Q1 - Q4 - Prelim Exam ACC5111 - Auditing and Assurance Principles

ACC5111: Auditing and Assurance Principles
QUIZ 1 - Modules 1-3
1. The auditor's satisfaction as to the reliability of an assertion being made by one

party is called:
a. Assurance
b. Attestation
c. Audit
d. Precision
2. If you merely inquired and made an analytical procedure, you more likely
performed:If you merely inquired and made an analytical procedure, you more
likely performed:
a. Agreed upon procedures
b. Review
c. Audit
d. Consultancy
3. Law and regulation may be the criteria of an audit performed by an external

auditor
a. True
b. False
4. In an audit of financial statements, which of the following would not be a valid

criterion? International Accounting Standards
a. Philippine Standards on Auditing
b. Phil. Financial Reporting Standards
c. Phil. Financial Reporting Standards for SMEs
5. The reason an independent auditor gathers evidence is to

a. form an opinion on the financial statements
b. evaluate management
c. detect fraud
d. evaluate internal controls
6. The letters CPA shall be engraved in what part of the CPA's seal?
a. Upper portion of the seal
b. Center of the seal
c. Lower portion of the seal
d. Upper left portion of the seal
7. Which of the following is the broadest and most inclusive concept?

a. Audit of historical financial statements
b. Consultancy services (MAS)
c. Assurance services
d. Compilation and Review Services
8. The objectives of the Philippine Accountancy Act of 2004 are the following except:
a. The standardization and regulation of accounting education
b. Integrations of accountancy profession
c. Examination and registration of CPAs
d. Supervision, control and regulation of the practice of accountancy
9. The set of rules and regulations promulgated in 2004 for the supervision, control
and regulation of the practice of Accountancy in the Philippines.
a. PFRS
b. PSA
c. Code of Ethics
d. IRR of RA9298
10. S1 A BOA member's term in his capacity as member expires one year after being
elected as Vice Chair. S2 Being charged of crimes involving moral turpitude is a
ground for removal of members in BOA.
a. True False
b. True True
c. False True
d. False False
11. The overall objective of internal auditing is to:

a. Attest to the efficiency with which resources are employed.
b. Ascertain that controls are costs justified
c. Provide assurance that financial data have been accurately recorded.
d. Assist members of the organization in the effective discharge of their
responsibilities
12. Broadly defined, the subject matter of any audit consists of:
a. Financial statements
b. Financial data
c. Economic data
d. Assertions
13. The need for independent audits of financial statements can be attributed to all of
the following conditions except:
a. Remoteness
b. complexity of subject matter
c. Consequence
d. validity
14. When a CPA is associated with the preparation of forecasts, all of the following
should be disclosed except:
a. Sources of information
b. Major assumptions used
c. Character of work performed
d. Probability of achieving forecasts
15. Which of the following is not one of the elements of an assurance engagement?
a. Sufficient appropriate evidence
b. Suitable criteria
c. Subject matter
d. An opinion about whether the subject matter conform, in all material
respects, with the identified criteria.
16. S1 Only CPE credits earned through master and doctoral degree can be carried
over each year in the three year period S2 You are exempted from earning CPE
once you reach 70 years of age.
a. True False
b. True True
c. False True
d. False False
17. Pronouncements of Auditing and Assurance Standards Council do not cover

a. Review of historical financial statements
b. Consultancy
c. Compilation and agreed upon procedures
d. Assurance engagements other than audit & review
18. Which of the following shall be issued to a candidate who passes the CPA
licensure examination?
a. Certificate of accreditation to practice public accountancy and PRC ID
b. Personal ID and a certificate of accreditation to practice public accountancy
c. Certificate of registration and professional ID
d. Certificate of full compliance and professional ID
19. Not a qualification of a member of the BOA

a. 10 years experience in the practice of public accountancy
b. Natural born Filipino citizen and resident
c. Not a director of PICPA
d. Good moral character
20. The auditor's responsibility for the detection of client's noncompliance with laws
and regulations
a. Greater than for error, less than for fraud
b. The same as it is for errors and fraud
c. Less than for error and fraud
d. Restricted to information that comes to his attention
21. Which of the following procedures would normally be included in the review
engagements?
a. Preparing the bank transfer schedule
b. Assessing the internal control structure
c. Asking management about related party transactions
d. Perform cut-off tests
22. If an auditor, using her judgment, departs from a PSA, she should:
a. Correct the issue immediately
b. Ignore it.
c. Be prepared to explain or justify
d. Disclose it in the notes to the financial statements
23. Which of the following is not one of the limitations of an audit?

a. The use of testing
b. Human error
c. Limitations imposed by client
d. Nature of evidence obtained
24. Which is true?

a. PRC has the authority to remove any member of BOA for negligence,
incompetence or other valid grounds.
b. Insanity is a ground for proceeding against a CPA
c. A person shall be considered to be in the practice of accountancy in the
government if a CPA degree is required to be in his position.
d. After 3 years, subject to certain conditions, BOA may order reinstatement of a
CPA whose Certificate of Registration has been revoked.
25. A CPA certificate is evidence of

a. Independence as a professional
b. Membership in APO
c. Basic competence at the time of certification
d. Completion of CPD program
26. The use of negative assurance in an audit report on financial statements

a. is a violation of the standards of reporting
b. helps in clarifying the degree of responsibility assumed by eh auditor
c. is encouraged by PSAs
d. is properly located in the opinion paragraph of the unqualified report
27. The statement that "nothing came to our attention which would indicate that these
statements are not fairly presented" expresses which of the following?
a. Disclaimer of opinion
b. Adverse opinion
c. Negative assurance
d. Piecemeal opinion
28. When prospective financial statements are prepared, the "responsible party" is
usually the
a. management
b. government entity that requires them
c. CPA who examines them
d. audit committee
29. In performing attestation services, a CPA would normally:

a. Improve the quality of information, or its context, for better use of the decision
makers
b. Recommend how to use the information
c. Perform market analyses and cost estimates
d. States a conclusion about a written assertion
30. Practitioner's independence

a. minimizes risk
b. Defends against professional liability
c. helps achieve public confidence
d. Achieves compliance with the standards of fieldwork
31. The predominant type of ATTESTATION service performed by CPAs is:

a. audit
b. compilation
c. review
d. MAS
32. A CPA should perform analytical procedures to (1) Audit (2) Review (3) Compile
a. Yes YesYes
b. Yes Yes No
c. No Yes Yes
d. No Yes No
33. The audit committee of the BOD of a company is responsible for:

a. hiring the auditor
b. the audit working papers
c. Preparing the financial statements
d. Independence and obtaining evidence
34. Independent professional services that are provided on financial or other

information that improve the quality of decision making are known as:
a. External services
b. Attest services
c. Assurance services
d. Direct report services
35. The independent audit is important to readers of financial statements because it:
Determines the future stewardship of the management of the company whose
financial statements are audited
a. Measures and communicates financial and business data involved in financial
statements.
b. Involves the objective examination of and reporting on management
prepared statements
c. Reports on the accuracy of all information in the financial statements
36. Ethical principles governing the compilation of financial statements include I.

Independence II. Competence III. Technical standards
a. I, II & III
b. II & III
c. I & II
d. I & III
37. Which of the following statements does not properly describe a limitation of an
audit?
a. Many audit conclusions are made on the basis of examining a sample of
evidence.
b. The work undertaken by the auditor is deprived of judgment.
c. Fatigue and human weakness can cause auditors to overlook pertinent evidence.
Evidence is usually not conclusive.
38. Which of the following is not an assurance form of report?

a. Compliance
b. Examination
c. Compilation
d. Review
39. Which of the following is not an attestation standard?

a. The engagement shall be performed by a practitioner having adequate
knowledge in the subject matter of the assertion.
b. Sufficient evidence shall be obtained to provide a reasonable basis for the
conclusion that is expressed in the report.
c. The report shall state whether the financial statements are presented in
accordance with generally accepted accounting principles
d. The work shall be adequately planned, and assistants, if any, shall be properly
supervised.
40. How many members does the PRC-CPE Council have?

a. 2
b. 4
c. 3
d. 5
41. The most common type of audit report contains a(n):

a. Adverse opinion
b. Qualified Opinion
c. Unqualified opinion
d. Disclaimer of opinion
42. Auditing is based on the assumption that financial data are verifiable. Data are
verifiable when two or more qualified individuals,
a. working together, can prove, beyond doubt, the accuracy of the data.
b. working independently, each reach essentially similar conclusions.
c. working independently, can prove, beyond doubt, the truthfulness of the data
d. working together, can agree upon the accuracy of data.
43. What level of assurance does the CPA provide under the following engagements
a. Audit - reasonable; Review - moderate; Agreed upon procedures - low;
Consultancy - low
b. Audit - reasonable; Review - moderate; Agreed upon procedures - low;
Consultancy - none
c. Audit - high; Review - reasonable; Agreed upon procedures - none; Consultancy
- low
d. Audit - reasonable; Review - moderate; Agreed upon procedures - none;
Consultancy - none
44. Geli, CPA is applying for renewal of her professional license. She is exempted
from CPD requirements
a. If she is at least 70 years old
b. If she is working abroad and she has been out of the country for at least two
months immediately prior to the date of renewal.
c. Either A or B
d. Neither A nor B
45. The difference between what the public expects to get from the audited financial
statements and what the public is actually getting is known as:
a. Credibility Gap
b. Expectation Gap
c. Memory Gap
d. Audit Gap
46. The standard setting body promulgated by the PRC to promulgate accounting
standards.
a. AASC
b. ASPC
c. FRSC
d. IFRIC
47. This risk is associated with a company's survival and profitability:

a. Business risk
b. Audit risk
c. Information risk
d. Risk premium
48. If the CPA has reason to believe that the information subject to review may be
materially misstated, the CPA should:
a. Express a qualified negative assurance
b. Withdraw from the engagement
c. Express an adverse opinion
d. Carry out additional or more extensive procedures.
49. Ultimately, the decision about whether or not an auditor is independent must be
made by the
a. audit committee
b. auditor
c. Those charged with governance
d. government regulator
50. A CPA who is not independent may issue a

a. Review report
b. Attest report
c. Direct report
d. Compilation report
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AUD. PRINCIPLES (QUIZ 1)

Terms in this set (50)
The auditor communicates the results of her work

through the medium of the:
Engagement letter
Financial statements
Audit report
Management representation letter
Audit report

RA 9298 provides that temporary of special permits
may be issued to foreign CPAs in the following,
except:
She was called for consultation which is essential for

the development of the Philippines. Provided, she is
restricted to practice to that particular work and no
Filipino CPA is qualified.
None of the above. He was engaged to lecture on fields essential to

accountancy education in the Philippines. Provided,
he is restricted to teaching only.
An IFRS expert is engaged for services deemed

essential for the advancement of accountancy in the
Philippines
None of the above.

The independent audit is important to readers of
financial statements because it:
Determines the future stewardship of the

management of the company whose financial
statements are audited
Involves the objective

examination of and reporting
Measures and communicates financial and business
on management prepared
data involved in financial statements.
statements
Involves the objective examination of and reporting

on management prepared statements
Reports on the accuracy of all information in the

financial statements

Philippine Standards on Auditing contain ideal
principles and essential procedures, together with
related guidance in the form of explanatorily and
other material.
Statement is true
Statement is false
Statement is false
answer not given
incomplete statement
The need for independent audits of financial

statements can be attributed to all of the following
conditions except:
Remoteness
Validity
complexity of subject matter
Consequence
Validity

Which may be the subject matter of an assurance
engagement?
Historical financial information
All of the above Behavior
Systems and processes
All of the above
To operate effectively, an internal auditor must be

independent of:
The entity
The line functions of

management The line functions of management
Those charged with governance
The employer-employee relationship

These are the standards used to evaluate or
measure the subject matter of an assurance
engagement.
Evidence
Criteria
Assertions
Criteria
Auditing standard
A CPA should perform analytical procedures to (1)

Audit (2) Review (3) Compile
Yes YesYes
Yes Yes No
Yes Yes No
No Yes Yes
No Yes No

Which of the following is not one of the limitations
of an audit?
The use of testing
Limitations imposed by client Human error
Limitations imposed by client
Nature of evidence obtained
The following are grounds for suspension or

removal of members of BOA, except: d. Neglect of
duty or Incompetence.
Violation of RA9298, its IRR, Code of Ethics and

Pending cases on a crime
standards of practice of CPAs.
involving moral turpitude.
Pending cases on a crime involving moral turpitude.
Rigging of board exam.

According the PSRS 4410, the following procedures
are required whenever a CPA performs a
compilation engagement: I Agreement with the
client regarding terms of engagement; II Planning
for the engagement; III Use of auditing expertise; IV
Issuance of a report
I & II
I, II & IV
I, II & IV
I, II & III
II & IV
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13How many years of experience does it take to be
considered a senior accounting practitioner?
10 10
12
Which of the following is not a requirement for a

person applying for the CPA board exam?
Natural-born Filipino citizen
Natural-born Filipino citizen BS Accountancy graduate
Good moral character
No conviction of any crime involving moral

turpitude

As used in RA 9298, this term refers to the area of
practice of accountancy:
Line
Sector
Segment
Section
Sector
S1 The responsible party is always the one who

engages the professional accountant. S2 The
intended user is the person or class of person who
engages the professional accountant.
True False
Both False
Both True
False True
Both False

This body is created to assist the BOA in the
attainment of the objective to continually upgrade
accounting education in the Philippines.
PICPA CPE Council
Educational Technical Council

PRC CPE Council
Educational Technical Council
CPE Council
Punishment of a person who violated RA 9298

and/or its IRR upon conviction shall be:
Fine not less than PhP50,000, imprisonment not

exceeding 2 years, or both.
Fine not less than PhP50,000,

Fine not greater than PhP50,000, imprisonment not
imprisonment not exceeding 2
exceeding 2 years or both.
years, or both.
Fine not greater than PhP50,000, imprisonment not

shorter than 2 years or both.
Fine not less than PhP50,000, imprisonment not

shorter than 2 years or both.

A CPA who is not independent may issue a
Review report
Compilation report Attest report
Direct report
Compilation report
Consulting services are:
Three-party contracts involving services that

recommend uses for information
Two-party contracts involving Two-party contracts involving services that

services that recommend uses recommend uses for information
for information
Two-party contracts that require accounting rather

than auditing skills
Three-party contracts that require accounting rather

than auditing skills

What level of assurance does the CPA provide
under the following engagements:
Audit - reasonable; Review - moderate; Agreed

upon procedures - low; Consultancy - low
Audit - reasonable; Review -

moderate; Agreed upon
upon procedures - low; Consultancy - none
procedures - none;
Consultancy - none
Audit - high; Review - reasonable; Agreed upon

procedures - none; Consultancy - low

upon procedures - none; Consultancy - none
When a CPA is associated with the preparation of

forecasts, all of the following should be disclosed
except:
Sources of information
Probability of achieving
forecasts
Major assumptions used
Character of work performed
Probability of achieving forecasts

If the CPA has reason to believe that the information
subject to review may be materially misstated, the
CPA should:
Express a qualified negative assurance
Carry out additional or more
extensive procedures. Withdraw from the engagement
Express an adverse opinion
Carry out additional or more extensive procedures.
As used in RA 9298, this term refers to the area of

practice of accountancy:
Line
Sector
Segment
Section
Sector

Which of the following is not one of the elements of
an assurance engagement?
Sufficient appropriate evidence
An opinion about whether the Suitable criteria

subject matter conform, in all
material respects, with the
identified criteria. Subject matter
An opinion about whether the subject matter

conform, in all material respects, with the identified
criteria.
Who forms the conclusion from the report of the

practitioner in an agreed upon procedures?
The practitioner
The intended user

The intended user
The responsible party
The parties agree as to who shall conclude

An audit can have a significant effect on:
Business risk
Information risk Information risk
Market risk premium
Audit risk
Ethical principles governing the compilation of

financial statements include: I Independence; II
Competence; III Technical standards:
I, II & III
II & III
II & III
I & II
I & III

This refers to those persons who hold a valid
certificate issued by the BOA, whether they be in
public practice, industry, government or academe.
Professional accountant
Professional accountant
Assurance practitioner
Independent accountant
Senior accounting practitioner
Which of the following statements does not

properly describe a limitation of an audit?
Many audit conclusions are made on the basis of

examining a sample of evidence.
The work undertaken by the

auditor is deprived of
The work undertaken by the auditor is deprived of
judgment.
judgment.
Fatigue and human weakness can cause auditors to

overlook pertinent evidence.
Evidence is usually not conclusive.

Broadly defined, the subject matter of any audit
consists of:
Financial statements
Assertions
Financial data
Economic data
Assertions
According to the IRR of RA 9298, who can teach

business law?
Legal management grads and lawyers
CPAs and IBP members

Criminologists, CPAs and Lawyers
CPAs and legal management graduates
CPAs and IBP members

Which of the following statements does not
properly describe a limitation of an audit?
Many audit conclusions are made on the basis of

examining a mere population of evidence.
Many audit conclusions are Some evidence supporting peso representation in

made on the basis of the financial statements must be obtained by oral or
examining a mere population written representations of management.
of evidence.
Human weakness can cause auditors to overlook

pertinent evidence or cause them to make wrong
conclusions (i.e. stressed, careless).
Judgment is used throughout the audit engagement.

The overall objective of internal auditing is to:
Attest to the efficiency with which resources are

employed.
Assist members of the

organization in the effective Ascertain that controls are costs justified
discharge of their
responsibilities
Provide assurance that financial data have been
accurately recorded.
Assist members of the organization in the effective

discharge of their responsibilities
S1 The subject of an engagement may be presented

as a point in time only as there are more
complications involved when attaining evidence in a
range of time. S2 The CPA's conclusion provides a
level of assurance about the subject matter.
True False
False True
Both True
False True
Both False

The auditor's satisfaction as to the reliability of an
assertion being made by one party is called:
Assurance
Assurance Attestation
Audit
Precision
. Level of assurance provided by an agreed upon

procedure:
Reasonable
None
Depending on what was agreed
Moderate
None

Which of the following phrases in relation to the
definition of auditing is incorrect?
Systematic process
Objectively obtaining and

Objectively obtaining and evaluating assurance
evaluating assurance
Assertions about economic actions and events
Degree of correspondence between assertions and

GAAP
The internal auditor of the government
Department of Finance
None of the above Department of Budget and management
Commission on Audit
None of the above

Which of the following is/are considered as non-
assurance engagements?
Elder Care Plus
Management Consultancy
Management Consultancy Services
Services
Health Care Performance Measurement
All of the above
41Auditing is based on the assumption that financial

data are verifiable. Data are verifiable when two or
more qualified individuals,
working together, can prove, beyond doubt, the

accuracy of the data.
working independently, each

reach essentially similar working independently, each reach essentially
conclusions. similar conclusions.
working independently, can prove, beyond doubt,

the truthfulness of the data
working together, can agree upon the accuracy of

data.
S1 The Commission of Audit is the highest and final
authority in commercial auditing; S2 AASC-issued
standards should be absolutely and strictly
complied with (i.e. in no circumstance shall a CPA
depart from it) to avoid differences in audit
engagements.
True False
Both False
Both True
False True
Both False
In an audit of financial statements, which of the

following would not be a valid criterion?
International Accounting Standards
Philippine Standards on
Auditing Philippine Standards on Auditing
Phil. Financial Reporting Standards
Phil. Financial Reporting Standards for SMEs

Which of the following is the sectoral organization
for CPAs in the government?
ACPAG
GACPA CPA-G&GOCC Association
GACPA
ACPA
If you merely inquired and made an analytical

procedure, you more likely performed:
Agreed upon procedures
Review
Review
Audit
Consultancy

Pronouncements of Auditing and Assurance
Standards Council do not cover
Review of historical financial statements
Consultancy
Consultancy
Compilation and agreed upon procedures
Assurance engagements other than audit & review
Which of the following is NOT a correct qualification

of the Chair and Commissioners of COA?
Natural born citizen of RP
Must not have been a

At least 35 years old upon appointment
candidate for any elective
position
10 years of auditing experience for CPAs or 10 years

of law practice for IBP members.
Must not have been a candidate for any elective

position

At the end of this engagement, the CPA provides a
report of factual findings instead of an opinion.
Tax consulting
Agreed upon procedures Agreed upon procedures
Review engagement
Compilation
Law and regulation may be the criteria of an audit

performed by an external auditor
The statement is true

The statement is true
The statement is false

The reason an independent auditor gathers
evidence is to
form an opinion on the financial statements
form an opinion on the

evaluate management
financial statements
detect fraud
evaluate internal controls

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Terms in this set (50)
Refer to the following items for question: I. Understand the client's operations; II.
Confirm or refute expectations; III. Identify significant unusual fluctuations; IV.
Identify risk areas; V. Reasonably predict results; VI. Confirm conclusions reached.
Which of the items above pertain to the substantive testing phase?
I and II
II and V
I, II and IV
I and IV
II and V
Who ultimately determines an auditor's independence?
Quality Review Committee
Auditor Securities and Exchange Commission
Board of Accountancy
Auditor
Which of the following is not a probable source of significant risk?
History of fraud in prior year audit
Routine revenue transactions Significant related party transactions
Impairment testing of intangible assets
Routine revenue transactions

Which is the hardest subject matter to provide assurance on?
Financial information
Efficiency and effectiveness of internal controls Degree of compliance with laws and regulations
Efficiency and effectiveness of internal controls
All of the following are equally hard to provide assurance on
S1: Independence is required on all accounting services; S2: Independence

enhances the auditor's ability to act with integrity and objectivity
True, False
False, True
True, True
False, True
False, False
Which of following is not a component of the audit risk model?
Detection risk
Information risk Information risk
Control risk
Inherent risk
A BOA member can be removed from office due to a pending case involving
moral turpitude
False
True
False

Risk assessment procedures include all of the following except
Inquiry
Recalculation Analytical procedures
Observation and inspection
Recalculation
Which of the following is a response to a decreased detection risk?
Employing analytical procedures for sales rather than test of transactions
Postponement of testing to yearend instead of

Decreasing sample size for receivables
interim cut off
Postponement of testing to yearend instead of interim cut off
Performing signature authentication during a normal audit
The level of assurance provided by an audit is:
Terminal
Reasonable Moderate
Absolute
Reasonable

Refer to the following items for numbers: I. Substantive testing is to be performed
at yearend; II. Client's property plant and equipment are mortgaged in relation to
its long-term debt; III. Client strictly monitors compliance with attached loan
covenants; IV. Receivable accounts are composed of small but voluminous
accounts with regional retailers; V.Test of transactions is to be used over analytical
procedures for revenue accounts; VI. Client is operating in a highly regulated
industry. Which of the items above pertain(s) to control risk?
III I, V
III
I, V, VI
III, IV
Which is more important?
Independence in mind
Independence in mind and independence in

Independence in appearance
appearance are equally important
Independence in mind and independence in appearance are equally important
Independence in fact
If desired audit risk is 2% while assed risk of material misstatement is at 20%, how
much is acceptable detection risk?
0.4%
10%
2%
5%
10%

Which of the audit risk components is a dependent variable during the planning
stage?
Inherent risk
Detection risk
Control risk
Risk of material misstatement
Detection risk
The following are reasonable changes in engagement scope except
Management only needs a reviewed financial statements for quarterly filing to SEC
Management wants to reduce the audit procedures Management originally intended an "Agreed upon engagement" when they
to inquiry and analytical procedures due to mentioned "Audit" in prior meetings
deficiencies in accounting records
Management wants to reduce the audit procedures to inquiry and analytical

procedures due to deficiencies in accounting records
All of these are acceptable changes in engagement scope
The auditing standards require the auditors to assess the risk of material
misstatements at the following levels:
Financial statements, account balance
Financial statements, assertion

Account balance, assertion
Financial statements, assertion
Financial statements, account balance and assertion

Which of the following is an appropriate procedure in assessing inherent risk?
Review of client's control documentations
Review of regulatory requirements specific to the Review of regulatory requirements specific to the client's business
client's business
Review of bank reconciliation statements
Performing predictive and confirmatory analytical procedures
Refer to the following items for the question: I. Understand the client's operations;
II. Confirm or refute expectations; III. Identify significant unusual fluctuations; IV.
The items above are:
Objectives in performing analytical procedures
Objectives in performing analytical procedures
Steps in performing analytical procedures
Items to consider in setting materiality
Unrelated auditing concepts
The following are reasons in applying professional skepticism except,
Overlooking usual circumstances
Overlooking usual circumstances Over-generalizing
Using inappropriate assumptions
None of the above

Assurance is wider in scope than audit; S2: Audit is more specific in scope than
assurance
True, True
True, True
True, False
False, True
False, False
Which of the following items pertain to control risk?
The susceptibility of risky assets to defalcation
Auditor's (internal) testing procedures and

Auditor's (external) testing procedures
responsibilities
Auditor's (internal) testing procedures and responsibilities
Complex accounting treatment of a loan with an embedded prepayment option
Analytical procedures is not required during
Planning
Substantive testing Substantive testing
Conclusion
None of these

As materiality of the account decreases, the required amount of audit evidence
Increases
Decrease Stays constant
Decrease
Change in an unpredictable fashion
Which of the items above pertain to the planning stage?
I and II
I and IV
I, II and IV
I and IV
II and V
Which of the items above pertain to the conclusion stage?
I and II
III and VI
I, II, IV and VI
III and VI
II and V

S1- Substantive testing is not performed in cases of controls reliance approach;
S2- Analytical procedure can be an appropriate substantive test procedure
True, False
False, True
True, True
False, True
False, False
The relationship of assessed control risk against acceptable detection risk is?
Linear
Inverse Parallel
Direct
Inverse
Complete the analogy: _______, Management, _______, Auditor
Financial Statements, Financial Statements
Financial Statements, Audit Report Management Report, Audi Report
Financial Statements, Audit Report
Audit Report, Audit Report

Which of the following is the least desirable basis of preliminary materiality?
Pre-tax income
Net loss Revenues
Total assets
Net loss

accounts with regional retailers; V. Test of transactions is to be used over analytical
industry. Which of the items above is/are a response to increased acceptable
detection risk?
None of the above

I
I and V
None of the above
Which of the following is the most appropriate basis for setting the preliminary
materiality for a listed entity with positive net operating trends?
Pre-tax income
Pre-tax income
Revenues
Total assets
Total equity

Complete the analogy: ________, Financial Statements, ________, Audit
PFRS, PFRS
PFRS, PSA PSA, PSA
PFRS, PSA
PFRS, PAS
Which of the following items pertain to increased inherent risk?
The client acquired a competitor during the year
Check vouchers are reviewed by the Deputy Controller before payment

The client acquired a competitor during the year
The client's revenues a contract-based and with the Philippine Government as a

counterparty
Most of the customers of the audit client belong to the top 100 corporations in the
Philippines
An auditor assesses the level of control risk in order to
Report on the effectiveness of the entity's internal control policies
Determine acceptable level of detection risk Identify significant account balances and transactions
Determine materiality thresholds
Determine acceptable level of detection risk

accounts with regional retailers; V.Test of transactions is to be used over analytical
industry. Which of the items above pertain(s) to risk of material misstatement?
All except I, V and VI All of these
All except I, V and VI
All except I and V
All except I, IV, V, VI
The audit risk model is used primarily
For planning purposes, specifically in determining the sufficiency of evidence to

be gathered.
For planning purposes, specifically in determining

For execution of controls testing, specifically in determining the degree of control
the sufficiency of evidence to be gathered.
consciousness of management.
For conclusion stage, specifically on the opinion to be issued.
For execution of substantive testing, specifically for evaluating evidence gathered.
In which area would an auditor least need the help of an expert?
Accounting for embedded derivatives
Accounting for embedded derivatives Valuation of coal inventory held by the client
Reasonableness of actuarial assumptions used by the entity
None of these

An engagement letter is required to be issued
Annually
As the need arises Every two years
As the need arises
Every three years
Ultimately, materiality is based on:
Regulations issued by the SEC
Financial information user's expectations Auditor's satisfaction
Management's assessment
Financial information user's expectations
In a financial statements audit, the auditor is the:
Responsible party
Practitioner Intended user
Expert
Practitioner

Which of the following items pertain to decreased control risk?
Control procedures have not been updated for almost 10 years.
The client has a functioning independent audit committee and internal audit
The client has a functioning independent audit department
committee and internal audit department
The client is start-up company operating at breakeven
The client's only customer is the Philippine Government, hence the risk of default is
lower as compared to other private corporations.
Assuming that the acceptable range for setting the preliminary materiality is 5% to
10%, which of the following entity is more likely geared towards the upper range
(i.e., 10%)?
Listed client in the Philippines Stock Exchange
Family-owned retail client with no debt financing

scheme Client holding a secondary license from the Philippine Securities and Exchange
Commission
Family-owned retail client with no debt financing scheme
Client in a highly regulated industry such as banks and insurance companies
The auditor normally _____ the risk of material misstatement while he/she _______ the
detection risk.
Assesses, Assesses
Assesses, Controls
Controls, Assesses
Assesses, Controls
Controls, Controls

Which of the following is the most appropriate basis for setting the preliminary
materiality for a holding company? Users only monitor the investment of this
company to another profitable company.
Pre-tax income
Total assets
Revenues
Total assets
Total equity
Which pertains to the quantity of evidence?
Sufficiency
Sufficiency Appropriateness
Both Sufficiency and Appropriateness
Neither Sufficiency nor Appropriateness
S1 Professional skepticism is considering all evidence as fraudulent unless there is a

reason to the contrary; S2 Professional skepticism dictates that auditors will strive
to achieve conclusive evidences.
True, False
False, False
True, True
False, True
False, False

industry. Which of the items above pertain(s) to inherent risk?
II, IV, VI II, IV, VI
II, III, IV, VI
II, III, IV
II, IV, V
S1: A BOA member can be a non-resident Filipino citizen; S2: BOA's chairman is
elected among the members appointed by the President of the Republic
True, False
False, True
False, True
True, True
False, False
Who is responsible for the preparation and presentation of the financial

statements?
The Internal Audit Head
Management and Those Charged with Governance

Management and Those Charged with Governance
The Auditor, after opining on the financial information
Staff accountant

industry. Which of the items above pertain(s) to detection risk?
I and V I and V
IV, V, VI
I, V, VI
III, IV, V
PRELIMS
1. Professional skepticism is
a. Necessary for a quality control system
b. Adherence to the professional code of ethics
c. The application of relevant thinking, knowledge and experience, within the
context provided by auditing, accounting and ethical standards, in making
informed decisions about the courses of action that are appropriate in the
circumstance of the audit engagement.
d. An attitude that includes a questioning mind, being alert to conditions
which may indicate possible misstatement due to fraud or error and a
critical assessment of audit evidence.
2. A certificate of accreditation shall be issued to CPA’s in public practice only upon

showing, in
accordance with rules and regulations promulgated by the Board and approved by
the PRC, that such registration has acquired a minimum of ___ years meaningful
experience in any of the areas of public practice including taxation.
a. 4
b. 3
c. 2
d. 5
3. The sector that is most represented in the ASC is the

a. Public Practice
b. Government
c. Academe
d. Commerce and Industry
4. The preliminary judgment about materiality is the ___ amount by which the auditor
believes the statement could be misstated and still not affect the economic
decision of users.
a. Minimum
b. Maximum
c. Mean average
d. Median average
5. The objective of the Philippine Accountancy Act of 2004 includes:

a. The examination for registration of certified public accountants
b. The standardization and regulation of accounting education
c. All of the choices
d. The supervision, control, and regulation of the practice of accountancy in the
e. Philippines
6. One objective of the client acceptance phase of the audit is to:

a. Determine the type and amount of staff.
b. Determine risk of the audit.
c. Review financial statements and other report material.
d. Determine the amount and type of evidence and review required to give the
auditor assurance that there is no material misstatement of the financial
statements.
7. The understanding between the client and the auditor as to the degree of
responsibilities to be assumed by each are normally set forth in a/an?
a. Comfort letter.
b. Management letter
c. Engagement letter.
d. Representation letter.
8. In a limited assurance engagement, the practitioner

a. Expresses the conclusion in a negative form
b. Has obtained sufficient appropriate evidence to reduce assurance engagement
risk to an
c. acceptably low level.
d. Expresses the conclusion in a positive form
e. Conveys reasonable assurance
9. Continuing professional education (CPE) is ongoing training that is required in

order to remain certified as a professional in certain fields. The following are
sources of CPE units, except
a. Undergraduate degree
b. Authorship
c. Master’s degree
d. Seminars
10. To be qualified as having passed the CPA licensure examination

a. Both of the statements
b. The candidate must have a general weighted average of at least 75%.
c. Neither of the statements
d. The candidate must not have a grade lower than 65% in any given subject.
11. Which of the following statements is true concerning evidence in an assurance

engagement?
a. The reliability of evidence is influenced not by its nature but by its source
b. Sufficiency is the measure of the quantity of evidence.
c. Obtaining more evidence may compensate for its poor quality
d. Appropriateness is the measure of the quality of evidence, that is, its reliability
and persuasiveness
12. Classifying controls by transaction stage classifies them according to:

a. Environment, general, and application
b. Input, processing and output
c. Preventive, detective, corrective
d. Administrative and accounting
13. Which of the following is the correct order in the audit process?
a. Pre-engagement, Audit Planning, Substantive testing, Completing the audit,
Issuance of opinion
b. Audit Planning, Pre-engagement, Issuance of opinion, Substantive testing
c. Pre-engagement, Audit Planning, Substantive testing, Issuance of opinion,
Completing the audit
d. Substantive testing, Testing of Internal Controls, Completing the audit, Issuance
of opinion
14. Which of the following statements best describes assurance services?

a. Independent professional services designed to express an opinion on the
fairness of historical financialstatements based on the results of an audit.
b. Services that requires the preparation of financial statements or the collection,
classification, andsummarization of other financial information.
c. Independent professional services designed for the improvement of operations,
resulting in betteroutcomes.
d. Independent professional services that are intended to enhance the
credibility ofinformation to meet the needs of an intended user.
15. The auditor's primary consideration is whether, and how, a specific control
prevents, or detects and corrects, material misstatements:
a. In classes of transactions, account balances or disclosures.
b. In classes of transactions.
c. In disclosures.
d. In account balances.
16. Which of the following components of internal control includes development and
use of training policies that communicate prospective roles and responsibilities to
employees?
a. Control Environment
b. Risk Assessment
c. Control Activities
d. Monitoring
17. An engagement letter should be written before the start of an audit because
a. It may limit the auditor’s legal liability by specifying the auditor’s responsibilities.
b. It specifies the client’s responsibility for preparing schedules and making the
records
c. available to the auditor.
d. It specifies the basis for billing the audit for the upcoming year.
e. All of the choices are correct.
18. Which of the following is a source of information risk?

a. All of the choices are sources of information risk
b. Information may be biased in favor of the provider when his goals are
inconsistent with the decision maker
c. As the number of transaction increases, the likelihood that errors will occur also
increases.
d. Decision makers, in most cases, are not involved in the daily operations of the
company
19. Detection risk is:

a. The susceptibility of an assertion to misstatements that could be material, before
consideration of any related controls.
b. The risk that an auditor’s substantive procedures will not detect a
misstatement that exists and that could be material.
c. The risk that a misstatement that could occur in an assertion, and that could be
material, will not be prevented, or detected and corrected, on a timely basis by
the entity’s internal control.
d. The risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated.
20. Which of the following is not a factor that affects the auditor’s judgment, during
audit planning, as to the quantity, type and content of working papers?
a. The auditor’s preliminary assessment of control risk.
b. The nature of the client’s business.
c. The auditor’s preliminary evaluation of inherent risk based on discussions with
the client.
d. The type of report to be issued by the auditor.
21. Internal control is a process, effected by an entity’s board of directors,

management and other personnel, designed to provide reasonable assurance
regarding the achievement of objectives. Which of the following is an example of
detective control
a. Monthly bank reconciliation
b. Access controls
c. Segregation of duties
d. CCTVs in lieu of security guard
22. In an assurance engagement, the outcome of the evaluation or measurement of a
subject matter against a criteria is called
a. Subject matter information
b. Assurance
c. Subject matter
d. Conclusion
23. Which of the following is most likely a direct reporting?

a. Review of prospective financial information
b. Performance audit
c. Financial statement audit
d. Assurance engagement of a sustainability report which was prepared by
management
24. Which of the following is the single feature that most clearly distinguishes
auditing, attestation, and assurance
a. Scope of services
b. CPA's approach to the service
c. Training necessary to perform the service.
d. Type of service
25. An abnormal fluctuation in gross profit that might suggest the need for extended
audit procedures for sales and inventories would most likely be identified in the
planning phase of the audit by the use of:
a. An assessment of internal control.
b. Specialized audit programs.
c. Tests of transactions and balances.
d. Analytical procedures.
26. The element of the audit planning process most likely to be agreed upon with the
client before implementation of the audit strategy is the determination of the
a. Schedules and analyses to be prepared by the client’s staff.
b. Methods of statistical sampling to be used inconfirming accounts receivable.
c. Evidence to be gathered to provide a sufficient basis for the auditor’s opinion.
d. Pending legal matters to be included in the inquiry of the client’s attorney.
27. Which of the following factors most likely would cause a CPA to not accept a new
audit engagement?
a. The CPA lacks a thorough understanding of the prospective client's operations
and
b. industry.
c. The CPA is unable to review the predecessor auditor's working papers.
d. The prospective client has fired its prior auditor.
e. The prospective client is unwilling to make financial records available to
the CPA.
28. There are a number of specific elements that usually contribute to a successful
control environment and which may be used as indicators of the quality of the
control environment of a particular organisation. Which of the following is not one
of these elements?
a. Assignment of authority and responsibility.
b. Human resource policies and practices.
c. Segregation of duties in management.
d. Organisational structure.
29. When a CPA is approached to perform an audit for the first time, the CPA should
make inquiries of the predecessor auditor. This is a necessary procedure because
the predecessor may be able to provide the successor with information that will
assist the successor in determining
a. Whether the engagement should be accepted.
b. Whether the predecessor’s work should be utilized.
c. Whether, in the predecessor’s opinion, internal control of the company has been
satisfactory
d. Whether the company follows the policy of rotating its auditors
30. A reason to establish internal control is to

a. Have a basis for planning the audit.
b. Provide reasonable assurance that the objectives of the organization are
achieved.
c. Encourage compliance with organizational objectives.
d. Ensure the accuracy, reliability and timeliness of information.
31. Monitoring is considered

a. An element of the control environment
b. A portion of information and communication.
c. The primary asset safeguarding technique.
d. A component of internal control
32. It is the specific organization mandated by the law to promulgate rules and
regulations affecting the practice of Accountancy.
a. Professional Regulatory Board of Accountancy (BoA)
b. Professional Regulation Commission (PRC)
c. Philippine Institute of Certified Public Accountants (PICPA)
d. Accounting Standards Council (ASC)
33. The Board of Accountancy may issue certificate of registration and professional
identification card to any successful examinee
a. Of unsound mind
b. Who has falsely represented himself/herself in his/her application for examination
c. Guilty of immoral or dishonorable conduct
d. Convicted by a court of political offense
34. What level of assurance is provided by an auditor in an audit engagement?

a. Negative assurance
b. High, but not absolute, level of assurance
c. Positive level of assurance
d. Moderate assurance
35. Audit planning should be performed:

a. At the beginning of the engagement and updated continuously based on
information obtained during the performance of the audit.
b. Prior to performing any substantive audit procedures and prior to assessing
control risk.
c. Prior to performing any substantive audit procedures.
d. At the beginning of the engagement.
36. Bankers who are processing loan applications from companies seeking large
loans will probably ask for financial statements audited by an independent CPA
because
a. Financial statements are too complex to analyze themselves.
b. They are too far away from company headquarters to perform accounting and
auditing
c. themselves.
d. They generally see a potential conflict of interest between company
managers who want to get loans and the bank's needs for reliable financial
statements.
e. The consequences of making a bad loan are very undesirable.
37. Which of the following examinee does not belong to the group?
a. Examinee 3 scores: 85, 90, 77, 74, 73 and 60
b. Examinee 4 scores: 85, 90, 77, 76, 75 and 60
c. Examinee 1 scores: 85, 80, 77, 76, 73 and 60
d. Examinee 2 scores: 85, 80, 77, 76, 64 and 60
38. Which of the following is not part of the fraud triangle?

a. Rationalization
b. Pressure
c. All are part of the fraud triangle.
d. Opportunity
39. The chairman of FRSC must be or must have been a senior accounting
practitioner in
a. Any scope of accounting practice
b. Public practice
c. Commerce and industry
d. Government or education
40. That companies must comply with many laws and regulations including company
law, tax law and environmental protection regulations requires what category of
internal control objectives?
a. Compliance.
b. Financial reporting.
c. Government reporting.
d. Effective operations.
41. Which one of the following best describes the type of control evidenced by
segregation of duties between computer programmers and computer operators?
a. Systems development and program maintenance control
b. Application control
c. System software control
d. General IT control
42. Having evaluated inherent risk and control risk, the auditor determines detection
risk
a. As the complement of overall audit risk.
b. By performing substantive audit tests.
c. At a level that equates the joint probability of inherent risk, control risk and
detection risk with overall audit risk
d. As a product of further study of the business andindustry and application of
analytical procedures
43. Which of the following is not a situation where an auditor might use an expert?
a. Amortisation of patents.
b. Determination of physical condition of assets.
c. Value of contracts in progress.
d. Actuarial valuation.
44. Understanding the Entity and Its Environment and Assessing the Risks of Material
Misstatement emphasizes:
a. Procedures for sampling audit tests.
b. Obtaining an understanding of control risk.
c. Reports to federal regulators.
d. Obtaining an understanding of business risks and significant risks.
45. Which of the following is true regarding the term of office of the members of the
Professional Regulatory Board of Accountancy?
a. No person who has served two successive complete terms as chairman or
member shall be eligible for reappointment as chairman or member until
the lapse of one year
b. The Chairman and members of the Board shall hold office for a term of three
years and one year respectively
c. Any vacancy occurring within the term of a member shall be filled up for the
unexpired portion of the term and can be extended.
d. A person can serve in the Board for more than twelve (12) years
46. It involves a systematic review of an organization’s activities in relation to specific

objectives for the purpose of assessing performance
a. Government audit
b. Financial statement audit
c. Compliance audit
d. Operational audit
47. Which one of the following would the auditor not consider in establishing the
overall audit strategy?
a. The legal and regulatory framework applicable to the entity.
b. Audit areas where there is higher risk of material misstatement.
c. Indusrty specific reporting requirements.
d. Testing of key controls which the auditor intends to rely on.
48. What technique should the auditor use in assessing the risk of material
misstatement?
a. The auditor should obtain written representation from the entity’s management.
b. The auditor should relate the identified risks to what can go wrong at the
assertion level.
c. The auditor should familiarize themselves with the client’s industry and current
market conditions.
d. The auditor should consider the implications of the identified risks for the
auditor’s report.
49. Which of the following sets of duties would ordinarily be considered basically
incompatible in terms of good internal control?
a. Custody of unmailed signed checks and maintenance of expense subsidiary
ledgers.
b. Posting to the general ledger and approval of additions and terminations relating
to the payroll.
c. Collection of receipts on account and maintaining accounts receivable
records.
d. Preparation of monthly statements to customers and maintenance of the
accounts receivable subsidiary ledger.
50. Which of the following factors most likely would cause a CPA to decline a new
audit engagement?
a. Management acknowledges that the entity has had recurring operating losses.
b. The CPA is unable to review the predecessor auditor's working papers.
c. Management is unwilling to permit inquiry of its legal counsel
d. The CPA does not understand the entity's operations and industry.
QUIZ 3
1. For attributes testing, For a large population, a decrease in population size.

a. will lead to a larger sample size
b. will lead to a smaller sample size
c. will have a negligible effect on the sample size.
2. Evaluate the following pertaining to the audit risk model:

The risk of material misstatement is dependent to the audit
Detection risk is independent of the audit
a. True, True
b. False, False
c. True, False
d. False, True
3. Classify the following engagements according to level of assurance provided:

Review, Audit
a. Negative, Positive
b. Positive, Negative
c. Limited, Reasonable
d. Reasonable, Limited
4. Evaluate a CPA licensure exam candidate who obtains the following marks:FAR –
73%, AFAR – 73%, MS – 73%, RFBT – 73%, TAX – 73%, AUD – 100%
a. Passed
b. Failed
c. Conditioned, without removal
d. Conditioned, with removal
5. Logically, which are first identified and assessed?

a. Risk of material misstatement
b. Controls
c. Substantive procedures
d. Appropriate report
6. For which of the following judgments may an independent auditor share

responsibility with an entity's internal auditor
a. Assessment of Inherent Risk :Yes; Assessment of Control Risk: Yes
b. Assessment of Inherent Risk :No; Assessment of Control Risk: No
c. Assessment of Inherent Risk No ; Assessment of Control Risk: Yes
d. Assessment of Inherent Risk Yes; Assessment of Control Risk: No
7. Which pertains to the risk that misstatement are not prevented, and detected and
corrected by internal controls on a timely manner?
a. Inherent Risk
b. Control Risk
c. Detection Risk
d. Audit Risk
8. Which of the following would an auditor consider during client acceptance

procedures?
a. Integrity of the client
b. Competence of the auditor
c. Ethical requirements
d. All of the above
9. For variables testing, Using other substantive procedures on top of the primary
substantive procedures in question.
10. Evaluate the following pertaining to the audit risk model: I. The risk of material
misstatement can be controlled by the auditor II. The detection can be
controlled/manipulated by the auditor
a. True, True
b. False, False
c. True, False
d. False, True
11. For attributes testing, A lower confidence level.

12. Which of the following is the primary responsibility of an auditor?

a. Audited Financial Statements
b. Unaudited Financial Statements
c. Auditors' Report
d. Management Representation Letter
13. After studying and evaluating a client's existing internal control, an auditor has
concluded that that the policies and procedures are well designed and functioning
as intended. Under these circumstances the auditor would most likely
a. Perform further control tests to the extent outlined in the audit program
b. Determine the control policies and procedures that should prevent or detect
errors and fraud
c. Set detection risk at a higher level than would be set under conditions of
weak internal control
d. Set detection risk at a lower level than would be set under conditions of weak
internal control
14. Classify the following: I. Financial Position, Financial Performance, and Cash
Flows II. Statement of Financial Position, Statement of Profit or Loss and Other
Comprehensive Income, and Statement of Cash Flows
a. Subject Matter, Subject Matter Information
b. Subject Matter Information, Subject Matter
c. Subject Matter, Subject Matter
d. Subject Matter Information, Subject Matter Information
15. For variables testing,The use of stratification

16. How would an auditor respond to a high control risk?

a. Lower inherent risk
b. Higher inherent risk
c. Lower acceptable level of detection risk
d. Higher acceptable level of detection risk
17. In preparation of an audit program which of the following items is not essential?
a. A review of material from prior audits
b. The preparation of a budget identifying the cost of resources needed
c. An understanding of controls established by management
d. Assessment of inherent risk
18. All of the following, except for one, are required to apply for a certificate of
accreditation. Select the exception:
a. CPAs in the academe
b. CPAs in public practice
c. CPAs in commerce and industry (compilers)
d. CPAs in government
19. Evaluate the following statements: I. RA 9298 is the law primarily regulating the
practice of accounting in the Philippines II. Nomination for vacant seats in the
Board of Accountancy starts with the Accredited Integrated Professional
Organization
a. True, True
b. False, False
c. True, False
d. False, True
20. In deciding whether to use the work of the internal auditor, external auditor must
evaluate the internal auditors'
a. Objectivity and competence
b. Independence and professionalism
c. Education and certification
d. Age and gender
21. Evaluate the following statements about continuing professional development: I.

An accountant must obtain a total of 120 CPD credit units starting 2019 (renewal
year) II. These 120 CPD credit units must be equally distributed among four
competence areas
a. True, True
b. False, False
c. True, False
d. False, True
22. For variables testing,A very high acceptable sampling risk (risk of incorrect
acceptance)
23. Which of the following is not true regarding planning in an electronic

environment?
a. The definition of auditing is not changed
b. The purpose of auditing is not changed
c. The procedures used are not changed
d. Auditing standards are not changed
24. For variables testing, A very high risk of material misstatement.

25. For variables testing,Lower expected error.

26. Which combination of test of controls procedures would be best applied if the
auditor is concerned with segregation of incompatible duties?
a. Inquiry and Inspection
b. Inquiry and Observation
c. Inquiry and Analytical Procedures
d. Inquiry and Re-calculation
27. For attributes testing, A higher tolerable deviation rate.

28. Arrange the following procedures chronologically: I. Test of Controls II.Risk

Assessment Procedures III. Completion Procedures IV. Substantive Procedures
a. II, I, III, IV
b. II, I, IV, III
c. II, III, I, IV
d. II, III, IV, I
29. Classify the following audit/test objectives to the appropriate procedures: I. Follow
through a completed transaction from start to finish in order to confirm the
understanding of control structures II. Establish the operating effectiveness of
controls
a. Test of controls, test of controls
b. Walkthrough, walkthrough
c. Test of controls, walkthrough
d. Walkthrough, test of controls
30. A corporate governance best practice is when

a. The Chief Executive Officer is also the Chairman of the board of directors of the
audit client
b. The Chief Executive Officer is also the Chief Financial Officer of the audit client
c. The internal audit function reports to the audit committee of those charged
with governance
d. The partner in charge of the audit is also a part of the audit committee of the
board
31. For attributes testing, A lower expected deviation rate.

32. Classify the following responses to the risk of material misstatement:I. Applying
more professional scepticism II. Adjusting the nature, timing and extent of audit
procedures
a. Both are general/overall responses
b. Both are assertion level responses
c. General/Overall response, assertion-level response
d. Assertion-level response, general/overall response
33. If an auditor does not rely/test the controls, then

a. Inherent risk is low
b. Inherent risk is high
c. Control risk is low
d. Control risk is high
34. Determine which is/are reasons(s) why an auditor tests controls: I.To enable
him/her to report (i.e., give an opinion) on the operating effectiveness of controls
II. To enable him/her to assess and respond to the risk of material misstatement
appropriately
a. Both I and II
b. Neither I nor II
c. I only
d. II only
35. Risk that practitioner gives out an inappropriate conclusion

a. Audit Risk
b. Assurance Engagement Risk
c. Review Risk
d. Information Risk
36. For attributes testing, A higher reliance on the control being tested.
37. Which of the following is a source of information risk?

a. Volume of transactions
b. Complexity of transactions
c. Distance of preparers from users
d. All of the above
38. Evaluate the following statements: I. Client operates in a highly-complex industry;

client is heavily regulated (e.g., a bank) II. Client's management follows good
corporate governance practices
a. Both indicates high risk of material misstatements
b. Both indicates less than high risks of material misstatements
c. High; less than high
d. Less than high; high
39. Classify the following engagements: Review, Compilation, Agreed Upon

Procedures
a. All assurance engagements
b. All non-assurance engagements
c. Assurance, Non-assurance, and Non-assurance engagements, respectively
d. Assurance, Non-assurance, and Assurance engagements, respectively
40. During initial assessment of the risk of material misstatement, if the auditor
determines that control risk is less than high then
a. Auditor will rely on the operating effectiveness of controls
b. Auditor will not test controls
c. Auditor has been satisfied with results of his/her understanding and
walkthrough of controls
d. Auditor will take a reliance approach
41. Evaluate the following statements about an accountant's professional practice: I.

A foreign accountant who wish to practice in the Philippines may take the CPA
board examinations, in lieu of reciprocity agreements II. An accounting teacher is
not in the active practice of the profession
a. True, True
b. False, False
c. True, False
d. False, True
42. Who is ultimately responsible for the audited financial statements?

a. Management
b. Auditor
c. Shareholders
d. All of the above
43. Which of the following is an appropriate response to the re-assessment of the risk
of material misstatement (i.e., after tests of controls); the re-assessment confirms
the initial assessment of the risk of material misstatement?
a. Controls-reliance approach is to be undertaken
b. Additional test of controls must be performed
c. Substantive approach is to be undertaken
d. Additional risk assessment procedures must be undertaken
44. Which of the following is commonly called "the risk of material misstatement at
first instance"?
a. Inherent Risk
b. Control Risk
c. Detection Risk
d. Audit Risk
45. Which of the following is the primary evidence that the auditor and the client
agreed to the terms of the engagement?
a. Management Letter
b. Management Representation Letter
c. Engagement Letter
d. Prospectus
46. Chidi Anagonye is a senior associate in TGP Partners. He is in the process of

setting up the preliminary level of materiality for the audit of Eleanor Inc. Michael,
the engagement manager, suggested that 5% to 10% of pretax income is the
acceptable range of materiality for the client. If Chidi sets performance materiality,
such level must be higher than the preliminary materiality.
a. True
b. False

acceptable range of materiality for the client. In setting the materiality level, Chidi
should primarily take into consideration the information needs of management.
a. True
b. False

acceptable range of materiality for the client. Less evidence is required to be
gathered should Chidi set the preliminary materiality at 5% than at 10%
a. True
b. False

acceptable range of materiality for the client. More evidence is required to be
gathered should Chidi set the preliminary materiality at 5% than at 10%
a. True
b. False
acceptable range of materiality for the client.If Eleanor Inc. is a listed audit client,
Chidi must set the preliminary materiality at 5%.
a. True
b. False
QUIZ 4
1. Auditor inquires for any slow moving inventory in the warehouse. What assertions
are being tested by the said procedures?
a. Existence/Occurrence
b. Completeness / Cut off
c. Valuation
d. Rights and Obligations
2. ABC Foundation was not able to support its revenue from donations. Official
receipts were lost due to a fire. The auditors were able to retrace purported
transactions in the pass book and supporting bank accounts. The issue is very
pervasive. The appropriate report would be
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
3. Mr. A is being asked to be the auditor of the summarized financial statements of

ABC Co. Mr. B, however, is the auditor of the full set of financial statements. Can
Mr. A accept the engagement?
a. Yes, there is no prohibition to such
b. No, there is a prohibition to such
c. Not enough information is provided
d. None of the above
4. For a small sample size the combination of acceptable sampling risk, tolerable
deviation rate and expected population deviation rate are:
a. Increase, Decrease, Increase
b. Decrease, Increase, Decrease
c. Increase, Increase, Decrease
d. No effect
5. Choco previously used provisional amounts while accounting for a significant

business combination. Choco adjusted previously recorded goodwill for a
contingent liability discovered after the end of the provisional period. The effect of
this transaction is pervasive. The appropriate report would be
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
6. Auditor confirms cash balances with the bank. What assertions are being tested
by the said procedures?
c. Valuation
7. Which of the following is used to control sampling risks?

a. Perform 100% testing
b. Assign prior engagement team members to perform sampling
c. Assign senior associates to perform sampling
d. Use appropriate sample selection method
8. Which is true about key audit matters?

a. These are not entity specific matters
b. The KAM section must imply that the issue is unresolved
c. The KAM section must not include discrete opinion
d. All of the above are correct
9. The auditor of Choco performed roll-forward procedures for the inventory

accounts in lieu of observing the inventory count. The inventory balances were
determined to be pervasively misstated, taken into context the complete set of
financial statements. The appropriate report would be
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
10. Auditor analyses the last ten entries for the year and first ten entries of the
subsequent year to ensure recording in the proper period. What assertions are
being tested by the said procedures
c. Valuation
11. Increasing the sample size would address:

a. Risk of human errors
b. Risk of technique misapplication
c. Sampling risk
d. Non-sampling risk
12. Audit plan should

a. precede actions
b. be cost beneficial
c. both a and b
d. neither a nor b
13. Management's refusal to furnish a written representation on a matter which the

auditor considers essential constitutes
a. Prima facie evidence that the financial statements are not presented fairly.
b. A scope limitation sufficient to preclude an unqualified opinion.
c. All of these
d. None of these
14. The maximum amount of error in the population that the auditor is willing to
accept:
a. Acceptable risk
b. Tolerable deviation rate
c. Expected error
d. Anomalous error
15. Evaluate the following statements: S1: Close calls are items initially considered to
cast significant doubt on going concern but due to Management's plan such is no
longer consider to present a material uncertainty. S2: Auditors are prohibited to
challenge close calls in light of the applicable financial reporting framework
a. True, True
b. False, False
c. True, False
d. False, True
16. All of the following are benefits of using statistical sampling except:
a. Controlling sampling and non-sampling risks
b. Design an efficient sample
c. Provide sufficiency measure of evidence obtained
d. Evaluate objectively the results of testing
17. Auditor performs test counts by testing items in the warehouse to the accounting
records (or count sheets). What assertions are being tested by the said
procedures?
c. Valuation
18. The auditor of Choco failed to observe the inventory count. No appropriate
alternative procedures are available for this very material account. The
appropriate report would be
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
19. The group auditor of Choco was not able to audit an immaterial subsidiary. No
appropriate alternative procedures were performed. The appropriate report would
be
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
20. Which of the following auditing procedures is ordinarily performed last?

a. Reading of the minutes of the director's meetings for the period covered by the
audit.
b. Confirming accounts payable.
c. Obtaining a management representation letter.
d. Testing of the purchasing function.
21. Who should be the signatories of the management representation letter?

a. Senior Executive Officer
b. Senior Finance Officer
c. Both a and b
d. Either a or b
22. Auditor inspects the bond indenture agreement and checks if the issuer of the
bond is the audit client. What assertions are being tested by the said procedures?
c. Valuation
23. Key Audit Matters: S1: Are included in qualified and adverse opinions, S2: Are
included in reports with a disclaimer
a. True, True
b. False, False
c. True, False
d. False, True
24. Mr. A issued an adverse opinion on the complete set of financial statements, due
to the inventories. Mr. A was asked to audit the property, plant and equipment.
Which of the following is true?
a. Mr. A may not issue an unqualified opinion since the opinion on the complete set
is adverse.
b. Mr. A may not issue an unqualified opinion since inventories is an immaterial
component of the F/S.
c. Mr. A may issue an unqualified opinion if the report on both subject matter
information are issued together
d. Mr. A may issue an unqualified opinion since inventory is not related to
PPE.
25. In audit of summarized financial statements, which is a possible wording of an

unqualified opinion by the auditor?
a. Fairly presented in accordance with PFRS
b. Not fairly presented in accordance with PFRS
c. Consistent with full financial statements
d. Not consistent with the full financial statements
26. If in case the auditor expects very few deviations, he/she would use:
a. Discovery sampling
b. Sequential sampling
c. Both a or b
d. Neither a nor b
27. Auditor compares the cost of inventories against the related selling prices and
costs to complete and sell. What assertions are being tested by the said
procedures?
c. Valuation
28. A representation letter issued by a client

a. Is essential for the preparation of the auditing program.
b. Is a substitute for testing.
c. Does not reduce the auditor's responsibility.
d. Reduces the auditor's responsibility only to the extent it is relied upon.
29. Key Audit Matters Section is required for:Publicly Listed Audit Clients,
Foundations, Private Companies
a. Yes, Yes, Yes
b. No, No, No
c. Yes, No, No
d. Yes, Yes, No
30. An assertion that transactions are recorded in the proper accounting period is:
a. classification
b. accuracy
c. occurrence
d. cut-off
31. The group auditor of Choco was not able to audit a material subsidiary. No
appropriate alternative procedures were performed. The appropriate report would
be
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
32. Auditor confirms accounts payable with a supplier of the audit client. What
assertions are being tested by the said procedures?
c. Valuation
33. Which of the following best describes "information systems"?

a. this is the entity's process for identifying business risks relevant to the financial
reporting objectives and deciding about actions to address those risks, and the
results thereof.
b. this is the system for transferring information from transaction processing
systems to the general ledger or the financial reporting system.
c. these are the policies and procedures that help ensure that management
directives are carried out.
d. this includes the governance and management functions and the attitudes,
awareness, and actions of those charged with governance and management
concerning the entity's internal control and its importance to the entity.
34. Choco employed corridor approach in accounting for its retirement benefits, as
opposed to the current requirements. The auditor considers this as a material item
due to the amounts of discrepancies. The appropriate report would be
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
35. Key Audit Matters Section: S1: Is the first section of the auditor's report S2: Can
replace items presented in the emphasis of the matter section
a. True, True
b. False, False
c. True, False
d. False, True
36. Which of the following is not a sampling risk

a. Risk of overreliance
b. Risk of incorrect acceptance
c. Risk of underreliance
d. Risk of erroneous population for the test objective
37. Which of the following sampling risk would result to an erroneous conclusion on
the population?
a. Alpha risk
b. Alpha and beta risks
c. Alpha, beta and delta risks
d. Alpha, beta, gamma and delta risks
38. Arrangements concerning which of the following is more likely to be included in

the engagement letter?
a. auditor's procedures
b. fees and billing
c. information regarding auditor's investments in client's securities
d. review reports
39. When obtaining an understanding of the accounting and internal control system
the auditor may trace a few transactions through the accounting system. This
technique is called:
a. reperformance test
b. test of transactions
c. walkthrough test
d. validity test
40. Mr. A issued an adverse opinion on the complete set of financial statements, due
to the inventories. Mr. A was asked to audit the statement of financial position.
Which of the following is true?
a. Mr. A may not issue an unqualified opinion since the opinion on the
complete set is adverse.
b. Mr. A may not issue an unqualified opinion since the SFP is an immaterial
component of the F/S.
c. Mr. A may issue an unqualified opinion if the report on both subject matter
information are issued together
d. Mr. A may issue an unqualified opinion since inventory is not related to PPE.
41. Auditor performs test counts by testing items in the accounting records to the
warehouse. What assertions are being tested by the said procedures?
c. Valuation
42. Auditor inspects the bank statement and checks if the account is named after the
audit client. What assertions are being tested by the said procedures?
c. Valuation
43. The group auditor of Choco was not able to audit certain subsidiaries. No
appropriate alternative procedures were performed. The effect of this issue is very
material and pervasive in the context of the group financial statements. The
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
44. Mr. A is being asked to be the auditor of the statement of financial position of ABC
Co. Mr. B, however, is the auditor of the complete set of financial statements. Can
Mr. A accept the engagement?
a. Yes, there is no prohibition to such
b. No, there is a prohibition to such
c. Not enough information is provided
d. None of the above
45. The person(s) or organization(s) (for example, a corporate trustee) with

responsibility for overseeing the strategic direction of the entity and obligations
related to the accountability of the entity.
a. Those charged with governance
b. Management
c. Both a and b
d. Neither a nor b
46. Choco capitalized research expenses for a drug development project. The amount
involved is material. The appropriate report would be
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
47. Choco did not perform any inventory count. Inventory is determined to be a very
material account. No alternative procedure was performed for inventories. The
a. Unqualified
b. Qualified
c. Adverse
d. Disclaimer
48. Each of the following may be relevant to an auditor when obtaining knowledge
about the client's business and industry except:
a. discussion with people within or outside the entity.
b. publications related to the industry
c. visits of the entity's premises
d. performing a walkthrough test
49. If in case the auditor expects fraud, he/she would use:

a. Discovery sampling
b. Sequential sampling
c. Both a or b
d. Neither a nor b
50. Auditor obtains the management representation letter, specifically disclosures for
litigations, related parties and provisions. What assertions are being tested by the
said procedures?
c. Valuation

Q1 - Q4 - Prelim Exam ACC5111 - Auditing and Assurance Principles

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ACC5111: Auditing and Assurance Principles

QUIZ 1 - Modules 1-3

1. The auditor's satisfaction as to the reliability of an assertion being made by one

3. Law and regulation may be the criteria of an audit performed by an external

4. In an audit of financial statements, which of the following would not be a valid

5. The reason an independent auditor gathers evidence is to

7. Which of the following is the broadest and most inclusive concept?

11. The overall objective of internal auditing is to:

17. Pronouncements of Auditing and Assurance Standards Council do not cover

19. Not a qualification of a member of the BOA

23. Which of the following is not one of the limitations of an audit?

24. Which is true?

25. A CPA certificate is evidence of

26. The use of negative assurance in an audit report on financial statements

29. In performing attestation services, a CPA would normally:

30. Practitioner's independence

31. The predominant type of ATTESTATION service performed by CPAs is:

33. The audit committee of the BOD of a company is responsible for:

34. Independent professional services that are provided on financial or other

36. Ethical principles governing the compilation of financial statements include I.

38. Which of the following is not an assurance form of report?

39. Which of the following is not an attestation standard?

40. How many members does the PRC-CPE Council have?

41. The most common type of audit report contains a(n):

47. This risk is associated with a company's survival and profitability:

50. A CPA who is not independent may issue a

AUD. PRINCIPLES (QUIZ 1)

The auditor communicates the results of her work

Management representation letter

AUD. PRINCIPLES (QUIZ 1)

She was called for consultation which is essential for

None of the above. He was engaged to lecture on fields essential to

An IFRS expert is engaged for services deemed

None of the above.

AUD. PRINCIPLES (QUIZ 1)

Determines the future stewardship of the

Involves the objective

Involves the objective examination of and reporting

Reports on the accuracy of all information in the

AUD. PRINCIPLES (QUIZ 1)

answer not given

The need for independent audits of financial

AUD. PRINCIPLES (QUIZ 1)

Historical financial information

All of the above Behavior

Systems and processes

All of the above

To operate effectively, an internal auditor must be

The line functions of

Those charged with governance

The employer-employee relationship

AUD. PRINCIPLES (QUIZ 1)

A CPA should perform analytical procedures to (1)

AUD. PRINCIPLES (QUIZ 1)

The use of testing

Limitations imposed by client Human error

Limitations imposed by client

Nature of evidence obtained

The following are grounds for suspension or

Violation of RA9298, its IRR, Code of Ethics and

Pending cases on a crime involving moral turpitude.

Rigging of board exam.