1.

An audit involves ascertaining the degree of correspondence between assertions and established
criteria. In the case of financial statement audit, which of the following is not a valid criterion?
a. Accounting standards generally accepted in the Philippines
b. International Accounting Standards
c. Other authoritative financial reporting framework
d. Philippine Standards on Auditing

2. According to PSRS, audit related services include:

a. Review and compilation
b. Compilation and agreed-upon procedures
c. Compilation and assurance engagements
d. Agreen-upon procedures and review

3. According to Philippine Standard on Auditing, the procedures employed in doing compilation are:
a. Designed to enable the accountant to express a limited assurance
b. Designed to enable the accountant to express a negative assurance
c. Not designed to enable the accountant to express any form of assurance
d. Less extensive than review procedures but more extensive than agreed-upon procedures

4. Engagement to apply agreed-upon procedures on certain accounts within a financial statement

may be accepted provided
a. The CPA has expressed opinion on the financial statements taken as a whole
b. The CPA takes full responsibility for the adequacy of the procedures to be performed
c. The CPA provides only a limited assurance about the reliability of the financial statements
d. The distribution of the report is limited only to specified parties involved because other readers
of the report might misinterpret the results

5. What level of assurance does the CPA provide under the following engagements?
Agree-upon
Audit Review procedure Compilation
a. High Moderate None None
b. High Limited Low None
c. Moderate Moderate None None
d. High Limited None None

6. Which of the following is not one of the general principles governing the audit of financial
statements?
a. The auditor should plan and perform the audit with an attitude of professional skepticism.
b. The auditor should obtain sufficient appropriate evidence primarily through inquiry and
analytical procedures to be able to draw conclusions.
c. The auditor should conduct the audit in accordance with PSA
d. The auditor should comply with Philippine Code of Professional Ethics

7. Which of the following statements about independent financial statement audit is incorrect?
a. The term “scope of the audit” refers to audit procedures deemed necessary in the
circumstances to achieve the objective of the audit.
b. The auditor’s opinion enhances the credibility of the financial statements.
c. The phrase used to express the auditor’s opinion is “present fairly, in all material respects”.
d. The risk that the auditor will fail to uncover material misstatement is eliminated when the
auditor complies with PSA.

8. Which of the following statements about independent financial statement audit is correct?
a. The work undertaken by the auditor is permeated by judgment
b. An audit is designed to provide absolute assurance that the financial statements taken as a
whole are free from material misstatement
c. The procedures required to conduct an audit in accordance with PSA should be determined by
the client who engaged the services of the auditor
d. The auditor’s opinion is an assurance as to the effectiveness and efficiency with which
management has conducted the affairs of the entity

9. According to PSA 200, the specific procedures deemed necessary in the circumstances to achieve
the objective of the audit are referred to as the
a. Substantive tests
b. Audit objectives
c. Scope of the audit
d. Audit technique

10. Which of the following is incorrect about responsibility for financial statements?
a. Management is responsible for fair presentation of the financial statements
b. Auditor is responsible for expressing an opinion on the financial statements
c. Audit of financial statements does not reduce management’s responsibility

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 d. Fair presentation of financial statements is an implicit part of auditor’s responsibility

11. It refers to the materials (working papers) prepared by and for, or obtained and retained by the
auditor in connection with the performance of the audit
a. Documentation
b. Accounting data
c. Audit report
d. Corroborative evidence

12. Which of the following statements is incorrect about the working papers prepared by the auditor?
a. The auditor should record in the working papers information on planning the audit work, the
nature, timing and extent of the audit procedures performed, the results thereof, and the
conclusions reached from the audit evidence obtained
b. The extent of working paper documentation is a matter of professional judgment
c. Working papers should be in the form of data stored on paper
d. Working papers should be designed and organized to meet the circumstances and auditor’s
need for each individual audit

13. Which of the following is not one of the primary purposes of working papers?
a. To assist in planning and performance of the audit
b. To assist in supervision and review of work
c. To record the audit evidence resulting from audit work performed to support the auditor’s
opinion
d. To substitute the client’s accounting records

14. An auditor’s working papers serve mainly to

a. Provide the principal support for the auditor’s report
b. Satisfy the auditor’s responsibilities concerning the Code of Professional Conduct
c. Monitor the effectiveness of the CPA firm’s quality control procedures
d. Document the level of independence maintained by the auditor

15. PSA 230 provides general guidelines about the ownership, custody and confidentiality of working
papers. Accordingly,
a. Working papers are the personal property of the auditor and the client has no rights to the
working papers prepared by the auditor
b. The working papers should be retained by the auditor for a sufficient period of time but not to
exceed five years
c. Working papers should not be made available to the client
d. Working papers may considered a substitute for the client’s accounting records

16. The management responsibility to detect and prevent fraud and error is accomplished by
a. Implementing adequate quality control system
b. Having an annual audit of financial statements
c. Establishing a control environment and implementing adequate internal control policies and
procedures
d. Signing the management representation letter

17. The term “error” refers to unintentional misrepresentation of financial information. Examples of
errors are when
I. Asset have been misappropriated
II. Transactions without susbtance have been recorded
III. Records and documents have been manipulated and falsified
IV. The effects of the transactions have been omitted from the records

a. All of the above statements are true

b. Only statements I and III are true
c. All of the above statements are false
d. Only statements II and IV are true

18. Auditing standards required that auditors be aware of relevant factors relating to fraud. Which of
the following statements about fraud is false?
a. Fraud frequently involves a pressure or an incentive to commit fraud and a perceived
opportunity to do so
b. Two types of fraud relevant to the auditor include material misstatements arising form
fraudulent financial reporting and material misstatements arising form misappropriation of
assets
c. Fraud involves actions of management but excludes the actions of employees or third parties
d. An audit rarely involves the authentication of documentation; thus, fraud may go undetected
by the auditor

19. The auditor has considerable responsibility for notifying users as to whether or not the statements
are properly stated. This responsibility imposes upon the auditor a duty to

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 a. Be an insurer of the fairness in the statements
b. Be a gurantor of the fairness in the statements
c. Be equally responsible with management for the preparation of the financial statements
d. Provide reasonable assurance that material misstatements will be detected

20. Which of the following is a category of risk factors that should be considered in relation to
misstatements arising from fraudulent financial reporting?
a. Susceptibility of assets to misappropriation
b. Assets that can be easily be converted to cash
c. Industry conditions
d. Internal controls

21. Before performing any audit procedures. The auditor and the client should agree on the

Type of opinion to be Specific procedures to be

Expressed performed Terms of the engagement
a. Yes No Yes
b. No Yes Yes
c. No No Yes
d. Yes Yes Yes

22. Which of the following is (are) valid reasons why an auditor sends to his client an engagement
letter?

a b c d
To avoid misunderstanding with respect to engagement Yes Yes No Yes
To confirm the auditor’s acceptance of the appointment Yes Yes Yes No
To document the objective and scope of the audit Yes Yes Yes Yes
To ensure CPA’s compliance to PSA Yes No No Yes

23. Which of the following least likely influences the auditor’s decision to send a separate engagement
letter to a component of parent entity client?
a. Legal requirements
b. Degree of ownership over a component entity by parent company
c. Location of the principal place of business of the component entity
d. Who appoints the auditor of the component

24. An accountant who had begun an audit of the financial statements of an entity was asked to
change the engagement to a review. Given reasonable justification for the change, the
accountant’s review report should refer to the
Original Engagement that Procedures that may have been performed
was Agreed to in the original engagement
a. Yes No
b. No Yes
c. No No
d. Yes Yes

25. The use of an engagement letter is the best method of documenting

I. The required communication of significant deficiencies in internal control structure

II. Significantly lower materiality levels than those used in the prior audit
III. The description of any letters or reports that the auditor expects to issue
IV. Arrangements concerning the involvement of internal auditors and other client staff

a. I and II
b. I and IV
c. II and IV
d. III ad IV

26. An independent appraisal activity established within an entity as a service to the entity is
a. Independent auditing
b. Internal auditing
c. Internal control
d. External auditing

27. The scope and objectives of internal auditing vary widely and depend on the size and structure of
the entity and the requirements of its management. Ordinarily, internal auditing activities include
one or more of the following, except
a. Examination of financial and operating information including review of the mean’s to identify,
measure, classify and report such information and specific inquiry into individual items
including detailed testing of transactions and recommending improvements thereto

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 b. Review of the economy, efficiency and effectiveness of operations including non-financial
controls of an entity
c. Establishment of adequate accounting and internal control systems
d. Review of compliance with laws, regulations and other external requirements and with
management policies and directives and other internal requirements

28. Which of the following statements in relation to the preliminary assessment of internal auditing is
false?
a. The external auditor should obtain a sufficient understanding of internal audit activities to
assist in planning the audit and developing an effective audit approach
b. During the course of planning the audit, the external auditor should perform a preliminary
assessment of the internal audit function when it appears that internal auditing is relevant to
the external audit of the financial statements in specific audit areas
c. Effective internal auditing will often allows a modification in the nature, timing, reduction in
the extent and even eliminate in its entirety some procedures performed by the external
auditor
d. In some cases, after having considered the activities of internal auditing, the external auditor
may decide that internal auditing will have no effect on external audit procedures

29. Which of the following is not an appropriate function of internal auditing?

a. Review of accounting and internal control
b. Examination of financial and operating information
c. Review of compliance with laws and regulations
d. Expressing an opinion about the fair presentation of the financial statements

30. For which of the following judgments may an independent auditor share responsibility with an
entity’s internal auditor, who is assessed to be both competent and objective?

Materiality of misstatements Evaluation of accounting estimates

a. Yes No
b. No Yes
c. No No
d. Yes Yes

31. A person or firm possessing special skill, knowledge and experience in a particular field other than
accounting and auditing is called a/an
a. Professional
b. Expert
c. Consultant
d. Guru

32. The risk that an expert’s objectivity will be impaired increases when the expert is related in some
other manner to the entity (for example, by being financially dependent upon or having an
investment in the entity) and when the expert is
a. Engaged by the entity
b. Employed by the entity
c. Engaged by the auditor
d. Employed by the auditor

33. Which of the following is not an expert upon whose work an auditor may rely?
a. An actuary
b. An individual with expertise in complex modeling for the purpose of valuing financial
instruments
c. An expert in taxation law
d. An individual with expertise in applying methods of accounting for deferred income tax

34. If the results of the expert’s work do not provide sufficient appropriate audit evidence or are not
consistent with other audit evidence, the auditor should
a. Report the matter to the appropriate regulatory agency of the government
b. Resolve the matter
c. Withdraw from the engagement
d. Express an unmodified opinion with reference to the work of the expert

35. An auditor who, at the request of the group engagement team, performs work on financial
information related to a component for the group audit is a
a. Group auditor
b. Component auditor
c. Component engagement team
d. Group engagement team

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36. All registered CPAs shall obtain and use a seal which shall be circular in form with a smaller circle
within bearing the registrant’s name, registration number and title. Which of the following is
correct?
a. Engraved in the lower portion of the space between the circles is the CPA’s name
b. Engraved in the middle of the smaller circle are the letters ”CPA”
c. Engraved in the middle of the smaller circle are the CPA’s name and registration number
d. Engraved in the middle of the smaller circle is the CPA’s name

37. Which of the following statements concerning ownership of working papers is incorrect?
a. All working papers made by a CPA and his/her staff in the course of an examination remain
the property of such CPA in the absence of any agreement (written or oral) between the CPA
and the client to the contrary
b. Working papers include schedules and memoranda prepared and submitted by the client of the
CPA
c. All working papers, except reports submitted by a CPA to his/her client shall be treated
confidential and privileged
d. Working papers shall be treated confidential and privileged and remain the property of the CPA
unless such documents are required to be produced through subpoena issued by the court,
tribunal, or government regulatory or administrative body

38. The following statements relate to the practice of public accountancy. Which is incorrect?
a. Single practitioners and partners of partnerships organized for the practice of public
accountancy shall be registered CPAs in the Philippines
b. A partnership engaged in the practice of public accountancy may be carried on in the form of a
general partnership (GP) but not a limited liability partnership (LLP)
c. A CPA is in public accounting practice when he/she represents his/her clients before
government agencies on tax and other matters related to accounting
d. The securities and exchange commission shall not register any corporation organized for the
practice of public accountancy

39. A basic objective of a CPA firm is to provide professional services that conform or comply with
professional standards and regulatory and legal requirements so that the reports issued by the
firm are appropriate in the circumstances. Reasonable assurance of achieiving this basic objective
is provided through policies and procedures on:
a. Continuing professional education
b. Compliance with generally accepted reporting standards
c. A system of quality control
d. A system of peer review

40. Which of the following is not an element of quality control as defined by Philippine Standards on
Quality Control 1?
a. Leadership responsibility for quality
b. Independence
c. Human resources
d. Acceptance and continuance of engagement and client relationship

41. Janus de Belen, CPA, was offered the engagement to audit the financial statements of Cobra Co.
for the year ended December 31, 2015. Janus had served as a director of Cobra until December
31, 2013, and his spouse currently owns 1,000 of 200,000 outstanding shares of Cobra. Janus
disassociated from Cobra prior to being offered the engagement. Moreover, the engagement does
not cover any period that includes Janis’s association or employment with Cobra. Under the Code
of Ethics, Janus should
a. Decline the engagement because of his spouse’s stock ownership
b. Accept the engagement
c. Decline the engagement because he had served as director
d. Accept the engagement because his spouse’s stock ownership is an indirect financial interest

42. After evaluating the significance of the threat created by an actual or threatened litigation, the
following safeguards should be applied to reduce the threat to an acceptable level, except
a. Disclosing to the audit committee, or others charged with governance, the extent and nature
of the litigation
b. If the litigation involves a member of the assurance team, removing that individual from the
assurance team
c. Involving an additional professional accountant in the firm who was not a member of the
assurance team to review the work or otherwise advise as necessary
d. Withdraw from, or refuse to accept, the assurance engagement

43. The recruitment of senior management for an audit client may create the following current or
future threats to independence, except
a. Self – interest threat
b. Familiarity threat
c. Intimidation threat

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 d. Self-review threat

44. Which of the following is a misunderstanding created by the use of the word “independence?”
a. Possessing the ability to act with integrity and objectivity
b. Independence precludes relationship that may appear to impair objectivity in rendering
assurance services
c. A person exercising professional judgment should be free from all economic, financial and
other relationships
d. Possessing the ability to express a conclusion without being affected by influences that
compromise professional judgment

45. CPAs may provide bookkeeping services to their non-public interest audit clients, but there are a
number of conditions that must be satisfied if the auditor is to maintain independence. Which of
the following conditions is not necessary?
a. The CPA must not assume a management role or function
b. The client must hire an external CPA to approve all of the journal entries prepared by the
auditor
c. The auditor must comply with GAAS when auditing work prepared by his/her firm
d. The client must accept responsibility for the financial statements

46. The information obtained by the auditor in arriving at the conclusions on which the audit opinion is
based is called
a. Audit working papers
b. Audit evidence
c. Audit assertions
d. Audit standards

47. Theoretically, which of the following would not have an effect on the amount of audit evidence
gathered by the auditor?
a. The type of opinion to be issued
b. The auditor’s evaluation of internal control
c. The types of audit evidence available to the auditor
d. Whether or not the client reports to the Securities and Exchange Commission

48. The sufficiency and appropriateness of evidential matter ultimately is based on the
a. Availability of corroborating data
b. PSA
c. Pertinence of the evidence
d. Judgment of the auditor

49. Which of the following presumptions does not relate to the reliability of audit evidence?
a. The more effective the internal control structure, the more assurance it provides about the
accounting data and financial statements
b. An auditor’s opinion, to be economically useful, if formed within reasonable time and based on
evidence obtained at a reasonable cost
c. Evidence obtained from independent sources outside the entity is more reliable than evidence
secured solely within the entity
d. The independent auditor’s direct personal knowledge, obtained through observation and
inspection, is more persuasive than information obtained indirectly.

50. Which of the following assertions does not relate to balances at period end?
a. Existence
b. Occurrence
c. Right and obligation
d. Valuation or allocation

51. It involves analysis of significant ratios and trends including the resulting investigation of
fluctuations and relationships that are inconsistent with other relevant information or which
deviate from predicted amounts
a. Reasonable test
b. Trend analysis
c. Ratio analysis
d. Analytical procedures

52. PSA 520 states that analytical procedures can be used in the :
Planning Stage Testing Phase Overall Review Stage
a. Yes Yes Yes
b. Yes No Yes
c. Yes No No
d. No Yes No

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53. Assertions are representations by management explicit or otherwise, that are embodied in the
financial statements . Management’s assertions in the financial statements are of relevance to the
audit process because:
a. They are the procedures that will be performed by the audit team
b. They are utilized by auditors in developing proper test and procedures since audit objectives
follow and are closely related to management assertions
c. They are direct evidence that management has prepared financial statements in accordance
with generally accepted audit standards
d. They relate more to the audit while the financial statements belong to the auditor

54. Which of the following elements ultimately determines the specific auditing procedures that are
necessary in the circumstances to afford a reasonable basis for an opinion?
a. Auditor judgment
b. Reasonable assurance
c. Relative risk
d. Materiality

55. Which of the following best describes the primary purpose of audit procedures?
a. To gather corroborative evidence
b. To detect errors or irregularities
c. To comply with generally accepted accounting principles
d. To verify the accuracy of account balances

56. Which of the following statements best describes why the auditor’s examination cannot reasonably
be expected to bring all acts of noncompliance with existing laws and regulations by the client to
the auditor’s attention?
a. Acts of noncompliance by clients often relates to accounting aspects rather than operating
aspects
b. Noncompliance may involve conduct designed to conceal it, such as collussion, forgery,
deliberate failure to record transactions, senior management override of controls, or
intentional misrepresentations being made to the auditor
c. Noncompliance may be perpetrated by the only person in the client’s organization with access
to both assets and the accounting records
d. The client’s internal control may be so strong that the auditor performs oly minimal
substantive testing

57. If the auditor concludes that the noncompliance has a material effect on the financial statements,
and has not been properly reflected in the finacial statements, the auditor should express
a. A qualified or an adverse opinion
b. A qualified opinion or a disclaimer of opinion
c. A disclaimer of opinion
d. An unmodified opinion

58. Initial audit planning involves the following matters, except

a. Identify the client’s reason for the engagement
b. Schedule engagement staff and auditor’s experts
c. Develop an overall audit strategy
d. Request that bank balances be confirmed

59. Which of the following statements concerning audit planning is incorrect?

a. Planning is a continual and iterative process
b. Planning is a discrete phase of an audit
c. In a recurrin audit, planning often begins shortly after (or in connection with) the completion
of the previous audit and continues until the completion of the current audit engagement
d. In planning an audit, the auditor considers the timing of certain planning activities and audit
procedures that are to be completed prior to the performance of further audit procedures

60. The concept of reasonable assurance suggests that

a. The cost of internal control should be less than the benefit it provides
b. A well-designed system of internal controls will detect all fraudulent activity
c. The objectives achieved by an internal control vary depending on the data processing method
d. The effectiveness of internal control is a function of the industry environment

61. Which of the following is not an element of the internal control environment?
a. Management philosophy and operating cycle
b. Organization structure of the firm
c. Well-designed documents and records
d. The functioning of the board of directors and audit committee

62. According to COSO, an effective accounting system perform all of the following except
a. Separates the duties of data entry and report generation
b. Identifies and records all valid financial transactions

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 c. Records financial transactions in the appropriate accounting period
d. Records financial transactions promptly

63. Control activities under COSO include

a. IT controls, preventive controls, and corrective controls
b. Physical controls, preventative controls, and corrective controls
c. General controls, application controls, and physical controls
d. Transaction authorizations, segragation of duties, and risk assessment

64. Typically, internal auditors perform all of the following tasks except
a. IT audits
b. Evaluation of operational efficiency
c. Review of compliance with legal obligations
d. Internal auditors perform all of the above tasks

65. The fundamental differences between internal and external auditing is that
a. Internal auditors perform IT audits and external auditors perform financial statement audits
b. Internal auditors represent the interests of the organization and external auditors represent
the interests of the outsiders
c. Internal auditors focus on financial statement audits external auditors focus on operational
audits and financial statement audits
d. External auditors assist internal auditors but internal auditor cannot assist external auditors

66. All of the following are steps in IT audit except

a. Substantive testing
b. Test of controls
c. Post-audit testing
d. Audit planning

67. All of the following are components of audit risk except

a. Control risk
b. Legal risk
c. Detection risk
d. Inherent risk

68. Which of the following is true?

a. In the Computer Based Information System (CBIS) environment, auditor gather evidence
relating only to the contents of databases, not reliability of the computer system
b. Conducting an audit is a systematic and logical process that applies to all forms of information
systems
c. Substantive test establish whether internal controls are functioning properly
d. IT auditors prepare the audit report if the system is computerized

69. Attestation services require all of the following except

a. Writtent assertions and practitioner’s written report
b. The formal establishment of measurements criteria
c. The engagement is designed to conduct risk assessment of the client’s system to verify their
degree of compliance
d. The engagement is limited to examination, review, and application of agreed upon procedures

70. The financial statements of an organization reflect a set of management assertions about the
financial health of the business. All of the following describe types of assertions except
a. That all employees are properly trained to carry out their assigned duties
b. That all of the assets and equities on the balance sheet exist
c. That all transactions on the income statement actually occurred
d. That all allocated amounts such as depreciation are calculated on a systematic and rational
basis

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