Exercise

VT
1. Which of the following statements concerning a CPA’s disclosure of confidential client information is
ordinarily correct? Disclosure may be made to any party on consent of the client.
2. It is an organization engaged in the practice of public accountancy, consisting of a sole proprietor , either
alone or with one or more staff member(s): Firm
3. The integrated national professional organization of Certified Public Accountants accredited by the Board
and the Commission per PRC Accreditation No. 15 dated October 2, 1975. PICPA
4. Which of the following statements concerning the practice of accountancy in commerce and industry is
incorrect? A CPA is in the practice of accountancy in commerce and industry when he/she renders
professional services as a Certified Public Accountant to more than one client on a fee basis.
5. A person who holds a valid Certificate of Registration and a valid Professional Identification Card issued
by the Commission upon recommendation by the Board to those who have satisfactorily complied with all
the legal and procedural requirements for such issuance, including in appropriate cases, having passed the
CPA licensure examination CPA
6. This is the area of practice of accountancy namely public accountancy, commerce and industry,
academe/education and government. Sector
The following statements relate to the submission of nominations to the Board of Accountancy.
Which is correct?
- The APO shall submit its nominations to the PRC not later than thirty (30) days prior to
the expiry of the term of an incumbent chairman or member.
The following statements relate to some of the provisions of RA 9298. Which is correct?
-It shall be the primary duty of the PRC and the BOA to effectively enforce the provisions
of RA 9298.
The members of the Professional Regulatory Board of Accountancy shall be appointed by the
-President of the Philippines.
Which of the following is not a valid ground for suspension or removal of members of the Board
of Accountancy?
-Having been charged of any crime involving moral turpitude.
The following statements relate to the term of office of the chairman and members of the Board
of Accountancy (BOA). Which is false?
-No person who has served two successive complete terms as chairman or member shall be
eligible for reappointment until the lapse of two (2) years.
Which statement is incorrect regarding the term of office of the chairman and the members of the
Board of Accountancy (BOA)?
-A member of BOA may continuously serve office for more than nine years.
The following statements relate to CPE credit units. Which is incorrect?

-Excess credit units earned may be carried over to the next three-year period including
credit units earned for doctoral and master’s degrees.
Which of the following statements about the composition of the Board of Accountancy is
incorrect?
-The Board shall elect a chairman from among its members to serve for a term of one year.
VT
The Board of Accountancy shall submit to the PRC the ratings obtained by each candidate within
_____ days after the examination, unless extended for just cause.
10
The Professional Regulatory Board of Accountancy shall be composed of a chairman and six (6)
members to be appointed by the <LIST A> from a list of three (3) recommendees for each position
and ranked by the <LIST B>, from a list of five (5) nominees for each position submitted by <LIST C>.
-(LIST A)President of the Philippines; (LIST B)Commission; (LISTC)PICPA
Which of the following is not one of the basic duties and responsibilities of the BOA?
-To designate the dates, places and venues of the CPA licensure examinations
Which of the following is not one of the functions of the Board of Accountancy as specifically
provided under RA 9298?
-To perform visitorial powers or review professional work of accounting practitioners in a
general or random basis.
Which of the following statements about the composition of the Board of Accountancy is
incorrect?
-The Board shall elect a chairman from among its members to serve for a term of one year.
The following statements relate to the term of office of the chairman and the members of
the Board of Accountancy (BOA).
(I)No person who has served two (2) successive complete terms shall be eligible for
reappointment until the lapse of one (1) year
(II)Appointment to fill up an unexpired term is not to be considered a complete term
(III)A person may serve in the Board of Accountancy for eight consecutive years.
(IV)No person shall serve in the Board for more than 12 years.
-All statements are true
A member of the BOA shall, at time his/her appointment, possess the following qualifications,
except
-Must be duly registered CPA with more than ten (10) years of work experience in any
scope of practice of accountancy.
Which statement is incorrect regarding the term of office of the chairman and the members of the
-A member of BOA may continuously serve office for more than nine years.
Which of the following is not among the qualifications of a member of the Board of
Accountancy?
-He/ She must have at least 10 years of experience in the practice of public accountancy
Which statement is correct regarding the term of office of the chairman and the members of the
-No person who has served two (2) successive complete terms shall be eligible for
reappointment until the lapse of 1 year
VT
Which of the following will not be found in the Certificate of Registration issued to successful
examinees?
-Date of issuance and expiry date
Which of the following is among the qualifications of applicants for CPA licensure
examination?
(I)Must be a natural born Filipino citizen
(II)Must be of good moral character
(III)Must be a holder of the degree of Bachelor of Science in Accountancy
(IV)Must be at least 21 years of age
-I, II and III only
The Board of Accountancy may issue certificate of registration and professional identification
card to any successful examinee:
-Convicted by a court of political offense.
The Board , subject to the approval of the Commission, may revise or exclude any of the subjects
and their syllabi, and add new ones as the need arises provided that the change shall not be more
often than every
-three years
Which of the following exams must be taken with two years from the preceding examination?
-Removal exams for conditioned examinees
The Board shall submit to the Commission the ratings obtained by each candidate within how
many calendar days after the examination unless extended for just cause?
-Ten
Which of the following statements concerning the issuance of Certificates of Registration and
Professional Identification Cards to successful examinees is correct?
-The BOA shall not register and issue a Certificate of Registration and Professional
Identification Card to any successful examinee of unsound mind.
Which of the following exams must be taken with two years from the preceding examination?
-Removal exams for conditioned examinees
Which of the following does not fall under the admission requirements for CPA examinations?
-at least twenty one years of age
On exam results and report of ratings, which of the following is correct?

-None among the given statements is correct.
The following documents shall be submitted by applicants for the CPA licensure examination,
except:
-Baptismal Certificate.
W h ich of the following shall be issued to examinees who pass the CPA licensure examination?
VT
-Certificate of registration and professional identification card.
The following were the ratings of examinees who took the very difficult CPA Board
Examination on May 2010.
· Examinee 1 - All subjects garnered a rating of 95%.

· Examinee 3 - One subject garnered a rating of 81% and the other six
garnered a rating of 74%.
· Examinee 4 - One subject garnered a rating of 64% and the other six
· Examinee 5 - Three subjects garnered a rating of 75% and the other four
· Examinee 7 - Four subjects garnered a rating of 95%, one with 73% and
other 2 with 64%.
· Examinee 8 - Three subjects garnered a rating of 95%, one with 74% and
other three with 73%.
Of the ratings presented above, how many examinees obtain a conditional status in the
Board Exam?
-2
The death or disability of an individual CPA and/or the dissolution and liquidation of a firm or
partnership of CPAs shall be reported to the BOA not later than _____ days from the date of such
death, dissolution or liquidation.
-30
Listed below are names of four CPA firms and pertinent facts relative to each firm. Unless
otherwise indicated, the individuals named are CPAs and partners, and there are no other
partners. Which is a violation of the Implementing Rules and Regulations of RA 9298?
-Joni and Jona, CPAs (Joni died about three years ago; Jona is continuing the firm as a sole
proprietor.)
A registered professional shall be permanently exempted from CPE requirements upon reaching
the age of
-65 years old
Which of the following statements concerning the use of firm or partnership name is incorrect?
-A CPA shall practice only under an individual, firm, or partnership name in accordance
with Philippine laws and shall not include any fictitious name but may indicate
specialization.
The sector that is most represented in the AASC is the

-Public practice
Which of the following definitions in the Act describe a convention?

-It refers to the gathering of professionals which shall include, among others, conferences,
symposia or assemblies for round table discussions.
VT
Which is correct regarding credit units earned in a continuing professional education activity?
-A CPA who has earned 70 units in a 3-year period from seminars and conventions cannot
carry the excess units to the next 3-year period
A partner surviving the death or withdrawal of all the other partners in a partnership may
continue to practice under the partnership name for a period of not more than _____ years after
becoming a sole proprietor.
-2
If the application for registration to practice public accountancy of Sayson and Co. CPAs, was
approved on July 31, 2009, the registration shall expire on
-December 31, 2011
According to RA 9298, if a partner in a two-member partnership dies, the surviving partner may
continue to practice as an individual under the existing firm title which includes the deceased
partner’s name
-For a period of time not to exceed two years.
Affixing the CPA’s seal and signature on the auditor’s report is an indication of:
-Compliance by the CPA of the requisite accounting and auditing standards and rules.
Per RA 9298: A certified public accountant engaged in the practice engaged in the practice of
public accountancy under his/her name, by himself/herself only or with one or more staff
members.
-Individual CPA
approved on July 31, 2009, the registration shall be renewed on or before
approved on July 31, 2009, the registration shall be renewed on or before
-September 30, 2011
Which of the following regarding the standards-setting councils is correct?

-Each of the councils is composed of 15 members including the chairman.
Which of the following is not represented in the AASC?

-Bureau of Internal Revenue
Which of the following does not constitute a practice of accountancy?

-A person is appointed as a marketing director of a government-owned and controlled
corporation.
Special/ temporary permit may be issued by the Board to the following persons excep
-A foreign CPA who can prove that the country of which he or she is a citizen admits
citizens of the Philippines to the practice of the same profession without restriction.
Which of the following statements concerning ownership of working papers is incorrect?

-Working papers include reports submitted by a CPA to his/her client.
Practice of accountancy in the public sector involves

VT
-Rendering bookkeeping, auditing, system installation, etc. on a fee basis
Which of the following is not observed or required on a 3-year period basis?

-Reinstatement of a revoked COR
Any person who shall violate any of the provisions of the Accountancy Act or any of its
implementing rules and regulations promulgated by the Board of Accountancy subject to the
approval of the PRC, shall, upon conviction, be punished by
Any person who shall violate any of the provisions of the Accountancy Act or any of its
implementing rules and regulations promulgated by the Board of Accountancy subject to the
approval of the PRC, shall, upon conviction, be punished by
-A fine of not less than P50,000 or by imprisonment for a period not exceeding two years or
both.
Which of the following statements is/are correct?

Statement 1: It shall be the primary duty of the Commission and the Board to
effectively enforce the provisions of RA 9298 and its Implementing Rules and
Regulations.
Statement 2: Any person may bring before the Commission, Board, or the
aforementioned officers of the law, cases of illegal practice or violations of RA 9298
and its Implementing Rules and Regulations.
-Both statements are correct
According to the Philippine Accountancy Act of 2004 (RA 9298), any person who shall violate
RA 9298 or any of its implementing rules and regulations as promulgated by the Professional
Regulatory Board of Accountancy subject to the approval of the PRC, shall upon conviction, be
punished by:
-Not less than fifty thousand (P50,000), or by imprisonment for a period not exceeding two
(2) years, or both
Practice in Public Accountancy shall constitute in a person

-Holding out himself/herself as one skilled in the knowledge, science and practice of
accounting, and as a qualified person to render professional services as a certified public
accountant; or offering or rendering, or both, to more than one client on a fee basis or
otherwise.
Which of the following is not one of the specified objectives of the Accountancy Act of 2004?
-Promulgation of accounting and auditing standards.
When a CPA represents her/his client before government agencies n tax matters related to
accounting, the CPA is engaged in what sector?
-Practice in public accountancy
Which of the following is not one of the functions of the Board of Accountancy as specifically provided
under RA 9298?
-To perform visitorial powers or review professional work of accounting practitioners in a general
or random basis.
VT
Which statement is incorrect regarding the term of office of the chairman and the members of the Board
of Accountancy (BOA)?
A member of BOA may continuously serve office for more than nine years.
A Professional Identification Card bearing the registration number, date of issuance, expiry date, duly
signed by the chairperson of the Commission, shall be issued to every registrant renewable every
-Three years
The certified public accountant shall be required to indicate which of the following numbers on
the documents he/she signs, uses or issues in connection with the practice of his/her profession?
• His/her Certificate of Registration

• Professional Identification Card
• Professional Tax Receipt
• Telephone
-Yes yes yes no
Which of the following is required for a partnership for public accountancy practice?
-All partners must be CPAs.
Below are the names of three CPA firms and pertinent facts relative to each firm. Unless otherwise
indicated, the individuals named are CPAs and partners, and there are no other partners. Which firm name
and related facts indicates a violation of the IRR of RA 9298?
-Hugo and Pugo, CPAs (Hugo died 25 months ago, Pugo is continuing the firm as a sole proprietor)
A CPA whose certificate have been revoked may be reinstated if he has acted in exemplary
manner and has not committed any illegal, immoral or dishonourable conduct for a period not
less than
-Five years
A person whose CPA certificate has been revoked

-May be reinstated as a CPA by the Board of Accountancy after two years if he has acted in an
exemplary manner
Which of the following is not one of the penalties that can be imposed by the Board of
Accountancy?
-Fine or imprisonment
The following statements relate to RA 9298 and its IRRs. Which statement is false?
-Under the IRR of RA 9298, if a partner in a two member partnership dues, the surviving
partner may continue to practice as an individual under the existing frim title which
includes the deceased partner’s name for a period of time not to exceed five ears.
Which of the following is incorrect regarding confidentiality?

-The duty of confidentiality ceases after the end of the relationship between the professional
accountant and the client or employer.
Which of the following is the least required in attaining professional competence?

-Continuing awareness of development in the accountancy profession.
VT
According to the standards of the profession, which of the following circumstances will prevent a
CPA performing audit engagements from being independent?
-Employment of the CPA’s spouse as a client’s director of internal audit
According to the ethical standards of the profession, which of the following acts is generally
prohibited?
-Retaining client records after an engagement is terminated prior to completion and the
client has demanded their return
Which of the following is not explicitly referred to in the Code of Ethics as source of technical
standards?
-Commission of Audit (COA)
Which of the following is incorrect regarding professional competence?

-Professional accountants may portray themselves as having expertise or experience they do
not possess.
Part A of the Code of professional ethics establishes fundamental principles of professional

ethics for professional accountants and provides a conceptual framework for applying those
principles. Which of the following is not one of the fundamental principles:
-Independence
A CPA shall not disclose confidential information obtained during an audit engagement in which
one of the following situations?
-To a successor auditor without the client’s permission.
Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the
Philippines?
-The code is divided into two parts, part A and part B
The code of ethics for professional accountants applies to

-All CPAs
Which of the following ethical principles implies fair dealings and truthfulness?
-integrity
Which of the following most accurately states how objectivity has been defined by the Code of
Ethics?
-A combination of impartiality, intellectual honesty and a freedom from conflict of interest.
A combination of impartiality, intellectual honesty and a freedom from conflicts of interest.

-Objectivity
The underlying reason for a code of professional ethics is

-The need for public confidence in the quality of service of the profession.
Competence as a certified public accountant includes all of the following except

-Warranting the infallibility of the work performed.
Which of the following is the least required in attaining professional competence?

VT
-Continuing awareness of development in the accountancy profession.
The principle of professional behavior requires a professional accountant to

-Act in a manner consistent with the good reputation of the profession and refrain from any
conduct which might bring discredit to the profession.
Which of the following fundamental principles would most likely be threatened when a
professional accountant in public practice is asked to provide a second opinion which is based on
inadequate sets of facts or evidence?
-professional competence and due care
Existing accountant, as defined in the Code of Ethics, means

-A professional accountant in public practice currently holding an audit appointment or
carrying out accounting, taxation, consulting or similar professional services for a client.
The Code of Ethics for Professional Accountants in the Philippines defined “practice” as
-A sole proprietor or a partnership of professional accountants which offers professional
services to the public.
Which of the following is a member of IFAC?

-PICPA
Which of the following is not a fundamental ethical principle?

-Independence
professional accountant accepts an engagement before knowing all the pertinent facts about the
new engagement?
-professional competence and due care
Before accepting a new client relationship, a professional accountant in public practice should
consider whether acceptance would create threats to compliance with the fundamental principles.
Which of the following fundamental principles will be threatened when question arises about the
integrity of prospective client’s management and board of directors?
-integrity and professional behavior
The principle of confidentiality applies to:

-All professional accountants
The phase of professional competence that requires a professional accountant to adopt a program
designed to ensure quality control in the performance of professional services consistent with
technical and professional standards is:
-maintenance of professional competence
Which of the following fundamental principles requires a professional accountant to comply with
relevant laws and regulations?
-Professional behavior
The Code recognizes that the objectives of the accountancy profession are to work to the highest
standards of professionalism, to attain the highest levels of performance and generally to meet
the public interest requirements set out above. These objectives require four basic needs to be
met including the following, except
VT
-Integrity
May a CPA hire for the CPA’s public accounting firm a non-CPA systems analyst who
specializes in developing computer systems?
-Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s end
product
Professional competence should include

1) Attainment of professional competence
2) Maintenance of professional competence
-YES YES
Which of the following is the correct order of steps in attaining professional competence?
1. education
2. professional experieces
3. professional examination
-1,3 and 2
Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the
Philippines?
-Where a national statutory requirement is in conflict with a provision of the IFAC Code,
the IFAC Code requirement prevails.
Which of the following is not one of the characteristics of a profession?
-A responsibility to protect exclusively the interest of a client or employer.
Which of the following ethical principles would most likely be compromised if a professional
accountant fails to modify his/her report on financial information that is incorrect, incomplete or
unsatisfactory?
-Integrity
The essence of the due care principle is that the auditor should not be guilty of:
-Negligence
The term receiving accountant includes the following, except

-A professional accountant in public practice currently holding an audit appointment or
carrying out accounting, taxation, consulting, or similar professional services for a client.
Which statement is correct regarding the Code of Ethics for Professional Accountants in the
Philippines?
-All CPA’s are expected to comply with the ethical requirements of the Code and other
ethical requirements that may be adopted and approved by IFAC. Apparent failure to do
so may result in an investigation into the CPA’s conduct.
In order to achieve the objectives of the accountancy profession, professional accountants have
to observe a number of prerequisites or fundamental principles. The fundamental principles
include the following, except
-Confidence
VT
Professional accountants may encounter problems in identifying unethical behavior or in

resolving an ethical conflict. When faced with significant ethical issues, professional
accountants should do the following, except
-If the problem is not resolved with the immediate superior and the professional accountant
determines to go to the next higher managerial level, the immediate superior need not be
notified of the decision.
These are fees calculated on a predetermined basis relating to the outcome or result of a
transaction or the result of the work performed.
-Contingent Fees
Which of the following would least likely create “self-interest threat”?

-Pressure to reduce inappropriately the extent of work performed in order to reduce fees
Which of the following threats to independence is created when a member of the assurance team
participates in the assurance engagement while knowing, or having reason to believe, that he is
to, or may, join the assurance client sometime in the future?
-Self-interest threat
What threat to independence may be created if fees due from an assurance client for professional
services remain unpaid for a long time, especially if a significant part is not paid before the issue
of the assurance report for the following year?
Which of the following circumstances would least likely create self-interest threat?
-Having a close personal relationship between a member of the assurance team and the
assurance client, its directors, officers or employees
professional accountant in public practice solicits new work through advertising or other forms
of marketing?
-professional behavior
The recruitment of senior management for an assurance client, such as those in a position to
affect the subject matter of the assurance engagement, may create the following current or future
threats to independence, except
-Self-review threat
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
-Withdraw from, or refuse to accept, the assurance engagement.
Using the same senior personnel on an assurance engagement over a long period of time would
most likely create
-Familiarity threat
A direct financial interest or a material indirect financial interest in the audit client of a member
of the audit team or his immediate family member may create a significant self-interest threat.
Which of the following safeguards would be least likely considered to eliminate the threat or
reduce it to an acceptable level?
-Discuss the matter with those charged with governance of the audit client.
VT
The threat that a professional accountant will be deterred from acting objectively because of
actual or perceived pressures from the client is known as
-Intimidation threat
Examples of circumstances that may create self-interest threat include

-All of the above
When the total fees generated by an assurance client represent a large proportion of a firm’s total
fees, the dependence on that client or client group and concern about the possibility of losing the
client may create a/an
A partner rotating after a pre-defined period should not resume the lead engagement partner role
until a further period of time, normally ____ year(s), has elapsed.
-2
Occurs when any product or judgment of a previous assurance engagement or non-assurance

engagement needs to be re-evaluated in reaching conclusions on the assurance engagement or
when a member of the assurance team was previously a director or officer of the assurance client,
or was an employee in a position to exert direct and significant influence over the subject matter
of the assurance engagement.
-Self-review threat
A threat to objectivity may be created when a professional accountant in public practice performs
services for clients whose interests are in conflict with each other. In addition, this could also
pose threat to
-confidentiality
Jayson, CPA, was offered the engagement to audit W Corporation for the year ended December
31, 2016. He had served as a director of W Corporation until December 31, 2014, and his spouse
currently owns 6,000 of the 100,000 outstanding share capital of W Corporation. Jayson
disassociated from W Corporation prior to being offered the engagement. Moreover, the
engagement does not cover any period that includes Jayson’s association or employment with W
Corporation. Under the code of ethics, Jayson should
-Refuse the engagement because of his spouse’s stock ownership.
A CPA –lawyer, acting as legal counsel to one of his audit client, is an example of
-Advocacy threat
This refers to the threat that a professional accountant will not appropriately evaluate of a
previous judgement made or service performed by the professional accountant, by another
individual within the professional accountant’s firm or employing organization, on which the
accountant will rely when forming a judgement as a part of providing a current service.
-Self-review threat
In the case of audit engagements, it is in the public interest and, therefore, required by the Code
that members of audit teams, firms and network firms shall be independent of audit clients.
Independence requires
-Both independence of mind and independence in appearance
VT
Examples of circumstances that may create familiarity threat least likely include
-Dealing in, or being a promoter of, share or other securities in an assurance client.
When a close family member of a member of the assurance team is a director, an officer,
or an employee of the assurance client in a position to exert direct and significant
influence over the subject matter information of the assurance engagement, threats to
independence may be created. If the threats are other than clearly insignificant, which of
the following safeguards can be applied to reduce the threats to an acceptable level?
I. Removing the individual from the assurance team.

II. Where possible, structuring the responsibility of the assurance team so
that the professional does not deal with matters that are within the
responsibility of the close family member.
III. Policies and procedures to empower staff to communicate to senior
levels within the firm any issue of independence and objectivity that concerns the
I,II and III
Occurs when a firm or a member of the assurance team could benefit from a financial interest in,
or other self-interest conflict with, an assurance client.
Which of the following threats to independence may be created when litigation takes place, or
appears likely, between the firm or a member of the assurance team the assurance client?
-Self-interest or intimidation threat
Examples of circumstances that may create self-review threat do not include

-potential employment with an assurance client.
Financial interests may be held through an intermediary (for example, a collective investment
vehicle, estate or trust). When control over the investment vehicle or the ability to influence
investment decisions exists, the code defines that financial interest to be a/an
-Direct financial interest.
Safeguards created by the profession, legislation or regulation, include the following, except
-Policies and procedures that emphasize the assurance client’s commitment to fair financial
reporting
These are policies and procedures designed to eliminate or to reduce threats to fundamental
principles to an acceptable level.
-safeguards
The safeguards available to eliminate the threats or reduce them to an acceptable level
include
(1) Safeguards created by the profession
legislation or regulation
(2) Safeguards within the assurance client
(3) Safeguards within the firm’s own systems and procedures
-YESYES YES
VT
Which of the following is an example of engagement-specific safeguards in the work

environment?
-Disclosing to those charged with governance of the client the nature of service provided
and extent of fees charged.
When the professional accountant determines that appropriate safeguards are not
available or cannot be applied to eliminate the threats to independence or reduce them to
an acceptable level, the professional accountant shall
I. Eliminate the circumstance or relationship creating the threats.

II. Decline or terminate the audit engagement.
-Either I or II
When the safeguards available are insufficient to eliminate the threats to independence or to
reduce them to an acceptable level, or when a firm chooses not to eliminate the activities or
interest creating the threat, the only course of action available will be the
-Refusal to perform, or withdrawal from, the assurance engagement
According to Section 240 of the Code of Ethics, fees charged for assurance engagements should
be a fair reflection of the value of the work involved. In determining professional fees, the
following should be taken into account, except
-The outcome or result of a transaction or the result of the work performed.
Statement 1: Safeguards are actions or other measures that may eliminate threats
or reduce them to an acceptable level.
Statement 2: They fall into two broad categories: (a) Safeguards created by the
profession, legislation or regulation; and (b) Safeguards in the work environment.
-TRUE TRUE
Consideration of the nature of the safeguards to be applied will be affected by matters

such as the
(1) Significance of the threat
(2) Nature of the assurance engagement
(3) Intended users of the assurance report
(4) Structures of the firm
-YESYESYESYES
When a professional accountant is asked to provide a second opinion, the professional accountant
has a responsibility to identify potential threat to fundamental principles. If the identified threat
is other than clearly insignificant, appropriate safeguards should be applied. Which of the
following safeguards could possibly eliminate the threat that arises when providing second
opinions?
-Seek client’s permission to contact the existing accountant
Safeguards with the firm’s own systems and procedures, include the following except
-External review of the firm’s quality control system.
VT
Who should take responsibility for the overall quality on each audit engagement?
-Engagement partner
The nature, timing, and extent of an audit firm’s quality control policies and procedures
depend on
1) The CPA Firm’s Size
2) The Nature of the CPA Firm’s Practice
3) Appropriate Cost-Benefit Considerations
-YESYESYES
Which element of a system of quality control is addressed by the establishment of policies and
procedures designed to provide the firm with reasonable assurance that it has sufficient personnel
with the competence, capabilities, and commitment to ethical principles?
-Human resource
Which statement is incorrect regarding activities incompatible with the practice of public
accountancy?
-A professional accountant in public practice should not concurrently engage in any
business, occupation or activity which would be incompatible with the rendering of
professional services.
For audits of financial statements of listed entities, the engagement partner should not issue the
auditor’s report until the completion of the
-Engagement Quality Control Review
Which statement is incorrect regarding Professional Competence and Responsibilities Regarding

the Use of Non-Accountants?
-If at any time the professional accountant is not satisfied that proper ethical behavior can
be respected or assured, the engagement should not be accepted unless the engagement has
commenced in which case the auditor is allowed to finish the engagement.
Lead engagement partner is

I. The partner responsible for signing the report on the consolidated financial statement of
the audit client.
II. Whose relevant, the partner responsible for signing the report in respect of any entity
whose financial statements from part of the consolidated financial statements and on
which is a separate stand-alone report is issued.
III. When no consolidated financial statements are prepared, the partner responsible for
signing the report on the financial statements.
-I,II,III
Which of the following are elements of a CPA firm’s quality control that should be
considered in establishing its quality control policies and procedures?
1) Ethical Requirements
2) Human Resources
3) Engagement Performance
-YESYESYES
VT
Which of the following is incorrect regarding integrity and objectivity?

Professional accountants should neither accept nor offer any gifts or entertainment.
The existing accountant, on receipt of the communication from the proposed professional
accountant in public practice, should not
-Disclose all information needed by the proposed professional accountant in public practice
to be able to decide whether or not to accept the appointment, if permission is not granted.
Retainer’s fee basis is when

-The client is billed a fixed fee periodically for the services rendered during a designated
period of time.
The engagement partner should take responsibility for the direction, supervision, and
performance of the audit engagement in compliance with professional standards and regulatory
and legal requirements, and for the auditor’s report that is issued to be appropriate in the
circumstances. Supervision includes the following, except
-Informing the members of the engagement team of their responsibilities.
The primary purpose of establishing quality control policies and procedures for deciding whether
to accept a new client is to
-Minimize the likelihood of association with clients whose management lacks integrity.
Which statement is incorrect regarding relations with other professional accountants in public
practice?
-The receiving accountant may express any criticism of the professional services of the
existing accountant without giving the latter an opportunity to provide all relevant
information.
Communication between the receiving accountant and existing accountant is not intended
-To protect a professional accountant in public practice from accepting the appointment in
circumstances where all the pertinent facts are not known.
As defined in PSQC 1, __________ is a process comprising an ongoing consideration and

evaluation of the firm’s system of quality control, including a periodic inspection of a selection
of completed engagements, designed to provide the firm with reasonable assurance that its
system of quality control is operating effectively.
-Monitoring
A distinct sub-group, whether organized on geographical or practice lines.

- Office
In determining estimates of fees, an auditor may take into account each of the following, except
the
- Attainment of specific findings
Which statement is incorrect regarding professional fees?

VT
- It is not proper for a professional accountant in public practice to charge a client a lower
fee than has previously been charged for similar services.
Which of the following fee arrangements would violate the code of Professional Conduct?
- A fee based on the approval of a bank loan.
The CPA should not undertake an engagement if his audit fee is to be based upon
- a percentage of audited net income
Professional fees should be a fair reflection of the value of the professional services performed
for the client, taking into account:
- All of the above
Which of the following actions by a professional accountant in public practice will not result in
violation of the code of Ethics regarding commissions?
- Entering into an arrangement for the purchase of the whole or part of an accounting
practice requiring payments to individuals formerly engaged in the practice or payments to
their heirs or estates.
In which of the following situations would a CPA be in violation of the rules of professional
ethics in determining professional fees?
- A fee that is based on 10% of the client’s adjusted net income for the current year
Professional fees should be a fair reflection of the value of the professional services
performed for the client, taking into account:
(1) The skill and knowledge required for the type of professional services involved.
(2) The level of training and experience Of the persons necessarily engaged In
performing the professional services
(3)The time necessarily occupied by each person engaged in performing the professional
services
(4) The degree of responsibility that Performing those services entails
-YESYESYESYES
Yellow, a non-CPA has a law practice. Red, CPA, has agreed to pay Yellow 10% of the fee for
services rendered by Red to Yellow’s clients. Who, if anyone, is in violation of the code of
ethics?
- Only Red
The Rules of Conduct will ordinarily be considered to have been violated when the professional
accountant represents that specific consulting services will be performed for a stated fee and it is
apparent at the time of the representation that the
- Professional accountant would not be independent.
Publicity by individual professional accountants in public practice is acceptable provided:

(1)It has as its object the notification to the public or such sectors of the public as are
concerned, of matters of fact in a manner that is not false, misleading or deceptive
(2)It is in good taste
(3)It is professionally dignified
VT
(4)It avoids frequent repetition of, and any undue prominence being given to the name of
the professional accountant in public practice
- (1)NO; (2)YES; (3)YES; (4)NO
The communication to the public of facts about a professional accountant which are not designed
for the deliberate promotion of that professional accountant.
- Publicity
As defined in the Code of Ethics, __________ is the communication to the public of information
as to the services or skills provided by professional accountants in public practice with a view to
procuring professional business.
- Advertising
A professional accountant may invite the following to attend training courses or seminars
conducted for the assistance of staff
(1)Clients
(2)Staff
(3)Other potential accountants
(4)Potential clients
- (1)YES; (2)YES; (3)YES; (4)NO
Advertising as defined in the Code of Ethics, means

- The communication to the public of information as to the services or skills provided by
professional accountants in public practice with a view to procuring professional business.
All forms of advertisements must have a prior review and approval by the
- Risk management partner
Which of the following is acceptable?

- A professional accountant in public practice indicated in his stationery that he is a tax
expert.
Which of the following is true regarding advertising and solicitation?

- Advertising, but not solicitation, by individual professional accountants in public practice
is permitted in the Philippines.
The approach to a potential client for the purpose of offering professional services is called
- solicitation
Which of the following is not acceptable?

- An appointment of a professional accountant in a matter of national importance was
publicized.
In the marketing and promotion of themselves and their work, professional accountants should
-All of the above
This refers to the communication to the public of facts about a professional accountant which are
not designed for the deliberate promotion of that professional accountant.
- Publicity
VT
As defined in the Code of Ethics, __________ is the communication to the public of facts about a
professional accountant which are not designed for the deliberate promotion of that professional
accountant.
- Publicity
All forms of advertisements must have a prior review and approval by the
- Risk management partner
Professional accountants press and other media releases undertaken to commemorate

anniversaries in public practice by informing the public of their achievements or contributions
towards nation building are
- Allowed provided such undertaking is done only once every 5 years.
Generally, advertising and publicity in any medium are acceptable provided it is:
- not self-laudatory
The holding of media-covered events undertaken only to commemorate a professional

accountant’s anniversaries in public practice does not violate the rules on advertising and
solicitation provided that such undertaking should be done only every _____ years of celebration.
-5
A CPA in public practice should not

- Publish services in billboards like tarpaulin or streamers
Which of the following statements concerning publicity is incorrect?

- Professional accountants who author books or articles on professional subjects may state
their name and professional qualifications; give the name of their organization; and give
any information as to the services that the firm provides.
A professional accountant in public practice is allowed to

- Inform interested parties through any medium that a partnership or salaried employment
of an accountancy nature is being sought.
Offer of gifts or undue hospitality from a client may create threats to objectivity. In
evaluating the significance of threat created by such offer, the professional accountant
should consider the:
(1)Nature of the offer
(2)Value of the offer
(3)Intent behind the offer
- (1)YES; (2)YES; (3)YES
When a professional accountant is entrusted with the custody of money or other assets belonging
to others, the professional accountant should not
- use such assets for purposes other than those for which they are intended
Which statement is incorrect regarding clients’ monies?

- Fees due from a client may be drawn from clients’ monies without the need of notifying
the client.
VT
When a professional accountant learns of a material error or omission in a tax return of a prior
year, or of the failure to file a required tax return, the professional accountant has a
responsibility to do the following, except
- Immediately inform the revenue authorities.
Which of the following is incorrect regarding the professional accountants’ tax practice?
- A professional accountant may hold out to a client or an employer the assurance that the
tax return prepared and the tax advice offered are beyond challenge.
A professional accountant may be associated with a tax return that

- Uses of estimates if such use is generally acceptable or if it is impractical under the
circumstances to obtain exact data.
The following forms of assistance to a financial statement audit client do not generally threaten
the firm’s independence, except
- Authorizing or approving transactions
Close family include the following, except

- Spouse
Financial interest means

- An interest in an equity or other security, debenture, loan or other debt instrument of an
entity, including rights and obligations to acquire such an interest and derivatives directly
related to such interest.
The firm should be independent of the client in the following engagements

(1)Assurance engagements provided to an audit client
(2)Assurance engagements provided to clients that are not audit clients, when the report
is not expressly restricted for use by identified users\
(3)Assurance engagements provided to clients that are not audit clients, when the
assurance report is expressly restricted for use by identified users
- (1)YES; (2)YES; (3)NO
For assurance engagements provided to an audit client, the following should be

independent of the client
(1)members of the assurance team
(2)The firm
(3)Network firms
- (1)YES; (2)YES; (3)YES
According to the standards of the profession, which of the following activities would most likely
not impair a CPA’s independence?
- Providing advisory services for a client
The following statements relate to the provision of taxation, internal audit or IT Systems services
to audit clients. Which is false?
- Preparing calculations of current and deferred tax liabilities (or assets) for an audit client
for the purpose of preparing accounting entries that will be subsequently audited by the
firm creates a self-interest threat.
VT
Independence in auditing means

- Taking an unbiased viewpoint
It refers to the avoidance of facts and circumstances that are so significant that a reasonable and
informed third party, having knowledge of all relevant information, including safeguards applied,
would reasonably conclude a firm’s or a member of the assurance team’s integrity, objectivity or
professional skepticism had been compromised.
- Independence in appearance
Independence is required whenever a professional accountant performs:

-assurance services
Which of the following will not create self-interest threat for a professional accountant in public
practice?
- Preparing the original data used to generate records that are the subject matter of the
assurance engagement.
A financial interest beneficially owned through a collective investment vehicle, estate, trust or
other intermediary over which the individual or entity has no control.
- Indirect financial interest
Which of the following is incorrect regarding independence?

- Independence is a combination of impartiality, intellectual honesty and a freedom from
conflicts of interest.
Independence is potentially affected by

(I)Self-interest threat
(II)Intimidation threat
(III)Self-review threat
(IV)Familiarity threat
(V)Advocacy Threat
- I,II,III,IV and V
If requested to perform a review engagement for a nonpublic entity in which an accountant has
an immaterial direct financial interest, the accountant is
- Not independent and, therefore, may not issue a review report.
A CPA, while performing an audit, strives to achieve independence in appearance in order to

- Maintain public confidence in the profession.
The Code of Ethics requires the members of the assurance team and the firm to be independent of
the assurance client during the period of the assurance engagement. Which of the following
statements relating to the period of engagement is correct?
- In the case of a financial statement audit engagement, the engagement period includes the
period covered by the financial statements reported on by the firm.
Which of the following should be independent of the financial statement audit client?
(1)The members of the assurance team
VT
(2)The firm
(3)Network firms
- (1)YES; (2)YES; (3)YES
Which of the following is an example of an intimidation threat that may affect the independence
of the professional accountant?
- Threat of replacement over a disagreement with the application of an accounting
principle.
The firm should be independent of the client in the following engagements

(1)Assurance engagements provided to an audit client
(2)Assurance engagements provided to clients that are not audit clients, when the report
is not expressly restricted for use by identified users
(3)Assurance engagements provided to clients that are not audit clients, when the
assurance report is expressly restricted for use by identified users
- (1)YES; (2)YES; (3)NO
Direct financial interest is a financial interest

(1)Owned directly by and under the control of an individual or entiry (including those
managed on a discretionary basis by other)
(2) beneficially owned through a collective investment vehicle, estate, trust or other
intermediary over which the individual or entity has control
(3)beneficially owned through a collective investment vehicle, estate, trust or other
intermediary over which the individual or entity has no control
- (1)YES; (2)YES; (3)NO
One of the major differences between auditors and other professionals is that most professionals
- Need not be concerned about independence.
Ultimately, the decision as to whether the CPA is independent or not, will be made by the
-Auditor
Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the
following circumstances impairs Kar’s independence?
- Kar’s sibling is director of internal audit at Fort
The generally accepted auditing standard that requires “Adequate technical training and
proficiency” is normally interpreted as requiring the auditor to have:
- formal education in auditing and accounting.
The General Standards stress the importance of:

- personal qualities the auditor should possess.
Which one of the following is not one of the three General Standards?
- Proper planning and supervision.
Which one of the following is not a Field Work Standard?

- Due professional care.
VT
Which of the following statements most accurately captures the intent of the standards of field
work?
- Field work standards are primarily directed at the auditor’s planning, understanding of
internal control, and evidence accumulation.
The objective of the consistency standard is to provide assurance that

- The comparability of financial statements between periods in not materially affected by
changes in accounting principles without disclosure
The auditor’s judgment concerning the overall fairness of presentation of financial position,
results of operations, and changes in cash flow is applied within the framework of:
- generally accepted accounting principles.
According to Philippine Standard on Auditing, the procedures employed in doing compilation

are:
- Not designed to enable the accountant to express any form of assurance
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?
- Philippine Standards on Auditing.
The nature and extent of a CPA firm’s quality control policies and procedures depend
1) The CPA Firm’s Size
2) The nature of the CPA Firm’s Practice
3) Cost-benefit considerations
- 1) Yes 2) Yes 3) Yes
In connection with the element of monitoring, a CPA firm’s system of quality control should
ordinarily provide for the maintenance of
- Documentation to demonstrate compliance with its policies and procedures.
This involves informing assistants of their responsibilities and the objectives of the procedures
they are to perform. It also involves informing them of matters such as the nature of the entity’s
business and possible accounting and auditing problems that may affect the nature, timing and
extent of audit procedures with which they are involved.
- Direction
A quality control policy that requires personnel in the firm to adhere to integrity, objectivity,
confidentiality and professional behavior, relates to
- Ethical Requirements
Which of the following is an element of a CPA firm’s quality control system that should be
considered in establishing its quality control policies and procedures?
- Assigning personnel to engagements
The main purpose of implementing quality control policies and procedures is:
- To provide reasonable assurance that audit will be conducted in accordance with PSA.
VT
The objectives of the quality control policies to be adopted by the audit firm will
ordinarily incorporate:
(1) Human Resource
(2) Monitoring
(3) Ethical Requirements
- (1) Yes; (2) Yes; (3) Yes
In making a decision to accept or retain a client, the firm should consider all of the following
except
- The type of opinion to be issued
In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating
which partners or employees of the CPA firm were previously employed by the CPA firm’s
clients. Which quality control element would this be most likely to satisfy?
- Independence
The primary purpose of establishing quality control policies and procedures for deciding whether
to accept a new client is to
- Minimize the likelihood of association with clients whose management lacks integrity.
Elements of a CPA firm’s quality control that should be considered in establishing its
quality control policies and procedures must include:
1) Monitoring
2) Ethical Requirements
3) Engagement Performance
- 1) Yes 2) Yes 3) Yes
Which of the following is one of the elements of a CPA firm’s quality control system?
- Leadership responsibilities
Which of the following quality control objectives would be least important to the auditor?
- Determination of audit fee.
In making a decision to accept or continue with a client, the auditor should consider:
(1) Its Competence
(2) Its own independence
(3) Its ability to service the client properly
(4) The integrity of the client’s management
- (1) Yes; (2) Yes; (3) Yes; (4) Yes
In pursuing the firm’s quality control objectives with respect to assigning personnel to
engagements, the auditors may use policies and procedures such as
- Requiring timely identification of the staffing requirements of specific engagements so
that enough qualified personnel can be made available.
A CPA firm’s quality control procedure pertaining to the acceptance of a prospective audit client
would most likely include
- Inquiry of management as to whether disagreements between the predecessor auditor and
the prospective client were resolved satisfactorily.
VT
The objective of the quality control policies to be adopted by an audit firm will ordinarily
incorporate all of the following except:
-Risk assessment
Quality control policies and procedures should be implemented at

1) Level of the audit firm
2) Individual audits
- 1) Yes 2) Yes
In compliance with the element of human resources, the firm should address issues relating to
- assignment of engagement teams
Which of the following is not one of the major concerns of the auditor when establishing quality
control policies and procedures?
- Billing arrangements
Quality control policies and procedures should provide the firm reasonable assurance that the
policies and procedures relating to the other elements of quality control are being effectively
applied. This statement defines the quality control element of
- Monitoring
It is the process designed to provide an objective evaluation, before the auditor’s report is issued,
of the significant judgments the engagement team made and the conclusions they reached in
formulating the auditor’s report:
- Engagement quality control review
Acceptance and continuance of client relationships and specific audit engagements include
considering all of the following, except:
- Whether the internal control of the client is adequate enough to detect and prevent
material misstatements in the financial statements.
According to PSA 220, who should take responsibility for the overall quality on each audit
engagement?
- engagement partner assigned to the engagement
Monitoring, as an element of quality control policies of a firm, requires:c

- Providing reasonable assurance that the firm’s other quality control policies and
procedures are effectively operating.
The examination by CPAs of a CPA firm’s auditing practices to ascertain compliance with its
quality control system
-Peer review
The work performed by the assistants should be reviewed by personnel of at least equal
competence to consider all of the following except:
- The engagement personnel maintained independence in the performance of the
examination.
VT
A quality control policy that requires personnel in the firm to adhere to independence, integrity,
objectivity, confidentiality and professional behavior, relates to
- Professional Requirements
Which of the following is one of the elements of a CPA firm’s quality control system?
-Delegation
The following statements relate to the accounting profession:

I. To merit public trust and confidence, the professional person must
convince the public that he will place public service ahead of personal reward.
II. A CPA certificate is evidence of basic competence in the discipline of
accounting at the time the certificate is granted.
III. A code of professional conduct is one of the most important distinguishing
characteristics of a profession.
State whether the foregoing statements are true or false.

- All of the statements are true.
These statements are issued to provide practical assistance to auditors in implementing the PSAs
- PAPS
An auditor need not abide by an auditing standard if the auditor believes that
- Any of the three above is correct.
Generally Accepted Auditing Standards (GAAS) and Philippine Standards on Auditing (PSA)
should be looked upon by practitioners as:
- Minimum standards of performance which must be achieved on each audit engagement.
A CPA should comply with applicable generally accepted auditing standards on every
engagement
- Without exception
Which of the following best describes what is meant by Generally Accepted Auditing
Standards?
- Measures of the quality of the auditor’s performance
A CPA is most likely to refer to one or more of the three general auditing standards in determining
- Whether the CPA should undertake an audit engagement.
The Philippine Standards on Auditing issued by AASC

- Apply to independent examination of financial statements of any entity when such an examination
is conducted for the purpose of expressing an opinion thereon.
The following statements relate to quality control for audit work. Which statement is false?
- According to PSA 220, audit firms should adopt standardized quality control policies and
procedures.
Which of the following quality control procedures is a monitoring activity?

VT
- Reviews and tests compliance with the firm’s general quality control policies and
procedures.
S1 The auditor is not responsible for preventing non-compliance and cannot be

expected to detect noncompliance with all laws and regulations.
S2 Whether an act constitutes non-compliance is ultimately a matter of professional
judgment.
S3 Non-compliance refers to acts of omission or commission by the entity, either
intentional or unintentional, which are contrary to the prevailing laws or regulations.
Non-compliance does not include personal misconduct by those charged with governance,
management or employees of the entity.
- 1) True 2) False 3) True
The following may indicate non-compliance, except

- Payments with proper exchange control documentation
According to PSA 250, the risk of not detecting material misstatement due to noncompliance is
high. This can be attributed to all of the following factors, except:
- The detection prevention and detection of noncompliance rests with management.
Based on PSA 250, noncompliance refers to

-acts of omission or commission by the client which are contrary to prevailing laws and
regulations
The following may indicate non-compliance, except

- Payments with proper exchange control documentation
DEFINITION OF ERROR
Professional skepticism requires that an auditor assumes that management is

- Neither honest nor dishonest
Per PSA 240, it involves intentional misstatements including omissions of amounts or disclosures
in financial statements to deceive financial statement users.
- Fraudulent financial reporting
Which of the following factors or conditions is an auditor least likely to plan an audit to
discover?
- Financial pressures affecting employees
Fraudulent financial reporting involves intentional misstatements including omissions of amounts

or disclosure in financial statements to deceive financial statement users. It may be accomplished
in a number of ways, including:
- Manipulation, falsification, r alteration of accounting records or supporting
documentation from which the financial statements are prepared
The term “error” refers to unintentional misrepresentation of financial information.

Examples of errors are when
VT
I. Assets have been misappropriated

II. Transactions without substance have been recorded
III. Records and documents have been manipulated and falsified
IV. The effects of the transactions have been omitted from the records
- all of the above statements are false
The risk of fraudulent financial reporting increases in the presence of?

- Incentive systems based on operating income
Which of the following would be classified as an error?

- Misinterpretation by management of facts that existed when the financial statements were
prepared
When considering fraud risk factors relating to management’s characteristics, which of the
following is least likely to indicate a risk of possible misstatement due to fraud?
- Use of unusually conservative accounting practices
Misstatements in the financial statements can arise from fraud or error. The
distinguishing factor between fraud and error is whether the underlying action that results
in the misstatement of the financial statements is
I. Intentional or unintentional.
II. Rational or irrational.
- I only
Which of the following is an example of an error?

- oversight that resulted in an incorrect accounting estimates
Not included in the fraud triangle

-Fraud risk factor
The most difficult type of misstatement to detect is fraud based on

- The nonrecording of transactions
Per PSA 240, what separates error from fraud?

-Intention
Which of the following statements best identifies the two types of fraud?
- fraudulent financial reporting and misappropriation of assets
Per PSA 240, these are events or conditions that indicate an incentive or pressure to commit
fraud or provide an opportunity to commit fraud.
- Fraud risk factors
Which of the following is a commission of misappropriation of assets (employee fraud)?

- Using an entity’s assets for personal use (for example, using the entity’s assets as collateral
for a personal loan or a loan to a related party)
Which of the following statements is true?

- It is usually easier for the auditor to uncover errors than fraud
VT
When performing a financial statement audit, auditors are required to explicitly assess the risk of
material misstatement due to?
-Fraud
Which of the following is most likely to be presumed to represent fraud risk on an audit?
-Improper recognition
Which of the following is most likely to be an example of fraud?

- Defalcations occurring due to invalid electronic approvals
Which of the following is least likely a fraud risk factor?

- The accounting department is overstaffed
Which of the following statements about fraud or error is incorrect?

- the likelihood of detecting fraud is ordinarily higher than that of detecting error
The primary factor that distinguishes errors from fraud is

- whether the underlying cause of misstatement is intentional or unintentional
Which of the following most accurately summarizes what is meant by the term “material
misstatement?”
- Material error, material fraud, and certain illegal acts
An attitude that includes a questioning mind and a critical assessment of audit evidence is
referred to as
- Professional scepticism
Which of the following best describes what is meant by the term “fraud risk factor”?
- Factors whose presence often have been observed in circumstances where frauds have
occurred
Which of the following is most likely to be considered a risk factor relating to fraudulent
financial reporting?
- Negative cash flows from operations
Which of the following factors would most likely heighten an auditor’s concern about the
risk of fraudulent financial reporting?
- An overly complex organizational structure involving unusual lines of authority
Which of the following is a category of risk factors that should be considered in relation to
misstatements arising from misappropriation of assets?
-controls
“Error includes ”
- An incorrect accounting estimate arising from oversight or misinterpretation of facts
The following are examples of circumstances that may indicate the possibility that the financial
statements may contain a material misstatements resulting from fraud except
- Transactions that are recorded in a complete or timely manner or are properly recorded
as to amount, accounting period, classification, or entity policy
VT
The auditor is most likely to presume that a high risk of defalcation exists if
- Inadequate segregation of duties places an employee in a position to perpetrate and conceal fraud
In comparing management fraud with employee fraud, the auditor’s risk of failing to discover the
fraud is
- Greater for management fraud because of management’s ability to override existing
internal controls
When the auditor identifies a misstatements in the financial statements, the auditor should
consider whether such a misstatement may be indicative of fraud and if there is such an
indication, the auditor should
-Consider the implications of the misstatement in relation to other aspects of the audit
The likelihood of detecting error is ordinarily higher than that of detecting fraud because
- Fraud is usually accompanied by acts designed to conceal its existence.
S1 The risk of not detecting a material misstatement resulting from fraud is higher
than the risk of not detecting one resulting from error.
S2 The risk of the auditor not detecting a material misstatement resulting from
management fraud is greater than for employee fraud.
S3 The auditor recognizes the fact that audit procedures that are effective for
detecting error may not be effective in detecting fraud.
1) True 2) True 3) True
Which of the following is a commission of fraudulent financial reporting (management fraud)?

Which of the following is a commission of fraudulent financial reporting (management fraud)?
- Recording fictitious journal entries, particularly close to the end of an accounting period,
to manipulate operating results or achieve other objectives
The auditor’s ability to detect a fraud depends on factors such as

I. The skillfulness of the perpetrator
II. The frequency and extent of manipulation
III. The degree of collusion involved
IV. The relative size of individual amounts manipulated
The seniority of those involved
-All of the above
Management has the responsibility to detect and prevent misstatements due to fraud and error.
This responsibility is accomplished through
- Implementing adequate accounting and internal control systems
Communication of a misstatements resulting from fraud, or error to the appropriate level of

management on a timely basis is important because it enables management to take action as
necessary. Ordinarily, the appropriate level of management is
- At least one level above persons who appear to be involved with the misstatement or
suspected fraud
VT
Based on PSA 240 (Revised 2005), in a financial statement audit, the auditor should consider
categories of fraud risk factors relating to misstatements arising from (1) fraudulent financial
reporting and (2) misappropriation of assets. Which of the following is not a category of fraud
risk factors in relation to misstatements arising from misappropriation of assets?
-Controls
The auditor’s best defense when material misstatements in the financial statements are not uncovered in
the audit is that
- the audit was conducted in accordance with PSA
Which of the following is an example of fraud?

- Misappropriation of assets or group of assets.
Which of the following is most likely to be a response to the auditor’s assessment that the
risk of material misstatement due to fraud for the existence of inventory is high?
- Observe test counts of inventory at certain locations on an unannounced basis
Per PSA 240, it involves the theft of an entity’s assets and is often perpetrated by employees in
relatively small and immaterial amounts.
- Misappropriation of assets
Which of the following is an example of fraudulent financial reporting?

- Company management changes inventory count tags and overstates ending inventory,
while understating cost of goods sold.
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
- provide reasonable assurance that material misstatements will be detected
Fraudulent financial reporting involves intentional misstatements or omissions of amounts or

disclosure in the financial statements to deceive financial statements users. Fraudulent financial
reporting least likely involve
- Embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for
goods and services not received
The primary difference between financial statement errors and fraud is that
- errors are unintentional mistake or omissions, while fraud involves intentional
misstatements.
The subsequent discovery of material misstatement of the financial statements resulting

from fraud or error, in and of itself, indicates:
1)a failure to obtain reasonable assurance
2)Inadequate planning, performance or judgment
3)the absence of professional competence and due care
- 1) no 2) no 3) no
Which of the following conditions are generally present when misstatements due to fraud
occur?
I. Incentive or pressure.
VT
II. Perceived opportunity.

III. Rationalization.
- I, II, and III.
Should the auditor uncover circumstances during the audit that may cause
suspicions of management fraud, the auditor must
- evaluate their implications and consider the need to modify audit
procedures
Which of the following factors is most important concerning an auditor's responsibility to detect
errors and irregularities?
- The risk that mistakes, falsifications, and omissions may cause the financial statements to
contain material misstatements.
The responsibility for the detection and prevention of errors, fraud and noncompliance with laws
and regulations rests with
- management and those charged with governance
The management responsibility to detect and prevent fraud and error is accomplished by
- Establishing a control environment and implementing adequate internal control policies
and procedures.
Whether the auditor has performed an audit in accordance with PSAs is determined by
- The adequacy of the audit procedures performed in the circumstances and the suitability
of the auditor’s report based on the result of these procedures
Which statement is incorrect regarding the auditor’s responsibility to consider fraud and error in
an audit of financial statements?
- The auditor should design test of control to reduce to an acceptably low level the risk that
misstatements resulting from fraud and error that are material to the financial statements
taken as a whole will not be detected
The auditor may encounter exceptional circumstances that bring into question the auditors ability
to continue performing the audit, including where
- The auditor’s consideration of the risk of material misstatement resulting from fraud and
the results of audit tests indicate a significant risk of material and pervasive fraud
The auditor least likely obtains written representations from management that the management:
- It has disclosed to the auditor the results of its assessment of the risk that the financial
statements may be materially misstated as a result of fraud
An auditor should recognize that the application of auditing procedures may produce evidential
matter indicating the possibility of errors and irregularities and therefore should
- Plan and perform the engagement with an attitude of professional skepticism.
The primary responsibility for the prevention and detection of fraud and error rests with.
- Both b and c
When fraud has been identified, CPA responsibility consists of

VT
- Determination of its extent.
Which of the following statements about fraud is false?

- Fraud involves actions of management but excludes the actions of employees or third
parties
Audits of financial statements are designed to obtain assurance of detecting material

misstatements due to
1)Errors
2)Fraudulent financial reporting
3)Misappropriation of assets
- 1) yes 2) yes 3) yes
When planning and performing audit procedures and evaluating and reporting the results thereof,
the auditor should
Consider the risk of material misstatements in the financial statements resulting from
fraud
In connection with the examination of financial statements, an independent auditor could be

responsible for failure to detect a material fraud
- The auditor planned the work in a hasty and inefficient manner.
Which of the following is most likely to be considered a risk factor relating to fraudulent
financial reporting?
- Negative cash flows from operations
If specific information comes to an auditor’s attention that implies the existence of possible
illegal acts that could have a material, but indirect effect on the financial statements, the auditor
should next
- Apply audit procedures specifically directed to ascertaining whether an illegal act has
occurred.
The absence of which of the following internal control increases the opportunity for fraud?
- The absence of any of the above increases the opportunity for fraud
Which of the following illegal acts should an audit be designed to obtain reasonable assurance of
detecting?
- Accrual and billing of an improper amount of revenue under government contracts
Auditor responsibility for identifying “direct effect” illegal acts differs from their responsibility
for detecting
- indirect-effect illegal acts.
When considering fraud risk factors relating to management’s characteristics, which of the
following is least likely to indicate a risk of possible misstatement due to fraud?
- Use of unusually conservative accounting practices
Which of the following should the auditor likely to do when the application of planned audit
procedures indicates the possible existence of fraud or error?
- He should consider the potential effect on the financial statements
VT
Which of the following relatively small misstatements most likely could have a material effect on
an entity’s financial statements?
- An illegal payment to a foreign official that was not recorded
Which of the following is most likely to be presumed to represent fraud risk on an audit?
- Improper revenue recognition
If there is fraud involving the collusion of several employees that includes the falsification of
documents, the chance that such a fraud would be uncovered in a normal audit is
-unlikely
Which of the following is not a factor that relates to opportunities to commit fraudulent financial
reporting?
- Management’s practice of making overly aggressive forecasts
What is an auditor’s responsibility who discovers management involved in what is financially

immaterial fraud?
- Report the fraud to the audit committee.
Which of the following statements is correct relating to the auditor’s consideration of fraud?
- The auditor’s interest in fraud consideration relates to fraudulent acts that cause a
material misstatement of financial statements.
Which of the following is least likely to be required on an audit?

- Make a legal determination of whether fraud has occurred.
statements may contain a material misstatements resulting from fraud, except
- Unavailability of other than photocopied r electronically transmitted documents when
documents in original form are expected to exist.
Which of the following might not be a signal of a lack of integrity in management?

- Prior criminal conviction of an assembly line foreman
statements may contain a material misstatement resulting from fraud, except
- Usual delays by the entity in providing requested information
During the annual audit of Ajax Corp., a publicly held company, Jones, CPA, a continuing
auditor, determined that illegal political contributions had been made during each of the past
seven years, including the year under audit. Jones notified the board of directors about the illegal
contributions, but they refused to take any action because the amounts involved were immaterial
to the financial statements. Jones should reconsider the intended degree of reliance to be placed
on the
- Management representation letter
An auditor who discovers that a client’s employees have paid small bribes to public officials
most likely would withdraw from the engagement if th
- Employees’ actions affect the auditor’s ability to rely on management’s representations
VT
Which of the following is correct concerning requirements about auditor communications about
fraud?
- Fraud that involves senior management should be reported directly to the audit committee
regardless of the amount involved.
Which of the following parties is least likely to uncover fraud?

-External auditors
Experience has shown that certain conditions in an organization are symptoms of possible
management fraud. Which of the following conditions would not be considered an indicator of
possible fraud?
- Managements are subject to formal performance review on a regular basis.
Fraudulent financial reporting is most likely to be committed by whom?

- Company management
The most likely explanation why the auditor’s examination cannot reasonably be expected to
bring all illegal acts by the client to the auditor’s attention is that
- Illegal acts by clients often relate to operating aspects rather than accounting aspects.
statements may contain a material misstatements resulting from fraud, except
- Fewer responses to confirmations than anticipated or a greater number of responses than
anticipated.
Which of the following is not true about the auditor’s consideration of compliance with laws and
regulations?
- The auditor should obtain oral representation that management has disclosed to the
auditor all known actual or possible noncompliance with laws and regulations.
The primary responsibility for the prevention and detection of fraud error rests with.
- Those charged with governance
With respect to errors and fraud, the auditors should plan to

- discover errors of fraud that would have a material effect on the financial statements.
Philippine Standards on Auditing require auditors to assess the risk of material misstatement due
to fraud
-for every audit
Which of the following statements is incorrect?

- The auditor is not and can not be held responsible for the detection of fraud or error.
Consideration of Internal Control - Nature of internal control
Which of the following is correct about internal control?

- One of the inherent limitations of accounting and internal control systems is the possibility
that the procedures may become inadequate due to changes in conditions, and compliance
with procedures may deteriorate.
VT
Which of the following most likely would not be considered an inherent limitation of the
potential effectiveness of an entity’s internal control?
- Incompatible duties.
Which of the following least likely affects the nature, timing, and extent of the procedures
performed by the auditor to obtain an understanding of the accounting and internal control
systems of an audit client?
- The level of acceptable detection risk
When considering internal control, an auditor should be aware of the concept of reasonable
assurance, which recognizes that
- The cost of an entity’s internal control should not exceed the benefits expected to be
derived.
Nature of the entity refers to

- The entity’s operations, its ownership and governance, the types of investments that it is
making and plans to make, the way that the entity is structured and how it is financed
Which of the following statements about internal control is correct?

- The cost-benefit relationship should be considered in designing internal control.
The primary responsibility for designing, implementing and maintaining internal control, and the
tone of internal control typically originates, rests with
- The management/TCWG
When considering internal control, an auditor must be aware of the concept of reasonable
assurance, which recognizes that
- Cost of internal control procedures should not exceed the benefits expected to be derived
from the control
As generally conceived, the “audit committee” of a publicly held company should be made up of
- Members of the board of directors who are not officers or employees.
In general, a material weakness in internal control may be defined as a condition in which

material errors or irregularities may occur and not be detected within a timely period by
- Employees in the normal course of performing their assigned functions.
In an audit of financial statements, an auditor’s primary consideration regarding a control is

whether it
- Affects management’s financial statement assertions.
The process designed and affected by those charged with governance, management, and other
personnel to provide reasonable assurance about the achievement of the entity’s objectives with
regard to reliability of financial reporting, effectiveness and efficiency of operations and
compliance with applicable laws and regulations.
-Internal Control
Internal control procedures are not designed to provide reasonable assurance that
- Irregularities will be eliminated.
Proper segregation of functional responsibilities calls for separation of the functions of

VT
- Authorization, recording, and custody.
The overall attitude and awareness of an entity’s board of directors concerning the importance of
internal control usually is reflected in its
- Control environment.
Which of the following does not relate to the firm’s quality control policies and procedures on
engagement performance?
-Independence
A secondary purpose of the auditor's consideration of internal control is to provide

- A basis for constructive suggestions about improvements in internal control structure.
Which of the following is a responsibility that should not be assigned to only one employee?
- Access to securities in the company’s safe deposit box.
Which of the following is not part of the control environment?

- Information and communication systems.
Which of the following is not an element of a system of quality control?

- Measurement and review of performance
An entity’s ongoing monitoring activities often include

- Reviewing the purchasing function.
Transaction authorization within an organization may be either specific or general. An example

of specific transaction authorization is the
- Approval of a construction budget for a new warehouse
Proper segregation of functional responsibilities calls for separation of the functions of

- Authorization, execution, and recording.
Which of the following best describes the interrelated components of internal control?
- Control environment, risk assessment, control activities, information and communication
systems, and monitoring.
Control environment component of internal control

- 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 in the entity.
Which of the following is not a component of an entity’s internal control?

-control risk
A consideration of internal control made during an audit is usually not sufficient to express an
opinion on an entity's controls because
- Only those controls on which an auditor intends to rely are reviewed, tested, and
evaluated.
The auditor's review of the client's internal control is documented in order to substantiate
- Compliance with PSA.
VT
During the consideration of internal control in a financial statement audit, an auditor is not
obligated to
- Determine whether the control activities relevant to audit planning have been
implemented.
Based on a consideration of internal control completed at an interim date, the auditor assessed
control risk at a low level and performed interim substantive tests. The records and procedures
would most likely be tested again at year-end if
- Inquiries and observations lead the auditor to believe that conditions have changed.
Before assessing control risk at a level lower than the maximum, the auditor obtains reasonable
assurance that controls are in use and operating effectively. This assurance is most likely
obtained in part by
- Inspection of documents.
Which of the following statements about preliminary assessment of control risks is correct?
- The auditor ordinarily assesses control risk at high level for some or all assertions when it
is not cost efficient to do tests of controls.
A primary objective of procedures performed to obtain an understanding of internal control is to

provide an auditor with
- A basis for modifying tests of controls.
In general, a material weakness in internal control may be defined as a condition in which

material errors or irregularities may occur and not be detected within a timely period by
- Employees in the normal course of performing their assigned functions.
An auditor generally tests the segregation of duties related to inventory by

- Document inspection and reconciliation.
S1. In obtaining an understanding of an entity’s internal control structure, an auditor is required

to obtain knowledge about the S2. Operating effectiveness of policies and procedures, Design of
policies and procedures.
- No, Yes
After considering a client’s internal control, an auditor has concluded that the system is well designed and
is functioning as anticipated. Under these circumstances, the auditor would most likely
- Not increase the extent of planned substantive tests
The ultimate purpose of assessing control risk is to contribute to the auditor’s evaluation of the
risk that
- Material misstatements may exist in the financial statements.
After obtaining an understanding of internal control and assessing control risk, an auditor
decided not to perform additional tests of controls. The auditor most likely concluded that the
- Additional evidence to support a further reduction in control risk was not cost-beneficial
to obtain.
After obtaining an understanding of a client’s controls, an auditor may decide to omit tests of the
controls. Which of the following in not appropriate reason to omit tests of controls?
VT
- The controls appear adequate.
Of the following, the best statement of the CPA’s primary objective in considering internal
control is that the review is intended to provide
- A basis for reliance on the system and determining the scope of other auditing procedures.
Which of the following constitutes audit sampling?

- Applying audit procedures to less than 100% of items within an account balance or class
of transactions such that all sampling units have a chance of selection.
Audit sampling involves the

- Application of audit procedures to less than 100% of items within a class of transactions
or an account balance such that all items have a chance of selection.
Which of the following best illustrates the concept of sampling risk?

- A randomly chosen sample may not be representative of the population as a whole on the
characteristic of interest
The risk that the auditor’s conclusion based on a sample may be different from the conclusion if
the entire population were subjected to the same audit procedure is
- Sampling risk
The entire set of data from which a sample is selected and about which the auditor wishes to
draw conclusions is
-Population
An auditor, planning an attribute sample from a large number of invoices, intends to estimate the
actual rate of deviations. Which factor below is the most important for the auditor to consider?
- Audit objective
Sampling risk that leads the auditor to conclude that controls are more effective than
they are actually is
- Risk of assessing control risk too low
Audit sampling is not involved in the following, except

- Selecting the sample without following a structured technique.
An error that arises from an isolated event that has not recurred other than on specifically
identifiable occasions and is therefore not representative of errors in the population is called
- Anomalous error
The decision whether to use statistical or non-statistical sampling depends upon the
- Auditor’s judgment
An advantage of using statistical over non-statistical sampling methods in tests of controls is that
the statistical method
- Provide an objective basis for quantitatively evaluating sample risk
VT
Population, as defined in PSA 530, means the entire set of data from which a sample is
selected and about which the auditor wishes to draw conclusions. It is important for the
auditor to ensure that the population is
I. Appropriate to the objective of the audit procedure.

II. Complete.
- Both I and II
The tolerable rate of deviations for a test of controls is generally

- Higher than the expected rate of errors in the related accounting records.
A monetary amount set by the auditor in respect of which the auditor seeks to obtain an
appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the
actual misstatement in the population is
- Tolerable misstatement
Which of the following combinations results in a decrease in sample size in a sample for
attributes?
1) Risk of assessing control risk too low
2) Tolerable rate
3) Expected population deviation rate
1) Increase 2) Increase 3) Decrease
The diagram below depicts the auditor’s estimated maximum deviation rate compared
with the tolerable rate and also depicts the true population deviation rate compared with
the tolerable rate.
True State of Population

Auditor’s
Estimate Deviation Rate Deviation Rate
Based on Is less than Exceeds
Sample Results Tolerable Rate Tolerable Rate
Maximum
Deviation Rate I III
Is Less than
Tolerable Rate
Maximum
Deviation Rate II IV
Exceeds
Tolerable Rate
VT
As a result of tests of controls, the auditor assesses control risk higher than necessary and
thereby increases substantive testing. This is illustrated by
-II
The size of a sample designed for dual-purpose testing should be

- The larger of the samples that would otherwise have been designed for the two separate
purposes
A number of factors influence the sample size for a substantive test of details of an account
balance. All other factors being equal, which of the following would lead to a larger sample size?
- Smaller measure of tolerable misstatement
How would increases in tolerable misstatement and assessed level of control risk affect
the sample size in a substantive test of details?
Increase in tolerable Increase in assessed level of
misstatement control risk
-
Decrease sample size Increase sample size
The entire set of data about which the auditor wishes to draw conclusions is called
-population
Which of the following sampling methods would be used to estimate a numerical measurement of
a population, such as a peso value?
- Variables sampling
An auditor wishes to sample 200 sales receipts from a population of 5,000 receipts issued during
the last year. The receipts have preprinted serial numbers and are arranged in chronological (and
thus serial number) order. The auditor randomly chooses a receipt from the first 25 receipts and
then selects every 25th receipt thereafter. The sampling procedure described here is called
- Systematic random sampling.
Which of the following courses of action would an auditor most likely follow in planning a
sample of cash disbursements if the auditor is aware of several unusually large cash
disbursements?
- Stratify the cash disbursements population so that the unusually large disbursements are
selected.
If the auditor is concerned that a population may contain exceptions, the determination of a
sample size sufficient to include at least one such exception is a characteristic of
- Discovery sampling
When the auditor goes through a population and selects items for the sample without regard to
their size, source, or other distinguishing characteristics, it is called
- Haphazard selection
Which of the following statistical sampling plans does not use a fixed sample size for tests of
controls?
- Sequential sampling
VT
A sample in which every possible combination of items in the population has an equal chance of
constituting the sample is a
- Random sample
Which of the following statistical selection techniques is least desirable for use by an auditor?
- Stratified selection
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses

control risk lower than appropriate. The most likely explanation for this situation is that
- The deviation rate in the auditor’s sample is less than the tolerable rate, but the deviation
rate in the population exceeds the tolerable rate.
An auditor wants to select a statistically representative sample from a population of 475

inventory control sheets. Each sheet lists the description, physical count, bar code, and
unit cost for 50 inventory items. The auditor uses a random number table to construct the
sample; the first two columns are listed below. 14326 is the randomly chosen starting
point; the sample’s first item is found on page 143, line 26. (The route used by the auditor
is down Column A to the top of Column B.)
Column A Column B
75233 06852
14326 42904
76562 64854
28123 04978
64227 33150
80938 04301
22539 41240
29452 69521
Where is the fifth item in the sample located?

- Page 331, line 50.
When would difference estimation or ratio estimation sampling methods be inappropriate?

- If differences between the book values and audit values of a population are rare.
Conducting a substantive test of an account balance, an auditor hypothesis that no material

misstatement exists. The risk that sample results will support the hypothesis when a material
misstatement actually does exist is the risk of
- Incorrect acceptance.
When an auditor’s sampling objective is to obtain a measurable assurance that a sample will
contain at least one occurrence of a specific critical exception existing in a population, the
sampling approach to use is
-Discovery
An auditor is testing internal control procedures that are evidenced on an entity’s vouchers by
matching random numbers with voucher numbers. If a random number matches the number of a
VT
voided voucher, that voucher ordinarily should be replaced by another voucher in the random
sample if the voucher
- Has been properly voided
An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The
auditor designed a statistical sample that would provide 1% risk of assessing control risk too low
(99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor
estimated from previous experience that about 2 1/2% of the sales invoices lacked approval. A
sample of 200 invoices was examined and 7 of them were lacking approval. The auditor then
determined the achieved upper precision limit to be 8%. In the evaluation of this sample, the
auditor decided to increase the level of the preliminary assessment of control risk because the
- Tolerable rate (7%) was less than the achieved upper precision limit (8%)
An auditor is preparing to sample accounts receivable for overstatement. A statistical sampling

method that automatically provides stratification when using systematic selection is
- Probability proportionate to size sampling
The estimate of the population peso value using difference estimation sampling is __________.
- P5,700,000
“Whenever a sample is taken, there is a risk that the quantitative conclusions about the
population will be incorrect.”
This is always true unless 100 percent of the population is tested.
The estimate of the population peso value using ratio estimation is __________.
- P5,720,000
A statistical sampling technique that will minimize sample size whenever a low deviation rate is
expected is
- Stop-or-go sampling.
The diagram below depicts the auditor’s estimated maximum deviation rate compared
with the tolerable rate, and also depicts the true population deviation rate compared with
the tolerable rate.
True State of Population
Auditor’s Estimate Deviation Rate Exceeds Deviation Rate

Based on Tolerable Rate is Less
Sample Results Than Tolerable
Rate
Maximum Deviation
Rate Exceeds Tolerable I III
Rate
Maximum Deviation
Rate is Less Than II IV
Tolerable Rate
-III
VT
After partially completing a control review of the accounts payable department, an auditor
suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best
sampling approach is to use
- Discovery sampling to select a sample of vouchers processed by the department during the
past year.
In determining the sample size for a test of controls, an auditor should consider the likely rate of
deviations, the allowable risk of assessing control risk too low, and the
- Tolerable deviation rate
An auditor plans to test a sample of 20 checks for counter signatures as prescribed by the client’s
control procedures. One of the checks in the chosen sample of 20 cannot be found. The auditor
should consider the reasons for this limitation and
- Treat the missing check as a deviation for the purpose of evaluating the sample.
For which of the following audit tests would an auditor most likely use attribute sampling?
- Inspecting employee time cards for proper approval by supervisors.
An auditor uses a number of techniques to select samples. A frequently, and appropriately, used
technique is random selection. In which of the following situations would random selection be
least justified? The auditor needs to
- Obtain evidence on the proper sales cut-off by sampling items from the monthly sales
journal to determine if the items were recorded in the correct time period.
An auditor is evaluating the results of a variables sampling plan. Which of the following is not
relevant to the auditor's judgment about the sample?
- Management's explanations for why errors in the sample occurred.
Which of the following sampling methods is used to estimate a numerical measurement of a

population, such as a peso value?
- Variables sampling.
The likelihood of assessing control risk too high is the risk that the sample selected to test
controls
- Does not support the auditor’s planned assessed level of control risk when the true
operating effectiveness of the control justifies such an assessment.
The next 3 questions are based on the following information:

An auditor has obtained the following data by selecting a random sample from an
inventory population:
Number Audited Carrying

Of Items Value Amount
Sample 200 P220,000 P 200,000
Population 5,000 ? P5,200,000
VT
The estimate of the population peso value using mean-per-unit sampling is __________.
-5,500,000
Per PSA 530, projection of sample results to the population, is only necessary in the case
of
A. Deviations (test of controls)
b. Misstatement (test of details)
-Neither A or B
Which of the following most likely would be an advantage in using classical variables sampling
rather than probability-proportional-to-size (PPS) sampling?
- Inclusion of zero and negative balances generally does not require special design
considerations.
Several risks are inherent in the evaluation of audit evidence that has been obtained through the
use of statistical sampling. An example of a beta or Type II error related to sampling risk is the
failure to
- Reject the statistical hypothesis that a book value is not materially misstated when the
true book value is materially misstated.
Since auditors are interested in the occurrence of exceptions in population, they refer to the
occurrence as
- Deviation rate
Tests of controls provide reasonable assurance that controls are applied as prescribed. A
sampling method that is useful when testing controls is:
- Attribute estimation sampling
In applying variables sampling, an auditor attempts to

- Predict a monetary population value within a range of precision.
When sampling for attributes, which of the following would decrease sample size?
Risk of Tolerable Expected

assessing rate population
Control of deviation rate
risk too deviation
low
- Increase Increase Decrease
Which of the following engagement objectives will be accomplished by tracing a sample of

accounts receivable debit entries to customer invoices and related shipping documents?
- Accounts receivable represent valid sales.
An advantage of statistical sampling over nonstatistical sampling is that statistical sampling

helps an auditor to
VT
- Measure the sufficiency of the evidential matter obtained.
Assessing control risk too high is the risk that the sample
- Contains proportionately more deviations from prescribed control procedures than
actually exist in the population as a whole.
The tolerable rate of deviation for tests of controls necessary to justify a control risk assessment
depends primarily on which of the following?
- The extent of reliance to be placed on the procedures.
Each time an auditor draws a conclusion based on evidence from a sample, an additional risk,
sampling risk, is introduced. An example of sampling risk is
- Drawing an erroneous conclusion from sample data.
Which of the following is true about sampling and non-sampling risks?

- Sampling risk can be reduced by increasing sample size.
When using classical variables sampling for estimation, an auditor normally evaluates the
sampling results by calculating the possible error in either direction. This statistical concept is
known as
-Precision
One of the audit objectives for a manufacturing company is to verify that all rework is reviewed
by the production engineer. Which of the following audit procedures would provide the best
evidence for meeting this objective?
- Trace a sample of rework orders to entries in the review log.
As lower acceptable levels of both audit risk and materiality are established, the auditor should
plan more work on individual accounts to
- Find smaller misstatements.
Which of the following statements is not correct?

- An advantage of using statistical sampling is that the cost/benefit ratio is always positive.
According to PSA 400, which of the following is correct regarding internal control system?
- In the audit of financial statements, the auditor is only concerned with those policies and
procedures within the accounting and internal control systems that are relevant to the
financial statements.
When considering the effectiveness of a system of internal accounting control, the auditor should
recognize that inherent limitations do exist. Which of the following is an example of an inherent
limitation in a system of internal accounting control?
- In the performance of most control procedures, there are possibilities of errors arising
from mistakes in judgment
The policies and procedures that help ensure that management directives are carried out are
referred to as the:
-Control activities
Which of the following activities would be an example of Physical Control?

- Access to computer facilities and records is limited to authorized personnel.
VT
After considering internal control, an auditor might decide to

- Increase the extent of substantive tests in areas where internal control is weak
To obtain an understanding of the relevant policies and procedures of internal control, the auditor
performs all of the following except:
-Design substantive tests
The following situations will likely lead the auditor to use 100% testing, except
- When testing controls that leave audit trail.
At times a sample may indicate that the auditor’s assessed level of control risk for a
given control is reasonable when, in fact, the true compliance rate does not justify the
assessed level.
This situation illustrates the risk of
- Assessing control risk too low
While performing a substantive test of details during an audit, the auditor determined that the
sample results supported the conclusion that the recorded account balance was materially
misstated. It was, in fact, not materially misstated. This situation illustrates the risk of
-Incorrect rejection
Which of the following sample planning factors would influence the sample size for a
substantive test of details for a specific account?
Expected amount of Measure of tolerable
misstatements misstatement
-YES YES
An auditor is applying a difference estimation sampling plan. Recorded book value is P1,000,000
and the auditor estimates a P75,000 understatement difference. In this case, the auditor’s
estimated population value is
- P1,075,000
An auditor is applying mean-per-unit estimation. Assuming estimated audited value is P950,000,

the achieved allowance for sampling risk is P75,000, and recorded book value is P925,000, what
is the auditor's conclusion?
- Recorded book value is not likely misstated by a material amount.
Using statistical sampling to assist in verifying the year-end accounts payable

balance, an auditor has accumulated the following data:
Number of Book Balance Determined
by
Accounts Balance the Auditor
Population 4,100 P5,000,000 ?
Sample 200 P 250,000 P300,000
Using the ratio estimation technique, the auditor’s estimate of year-end accounts
payable balance is
VT
-6,000,000
The process of evaluating the quality of internal control overtime is known as

-Monitoring
Corporate directors, management, external auditors, and internal auditors all play important roles
in creating a proper control environment. Top management is primarily responsible for
- Establishing a proper environment and specifying overall internal control.
When obtaining an understanding of an entity’s control environment, an auditor

should concentrate on the substance of management’s policies and procedures rather than their
form because
- Management may establish appropriate policies and procedures but not act on them
In an auditor’s consideration of internal control, the completion of a questionnaire is most

closely associated with which of the following?
-Understanding the System
The likelihood of assessing control risk too low is the risk that the sample selected to test
controls
- Does support the auditor’s planned assessed level of control risk when the true operating
effectiveness of the control does not justify such an assessment.
In evaluating the design of the entity’s internal control environment, the auditor considers
the following elements and how they have been incorporated into the entity’s processes. Such
elements would include all of the following except
- Information and communications systems
In statistical sampling methods used in substantive testing, when would an auditor most likely
stratify a population into meaningful groups?
- If the population has highly variable recorded amounts.

Exercise

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Exercise

Uploaded by

Copyright:

Available Formats

VT

The following statements relate to CPE credit units. Which is incorrect?

On exam results and report of ratings, which of the following is correct?

-Certificate of registration and professional identification card.

· Examinee 1 - All subjects garnered a rating of 95%.

The sector that is most represented in the AASC is the

Which of the following definitions in the Act describe a convention?

Which of the following regarding the standards-setting councils is correct?

Which of the following is not represented in the AASC?

Which of the following does not constitute a practice of accountancy?

Which of the following statements concerning ownership of working papers is incorrect?

Practice of accountancy in the public sector involves

-Rendering bookkeeping, auditing, system installation, etc. on a fee basis

Which of the following is not observed or required on a 3-year period basis?

Which of the following statements is/are correct?

Practice in Public Accountancy shall constitute in a person

• His/her Certificate of Registration

A person whose CPA certificate has been revoked

Which of the following is incorrect regarding confidentiality?

Which of the following is the least required in attaining professional competence?

Which of the following is incorrect regarding professional competence?

Part A of the Code of professional ethics establishes fundamental principles of professional

The code of ethics for professional accountants applies to

A combination of impartiality, intellectual honesty and a freedom from conflicts of interest.

The underlying reason for a code of professional ethics is

Competence as a certified public accountant includes all of the following except

Which of the following is the least required in attaining professional competence?

-Continuing awareness of development in the accountancy profession.

The principle of professional behavior requires a professional accountant to

Existing accountant, as defined in the Code of Ethics, means

Which of the following is a member of IFAC?

Which of the following is not a fundamental ethical principle?

The principle of confidentiality applies to:

Professional competence should include

The term receiving accountant includes the following, except

Professional accountants may encounter problems in identifying unethical behavior or in

Which of the following would least likely create “self-interest threat”?

Examples of circumstances that may create self-interest threat include

Occurs when any product or judgment of a previous assurance engagement or non-assurance

I. Removing the individual from the assurance team.

Examples of circumstances that may create self-review threat do not include

Which of the following is an example of engagement-specific safeguards in the work

I. Eliminate the circumstance or relationship creating the threats.

Consideration of the nature of the safeguards to be applied will be affected by matters

Which statement is incorrect regarding Professional Competence and Responsibilities Regarding

Lead engagement partner is

Which of the following is incorrect regarding integrity and objectivity?

Retainer’s fee basis is when

As defined in PSQC 1, __________ is a process comprising an ongoing consideration and

A distinct sub-group, whether organized on geographical or practice lines.

Which statement is incorrect regarding professional fees?

Publicity by individual professional accountants in public practice is acceptable provided:

Advertising as defined in the Code of Ethics, means

Which of the following is acceptable?

Which of the following is true regarding advertising and solicitation?

Which of the following is not acceptable?

Professional accountants press and other media releases undertaken to commemorate

The holding of media-covered events undertaken only to commemorate a professional

A CPA in public practice should not

Which of the following statements concerning publicity is incorrect?

A professional accountant in public practice is allowed to

Which statement is incorrect regarding clients’ monies?

A professional accountant may be associated with a tax return that