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CPA REVIEW SCHOOL OF TH£ PHILIPPINES
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AUDITING THEORY
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ATPW-7501 CPA Review
1. The Philippine Framework for Assurance Engagc!ments identifies two types of assurance engagements a practitioner ts pern�ittec to pe rfc rm: a reasonable assurance engagement and a limited assurance engagement. Which ot the follo"'!ing is the objective of a limited assurance engagementi A. A reduction in assurance engagement risk tc a very low level in the circu01stances of the engagement as a basis for a di�claimer ot the practitioner's conclusion. B. A reduction in assurance engagement r!�.k to an acceptably low level in the circumstances of the engagement as a basi� for a positive form of expression of the
practitioner's conclusion.
C. A reduction in assurance engagement nst. to a leve! that is acceptable in the circumstances of the en agement: as a .basis •fvr ct negative form of expression of the
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practitioner's conclusion. D. A reduction in assurance engagement ris1: to. a level that is acceptable in the circumstances of the engagement �s a basi� for a modified form of expression of the practitioner's conclusion. •
2. The subject matter of an assurance eng2gemen1: can take the following forms, except • A. Historical or prospective financial statemel'lts. B. Performance of an entity that could indic•te effi,iency and effectiveness. • C. The entity's internal control. D. Evaluation of a capital investment proposal. 3.
This refer�; to the audit procedures that, in tile cuditor's judgment and based on the PSAs are deemed appropriate in the circumstanc� to Khieve the objective of an audit. C. Audit sampling. A. Analytical procedures. B. Scope of an audit. D. Dccumentation.
4. A firm of CPAs may use policies and procedure� such as notifying professional personnel as to the names of audit clients having publicly '1eld securities and confirming periodically with such personnel that prohibited ii:l a tio ns do not exist. This is done to achieve ! ••:• effective quality control in which of the tollo'l'.!ing 9reas?· A. Acceptance and continuance of clients. B. Human resources. C. Ethical requirements. D. Leadership responsibilities for quality within tne firm. • •
5 . The decision as to whether the criteria are s11itable involves considering whether the subject matter of the assurance engagement is capable of reasonably consistent evaluation or measurement using such criteria. Which of the following characteristics is not considered necessary in determinin�! whethe ·the criteria are suitable? A. Relevance. C. Reliability. B. Neutrality. D. Sufficiency. 6. Which of the following conditions most i1kei·y w< 1U1d pose ·the greatest risk in accepting a new audit engagement> A. Staff will need to be rescheduled to rnver thi0; new client. B. There will be a client-imposed scope limitatio1. C. The firm will have to hire an expert in one acdi;: area. D. The client's financial reporting s1stem has be::n in place for 10 years. 7.
As a condition of obtaining a Joan from Metro Ma n i !:3 Be l.:, Maasim Corp. is �quired to submit . ated statements of income, changes •an audited statement of financial position but not t�e in equity, or cash flows. Maasim would like to e-1qa·,;e ,j CPA to audit only its statement of financial position. Under these circumstances. rl1e :PA It May not audit only Maaslm's statement: �f fir ,'. i ncia l position if the amount of tlie loan is material to the financial statements t
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CPA REVIEW SCHOOLOFTHE PHILIPPINES jCPAR1
ATPW-7501
B. May not audit only Maasim's statement of i'inoncial position if Maasi� is not a listed �ntity. . . C. May audit only M�asim's statement of financi2 I position if the CPA d1scla1ms an opinion on
the other financial statements.
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D. May audit only Maasim's statliment of fina11Cial position if access to: the information underlying the basic financial statements is no1: limited.
8.
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risk, contr ol Using your knowledge of the relationships amon� acceptable audit risk, in erent _ ne t•J he risk, planned detection risk, tolerable. misstaterr.ent, and planned evidence, det�rmi factors, effect on planned evidence (increase or decrease) of changing each of the following while the other factors remain unchanged.
ir.crec.se
1. An increase in acceptable audit risk. 2. An increase in inherent risk. 3. A decrease in control risk .
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B
A
Decrease
Decrease . Decrease Increase lncrec:se . ,Decrease Increase lncre�1se
Increc1se
An increase in planned detection risk.
An increase in tolerable misstatemer1t
Increase.
c
Decrease
Decrease
Decrease
D
Increase Increase
Decrease
Increase •·
Decrease Decrease
9. Which of the following payroll control activities would most effectively ensure that payment is made only for v1ork performed?
A. Require all employees to record amval a�d departure by using the time clock. B. Have a payroll clerk recalculate all time earns C. Require all employees to sign their-time cards. .
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D. Require employees to have their direct supervisors approve their time cards.
10. Which. of the following statements ordinarily is not included among the written client representations made by the chief executi>;e off cer and the chief financial officer? A. "Sufficient evidential matter has been ma,je available to the auditor to permit the •
issuance of an unqualified opinion." B. "There are no unasserted claims or assessments that our lawyer has advised us are
C.
probable of assertion and must be disclosed."
"We have no plans or intentions that m
D. "No events have 0ccurred subsequent to 1he balance she�t adjustment to, or disclosure in, the fincaricial statements."
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that would require
In evaluating the reasonableness of ;m en tity' 5 accounting estimates, an auditor would be concerned about assumpiions that are A. Susceptible to bias. C. !;)sensitive to variations. 8. Consistent with prior periods. D. Similar to industry guidelines.
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12. When CPA firms do an audit of historical financial statements, part of the audit usually
consists of identifying operational problems and making recommendations that may
benefit the audit client. The recommenaation�; can be rnade orally but they are typically made by use of a . A. Letter of represemations. C. :'-lanagement letter. B.
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Engagement letter.
D. Client letter.
refers tu the appiication of relP-vant training, knowledge ano experience, within the context provided by au�iting, accounting and ethical standards in maklng informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement. A. Professional judgment. C. Frofessronal skepticism.
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B. Reasonable assur<�nce.
D. Compliance .
14. Which of the tollowinq is not considered amon�. i:he fraud risk fac.tors? . A The need to meet expectations of third parties tD obtain additional equity financing. • B. The granting of significant bonuses if unre�listic profit targets are met. C. Ineffective control environment. 0
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D . The existence and enforcement of a writte: code of conduct.
l5. When the auditor issues an erroneOL1s opini0:1 as the result of an underlying failure to comply with the requirements of standards.on 3Uditing, it results in
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.GPAREVIEWSCHOOLOFTHE PHILIPPINES(CPA.- I A.
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ATPW-7501 C. , \udit r isk. D. /\II of the above.
Business failure.
B. Audit failure.
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Which of the following statements is f�lse?· A. The firm should obtain written confirmiltion of compliance with its policies and procedures on independence from all fim personnel required to be independent. by the Code of Ethics. B. The firm should establish policies and procedures designed to provide it with reasonable assurance ·that the firm and ts personnel comply with relevant ethical requirements. C. The firm's quality control policies and c rocedure s need not be documented and communicated to the firm's personnel. D. The firm should establish policies and proc�dures requiring appropriate documentation to provide evidence of the operations of eiJ :h element of its system of quality control.
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1 need to be available to the intended JJSers in an ass u aric!� 'eng ag em ent �o allow them to understand how the subject mat'ter r.as been evaluated or measured. Which of. the following is not among the ways by whic.1 these criteria could be made ·available to
17. ·Criteria
the intended users? A. Publicly
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B. Through inclusion in a clear m a ner i1 C.
D.
information.
the presentation of the subject matter.
Thro ugh inclusion in the firm's office policy manual . Thro ug h inclusion in a clear manner in the assurance report.
18. The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside lo cation woulu be to: A.
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Observe physical counts of t e inventory it·�ms.
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B. Trace the total on the inventory li�ring rn tt1e generai ledger inventory account.
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C. Obtain a confirmation from the client indic<-.ting nven tory ownership. D. Analytically compare the current:year inve11t:0ry bala ce to the prior-year balance.
19. When comparing the auditor's responsibility fo1 •
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etectin employee fraud and for detecting errors, the profession has placed the responsibili y A. More on di scove ri errors than emaloyee f1.iud. B. More on dis ver g employee fraud thc;in err oi115. • C. Equally on discovering either one. D. On the senior auditor for detectinl; errors 0rnd ?n the manager for detecting employee. fraud. , • •
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20. The primary purpose of performing analytical prxedures in the planning phase of an audit is to A. Help the auditor ootain an understa� ding of 1.ne client's industry and business. B. Assess the going concern assumption. C. Indicate possible misstatements. D. Reduce d eta il ed te sts . •
21. Which of the following circumstances would <.n auditor most likely consider a risk faCtor
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rel ati g to misstatements arising from fraudulE nt financial reporting?
A. Several members of managemem hcfve r :cently purchased additional shares of the entity's stock. . B. Several members of the board or dir ect 1 s have recently sold shares of the en tity 's
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stock. C. The entity distributes financial forecasts tc anci l analysts that predict conservative o erating esults . D. Manage�ent 1s interested 111 n .
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22. An audi�or concluc;les tha� the omissio n of a �ubstantive procedure considered necessar-Y at t� e time of the exa nati on .may im ir p a 1 he auditor's presen t ability to support the · �: prev10usl expressed opinion. The audito neesJ not apply th e omitted procedure if r y A. The risk of adverse publici ty litiga 10·1:. tion is
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CP�REVIEWSCHOOLOFTHEPHILIPPINES(CPAI:J
ATPW-7501
tend to compensate for the B. The results of ether procedures. thae Wt!re· applied procedure omitted. . financial repo ng c. The auditor's opinion was qualified becau!;e of a departure from
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standards. procedure D. The results of the subsequent period's tes.:s of controls make the omitted less important.
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The auditor's risk assessment procedures shoul·j always include the following, except A. Inquiries of management and .of others within the entity. B. Analytical procedures.
C. Observation and inspection.
D. ·subsi:antive test procedures and tests oi' co;1trols.
24. The auditor's risk assessment procedures ·
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A. By themselves, do not provide sufficient appropriate audit evidence on which to base the audit opinion. B. Should not consider informatian obtained f com the auditor's previous experience with the entity.
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C. Are designed to detect material misstatements at the assertion level fur classes of transactions, account balances and disclosures. D. Are designed to test the effectiveness of th<� entity's controls.
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The auditor should obtain an understanding ol the entity's objectives and strategies, and those business risks that may result in risk5 of material misstatement. Which of the following statements concerning file entity's business risk is incorrect?
A.
Business risk is broader than the risk of material misstatement of the financial statements, though it includes the latter. B. An understanding of the business risks facing the entity increases the likelihood of •
identifying risks of material misstatement. C. The auditor has a ·responsibility to identify or assess all business risks.
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D. Business risk may arise from the developr.ient of new products or services that may " fail. . . . . ' .
A retailing entity uses the Internet to execute arid record its purchase transactions. The entity's auditor recognizes that the documentatipn of details of transactions will be . retained for only a short period of .time. To ·compensate for this limitation, the auditor most likely would: A. Compare a sample of paid vendors' invoice:; to the receiving records at year-end. ·
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8. Plan for a large measure of tolerable misstc!tement in substantive tests. ·
C. Perform tests several times during.the v.ear, rather than only at year-end. D. Increase the sample of transactions to .be selected for cutoff tests. .
27. Which of the followin�r statements concerning itUdit risk and its components is incorrect?
A. Regardless ·of the assessed levels of inhE!rent and control risks, the auditor shQuld
always perform some substantive proce.jures for material account balances and
classes of transactions.
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B. The higher the assessment of inherent :ind control risks, the more evidence the auditor should obtain from the performano! of substantive procedures.
C. The assessed level of inherent risk need n•)t be considered in determining the nature,
timing, and extent of substantive proceciures required to reduce audit risk to an
acceptably low levet. D. After obtaining an understanding of tne a :count ing and internal control systems, the auditor should m::ike a preliminary assessinel'}t of c�ntrol .r.is t the assertion level, 41 : for each material account balance or c � ss of tran sact i ons.
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When obtaining an understanding of control!; that relevant to the audit, the auditor is . required to A. Evaluate the design of those controls. B. Determine whether those controls have be·�n implemented. etermine whether they have been implemented C. Evaluate the design of those controis ·and •
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CPAREYIEWSCHOOLOF THE PHI LIPPINES(<:P
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D. E va lua te the design of those co ntro l s implemented by performing tests of cont
ATPW-7501 ar d
determine whether they have been
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If an auditor is satisfied that sufficient evidence supports management's assertions about an uncertainty and its presentation or d isc losure, the auditor should A. Express a modified opinion with an Emphasis of Matter paragrap h. B. Express an unmo difi ed opinion w ith an Emph:isis of Matter paragraph. C. Express an unmodified opinion � ith an Other Matter paragraph. D. Express a qualified opinion or disclaim an opi1ion, depe nding upon the materiality of the loss.
30. A client makes test counts on the ba�ts of J s: 1tistical plan. The auditor observes such counts as are deemed necessary and is ab1e to : i ecome satisfied as to the reliability of the client's procedures. In reporting on the results .: r tile audit, the auditor A. Must qualify the opinion if the inverli:Ories w-cre material. B. Can express an unmodifted o pin ion. •. C. Must comment in an Emphasis of Matter par,1graph as to the inability to observe year•
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end inventories.
31.
r:>. Is required to disclaim an opinion ir the lnvertories were material.
Which of the following audit procedures most l1
conditions and events that may indicate sub5 :antial doubt about an entity's ability to
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co ntinu e as a g oi ng concern? A. Confirming with third parties the details gf ar raagements to maintain financial support. •
• B. Comparing the entity's depreciation·and assE·t capitalization policies to other entities in the ind ustry. C.
Reconciling the cash balance per books witi1 the cutoff bank statement and the ba�1k confirmation.
D. Inspecting title documents to verify whether any assets are pledged as collateral.
32. Which of the following factors would most !ikely influence an auditor's consideration of ttie reliability of data when performing analytical pre cedures?
A. Whether the data were developed m a computerized or a manual accoun tin g sy stem .
B. Whether the data were prepared on the cast 1 basis or in conformity with PFRS.
C. Whether the data ·were developed unjer a '· •stern with adequate controls. D. Whether the data were processed 1n an '?n111.� system or a batct\11�1try system.
Which of the following statements relatea to applic:ation controls is cor rect? A. Application controls relate to various aspects of the IT function including software acq ui siti on and the processi:1g of,transactions. B. Application controls relate to various aspects ,-f the TT function including physical securi"ty
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and the processing of transactions in various c.;c!es. Application controls relate to all aspeccs of thf� IT function. D. Application controls relate to the processing of individual transactions.
c.
An entity's management is responsible for thE preparation and fair presentation of the
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financial statements. lts responsibility' includes �he fol low in g, except
A. Designing, implementing, and.maintaining i 1terna1 control relevant to the preparation and presentation of financial statements. •
B.
Making accounting estimates that are reasonable in the circumstances.
C. Selecting and applying appropriate accounting policies. D. Assessing the risks of material missratement of the financial statements. 35.
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When companies use information technology ! . T) extensively, evidence may be available only in electronic form. What is an auditor's bes: course of action in such situations] A. Assess the control risk "?S h ig h. B. Use audit software to perform analytiral pro�edur'es. C. Use gene_ral ized audit software to extract ev.•dence from client databases. D. Perform li m i_ ted tests of controls over elearrn ic data.
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CPAREVIEWSCHOOLOF THE PHILIPPINES(CPAR)
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"ATPW-7501
The following statements relate to the use
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procedures. Which is false7 A. Substantive analytical procedures are applic2ble when there is only a small. volume of transactions. , B. The application of substantive analytical pro:edures is based on the expectation that
relationships amon�J data exist and continue n the absence of known conditions to the
contrary.
C. The presence of relationships among data provides evidence as to the completeness,
accuracy, and occurrence of transactions captured in the information produced by the entity's information system.
D. Reliance on the results of substantive ar alytical procedures will depend @n the auditor's assessment of the risk that the analytical procedur�s may identif>t relationships as expected when, in fact,- a mEh!r;iar misstatement exists.,
37. The reliability of data is influenced by its source and by its nature and is dependent on the Circumstances under which it is obtained . Which of the following should the auditor consider in determining whether data is reliat:e for purposes of designing substantive analytical procedures? •
I.
Source of the information availabl'=.
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Il. Comparability of the information available. III. Nature and relevance of the inforr-nation available. IV. Controls over the preparation of the
A. I; III, and IV only
B. II, !IL and IV only
inforrr ation.
C. I, II, and III only D. I, II, III, and IV
38. The confirmation of customers' accounts receivc:ble rarely provides reliable evidence about •
the valuation assertion because
A. Customers may not be inclined to repon: uMerstatement errors in their accounts. B. Auditors typically select many accounts with low recorded balances to be confirmed. C. It is not practicable to ask the customer to confirm detailed information relating to its ability to pay the account. D. Recipients usually respond only if they disagree with the inf
39. Which of the following items
is not
request
confirmation form? A. The principal amount paid on a·direct liabilit(. B. Maturity date of a direct liability. C Description of collateral for a direct liability. D. The interest rate of a direct liability. ·
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40. An internal auditor would be concerned about the possibility of fraud if A. Only one person has access to the petty ca�h fund. . B. Cash receipts, net of the amounts used :o pay petty. cash-type expenditures, are
deposited in the bank daily. c. The monthly bank statement reconciliation is performed by the same employee who maintains the perpetual inventory records D. The accounts receivable subsidiary ledger
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When using confirmations to proviae eviden:e about the completeness assertion for i ely is accounts payable, the appropriate population most ! dger. iu bs1d1ary able A. Amounts recordea in tr.e accounts par: , ss. busine done B. vendors with whom the entity has previous·y fi!t!. c. Invoices filed in the entity's open invoice , . quent to t'1e balance sheet date. D. Payees of checks drawn in the month subs,:
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the following usually is considered a risk 42. In an audit of a purchasing department, which of factor? department requesting the material. ons are developed by tr.e 1 A. Purc · 11ase spec1·ficat·i . 1 supp ers m luded on an approved vendor l"st B. Purchases are not rotated among ...
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ATPW·750l
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C. Purchases are made from parties re:lated to tuyers or other company offi cials . D. Purchases are made against blanket or· open purchase orders for certain tyQes of items. .
43. When outside firms of nonaccoun tants soecializing in the taking of physical inventories are used to count, list, price, and subsequently compute the total peso amount of inventmy on hanq at the date of the physical count, the aL.ditor will ordinarily A. Co nside r the reduced audit effort with l'eSpect to the physical count of inventory as a s co pe l i m itatio n . B. Make or observe some physical col!nts of tt e inventory, recompute certain inventory •
calculations, and test certain inventory trans
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C. Consider the report of the outside inventory·· firm to be an acceptable alternative procedure to the observation of physical invr:nt ories .
D. Not reduce the extent of work on tn:· pl1ys1•.:< i count of inventory. .
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V\lhi ch of the following most likely would ca �se �n auditor to consider whether a client's financial statements contain material misstatemE nts? A. Management did not disclose to the auditor that it consulted with other acco untan ts
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about significant accounting matters. B. The chief financial officer will not sign the rr anagement representation letter until the •
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last day of the auditor's field work. C. Audit trails of computer-generated transactions exist only for a short time.
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D. The results of an analytical procedure disclo�e unexpected d iffere n ces .
Which of the followin�1 is the best audit test o evaluate the accuracy of the inventory records for materials inventory in a production OJeration? A. Reconcile quantities on hand •per physical counts of selected items with perpetual inventory records and verify pricing. B. Trace selected inventory receipts tc, perpetu<,I inventory records. C. Vouch selected postings in the perpet ual i nv :� ntory records to source docunients. D. Perform turnover tests for materials inventor)' ·
46. The physical count of inventory of
a ;·t:taiier \vas higher than shown by the pe :petual records. Whicn of the following could r:::olain tti =difference? A. Inventory items had baen counted bu'( t!'w. rags. placed on the items had not bee'n taken off the items and added to the invento !"' '1ccumulation sheets. B. An item purchased "FOB shipping point" •1ad not arrived yet at the date of the inventory count and had not been reflected � 1 th� perpe.tual records. c. Credit memos for several items returned by wstomers had not been recorded. D. No journal entry had been made on the reuiler's books for several items returned ta
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After issuing an auditor's report, an au itor has :-io obligation to make continuing in�uiries
concerning audited financial statements. unle"ss: · A. Information about a material transtiction th)'( occurred just after the auditor's report was issued is deemed to be reliable. B. A final resolution 1s made of a contingent liability that had been disclosed in t e financial statement:!;. C. Information that existed at the report date and may affect the report comes to the auditor's attention. D. An event occurs just after the auditor's n:0ort was issued that affects the entity's ability to continue as a going concern.
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One payroll audit ob_jective is to det::rmine vhether the employees received pay in amounts recoroed in the payroll journal. To acn eve this objective, the auditor should �- Determine whether a proper segreqatiori o;'•duties exists tiet:Y.A!(!i recording P.ayroll and reconciling the payroll bank accounC. B. Requesting that a company official distribute: all pa ychecks. C. Reconcile the payroll bank account. D. Compare canceled payroll chec� with the pavroll journal. 1
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ATPW-7501
49. The following statements relate to the forrr. and wntent of working papers. ·
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Which is
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A. The a udi or should prepare working p a e · which are sufficiently complete an detailed to provide an overall understanding c.f the audit. . B. The · aud tor should include in the working papers information on planning the audit
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obtained. C. Working papers should include documentation of every matter the au
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I during the audit. D. Working papers shcu!d include the auditor's :·easoning on all sign ifican t matters which
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require the exercise of judgment, together wi:h his/her conclusion thereon.
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50. Which of the following factors would least auditor's working papers?
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a ec t the form, content, a d extent "of an
A. The content of the representati0n letter.
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B. The identified risks of mate i al e C. The audit methodology and tools used.
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work; the nature, timing, and extent of tr.e audit procedures perf rm:d a�d the results of such procedures; and the conclusions drawn from the audit ev1denc�
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D. The significance of the audit evidence obtainE d.
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Financial statements prepared in accorcancc: with a financial reporting framework designed to meet the financial information needs of specific users are referr d to as A. Special purpose financial statements
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6. Special purpose framework
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C. General purpose financial statements D. Specific purpose financial statements
52. The following are examples of special purpose frc .meworks, except A. A tax basis of accounting for a set' cf financi:1l statements that accompany an entity's •
tax return. B. The cash receipts and oisbursemer.ts basis of accouming for cash fiow information
that an entity may be requested to prcpure 1:c r creditors. C. Philippine Financial Reporting Standf!rds {P.FR�) promulgated the Financiai Reporting Standard� Council (FRSC). D. The financial reporting provisions of i'.1 contra(t (fo[ example, a financing agreement).
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Which of the f oilowing statements is corre<:t with respect to an auditor's report expressing an opinion on a specific element on a financial statement? A. The auditor who hcis expressed an adverse ()pinion on the financial statements as a whole can never express an unmodmed opinion on a specific element in these financial
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statements. The materiality determined for a specif c eterrient of a financial statement may be lower than the materiality determined for the entity's complete set of financial
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c. Such a report can only be issued if the audit)r is also engaged to audit the entire set •
of financial statements. D. The attention devoted to the specific eleme·1t is usually less than it would be if the e me nt as a w hole were audited financial
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least likely to perform during a review 54. Which of the following procedures is a practitioner engagement? . . . . tth ailtic.1pated results � budgets and forecasts. comparing the financial stater;1ents \� d to conform to elemen.ts .e al B. Studying th·.: relationships or financi predictable patterns. . ., taker! at the board of directors meetings. c. Inquiring of management about action� s to and use of assets and records. D. Observing the safeguards over ?cces
A.
s;'lttr;1ent
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. . · The date of the review report should . lil tne financial statements were approved by A. Not be e arI.1er than the date on whic .
management.
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B. Be earlier than the date on whicr, the tinancial statements were approved by management. C. Coincide with the balance sheet date. · o.. Not be later than the balance sheet date.
56. Which of the fol l owing is a false stiiJ te ment conct�rning fraud? A. Fraud generally involves incentive or pr �ssure tu commit fraud, a perc eived · opportunity to do so, and some rationalizatio11 of th e act. B. Two types of misstatements relevant to tht: au d itor include material misstatements arising from fraudulent financial r.eporting i1nd material misstatements arising from misappropriation of assets.
Fraud involves actions of management but <:
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parti es .
D. An audit rarely involve!'i the authentication of documentation; thus, fraud may go . '
u ndetected by the auditor.
57.
Under which of the following conditions may an -auditor's observation procedure !'or . inventory be performed du ring or after the end ,:f the period under audit? A.
When the client maintains periodic inventory records.
B. When the auditor finds minimal variations in client records and test counts in prior periods.
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• C. When total i. nventory has not varied·morE! th:m 5% in the last five years.
D. When well-kept perpetual inventory recerds are checked by the client periodically by comparisons with physical counts.
•
58. An entity installed antivirus software en all its personal computers.
The software wcis
designed to prevent initial infections, stop re�lication attempts, detect infections after their occurrence, mark affected system compo·1ents, and remove viruses from infected components. The major risk in relying on antivirus software is that it may A.. Consume too many system resources. B.
Interfere with system operations.
C. Not detect certain viruses. D. Make software installation too comp1ex.
59. Which of the following procedures most likely would· give tM •gtf.Gtest assurance that
securities held. as investments are safeguarded' A. There is no access to securities between tr:e year end and the date of the auditor's • B.
security count. Proceeds from the sale of investments are received by an employee who does net have access to securities.
c. Investment acquisitions are authon�ed by
·
a member of the Board of Directors before
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execution. · D. Access to securities requires the signatures rnd presence of two designated officials.
60. An auditor is determining if internal control rel
entity is operating effectively in minimizing Ihe failure to prepare sales invoices. The auditor most likely would select a �ample of tra!1sactions from the population represented
.
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A. Cash receipts file.
Gl.
C. Customer order file. D. S;,les invoice file.
B. Shipping document file.
Which of the following procedures wuuld an auditor most likely perform prior to the balance sheet date? A. Review subsequent ever.ts.
B. Perform search for unretorded liabiiities . •' • C. Send inquiry letter to client's legal coun sel.
D. Review detail and test significant travel and ·=ntertainment expenses.
62. An entity's contingency plans for computer infor 1nation systems should include appropriate .
backup agreements.
.
Which of the following arrangements would be considered _!:o� ---- ----- --�--
CPAREYIEWSCHOOLOFTHEPHILIPPINES(CPAR)
ATPW-7501 .
vendor-dependent when vital operations requir-� almost immediate availability of computer resources? A. A "cold site" arrangement. B. A "hot site" arrangement.
C. A "cold and hot site" arrange111ent. D. Using excess capacity at another data center within tbe entity.
63.
Which of the following factors would least- likely affect the extent of .the a uditor's consideratio n of the client's internal controls?
A. The amount of time budgeted to complete :.he engagement. B. The size and complexity of the client. C. The nature of specific relevant controls.
D. The auditor's prior exp�rience with client operations. •
I
64 . An auditor compared the current-year gross r.nargin with the prior-year gross margin to determine if cost of sates is reasonable. What 1ype -0f audit procedure was performed? C. :·est of conttols.
· A . Test of transactions. B. Analytical procedures.
65.
D. ;·est of details.
Image processing can be used to convert paper documents into electronic images. Which of the following concepts distinguishes th� retention of computerized audit doGuments from the traditional hard copy form? A. Analyses, conclusions, and recommendations are filed on electronic media and are therefore subject to computer system controls and security procedures. B. Evidential support for all findings is copied and provided to local management during the closing conference and to each person ·eceiving the final report. C . Computerized data files can be used irt corr puter audit proced ures. D. Audit programs can be standardized to eliminate the need for a preliminary survey at each location.
66. When erroneous data are detected by computer program controls, such data may be
excluded from processing and printed on an e rror repor:: . Who should review and follow up this error report7 A. Systems analyst C. c;omQuter operator • · ! ":' • B. Data control group D computer programmer .
67.
•
A receiving clerk keyed in a shipment from a remote terminal and inadvertently omitted the purchase order number. Whi'h of the foll•JWing controls would most likely detect this •
error? A. Completeness check B.
68.
C. �iequence check
Compatibility check
D. 11.easonableness test
One common type of CAAT is the use of audit software to process data of audit significance from the entity's information syste�m . An audit software that ha� widespread popularity because it is easy to use and requin!S little computer background on the part of the auditor; it can be used on troth mainframe and PC systems; it allows the auditor to perform his/her tests independent of the enticy's comptJter pro �essing personnel; and it . forrn.�ts and st_ructures 1s called a can be used to audit the data in most file •
A. Customized program B. Purpose-written program
c. Utility program
,. software (GA. ,) D . Package or generalized audit
• genera IY ·irs:,I d E! the records of Tnitial entries and An entity's accounting r.ecords • supporting records inclu di ng . _ third parties. A Confirmations from ures as inquiry, • . the a uditor 1 rorn such . audit proced B. Information o bta ined by observation and inspection. ions. ' ts supporting ost allocat Worksheets and spread shee r to permit him/her to reach audito the _ d by, or availab e to' 1 Other information deve ope sonin9. concl usi ons thr oug h val id rea ·
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70._ Which of the following statements con ce rn ino t1 ;;:! a ditors use of assertions is correct? A. The auditor may combine the as ertio s about transactions and events with the assertion s about acco unt bala nces . B . In every audit engagement, the auditor should use the assertions as described in l'SA
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500, i.e., the assertions should always fa.I into three categories: assertions abqut classes of transactions and events, account l >alances, and presentation and discl osu re .
C. There should always be a separate asseit ion related to cutoff of transactions and events . •
D. The completeness assertion deals on;1 witt whether all transactions and events that should have been recorded have been recoded.
7 1 . Which of the followin�1 would least likely affec: the appropriateness of evidence available to an auditor? A. The sam p ling mett1od employed bv hE: aud1 :pr to obta i n a s9(ll ple of such evidence. B. The relevance of such evidence to th e financral statement assertW� being verifieil. C. The relationship of the preparer of such evicence to the entity being audited. D. The timeliness of such evidence. ·.
72.
A uditors may use positive and/or 'neg ativ e forms of confirmation requests . most likely will use
An a ud ito r
A. The negative form for small balances. B. The positive form, when the combined ass�!SSed level of inherent an d control risk �r .related assertions is accepta bly low, an d tne neg ative form when it is unacceptably h ig h. C. The positive form to confirm all balances re�.ardless or size. D. A combin a tion of th e two forlJlS, with the .)ositive form used for trade balances and the negative form for other balance��.
7 3 . To reduce the risks associated with accepting Nx responses to requests for confirmations of accounts receivable, an auditor mo.st likely w.)uld A. I nsp e ct the faxes for fo rge ri es or aiteratiu is and consider them to be acceptable if none are noted
B.
Consider the faxes to be non response5 c.nc �val uate them as u nadj usted di fferen ces. .
Verify the sources and contents of tne faxes. in teleph0ne calls to the.senders. D. Examine the shipping documents that proviu2,evit1ence for the existence asserti on .
C.
74. W hich of the following statements is incorrect ·, L The auditor shall determine w he&. er, on trie basis
of"t:he
audit work performed, the
auditor has identified one or more deficienci =s in internal co ntrol .
II. If the auditor has identified one or more creficiencies in inte rna l control, the auditor shall determine, on the basis of the audit 1r1ork performed, whether, ind ivi d ual ly or in combination, they constitute significant deficiencies. m. The aud itor shall communicate, orally ar in w�i ti ng , significant deficiencies in internal control identified during the audit to those c iarged with governance on a timely basis. C. m only. A. I only. D. Ai of the above. II o nly . B. •
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Audit efficiency may ne i m proved when the � am piing unit is defined as the i ndividua l monetary units that comprise the popu l ation . ·r his technique is called C. S· 1stematic selection A. Stratification B.
76.
Rand om selection
D:
In planni ng a statistical sample for a test of c< in�rols, an auditor increased the expected population deviation rate (EDR) from :he pnrn ,.-ear'�. rate because of the results of the prior year's tests of c0ntrols and tne overall. co1 1vo1 environm ent ! l� auditor most likely would then increase the planned A. Risk of assessing control risk too low B. Sample size ·
n.
V ll ue -weig hted selection
Which of the following statements is correct
controls?
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C. A:lowance for sampling risk D. T.)lerable deviation rate ·
:on cerni ng statistical sa mpling in tests of
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I CPAREVIEWSCHOOLOFTHEPHILIPPINES(CPAR) A.
B:
ATPW-7501·
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In determining the tolerable rate, an a ud i�:? r considers detection risk and the sample size. Deviations
from
specific control
misstatements at a lower rate.
activities
at a
given
rate
ordinarily
result
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C. As the population size increases, the sample size should increase proportionately. D. There is an inverse relationship between che expected population deviation rate and the sample size.
78. The firm shall obtain written col'lfirmation of :ompliance with its policies and procedures on independence fro m all firm personnel required to be independent by relevant ethical requirements
A. At least annually B.
At least monthly
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C. At h!ast semi-annually D. At t:1e completion of each engagement
79. On January 21 2015, the TANYA co. receivt�d a notice from its primary suppliers that effective immediatelv all wholesale prices would be increased 10%. On the ba�is of the
notice, TANYA revallled its December 3 1 , 201-l inventory to reflect the" higher costs. As a result, the statement cf financial position ref!eCts inventory stated at an amount higher than its net realizable value. The invento� constituted a material proportion of total . assets; however, the effect of the revaluaticx1 was mat�rial to current assets but not ta· . total assets or net income. In reporting on the company's financial statements for the year ended December 31, 2014, in which inVE!ntory is valued at the adjusted amount, the auditor would most likely
.
A.
Express an unmodified ·opinion . provided the nature of the adjustment and the amounts involved are disclosed in notes to the financial statements. B. Express a qualified opinion. C. Disclaim an opinion. •
D . Express an adverse opinion.
80.
SAMANTHA APARTMENTS CO. completed construction and began to lease a 100-unit apartment on May 28, 2013. During June, 50 units were leased, and an additional 30 u nits were leased in July 2014.
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During the month o1 May 2013, the company charged to expense P46,000 for the cost of advertising, a grand opening party, and tl'e advertising agency fee for planning the · campaign. At December 31, 2014, the statement of financial position reflected Pl75,000 of initial d irect costs incurred by the company including commissions and legal tees paid in negotiating the lease. These initial direct co:.ts are ·shown as· ah''at:ldition to the carrying amount of the leased asset and is being recognized as an expense over the term of the
lease on the same basis as the lease income.
During your audit of the company's financial !;tatements for the year ended December 31, 2014 (conducted i n accordance with PSAs), no facts other than those described abov.e came to your knowledge that would cause your opinion to be other than that the financial statements were presented fairly in accordance with Philippine Financial Reporting
•
Standards.
n? What type of opinio n should your report contai C. A disclaimer of opinion. A. An adverse opin ion D . A qualified opinion. · s. An unm odified opin ion
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CPA REVIEW SCHOOL OF THE PHILIPPIN ES M
AU DITING THEORY
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ATPW-7502
a
CPA Review
1. Which of the following procedur� s is ordinari 1 1 performed by a n accountant during an
engagem ent to compile the financia l stateme nG of an entity? A. Make inquirie s of the e mployees and senior management regarding transactions with related pa1ties.
•
B. Determine whether there is substantial aouc t about the entity's ability to continue
c1s a
going concern. C . Scan the entity's records for the period iu� t after the balance sheet date to tdentify subsequent events requ ring disclosure.
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D. Consider whether the financial statements
2. Which of the followinq describes how the ob1: •ctive of
2 ·review of financial statements differs from the objective of a compilation eng 1 1ement? A. The primary objective of a review engagement is to test the completeness of the financial statements prepared, but a com pi I;;. tion tests for reasonableness. B. The primary objective of a review ·engagement is to provide positive assuranc;e that
a
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the financial statements are fairly pre£ented" but a compilation provides no such assurance.
C. In a review engagement, account�nts pro•11de limited assurance, but a compilation expresses no assurance. D. In a review engagement, account�nts provide reaso nable or positive assurance that the fi nancial statements are fairlv preser ted, but a compilation provides limited assurance. 3.
Which of the following procedures is usually the first step in reviewing the financial statements of an entity? A.
Make preliminary Judgments about risk ar.1 i materiality to determine the scope and
nature of the proCE'.dUieS to be perk rm�a.
B.
Obtain a general understanding of. tt1P. characteristics, and its products or servi<:es.
entity's
or�an1:.!alion,
its
operating
C. Assess the risk of material misstatement ans1ng from fraudulent financial reporting and the misappropriation of assets .. D. Perform a preliminary assessment of the o!Jerating efficiency of the entity's interrral control activities. •
4.
During an engagement to review the financi c:I statements of an entity, a practition�r becomes aware of a material departure from Pi=RS. If the practitioner decides to modify the review report because management will not revise the financial statements, the practitioner should Express negative assurance on accounting principles not conforming with Philippine
A.
B.
C.
Financial Reporting Standards. · Express positive assurance on Financial Reporting Standards.
accountii·i �
principres conforming
with
Philippine
Express a qualified opinion. D . Express a qualification of the riegative ;1ssurance provided or give an adverse statement that the financial statemeni:s i !re not presented fairly, in all material respects, in accord:.mce with Philippine Fina1'cial Repon:ing Standards.
5.
· use?
Which
A. B.
C. D.
of
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the following pmspective financial ST f}te�nts
Financial forecast
Yes Yes No No
Financial project10.1•
'(es
is(are) appropriate
for general
No: · Yes No
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CPAREVIEW SCHOOLOFTHEPHILIPPINES(CPAR1
ATPW-7!"ill2
Prior to commencing Held work, an auditor usually discusses the general audit strategy with the client's management . Which of the following details do management and the auditor usually agree upon at this time? A. The specific matters to be included i.n the.communicatio n with the audit committ e. B. The minimum amount of misstatements that may be considered to be reportable
6.
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conditions.
C. The schedules and analyses that the client's 5taff should prepare. D. The effects that inadequate controls may ha11e over the safeguarding of assets.
7. Tracing· copies of computer-prepared sates i.woices to copies of the corresponding computer-prepared shipping documents provide ; evidence that: A. Shipments to customers were properly billed
B. Entries i n the accounts receivable subsidiary ledger were for sales actually shipped. C. Sales billed to customers were actually shipped. D. No duplicate shipments to customers were rnade.
8.
Restrictions imposed Gy a client prohibit t:hf: c. bser1atior1 of phy.S i ffi account for 35% of all assets.
Alternative
o
aud,f procedures
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inventories, which
cannot 6e applied, although
the auditor was able to examine satisfact ry evidence for all other items in the financial statements. The auditor should issue a(an) A. "EXcept for" qualified opinion. • B.
•
Disclaimer of opinion.
C. Unmodified opinion with a separate Emphasis of Matter paragraph. • D. Unmodified opinion with an explanation in the Auditor's Responsibility paragraph.
9. A client decides not to make an auditor's prop1 >sed adjustments that collectively are not material, and wants the auditor to issue the r �port based on the unadjusted numbers. Which of the following statements is correct regarding the financial · statement presentation? A. The financial statements are free from material misbtatement, and rlo disclosure is 1 required in the notes to the financial statemmts.
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B. The financial statements do not conform witri PFRS. C. The financial statements contain· unadjustE:d misstatements that should result in ·a
10
qualified opinion. D. The financial statements are free f.-om ma0:erial misstatement, but disclosure of the proposed adjustments is requi red in the notE·S to the financial statements. .
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An auditor concludes that there is a mate�ial in. :d11sistency in the other information in an annual repon: to shcireholders containing aL.dited financial statements. The auditor
p
believes that the financial statements o not re � 1uire- revision, but the client is unwilling to revise or eliminate the material inconsistenc> in the ofher information. Under these
circumstances, what action would the auditor m•)st likely take' Consider the situation closed because the other information is not in the audited
A.
financial statements.
Issue a n "except for" qualified optt1ion "aft<�r discussing the matter with the elient's audit comm ittee . . c. Disclaim an opinion on the financial st3tements after explaining the material r" p<1rag raph. inconsistency in a separate "other matte separate "other matter" paragraph describil°lg a include to report auditor's o. Revise the y. tenc nsis the .material inco B.
11.
audit, an audito r is revi£!W i�g the evidence gathered. in support of At the conclu siOn of an . val uation of i nventory, the auditor concludes · I s tatements With regard to the . , . the finan oa ment s representations. d is not sufficient n1 support manage obtaine e ·d enc eVI t ie t t tha . r mo., t i·ke1Y. to ta ke/. . aud 1t ons is the . . Wh ich of the follo win g acti mer of pini on. mittee and issue '' d!scla� com it aud the with sult A. Con . e , 1 qua lified op1 rno n. 1 com mittee ar.d issu B Con sult with th e aL.: d't tdr"y • ••·• on f · h v nce reg a rd Obtain add itio nal evide t e ento aluation. g a g e "' n ....� p D. Obt ain a statement from man ·
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CPAREVIEW SCHOOLOF THE PHILIPPINES(CPAl{1
12:
ATPW-7 :illt
After testing a client's internal cont 0l activtties, an auditor discovers a numbe r of significant deficiencies in the operation bf " dient's internal controls. Under these • circumstances the auditor most likely would . , A. Issue a disclaimer of opinion about the interial controls as part of the aud1 or s repo . B. Increase the assessment of control risk and increase the extent of substantive tests. C. Issue a qualified opinion of this finding as P"rt of the auditor's report.
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D. Withdraw from the audit because the i nterr.;il controls are ineffective.
13.
of When an auditor tests the internal controls of e: computerized accounting system, whicll the following is true 01· the test data approach / .. A. Test data are coded to a dummy subsidiary so they can be extracted from the sysLem under actual operating conditions. B. Test data programs need not be r_c: llor-mJCJ � by th� auditor. for •
e;�ch
,
client's computer
• applications. • . C. Test data programs usually consist of all po�;sible valid and invalid conditions regarding compliance with internal controls. . D. Test data are processed with the c1ient's computer and the results are compared w1.th the auditor's predetermined results.
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14. An audit supervis �r reviewed the work perforned by the staff to determine if the audit was adequately performed. The supervisor acccmplished this by primarily reviewing which of the following? C. I\ 1 a lytica l procedures. A. Checklists. D. F•nancial statements. B. Working papers.
15.
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In which of the following circumstances is sJbstantive. testing of accounts receivable . before the balance sheet date most ap�ropriate � A. The client has a new sales incentive progra�1 in place. B. Internal controls during the remaining period are effective. C. There is a high turnover of senior m anage m c:n t. D. It is 2 first engagement of a new client.
16. W hi ch of the followiny matters is an auditor ,·�quired to communicate.to those charged •
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with governance? • ' A. Adjustments that were suggested by t:he .�uditor and recorded by management i:hat have a significant effect on the entity's finar. c1al teporting process. B. The auditor's consideration of · risk fad ors in a�essing the risk of material misstatement arising from the misappropria1 JOn of assets . C. The results of the auditor's a nal yti ca l proce( lures performed in the review stage of th"e engagement that indicate significant variances from expected amounts. D. Changes in the auditor's preliminary judgm �nt about materiality that were cal.l.5ed by projecting the results of statistical sampling ror,tests of transactions.
17. Which of the fol lowing strategies mo$t l i kely could im prove the response rate of the confirmations of accounts receivable?
A.
l8.
Restrict the selection of account:.; ro be
• :o n
fi rm e d to those customers with large
balances. B. Include a list of items or invoices thut consti :ute the customers' account balances. C. Explain to customers that discrepancies wi!I be investigated by an independent th ird party. D. Ask customers to respond to the cu nrl r ma ti c n requests directly to the auditor by fa>:. A CPA
firm is compleung the fieldwor;. for an ::udit of Sweden Co. for the c urrent year 31. 1-h e manager in ch a rge or. the audit: is perform�g the final steps in
ended December
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the ev_idence accumulat_ion phase of the audit and notes that there have been · several �h� n ges in Swed en during the year under a1 1dit. Which of the following items would · md1cate there could be substanti�I doubt about Sweden's ability concern for a reasonable period of time: ? A. Cash infusion by a venture capital firm . B . Recurring �o :king capital shortage� . C. A lack of significant contracts with n ew cu stn mers. Page ;:; of 12 P;1 �es
to continue as a going
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• • ! .� .
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D. Term debt refinanced with a new bank.
19. Which of the following procedu res would an "auditor most likely perform in o btaining . •
evidence about subsequent events? A. Examine changes in the quoted market pric:!s of investments pu rchased since the year end. B. Compare i:he latest available interim financi.�1 information with the fi nancial state me nts being reporte d u pon . . C. Apply analytical procedu res to the deta i l� of the balance sheet accounts that vvere tested at interim Oates. D. Inquire about payroll checks that were rewrded before the year end but cashed after the year end.
20.
On March 1, Gu an zon , CPA, expres sed an unm odified opinion on the fin a n c ial sta teme nts of Apex Co. On July l, Guanzon's internal inspection program discovered that engagement personnel failed to observe Apex's physical inv1?ntory. Guanzon believe s that this qmission impairs Guanzon's ability to support the un ,11odified opinion. If Ap�x's creditors �re cu rrently relying on G uanzbn 's opinion, G1,Janzo.� t>pould first: A. Request Apex's management to com rn un io te to its creditors that Guanzon's op i n i on should not be relied on. B. Reissue Guanzon's auditor's report with a,1 " other matter" paragraph describing the · depa rtu re from PSAs. •
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C. Undertake to apply the al tern ative procedures that would provide a satisfactory ba!:ois for Guanzon's opinion. D. Advise Apex's board of directors to·disclose this development in its next interim report.
2L A client is a defendant in a patent infrtnge ;,ent lawsuit against a major competitor. Which
of the following items wou ld least likely be i 1cluded in the attorney's response to the auditor's letter of inquiry? A. A de�cription of potentia l litigation in other natters or related to an unfavorable verdict
in the patent infringement lawsuit . A discussion of case progress and th•! stra!egy currently in place· by client management to resolve the l awsuit. C. An evaluation of the probability of loss and a statement of the a mo unt or range of loss if an unfavorable outcome is reasona bl y po! ;si bl e . D. An evaluation of the abil ity of the client to con ti nue as a going concern if the verdict is . unfavorable and maximum damages are av' ard ed . B.
22.
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.rn assessing the competence of internal quditors, an independent CPA most likely would obta in inform atio n about th e : A. Influence of management on the scope of tne internal a ud itors' d uties. B. Policies limiting internal audito�s from communicating with th e audit committee.
c. Qual ity of the internal auditors' working pai:er docum entat io n . D. Entity's abil ity to continue as a going concern for a rea son ab le period of ti111 e.
23. A client maintains a large data center where 3ccess is iimited to authorized employE!'es. How may an auditor best determine the effectiveness of this co ntrol a ctivity? A. Inspect the policy m anual establishi ng this control activity. s. B. Ask the chief technology officer about known problem ored. is c. Observe whether the data center monit loyees. er emp cent data nt e curr of list a D. Obtain ·
24.
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vou�her is sub;nitted and pa id only once, an. auditor ��st To provid e assurance that each of pa1cl voucher�. and determ ine whether each voucher 15\ li kely would exa m i ne d sample check sign er. A. Stamped "pa id" by the rs pay able departmrnt. che vou the B. Retu rned to order. r's invoice and purch2se C. Supported by a vend o ted for. • D. rren u m be red and accoim , · t a possible understatement of . . test of details. is . to detec If the obJect1ve of an aud '1tor ' s s fron: th e.. uld tr:a ce tran s: i ct1o n sales, the aud ito r most likely wo Page 4 of 12 P<1ges
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CPAREVIEWSCHOOLOFTHEPHILIPPINES (CP
ATPW-7502
AH1
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Sales invoices to the shipping documents.
A.
B. Ca�h :eceipts journal to the sales journai.
C. Shipping documents to the sales invoices.
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D. Sales journal to the cash receipts journal.
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26.
Which of the following circumsta ces would permit a n independent a uditor to accept a n engag emen t after the dose of the fisca: year? A. Issuance of a disclaime r of opinion as a r·=sult of inability to conduct certain tests
required by generally accepted auditing sta1 1dards due to the timing of acceptance f>f the engagement.
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Assessment of control risk below the maximt1m level.
B.
C. Receipt of an assertion from the precedin � auditor that the entity will be zible to continue as a goin9 concern.
Remedy of lim itations resulting from accepti n�· ttie engagement after the close of the
D.
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end of the year, such as those relat:ng to th·� existence of physical inventory.
!n a financial statement audit, inherent �-?sk is the following?
•
e� aluated to
help an auditor assess which of •
A. The internal audit department's objectivity n reporting a material misstatement of a financial statement assertio n it detects to th1! audit committee. B. The risk that the internal control system· wi I not detect a material misstatemel'lt of a financial statement assertion.
C. The risk that the audit proceciures irr plemented will not detect a material misstatement of a rinanciat statement assert on. D. The susceptibility of a financial statemert assertion to a material m isstateme0nt assuming there are no related controls.
;�s.
Which of the following factors is most reieva11t when an auditor considers the cl ient's organizational structur0. in the context oi' cont;c.: risk?
A.
Management's attitude toward infor1nat1on p-ocessing and accounting departments.
B. The organization's recruiting and hiring prac1 ices. C. Physical proximity of the accounting functior to upper management. D. The suitability of the client's lines of reportai � · •
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29. · Which of the following statements mos( likely \/11ould be included in an engagement letter from an auditor to a client? A. The CPA firm will provide absQlute assurance about whether the financial statements
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are free of material misstatemel'lt. B. The CPA firm is responsible for ensuring that 'the diem complies with applicable laws. C. The CPA firm will involve information techr1ology experts in the performance of the
audit. D. The CPA firm will adjust the financial sta::ements to correct misstatements befo�e issuing a report.
30. Which of the following represents an inherent lin itation of internal controls? A. Bank reconciliations are not per-formed on a :imely basis. B. The CEO can request a check with no ourchc:.se order. · C.
Customer credit
checks are
not perform ed.
D. Shipping documents are not matched to sale:> invoices. •
31. An auditor's tests of controls for con�pletene:;s for the revenue cycle usually include determining wnether: A. Each receivable is collected subsequent tei tl 1 2 year end. B. An invoice is prepared f�r each shippinQ doo 11Vent.
·c. Each invoice is supported by a customer purr:ha"se orde:. D. Each credit memo is properly approved.
32. An auditor is testing the reasonableness of div1c;end income from investments in publicly . .
.
held companies. The auditor most likely would compute the amount that should have been received and recorded by the cliem by: A. Reading the details of the board of directors' meetings. Page � of
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e. Confirming the details with the investee corr panies' registrars.
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C. Electronically accessing the details of divider;d records on the Internet. , D. Examining the details of the client's most recent cutoff bank statement.l
33: An auditor who uses the work of an ex'pert ma�' refer to the expert in the auditor's.report if the:
· A.
Auditor bel ieves that the expert's findings ar� reasonable in the circumstances.
B. Expert's findings support the related assertirns in the financial statements.
C. Auditor modifies the report because of the difference between the client's and the expert's valuations of an asset. D . Expert's findings provide the auditor" wit1 greater assurance of reliability about management's representations.
34 . . In attri bute sampling, a 25% change in which of the fol lowing factors will have the smallest effect on the size of the sample? A. Tolerable rate of deviation . B. Number of items in the population. C. Degree of assurance desired.
35.
•
0. Planned assessed level of control risk.
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As a result of sampling procedu,es applied a�; tests of controls, an auditor i ncorrectly assesses control risk higher than a11propriate. l11e most likely explanation for this situation is that : ·
A. The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate.
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B. The deviation rate in the auditor's samp!e e>:ceeds the tolerable rate, but the deviation . rate in the population is less than th� to:erable rate . C. The deviation rates of both the auditor's sample and the population �xceed the tolerable rate. ·
D. The deviation rates of both th� auditor's sample and the population are less than the tolerable rate.
36.
For which of the following audit tests would a CPA most likely use attribute sampling? A. Identifying entries posted to incorrect accow1ts. B. Estimating the amount in an expense accour1t. .
C. Evaluating the reasonableness of depreciaticn expense. D. Selecting receivables fo r confirmation of aw ;unt balances .
37 . • The blank form of acco unts receivab:e
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confirmations rnay . '
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be less efficient than the
positive form because: ft.. . Shipping documents need to be inspected. B. Recipients may sign the forms without: propEr investigation. c. More nonresponses to the requests are likely to occur. D. Subsequent cash receipts need to be verifiec . •
38.
.
An accountant agrees r.o the client's request. to i:ha nge an engagement from a review to a . compilation of financial statements. Thfl compilation report should include: . A. No reference to the origin al engag ement:
Reference to a depa rture from PSP..s . . c. scope l i mitations that may have resulted in the change of engage ment. y perfor med. D. Inform ation about review procedures alread B.
prede,�essor auditor should include questions 39. A successor auditor's inquiries of the
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regarding: · 1·ty 1 . . · dgment a bo�t ma tena a n JU 1t n�k . A. The predecessor's evalu ation of au? , s audit rep rt wa issued. essor edec p ;:he � s1.nce � red occur that ts even B. Subs eque nt as to the r
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take in response to discoverin g a � �ditor of the follo wing actions shou ld �eviation from the prescribed cont:ol procedure ·
Which
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ATPW-7502
Make inquiries to understan d the p r�nti � i :: msequerice of the deviation . Assume that the deviation is a n isolated "occurrenc without audit significance. e
B.
C.
�
Report the matter to the next higher level
D. I ncrease sample size of tests of controls.
o t authority within the
entity.
·ll . Which ·of the following events least likely would indicate the existence of related party transacti ons? •
Ma ki ng a loan with no scheduled date for tb: funds to be repaid. B . Ma inta in ing compensati ng balance arrar.gements for the benefit
A.
of principal stockholders. C. Borrowing funds at an interest rate siqnificar :tly below prevailing ma rket rates. D. Writing off obsolete inve nto ry to rn:::: rea!:zc;� !?. value just before year end.
• ! •ti • • 42. Which of the following factors is most Hkely° to affect the extent of the documentation of •
the auditor's understa nding of a client's system -)f internal controls? A; The industry and the business and regu. atory environments in which the client • operates. • B. The degree to which information technology is used in the accounting function.
C. The relationship stakeholders.
between
management,
board
the
of di rectors,
aCld
external •
D. The degree to which the auditor intends to use internal audit personnel to perfor'm substantive tests.
43. Which of the following procedures is considered a test of controls?
A. An auditor reviews the entity's .check reg1stE:1 for unrecorded liabilities.
B. An auditor evaluates whether a g2neral j«urnai ent.-y was recorded at the proper amount.
C. An auditor interviews and observes o-ippropri3te personnel to determ ine segregation of duties. D. An auditor reviews the audit workpapers to E nsure proper sign-off.
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Which of the followino would be a c onsider;icion in planning a sample for a test
44.
subsequent cash receipts? • A. Preliminary judgments about materiality leve·s� . • • B. The amount of bad debt write-offs 1n the pm1r year.
C. The- size of the intercompany receivoble bala Ke. ·
' " · The auditor's allow;:ible risk of asses::;i:ig
conirol
risk is
too
of
low.
45. An auditor reconciles the total of the acc ou nts r =ceivable subsidiary ledger to the general ledger control account as of October 3l, 20XJ .
· most likely to learn
which of the followirig?
•
By this procedure the auditor would be
A. An Qc(Qber invoice was improperly comP'Jte:•. • · B. An October check from a custome'r was r-osted in error to the account of another customer.
c. An opening balance in a subsidiarJ iedger account was improperly carried forward
from the previous accounting period.
46.
D. · An account balance is past due and shoold b·= written off.
Auditors try to identify pred i ctab le r�lationsh1p3 when applying analytical procedures. Relationship involving transactions from which o : the following accounts most likely would yield the highest level of evidence? A. Interest ex�nse. B. t-.llowance for doubrful accoun�'; .
47.
management management representation letter?
Which
of
the following
Ac :ounts receivable.
C.
:.:.. f.I• �0unts payab!e. .
. . ' ··=·
roles ·-.vould typically be acknowledged · i n a
A. Management has the responsibility h.'r the d�sign of controls to detect fraud. B. Management_ communicates its \Aiews on eth11:al behavior to its employees.
C. Management's knowledge of fraud is comrnu1 1!cated to the audit committee. D. Management's compensation is contingent ur•on operating results.
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What type of evidence would provide the h i�1nest levei of assurance in an assurance engagement?
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A.
Evidence secured solely from within the enti':y . .
C.
Evidence obtained indirectly.
B.
Evidence obtained from independent source:;.
D. Evidence obtained from multiple internal inqJiries.
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ATPW-7502
49. Which of the following procedures wouid
be m ost appropriate
completeness assertion as it applies to inventOI''?
for testing
the
A. Scanning perpetual inventory, production, and purchasing records. B. Examining paid vendor invoices. C. Tracing inventory items from the ti.lg listing Dack to the physical inventory quantities. · D. Performing cutoff procedures for shipping ilr.1d receivi n g . •
50. Whi c� of the followin�1 activiti=s perforr.iec! by . 1 department supervisor most likely would help in the prevention or detection of a payroll t rauc1? A. Distributing paychecks directly to de::iartmer t employees. B. Setting the pay rate for .departmental emplo• 1ees . •
C.
Hiring employees and authorizing them· to
b1! �dded
.
.
to payroll .
D. Approving a summary o f hours each er:iploy-:e worked during the pay period.
51. An auditor is concerned about a policy �If i!ian� gement ove rride as a limitation of internal
control. Which of the following tests would oest assess the validity of the auditor's concern?
A. Matching purchase orders to accounts payat le. B. Verifying that approved spending limits are not exceeded. C. Tracing sales orders to the revenue account. • D. Reviewing minutes of board meetin s. •
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�i2. When an auditor plans to rely on controls that ·1ave changed since they were last teste d, which of the following courses of action wouid be most appropriate? A. Test the operating effectiveness of s u ch· ccn:rnls in the current audit. B. Document that reliance and proceed with th1! original audit strategy. C.
S3.
55.
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Inquire of management as to the effectiveness of the controls.
D. Report the reliance in the report on internal :ontrols.
In whicfl of the following circumstances wouic1 an auditor expect to find that an entity
im plemented automatE:d controls to reCi uce risk; ol misstatement? ! •1 1• A. When errors are difficult to predict. B. When m isstatements are difficult to define. c. When large, unusual, or nonrecurring transactions require judgment. D. When transactions are high-vok.Jme and rect.: rring. •
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Which of tile followin�1 explanations best describes why an auditor may decide to reduce objective? tests of details for a particular audit soon aft�r the :)alance sheet date. A. The audit is being performed ced in performing thf planned proced ures. B. Audit staff are experien s have revea l ed no unusJ al or unexpected results. C A lytical -1roce dure ns posted to the account during the period. re wer ma ny transactio 0·.
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monthly statements to a client's customers and - the mailing· of 1 or o bservPS An au d·t errors re porH d by th e customers. Th.1s test of contra 1s . · "2 of follow-up on rev1e�c" evi.d enc manag eme11�'s financial statement assertions of: . med to support . most likelv 1s pe 11or Existence or Presentation occui·rence and disclosun� Yes Yes A. No Yes B. •
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D.
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56. When a company's stock record books are maintained by an outside registra r or tran;fer agent,. th e auditor should obtain confirmation from the registrar or tran sfe r agent concerning the: A. Amount of divid ends paid to relate d parti es. B. Expected proceeds from stock s ubscri o ion s receivable. t C. Numb er of share s issued and outsta nd i na . D. Proper authorization of stock rights and �arrants. •
57
Which rn= the foll ow i ng outcomes 1s internal control?
·
t1 likely t ·eneftt •
•
of information technology usec for • • • •1:• •
·A. Processing of unusual or nonrecurring trans :ictions. B. Enhanced timeliness of information. C. Potential loss of data.
D. 58.
Reco rd i ng of unauthorized tran�actions.
When an auditor has substantial douot about: an entity's ability to continue as a going
concern because of the probable discontinua.1Ce of operations, the auditor most likely would express a qualified opinion if:
A. The effects of the adverse financial conditio 1s likely will cause a bankruptcy filing. B. Information about the entity's ability to cont inue as a going concern is not disclosed. C. Management has no plans to reduce or del<1y future expenditures. D. Negative trends and recurring·operating los!ies appea: to be irreversible.
59. An auditor plans to apply substantive tests to r.1e details of asset and liability accounts as
of an interim date rather than as of th e balanc :l sheet date. The auditor should be aw8:re • that this pra ctice : A. Eliminates the us1?. of certain stat!Stical sampling methods that would otherwise be available.
B. Presumes that the auditor will repe�forrn chi ! tests as of the balance �heet date.
'
. C. Should be especially cotisidered when �here .ar� rapidly changing economic conditions. D. Potentially increases the risk that error� th 1t exist at the balance sheet date will not be detected. ·
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60. A practitioner's report on agreed-upon procedures that is in the form of procedures and findings should contain:
A. Negative assurance that the procedures c:id not necessarily disclose all reportable
conditions. · B. An acknowledgment of the practitioner's responsibility for the sufficiency of the procedures. C. A statement of restrictions on the use of thE report. D. A disclaimer of opinion on the entity's financial statements. •
•
•31. Which ·of the followin9 statements is corre.c:t about the sample size in statistical sampling
when testing internal controls? A. Tue auditor should consider the tolerable rate of deviation from the controls bei°ng
tested in determining sample size. B. As the likely rate of deviation decreases, the auditor should increase the planned sample size. C. The allowable risk of assessing control ri�k too low has no effect on the planned sample size. • • ••=• . D. Of all the factors to be considered, th� population size has the greatest effect-on the sample size.
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62. Which of the following factors would • most likely be considered an inherent limitation to an entity's internal control?
A. The complexity of the information processin•1 system. B. Human judgment in the decision making precess. C. The ineffectiveness of the board of directors. D. The lack of management incentives to imprc ve the control environment.
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63. A successor auditor is required to attempt c;m m1..1 nication with the predecessor auditor ' •
· prior to: A. Performing test ot controls.
·:
B. Testing beginning balances for the current ·1ear. C.
Making a proposal for the audit engagemert.
D. Accepting the engagement.
64:
Which of the following is an i nherent limitation in internal control? C. faulty human judgment. A. Incompatible duties.
B. lack of segregation of duties.
65.
D. Lack of an audit committe e.
An auditor's engagement letter most likelywould indude a statement that: A. lists potential significant deficiencies d iscovered during the prior year's audit.
B. Explains the analytical procedures that the .1uditor expects to· apply. C. Describes the auditor's responsibility to eva · uate going concern issues. D. limits the auditor's responsibility to detect 1?rrors and fraud.
66 .
Which ol' the followinq factors most lii-:eiy woLld cause a CPA to decline to accept a new · ! •1:• audit engagement? •
· A. The CPA does not understand the entity's cperations and ind ustry. B. Management acknowledges that the entity •1as had recurring operating losses. .
•
C. The CPA is unable to review ttie predecessc•r auditor's working papers. D. Management is unwilling to permit inquiry its legal counsel.
o'.
67.
As a result of tests of controls, an auditor as>esses control risk too high. Zhis i ncorrect
assessment most likely occurred because:
•
A. Control risk based on the auditor's sample :S less than the true operating effectiveness of the client's control activity.
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B. The auditor believes that the control activity relates to the client's assertions when, in fact, it does not. ·
C.. The auditor believes that the controi activity will reduce the extent of substantive testing when, in fact, it will not.
D. Control risk based on the auditor's sar,1 ple is greater than the true operating effectiveness of the client's control activity.
68. An auditor's report on financial statements prepared in accordance with the financial reportin9 provisions of a contract (that is, a � pecial p urpose framework) to comply with the provisions of that contract should incluc!e o .I of the following, except •
A. An opinion as to whetner the financi �I staif!Qle11ts are presented fai rly, in a l l material respects, in accordance with the financial n�po'rting provisions of the contract. B. A statement that indicates the basis of acc(unting used. c. An opinion as to whether the basis of ;iccounting .used is appropriate under the circumstances. o. Reference to the note to the financial statements that describes the basis -0f presentati on.
. 69·.
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When an auditor reports on financial state r;ien-:s � repared on an entity's income ta'x basis, the audi tor's report shou ld financial statements. A . . State the basis of presentation of the whether the statEments were examined in accordance with B. Disclaim an opinion on s). (PSA Phili ppin e Standards on Audi ting . . t�e statements are presented in accordance with whether on opinion an c. Not express . the tax basi s of accounting used results of operations differ from the cash receipts the how of ation explan D. Include an accounting . and disb ursements bas is of •
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70.
rental and royalty income of an to express an opinio n on the Whe n an auditor 1s requested entity, the audit or may wiil coll)ply yvith relevant ethical provided the <: uditor A. Accept th e en� agen:i en t ndeno'? '·�elating to fjnancial indepe to • those pertain ina · require · me nts, inc lud ing au dit. the to t van • rele s ts an d a 11 PSA stateme nt aud it eng age men .
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B. Accept the engagement provi'1ed d1stributicn of the auditor's report is limited to the entity's mana geme nt.
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C. Not accept the engageme nt uniess also en(.aged to audit the full financial stateme nts of the entity.
·•
D. Not accept the engagement because to de so would be tantamount to agreeing to express a piecemeal opinio n.
71 .
•
An auditor has i den ti fie d the controller·:; revie� of the bank reconciliation a s a control to test. In connection wi-ch this test, the auditor !11terviews (he controller tu understand the • specific data reviewed on the reconciliation. In 3d�ition, the auditor verifies that the bank reconciliation 1s properly prepared by the accc;�ntant and reviewed by the controller as evidenced by the i r respective si gn -offs. Which )f the following types of a udit p roced u res (lo these acti o ns il lustrate?
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A. Observation and inspection of records. B . Confirm ati on and reperformance. C. Inquiry and inspection of records.
D. Analytical procedures and reperforrriance:
7 2. • Wh ich of the following is least likely to uncover iraud? A. External auditors B. Internal auditors
C.
lr temal co ntrols
D. M 3nagement
".73. Two overriding considerations affect the man y v •ays an a u d itor can accumul ate evidence: 1. Sufficient appropriate evidence must b1� accumulated to meet the auditor's professional responsibility.
2. Cost of accumulating evidence should be mmimized. In evaluating these considerations.
The first is more 1mpon:ant !:han the :.,:(:c. ric
A.
The second is more important than the Wst.
B.
74.
t. They are equally important. D. It is impossible to prioritize them.
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Wh ich of the following is not ordinarily perform�d in response to the risk of managem erit override? A. Evaluating the rationale for significant unusual transactions. B.
C.
Observe counts of inventory at all locations. Review accounting estimates for bia::;.
D. Test appropriateness of journal entries and < djustments.
75. In aud i ting an entity's computerized payroll tra11sactions, an auditor would be least likely to use test data to test controls concerning:
A. Overpayment of employees for hours riot worked. B.
Control and distribution of unclaimed checl<.$.
C. Withholding of taxes and Social Security rnrnributions.
i'6.
D. Missing employee identification numbers.
An auditor established a P180,000 tole rab l e rn sstatement for an asset with an account
th
The auditor selecte:; a sample of every 20 item fr�m the balance of P3,000,00l1. .m t. balance and d iscovered a net population that represented the asse� acm1
· overstatement of Pl0,500 { P l l , 100 overstatem� :it:S minus P600 understatements). Under these circumstances, the auditor most l!kely wo�ld conclude that A.,. The asset account is fairly stated iiecause o,e toierable. misstatement exceeds the net
of projected actual overstatements and unde rstatemerns.
B. The asset account is fairly stated because th � total projected misstatement is less than the tolerable misstatement. C. There is an unacceptably high ris k. th at . tl11! actual misstatements in the population
exceed the tolerable misstatement ::iecause the total projected misstatement exceeds the tolerable misstatement. D. There is an unacceptably hig h risk that the tolerable misstatement is more than the sum of actual overstatements and understatl!ments. •
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77.
ATPW-7502
PSA 800 applies to
A.
Review engagements
B. Agreed-upon procedures engagE!ments C. Compilation engagements D. Audit
of financial
statements
accordance
prepared i n
with
a
framework.
78. In an audit of special
purpose financial
the
st:itements,
auditor
i p
s ecial
shall
purpose
obtain
an
understanding of I.
The purpose for which the financial statern1�nts are prepared.
IL
The intended users.
lll.
•
The steps taken by manage m e nt to d etern 1 i n e that the applicable financial reporting •
framework is acceptable in the circumstanc-es.
A. I and HI only
c. I, II, and III D. i : nd II only
B. II and III only
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79. Whenever a report, fi l ed on a printed form designed by authorities, calls upQn t:he independent auditor to make an asse n:io n i:hat the audiror believes is riot justified, the • auditor should
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A. Withdraw from the en gag ement. B. Su bm i t the form with q uestionab l e item!:i dearly omitted . G. Reword the form or attach a separate report'. •
D. Submit a standard report with explanations.
80.
An auditor may express an opinion on an entity s accounts receivable balance even if the
. auditor has disclaimed an opinion on the financ,af statements taken as a whole provided the
·A. Report on the accounts receivable is pres·�nted separately from the disclaimer of
.
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81.
opinion on the financial statements. B. Auditor also reports on the cu rre nt asset port i o n of the entity's balance sheet. C. Use .of the re port on the accounts receivable :s restri cted . D. Report on the accounts receivable discloses tne rea:mr. for th e disclaimer of opinion on the fin anci al state m ents .
An auditor may accept an engagement to report on summary financial statements in
accordanc.e wi t h PSA 810 only when
A. The auditor has been engaged to conduct m audit in accordance with PSAs of the financial statementr. from which the sumrn
c. Auditor describes che additional review procedures performed on the sum m
·
82.
financi ai sta· :ements that a re derived from an entity's In the auditor's report on summary a CPA shou ld indicate that the audited finan cial statements, d an ooinion or the com�lete financial state� ent�: A. CPA has audited and ex pre sse . assurance: th2t the financia l statements conform w1�h GAAP i n B. CPA expresses limited the Phil ipp ine s. . . statements are not fairly presented in all malenal respects. C. S um ma ry finan cial · · ii·ry w1'th another compre hens1ve �
.
.
·
basis of accountin g . .
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CPA REVIEW SCHOOL OF THE PHILIPPINES M a n i
AUDITING THEORY
ATPW-7503
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CPA Review RANDOM NOTES
l . Which of the fo ll owing defines the specific requi �ements of the Securities and Exchan9e Commission (SEC) rega r din g financial rE:porting c t entities registered with the SEC? · •• • A. SRC Rule C. SRC Rule @8 ai:• · B '. SEC Circulars
2.
D
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SEC: 'Bu ll eti ns
SRC Rule 68, as amended, is effective for audit-:d financial statements covering periods ended D ecembe r 31, 2011 and onwards, and for interim fi n a nci a l statements starting the first quarter of 2012, and thereafter.
3.
Part I of SRC Rule 68, as amended, deal� requirements of the SEC to the following entities:
Covered Entity
a. Stock corporations b.
pJ1d
Non-stock corporations
c.
tot
Branch offices of stock foreign
Branch offices corporations
e.
assigned capital in the equivalent amount of I 'l million or more
of non-stock
5.
assets in the equivalent aniount of million ·or more
tot; ii Pl
Regional operating headquarters
of foreign corporations
4.
Thresholds up capital stock of PS0,000 or more
grn ::s annual .
corporations d.
with the general financial reporting
• I
tot. 11 revenues in the equivalent amount of ' Pl million or mOre
Rule 68, as amended, deleted the term "Gem rally Accepted Accounting Principles (or· GAAP)" and replaced it with Financial
�eporting Framework.
Large and/or publicly accountable entities snail llse.as their financial reporting fra mework •
'the
a. Philippine Financial Reporting Standards, or b. Financial Reporting Framework Applicable to Banks, Insurance Companies or Pre-need as allowed by the SEC or the appropriate re�J Jlatory agency.
6.
If an SME that uses the PFRS for SMEs in a cw rent year breaches the floor or ceiling 9f the size criteria at the end of that current year, and the event that caused the change is considered "significant and ·continuing", the ·mtity shall transition to the applicable financial reporting framework in the next accouming period.
: I I
The assessmem of "significant and com::1u1ng"
' i
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based on management's judgment
would be considered siqnificant. 7.
prescribed the wordi ig of the Statement of Management's Responsibility (SMR) lor Financial Statements that shall be attached to the financial statements filed with the S EC . All of the followir g shall sign the SMR:
Rule 68, as amended,
a.
Chairman of the Soard
c.
Chief Financial Officer
b. Chief Executive Officer
,
1311 be
As a general ru l e, 20% or more of the consolidated tota l assets or total liabilities
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taking into consideration relevant qualitative sina 'JUantitative factors.,,,
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The failure of any of t'le prescribed signatories· to sign tile SMR constitutes a material ' deficiency in the financial statements.
8.
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9 . In the case of branch offices or regional operating headquarters of foreign corporations,, the SMR shall be signed by its local manager who is in charge of its operations within ·
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the Philippines.
10. · The SMR of the entities covered undei:; Pa rt II of 'Rule 68, as amended, shall be signed under oath.
11.
Report .of Independent Auditor when the Compa!1y Incurred Capital Deficiency
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The external auditor at' a company which h s in:urred a capital deficiency shall provide in
the audit report an emphas is paragraph indicating the following information: a. The fact that the company has incurred a e<1pital deficiency that raises an issue on its going concern status;
b. A brief discussion of a concrete plan of the :ompany to address the capital deficiency and reference to ti 1e note to financial stater nents that provides a complete disclosure
of the said plan;
c.
A statement that the auditor conduct�d �;(Jfficierit audit validity of the aforementioned plan. •
proc'�i:Jures
for verify the •
In case the company fails to prese,nt to the ex;:ernal auditor a concrete plan or sufficient supporting documen�; to address the capital -deficiency, the auditor shall provide an emphasis paragraph indicating that the company is no longer a going concern and should use liquidation basis in the preparation of its financial statements. •
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12. It is considered as a violation of Rule 68, as amended, if the audited financial statements covered by Part II of tl1e Rule with an auditor's opinion ocher than unqualified arising from the following: a. Deviation(s) from the required t'inanci<1I reporti ng framework; or b. Scope limitations imposed by the comJ:ia ny.
1 3 . Under Rule 68, as amended, fraud means an· intentionai act by one or more individual among management, employees, or. third par:ies that results in a misrepresentation ,of
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financial statements which reduces or inrn! �ses the consolidated total assets, total liabilities or income of the company by 50/o.
14.
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Under Rule 68, as ame11ded, error means m unintentional mistak� i n the finandal statements which reduces or increases the ojrtsolidated total assets, total liabilities or income of the company by 5°/o .
15. 0The financial statement of companies not cove"·ed by SRCRule 68 should be accompanied
by a certification under oath by the company's Treasurer or Chief finance Officer.
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such financ ial statements should have'at least 3 ; a . Statem ent of Financ ial Position or Fund· Bal.mc.e Rece. pts of and Disbursements); and Statement a b. Income Stateme nt (or s. c. Applicable explanatory note ·
st ts stat but are covered t i nder Ru le 6� : . 16. Companies with no operation emen mu. be year, a cotn P l ute set o·f fm a nc1a I a) If no operation only for 1 _ its non-·)peration. te d by the company despite su b mil years tti e income stateme nt need not be included in b) If' no operat'ion for the last 2 _
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tements . the aud ited fina nci al sta
. mana ;iement to provide all schedules, reports, 0f the entity's is the responsibility s' analyses and other financial information . .1.iat.10 ns' r::.pcrt •ons reco nci . . com puta tion sI pro1·ecl n requirements in P.� 100 0Ph 1 '"formatio as aud·t collectively referred to
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18. Which of the following proce�d u res 1s map ropriate when the entity's management is � una ble to provide the aud 't 1 1n1o . rmat1. on requiremPnts 7 • A. The au dit or sha ll prepar e th e aud't 1 1nto . rmat10,1 requirements B Th e a � d"1t� r shall cons ider a ssisti n Q the clieff: for exam ple 0by preparing a pro forma . 1 re�o nciha tio n statement or schedule format for the clien to co mplete or use as. a gu1d e. C. The �� �itor shall discuss with ma n ag ement a ,1d/or those cha rg ed with governance the possibility of outsou rcing the preparation 01 audit information req ui rem ents t6 third party serv.ice providers. D. The auditor shall evaluate the reason s wh1 � an a gem ent is un abl e to prepare the aud it information requirements . • ·
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In situations where the client provided incomplete ana i nsuffi ci ent audit information requirements, the auditor shall consider the following, except A. Communicate in writing the issues and concErns on the incomplete and i n sufficient
19.
audit information req ui reme nts with .ma m�ger n ent and/or those cha rged with govern ance.
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B. Discuss if the audit information requirem nts ca·n be revised to meet adequately the needs of the a uditor . C. Express a qualified or an adverse opinion. D . Discuss with management and/or those charged with governance the possibility of outsourcing the completion of the Information to third .party service provi ders .
20. The term "tentative financial statements" is generally used at present to refer to a s-et of incomplete or unaudited financial statement:; accompanied by a report of an external auditor who has not yet completed his audit of ! uch financial statements.
n.
Which of the following statements ·:oncerni11g the form confirmations is incorrect;'
and content of inter-bank
p
A. The form and content of a confirmation fequ�st letter will d� enM1�n the purpose fo r which it is requirea, on local practices a"nd 0·1 the requesting bank's account.
•
Not all information for which confirmation is usually sought will be required at the
B.
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same time. C. The confirmation request shoul
d be preparr.j in a clear and concise manner to ensure
ready comprehension by the confirming bank.
D. Whenever possible:, the confirmation requesc should be prepared in the language or the requesting bank or in the language normally used for business purposes.
22.
Which of the following are required to oe reported by th e external a ud itor to the
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BSP?
r. Any material finding during the audit involving fraud or d is honesty which .will reduce
capital funds by at least one. percent ( 1 %. . Adjustments or potential losses amountinc1 to at least one percent (1 %) of capital funds of the bani<. III. Any finding to the effect that the total bal"1 k assets, on a going concern pasis, are no longer adequate to cover the totai ciaims of creditors. C II ar. d III only. A. I and II only. D. I. II, and III . B. I and III on ly . II.
23.
BANKING RISKS: a.
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The risk of foreign customers and counterparti�> failing to settle their obligations because of economic, political and social factors oi' countenarty;s home country and external to the
customer or counterparty.
b.
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Country•risk
The risk of loss arising from future movements 1n the exchange rates applicable to foreign currency assets, liabilities, rights and obligation i.
Currency risk
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c.
The risk of loss arising from factors s ch as 0fail· Jre to maintain safe custody or negligellce in the management or assets on behalf ?f ottler p3rties. Fiduciary risk
d.
The risk that a movement in interest rates wou d have an adverse effect on the value of assets and liabilities or would affect interest cash flow». Interest rate risk
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The risk that contracts are documented incorrectly or are not legally enforceable in the relevant jurisdiction in which the contracts are to be enfcrced or where the counterparties operate.
Legal and documentary risk f.
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The risk of loss arising from the changes in the I >an k's ability to sell or dispose of an asset.
Liquidity risk
g.
The risk associated with the imperfections and subjectivity of valuation models used to determine the values of assets or liabilities. Modeling risk
h.
The risk of direct or indirect loss resulting from inadequate or failed internal proce�ses, people and systems or from external events. Operatic•nal risk
i.
The risk of loss arising from adverse changes i n market prites, including interest rates, foreign exchange rates, equity and commodity prices arid from movements in the market prices of •
investments. Price risk j.
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The risk o f loss arising from failure to comply with regulatory or legal requirements i n the relevant jurisdiction in which the bank operates. Regulatory risk
k.
).
The nsk of failure or a customer or counterpart} to perforrn the terms of a �ontract. This failure creates the need tb replace the failed tra�spction with another at the current market ' price. It is sometimes called performance risk. Replacement risk The risk of losing business because
of negative.public opinio.n and
consequential damage to the
•
bank's reputation arising from failure to proper1•1 manage some of the above risks, or from
•
involvement in improper or illegal activities by the bank or its senior management, such as money laundering or attempts to cover up lossEs. Reputational risk m. The risk that one side of a transaction'will be Sf'ttled without value being received from.the customer or counterparty. This will generally re suit in toss to the bank of the full principal amount. Settlement risk
n.
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The
risk of loss arising
from the possi bility of th� bank not having sufficient funds to meet 11'$
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obligations, or from the bank's inability to acce�s capital markets to raise required funds. Solvency risk
The risk of loss arising when a counterparty's ohligation is not denominated In the counterparty's home currency. The counterpany may not obtain the currency of the obligation irrespective of the counterparty's particular fina,icial condition. Transfer risk
24. In the exercise of its power organized the
to conduct
O\'ersight into the quality of audits, the BOA
De pa rtme nt of t he an
Philippine Institute of Certified Public
Accountants (PICPA) co conduct an indepepderit study, appraisal; (tr. review of the quality of audit of financial statements. • A. Quality Assurance Review B. Quality Control Review c. Independent Qual ity AssurancEi Review D. Independent Qual ity Control Review ____
Review Department (QARD) of the PICPA shal � be 25. The operation of the Quality Assurance
C. Oversight Committee D. Acceiu ntab i l ity Board
supervised by a/an A. Executive Committee B. sup ervisory Board
is an incorrect statement concerning the term of office of the 26. Which of the following mb ers? Executive co mm ittee me rminus with their Chairman and me 11bers shall be co-te the of office A. The ter of by the Boaro or PICPA. r earlie ced repla t unles BOA or PICPA respective term in the l be more than 3 shal case no in bers mem 0f the Cha irma n and B. The term of office ·
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public years . e to be in active practice of men: bers may continu and man Chair d by the Boa rd. ose C. The certain restrictions imp . their te�m , su b·ect to g durin y ointees. app tanc accoun ll be from the Board'5" sha e itte J Comm ve the E.xecua ' . D. The Chairman of . •
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ATPW-750:J
27. The Head of the QARD who . will be appo.. nte9 by · :he Executive Committee is the A. Chief Inspector _ C. Cfuef � uditor . . . B. Chief of Adm inistration . . 0 . Chief l.luality Assu ra nce Reviewe r
28. Who i � responsible for the non-tec hnical aspect of the QAR program? A. Chief Inspector 8.
Chi ef of Administration
C. Assistant to the Chief I n spe cto r
Q. Chairman of the Executive Committee
29.
The QAR program covers all CPAs in A. Public Accou nting B. Government
30 .
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C. Comm =rce and Industry
D . Educat�on/Academe ·
in p u bl ic practice are required to reg1!;ter with the QAR program · under the prescribed category. Those whose clients are pu bl ic -in te rest entities (listed and no t-lis te.d but with pub lic accountability) should register un jer A. Category A C. Categ 1 iry C
CPAs
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B. Category B
c. Categilry D
Section 19 provides that CPA practitioners sho ul d b1! registered in accordance with the following
categories: •
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Catego ry A - registration for CPA practitio1.1ers handling clients that use the full IFRS or their Philippine equivalents. These would c•iver CPA pra cti tioners auditing �ublic-interest entities (listed and not-listed but With public ilCCOUntability). Catego ry B - registration for CPA practitioners handling clients that. use the IFRS or their Philippine equivalents for Small and Medium· ;ized enterprises.
What is the effectivity date 'of the BOA Re!jolutlof\
A. Ju ne
4, 2008
8. June 20, 2008
32.
�C>. 88 (Seri es of 200B)
rules and regulations for the accreditation of aG ounting tea chers?
prescribing the
C. Decei':1ber, 3 l , 2008 • D. June • W, 2008 •
Which of the following requirements for the accredi tation of acc0unting teachers shall not apply to thos e CPAs cilready engaged in teach·ng as of the effe ctivity date of the Rules and Regulations? I. Poss essio n of relevant Master's degree.
IL
III. IV.
Co mp leti on of 12 units of re levant education s ubj ects from th e CHED recognized
schools.
A total of 3 years meaningful experience in actual accounting work either in Pu ql ic Practice, Commerce & Industry or Governr nent sector.
Proof that the CPA has undergone Conti nuing Professional Education (CPE).
A. I and II o nly 8.
II and III only
C. I and IV only J. II only
33. The following statements relate to the req u ire m ent to complete 12 units of relevant education subjects for the a ccredita tion of acco1 mting teachers. Which i s incorrect? A. For purposes of compliance, the �-2 unit:: may be earned from the undergraduate
education prograr.i or from a g1aduate .: �gree ,progra m . of! ,�flY Higher Education Institution (HEI) duly recog n i zed by CH Eb . . B. The 12 units meiy be earned from in-s·�rvice or in-house trainings on relevant . educa tion subjects offered by schools or tra; ning centers. •
C. The 12 units may be a combjnation of in-service trainings and units earned in an •
undergraduate or qraduate education progr;ims.
D. CPAs who have passed the Teacners Bo.3 rd Exams and are licensed Profess iona l Teachers should earn the 12 units through i i-service or in-house tra ini n gs: 34.
Which of the fol l o w i ng shall be considered proof of compliance with the CPE requirement for accreditation of accounting teachers7 I. Certification of CPE units from accredited •:PE provid e rs issued by the PICPA.
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II. Certificate of Attendance or other proofs �>r meaningful participation in other CPE programs as approved by the PRC/CPE Council 'llpon recommendation of the PICPA . of the individual CPA of a minim um of si)ty (60) cre"dit units earned for the past
I .
immediate 3 years. A. I only B . II only
35
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Either • or II D. Neither I nor II
C.
The Certificate of Accreditation issued by the-PRC to-an accounting teacher shall A. Be valid for 2 years and renewable every 2 yi:ars.
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B. Be valid initially for 3 years and renewable an:1ually. C. Remain in full force and effect unless revoked, cance!led or withdrawn . D. Be valid for 3 years and renewable every 3 yE ars.
36. According to the Transitory Provisions of the BOA Resolution No. 88, any tenured/fu] I
time/full load faculty member who does not meec the accreditation requirements as of tile effectivity date of the Rules and Regulations may be issued a Provisional Accreditation. Choose the correct statement. I. The Provisional Accreditation will be valid for a period not exceeding 3 years unless earlit!r withdrawn, revoked, or cancelled for cause by the BOA.
II. The Provisional Accreditation may be issuec! Dnly once and is no1 1 tenewable. The transitory provision shall also apply t•> returning teachers who have not· been teaching for the last 5 years. A. I only C . II and III only · B. I and II only D. I, II, c t;id III
iII.
37.
In case of an initial public offering ( I PC) ct seCL:rities by a company, the inter-irn financial statements to accompany the Registration Statement (SEC Form 12-1, as amended) shall be audited by an external auditor accredited by t he A. Board of Accountancy ( BOA) B. Professional Regulation Commission (PRC) C. BOA/ PRC D. BOA/PRC and SEC (Securities a'hd Exchange Commission) •
38. The COA chairman and the two ( 2 ) commission.:!rs shall be appoi nted by the president: of the Philippines with consent of the Commission on Appointments for a term of• 5 years • C. 7 yea ..s D. 9 yea· ·s B. 6 years
A.
]9.
40.
In an initial public offering of securities, a writcen communication from the inde�ndent accountant to an underwriter about proced1!res ,the accountant p�rformed on the • unaudited financial statements and sctieduli!S1 · accompanying a client's registration statement. Comfort letter
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efers to a company's maintaining a steady rat. of earnings growth over a series of years, thereby providing no reason for the financial markets to impute unexpected risk in the •
company or in expected stock prices. Income .Smoothing
41. All the components whose financia l ' inform2tion is included in 'the group financial •
statements. Group
nformation of more than one component. 42. Financial statements that include the financial
statements aggregating the financial information It also refers to combined financial but are under commo n control . pare;nt no have that nents compo prepared by
s Group Fina ncia l Statement
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