate, the concept of materiality does not apply. d. Material fraud but not material errors cause financial statements to be materially misstated. 28. In a financial statement audit, inherent risk represents the a. Susceptibility of an account balance to error that could be material b. Risk that error could occur and not be prevented or detected by the internal control structure c. Risk that error could occur and not to be detected by the auditor’s procedures d. Risk that the auditor fails to modify materially misstated financial statements 29. Which of the following statements about internal control is correct? a. Properly maintained internal controls reasonably assure that collusion among employees cannot occur. b. Establishing and maintaining internal control is the internal auditor’s responsibility. c. Exceptionally strong control allows the auditor to eliminate substantive tests of details. d. The cost-benefit relationship should be considered in designing internal controls. 30. Which of the following situations will normally result to decrease in the extent of audit procedures? a. Increase in the risk of material misstatement b. Increase in the degree of assurance the auditor plans to obtain c. Increase in materiality level d. All of the above 31. Which of the following is appropriate about risk assessment? a. Detection risk is eliminated if an auditor were to examine 100 percent of the account balance or class of transactions. b. There is an inverse relationship between detection risk and the combined level of inherent and control risk. c. The assessed level of inherent and control risk can be sufficiently low, thus resulting to eliminating the need for substantive tests. d. Audit risk may be more appropriately determined by assessing inherent and control risk separately. 32. When an organization has strong internal control, management can expect various benefits. The benefit least likely to occur is a. Reduced cost of an external audit b. Elimination of employee fraud c. Improvement in the reliability and integrity of information for decision-making purposes d. Some assurance of compliance with governmental regulations 33. The auditor should determine overall responses to address the risks of material misstatement at the financial statement level. Such responses most likely include a. Assigning less experienced staff b. Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating audit evidence c. Performing predictable further audit procedures d. Performing substantive procedures at an interim date instead of at period end 34. Materiality should be considered by the auditor when a. Determining the nature, timing and extent of auditor’s procedures
b. Evaluating the effect of misstatements c. Both a and b d. Neither a nor b 35. The relationship between materiality and the level of audit risk is a. Inverse b. Direct c. Parallel
d. Unrelated
36. The likelihood of assessing control risk too high is the risk that the sample selected to test controls a. Does not support the auditor’s planned assessed level of control risk when the true operating effectiveness of the control structure justifies such an assessment b. Contains misstatements that could be material to the financial statements when aggregated with misstatements in other account balances or transactions classes c. Contains proportionately fewer monetary errors or deviations from prescribed internal control structure policies or procedures than exist in the balance or class as a whole d. Does not support the tolerable error for some or all of management’s assertion 37. Which of the following factors does an auditor generally need to consider in planning a particular audit sample for a test of control? a. Number of items in the population b. Total peso amount of the items to be sampled c. Acceptable level of risk of assessing control risk too low d. Tolerable misstatement 38. In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items a. That include irregularities will not be overlooked when the auditor exercises compatible reciprocal options b. May occur in a systematic pattern, thus making the sample more representative c. May occur more than once in a sample d. Do not have to be prenumbered in order for the auditor to use the technique 39. If all other factors specified in a sampling plan remain constant, changing the expected population deviation rate from 1 percent to 2 percent would cause the required sample size to a. Increase c. Decrease b. Remain the same d. Become indeterminate 40. In substantive testing, which of the following would increase sample size? a. b. c. Assessment of inherent risk Increase Increase Increase Reliance on internal control Increase Decrease Decrease Tolerable error Decrease Increase Decrease Expected error Increase Decrease Increase Risk of incorrect acceptance Decrease Increase Decrease
d. Decrease Increase Increase Decrease Increase
41. In measuring the total or average value of a population expressed in peso terms, auditors may use statistical sampling as a tool to solve problems. A measure of the assurance that the true peso value of the population neither exceeds the upper precision limit nor falls below the lower precision limit is known as: a. Standard deviation c. Statistical margin b. Population curve d. Confidence level 42. The risk of assessing control risk too low (risk of overreliance) relates to a. The efficiency of the audit c. The preliminary estimate of materiality b. The effectiveness of the audit d. Tolerable error 43. Which of the following is not a subsequent events procedure? a. Review available interim financial information. b. Read available minutes of meetings of stockholders and directors. c. Make inquiries with respect to the financial statements covered by the auditor’s previously issued report if new information has become available during the current examination that might affect that report d. Discuss with officers the current status of items in the financial statements that were accounted for on the basis of tentative, preliminary or inconclusive data
44. Which of the following may an auditor least likely consider a symptom of an entity’s significant going concern problems? a. Significant recurring working capital deficiencies b. Legal proceedings that might jeopardize the entity’s ability to operate c. A new government regulation imposes a change in accounting principle d. A recurring default in meeting the entity’s financial obligation 45. In evaluating the management’s assessment of the entity’s ability to continue as a going concern, he should consider the following, except a. The independence of the management b. The process that management has followed to make its assessment c. The assumptions on which the assessment is based and management’s plan for future action d. Whether the assessment has taken into account all relevant information of which the auditor is aware of as a result of the audit procedures 46. An auditor accepted an engagement to audit the 2008 financial statement of RMV Corporation and began fieldwork on September 30, 2008. RMV gave the auditor the 2008 financial statements on January 17, 2009. The auditor completed the fieldwork and simultaneously obtains approval of the financial statements by the management on February 10, 2009. The auditor delivered the report on February 16, 2009. The management representation letter should normally be dated on a. December 31, 2008 c. February 10, 2009 b. January 17, 2009 d. February 16, 2009 47. Which of the following matters would an auditor most likely include in a management representation letter? a. Communications with the audit committee concerning weaknesses in internal control b. The completeness and availability of minutes of stockholders’ and directors’ meetings c. Plans to acquire or merge with other entities in the subsequent year d. Management’s acknowledgement of its responsibility for the detection of employee fraud 48. The standard audit report includes all of the following except a (an) a. Opinion paragraph c. Explanatory paragraph b. Management’s responsibility paragraph d. Opening paragraph 49. Which paragraph of an auditor’s standard report on financial statements should refer to Philippine Financial Reporting Standards (PFRSs) and Philippine Standards on Auditing (PSAs)? PFRSs PSAs a. Opinion Auditor’s Responsibility b. Opening Auditor’s Responsibility c. Management’s Responsibility Opinion d. Opening Opinion 50. The following statements relate to modifications of the standard audit report: I. When an auditor is unable to reach a conclusion as to the proprietary of management’s representations, he should consider issuing either a qualifying opinion or a disclaimer of opinion. II. When restrictions that significantly limit the scope of the audit are imposed by the client, the auditor generally should issue an adverse opinion. III. Qualifying language may be added to the opinion paragraph of the auditor’s report, but it is never added to the auditor’s responsibility paragraph. IV. A change in accounting policy from one generally accepted accounting principle to another would not prevent the issuance of an unqualified audit report provided the auditor approved the change in advance and the effects of the change were set forth in a note to the financial statements. State whether the foregoing statements are true or false. a. All of the statements are true c. Only two of the statements are true. b. Only one of the statements is true. d. Three of the statements are true. 51. The introductory paragraph in the auditor’s report should identify the entity whose financial statements have been audited and should state that the financial statements have been audited. The introductory paragraph should also include the following, except a. Identify the title of each of the financial statements that comprise the complete set of financial statements b. Refer to the summary of significant accounting policies and other explanatory notese c. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements
d. Specify the date and period covered by the financial statements 52. When auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate explanatory paragraph and modify the introductory and opinion paragraph. When auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate explanatory paragraph and modify the auditor’s responsibility paragraph and opinion paragraph. When auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate explanatory paragraph and modify the introductory paragraph. a. First statement is correct, the second and third statements are not correct. b. First and third statements are not correct; the second statement is correct c. All of the above statements are not correct. d. First and second statements are not correct; the third statement is correct. 53. During the course of his audit, a CPA determined that the company’s inventories are stated at labor cost, material cost and that portion of manufacturing overhead which varies directly with the volume of output. The company has consistently followed the procedure of considering those elements of manufacturing overhead which are fixed in amount regardless of the level of output as period cost, and has charged them to expense in the period they are incurred. Inventory cost includes only the variable portion of inventory is fully disclosed in the statements. Except for the inventory valuation method described above, the company’s financial statements are found to be acceptable in all respects. The audit report in the above situation: a. Will contain a disclaimer of opinion because of the lack of conformity with PFRSs b. Will contain an unqualified opinion because the reporting standard of full disclosure was fulfilled c. Will contain a qualified opinion or an adverse opinion because of the lack of conformity with PFRSs, depending upon materiality of the amount involved d. Will contain a disclaimer of opinion because there is insufficient competent evidential matter available to form an opinion on the fairness of the presentation of the financial statements as a whole 54. The principal auditor may decide to make reference to the examination of the other auditor when he expresses an opinion on the financial statements based on this suggestion: a. The report need not disclose the magnitude of the portion of the financial statement examined by the other auditor in as much as the total assets, total revenues and other appropriate criteria included in the report reveals clearly the portion done by the auditor b. It is enough that the report discloses the peso amounts of the total assets or percentage of total revenues to indicate portion of the financial statements examined by the other auditor. c. The other auditor may be named but only after obtaining his permission in writing in which case there is no need for the principal auditor to present the other report together with his. d. Opinion based in part on the report of the other auditor may be presented as a qualification of the principal auditor’s opinion 55. When an auditor concludes there is substantial doubt about a continuing audit client’s ability to continue as a going concern for a reasonable period of time, the auditor’s responsibility is to a. Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial statements b. Consider the adequacy of disclosure about the client’s possible inability to continue as a going concern c. Report to the client’s audit committee that management’s accounting estimates may need to be adjusted d. Reissue the prior year’s auditor’s report and add an explanatory paragraph that specifically refers to “substantial doubt” and “going concern” 56. Which of the following is usually included or shown in the auditor’s working papers? a. The procedures used by the auditor to verify the personal financial status of members of the client’s management team. b. Analyses that are designed to be a part of, or a substitute for, the client’s accounting records. c. Excerpt from authoritative pronouncements that support the underlying PFRS used in preparing the financial statements
d. The manner in which exceptions and unusual matters disclosed by the auditor’s procedures were resolved or treated 57. An auditor may reasonably issue an adverse opinion for Inadequate Disclosure Scope Limitation a. Yes Yes b. Yes No c. No Yes d. No No 58. A client is presenting comparative (two-year) financial statements. Which of the following is correct concerning reporting responsibilities of a continuing auditor? a. The auditor should issue one audit report that is on both presented years. b. The auditor should issue two audit reports, one on each year. c. The auditor should issue one audit report, but only on the most recent year. d. The auditor may issue one audit report on both presented years, or two audit reports, one on each year. 59. When audited financial statements are presented in a client’s document containing other information, the auditor should a. Perform inquiry and analytical procedures to ascertain whether the other information is reasonable b. Add an explanatory paragraph to the auditor’s report without changing the opinion on the financial statements c. Perform the appropriate substantive auditing procedures to corroborate the other information d. Read the other information to determine that it is consistent with the audited financial statements 60. An auditor’s working papers serve mainly to a. Provide the principal support for the auditor’s report b. Satisfy the auditor’s responsibilities concerning the Code of Professional Conduct c. Monitor the effectiveness of the CPA firm’s quality control procedures d. Document the level of independence maintained by the auditor 61. Ignoring any particular legal or regulatory requirement, audit documentation should be retained a. A minimum of five years b. As long as lead schedules have relevance to forthcoming audits c. Until 3 years after the client selects another auditor d. Working papers must be maintained indefinitely. 62. Schedules that support the current year’s adjusting entries are working papers that would most likely be included in an auditor’s permanent file. Prior year’s accounts receivable confirmations that were classified as exceptions are working papers that would most likely be included in an auditor’s permanent file. Documentation indicating that the audit work was adequately planned and supervised are working papers that would most likely be included in an auditor’s permanent file. a. All above statements are not correct b. First and second statements are correct; but third statement is not correct c. All above statements are correct d. Third statement is correct; but first and second statements are not correct 63. The objective of a review of interim financial information is to provide the accountant with a basis for reporting whether material modification should be made to conform with PFRSs. The objective of a review of interim financial information is to provide the accountant with a basis for reporting whether the financial statements are presented fairly in accordance with PFRSs. The objective of a review of interim financial information is to provide the accountant with a basis for reporting whether the financial statements are presented fairly in accordance with standards of interim reporting. a. First and second statements are correct; third statement is not correct. b. First statement is correct; second and third statements are not correct. c. All above statements are not correct.
d. First and second statements are correct; second statement is not correct. 64. Which of the following procedures is not included in a review engagement on a nonpublic entity? a. Inquiries of management b. Inquiries regarding events subsequent to the balance sheet date c. Any procedures designed to identify relationships among data that appear to be unusual d. A study and evaluation of internal control structure 65. A CPA has been engaged to compile financial statements for a nonpublic client. Which of the following statements best describes this engagement? a. The CPA must perform the PSAs necessary to determine that the statements are in conformity with PFRSs. b. The CPA is performing an accounting service rather than an examination of financial statements. c. The financial statements are representations of both management and the CPA. d. The CPA may prepare the statements from the books but may not assist in adjusting and closing the books. 66. Which of the following engagements do not require independence? I. Agreed-upon procedures III. Audit II. Compilation IV. Review a. I and IV b. I and II c. I, II and IV
d. I, II, III and IV
67. A report issued in connection with the independent audit of financial information other than an auditor’s report on financial statements a. Special purpose auditor’s report c. Annual report b. Compilation report d. Modified auditor’s report 68. Which of the following is incorrect about agreed-upon procedures engagement? a. An engagement to perform agreed-upon procedures may involve the auditor in performing certain procedures concerning individual items of financial data b. Users of the agreed-upon procedures report assess for themselves the procedures and findings reported by the auditor and draw their conclusion from the auditor’s work c. The auditor should be independent of the financial data or financial statements where agreed procedures have to be applied d. The report is restricted to those parties that have agreed to the procedures to be performed. 69. Given one or more hypothetical assumptions, a responsible party may prepare, to the best of its knowledge and belief, an entity’s expected financial position, results of operations, and cash flows. Such prospective financial statements known as a. Pro forma financial projections c. Partial presentations b. Financial projections d. Financial forecasts 70. Which of the following is a prospective financial statement for general use upon which an accountant may appropriately report? a. Financial projection c. Pro forma financial statements b. Partial presentation d. Financial forecasts 71. Negative assurance may be expressed when an accountant is requested to report on the a. Compilation of prospective financial statements b. Review of a non-publicly held company’s financial statements c. Results of applying agreed-upon procedures to an account within unaudited financial statements d. Audit of historical financial statements 72. Matters to be agreed in an agreed-upon procedures engagement include the following, except a. Stated purpose of the engagement b. Limitations on distribution of the report of factual findings c. Anticipated form of the report and the level of assurance to be provided d. Nature, timing and extent of the specific procedures to be applied 73. When a client’s company does not maintain its own stock records, the auditor should obtain written confirmation from the transfer agent and the registrar concerning: a. Restrictions on the payment of dividends b. The number of shares issued and outstanding
c. Guarantees of preferred stock liquidation value d. The number of shares subject to agreements to repurchase 74. Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary because a. This is a duplication of cut-off tests. b. Accounts payable balances at the balance sheet date may not be paid before the audit is completed. c. Correspondence with the audit client’s attorney will reveal all legal action by vendors for nonpayment. d. There is likely to be other reliable external evidence to support the balances. 75. To establish the existence and ownership of a long-term investment in the common stock of a publicly-traded company, an auditor ordinarily performs a security count or a. Relies on the client’s internal accounting controls, if the auditor’s procedures are being applied as prescribed b. Confirms the number of shares owned that are held by an independent custodian c. Determine the market price per share at the balance sheet date from published quotation d. Confirms the number of shares owned with the issuing company 76. Negative confirmation requests may be used in the following cases, except a. The assessed level of inherent and control risk is low b. A large number of small balances is involved c. A substantial number of errors is not expected d. The auditor has reason to believe that respondents will disregard these requests 77. The most effective means for the auditor to determine whether a recorded intangible asset possesses the characteristics of an asset is to a. Inquire as to the status of patent applications b. Analyze research and development expenditures to determine that only those expenditures possessing future economic benefit have been capitalized c. Evaluate the future revenue-producing capacity of the intangible asset d. Vouch the purchase by reference to underlying documentation 78. When goods are received, the receiving clerk should match the goods with the a. Purchase order and requisition b. Vendor’s invoice and the receiving report c. Vendor’s shipping document and the purchase order d. Receiving report and the vendor’s shipping documents 79. Which of the following procedures would enhance the control structure of a computer operations department? I. Periodic rotation of operators II. Mandatory vacations III. Controlled access to the facility IV. Segregation of personnel who are responsible for controlling input and output a. I, II b. III, IV c. I, II, III d. I, II, III, IV 80. Which of the following best describes the primary reason that organizations develop contingency plans for their EDP operations? a. To ensure that they will be able to process vital transactions in the event of any type of disaster b. To ensure the safety of important records c. To help hold down the cost of insurance d. To plan for sources of capital for recovery from any type of disaster 81. A critical aspect of a disaster recovery plan is to be able to regain operational capability as soon as possible. In order to accomplish this, an organization can have an arrangement with its computer hardware vendor to have a fully operational facility available that is configured to the user’s specific needs. This is best known as a(n) a. Uninterruptible power system c. Cold site b. Parallel system d. Hot site
82. Which of the following is a general control that would most likely assist an entity whose systems analyst left the entity in the middle of a major project? a. Grandfather-father-son record retention c. Systems documentation b. Input and output validation routines d. Check digit verification 83. Program documentation is a control designed primarily to ensure that a. Programmers have access to the tape library or information on disk files b. Programs do not make mathematical errors c. Programs that are kept up to date and perform as intended d. Data have been entered and processed 84. Which of the following statements is incorrect according to Section 7 of the Philippine Accountancy Act of 2004 (RA 9298)? a. The Chairman and the members of the Professional Regulatory Board of Accountancy (PRBOA) shall hold office for a term of three (3) years. b. No person who has served two (2) successive terms shall be eligible for reappointment until the lapse of one (1) year. c. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the term only. d. Appointment to fill up an unexpired term is considered a complete term. 85. According to Section 20 of the Philippine Accountancy Act of 2004 (RA 9298), a Professional Identification Card bearing the registration number, date of issuance, expiry date, duly signed by the chairperson of the PRC, shall likewise be issued to every registrant renewable every a. One (1) year c. Three (3) years b. Two (2) years d. Five (5) years 86. Which statement is correct regarding CPE requirements for renewal of professional license? a. The total CPE credit units required for CPAs shall be ninety (90) units for three (3) years, provided that a minimum of fifteen (15) credit units shall be earned in each year. b. A registered professional shall be permanently exempted from CPE requirements upon reaching the age of 65 years old. c. A registered professional who is working abroad shall be temporarily exempted from compliance with CPE requirement during his/her stay abroad, provided that he/she has been out of the country for at least one year immediately prior to the date of renewal. d. Those who failed to renew professional licenses for a period of four (4) continuous years from initial registration, or from last renewal shall be declared delinquent. 87. According to the Philippine Accountancy Act of 2004 (RA 9298), any person who shall violate RA 9298 or any of its implementing rules and regulations as promulgated by the Board of Accountancy subject to the approval of the PRC, shall, upon conviction, be punished by a fine a. Not less than fifty thousand pesos (P50,000), or by imprisonment for a period not exceeding three (3) years, or both b. Not less than one hundred thousand pesos (P100,000) or by imprisonment for a period not exceeding two (2) years, or both c. Not less than fifty thousand pesos (P50,000), or by imprisonment for a period not exceeding two (2) years, or both d. Not less than one hundred fifty thousand pesos (P150,000), or by imprisonment for a period not exceeding three (3) years or both 88. Which of the following is not represented in the Auditing and Assurance Standards Council? a. Board of Accountancy c. FINEX b. Bangko Sentral ng Pilipinas d. Securities and Exchange Commission 89. Adequate time allowed for exposure of the drafts made by AASC generally is a. 30 days b. 60 days c. 90 days
d. 120 days
90. The lead engagement partner should be rotated after a pre-defined period, normally no more than a. 2 years b. 3 years c. 5 years d. 7 years 91. The CPA in public practice violates the Code of Professional Ethics for CPAs if he accepts a fee which was a. Fixed by a public authority b. Based on a price quotation submitted in competitive bidding c. Determined based on the results of judicial proceedings
d. Payable after a specified finding was obtained 92. Which statement is incorrect regarding the Revised Code of Ethics for Professional Accountants in the Philippines? a. Professional accountants refer to persons who are Certified Public Accountants (CPA) and who hold a valid certificate issued by the Board of Accountancy. b. Where a local law is in conflict with a provision of the IFAC Code, the IFAC Code requirement prevails. c. The Revised Code of Ethics for Professional Accountants in the Philippines is mandatory for all CPAs and is applicable to professional services performed in the Philippines on or after June 30, 2008. d. Professional accountants should consider the ethical requirements as the basic principles which they should follow in performing their work. 93. In order to achieve the objectives of the accountancy profession, professional accountants have to observe a number of prerequisites or fundamental principles. The fundamental principles include the following, except a. Objectivity c. Confidentiality b. Professional Competence and Due Care d. Confidence 94. Occurs when, by virtue of a close relationship, a professional accountant becomes too sympathetic to the client’s interests. a. Self-interest threat c. Advocacy threat b. Self-review threat d. Familiarity threat 95. Examples of circumstances that may create self-review threat least likely include a. A member of the assurance team being or having recently been a director or officer of that client b. The discovery of significant error during a re-evaluation of the work of the professional accountant in public practice c. Reporting on the operation of financial systems after being involved in their design and implementation d. Accepting gifts or preferential treatment from a client, unless the value is clearly insignificant 96. Safeguards created by the profession, legislation or regulation, include the following, except a. Educational, training and experience requirements for entry into the profession b. Continuing education requirements c. Legislation governing the independence requirements of the firm d. Policies and procedures that emphasize the assurance client’s commitment to fair financial reporting 97. Which of the following is broadest in scope? a. Audits of financial statements b. Assurance services
c. Internal control audit d. Attestation services
98. Which statement is correct regarding assurance engagements? a. It is an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria. b. All engagements performed by professional accountants are assurance engagements. c. Whether a particular engagement is an assurance engagement will depend upon whether it exhibits all the following elements – a three party relationship, a subject matter and suitable criteria. d. All of the above statements are correct. 99. The Framework (PSA 120) applies to a. Compilation b. Review 100.
Management is not responsible for: a. The audited financial statements b. Preparing spreadsheets for the auditor
c. Agreed upon procedures d. All of the above c. The auditor’s report d. Compliance with laws and regulations
Answer Key: 1. C 2. D 3. C 4. A 5. B 6. C 7. B 8. B 9. C 10. B 11. D 12. B 13. B 14. D 15. D 16. D 17. C 18. D 19. B 20. A
21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40.
A C C D D C B A D C B B B C A A C D A C
41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60.
D B C C A C B C A C C C C B B D B A D A
61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80.
A A B D B B A C B D B C B D B D C C D A
81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100.
D C C D C B C C C C D B D D D D A A D C
