Professional Documents
Culture Documents
Exercise
Exercise
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.
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
Board of Accountancy (BOA)?
-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
Board of Accountancy (BOA)?
-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
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
The following were the ratings of examinees who took the very difficult CPA Board
Examination on May 2010.
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.
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
If the application for registration to practice public accountancy of Sayson and Co. CPAs, was
approved on July 31, 2009, the registration shall be renewed on or before
If the application for registration to practice public accountancy of Sayson and Co. CPAs, was
approved on July 31, 2009, the registration shall be renewed on or before
-September 30, 2011
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.
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.
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
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?
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
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.
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)
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
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.
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
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.
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 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
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
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
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 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?
-Self-interest threat
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
Which of the following fundamental principles would most likely be threatened when a
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
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
-Self-interest threat
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
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?
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.
-Self-interest threat
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
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
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
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
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 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
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.
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.
In determining estimates of fees, an auditor may take into account each of the following, except
the
- Attainment of specific findings
- 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.
(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
All forms of advertisements must have a prior review and approval by the
- Risk management partner
The approach to a potential client for the purpose of offering professional services is called
- solicitation
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
Generally, advertising and publicity in any medium are acceptable provided it is:
- not self-laudatory
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
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.
The following forms of assistance to a financial statement audit client do not generally threaten
the firm’s independence, except
- Authorizing or approving transactions
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
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
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
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.
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.
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.
Which one of the following is not one of the three General Standards?
- Proper planning and supervision.
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 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.
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
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
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
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 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.
- Reviews and tests compliance with the firm’s general quality control policies and
procedures.
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.
DEFINITION OF ERROR
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
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 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
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 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
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
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 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
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
The primary difference between financial statement errors and fraud is that
- errors are unintentional mistake or omissions, while fraud involves intentional
misstatements.
Which of the following conditions are generally present when misstatements due to fraud
occur?
I. Incentive or pressure.
VT
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
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
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.
The following are examples of circumstances that may indicate the possibility that the financial
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.
The following are examples of circumstances that may indicate the possibility that the financial
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.
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.
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.
The following are examples of circumstances that may indicate the possibility that the financial
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
Philippine Standards on Auditing require auditors to assess the risk of material misstatement due
to fraud
-for every audit
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.
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.
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.
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
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 best describes the interrelated components of internal control?
- Control environment, risk assessment, control activities, information and communication
systems, and monitoring.
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.
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
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.
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
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
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.
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
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
Column A Column B
75233 06852
14326 42904
76562 64854
28123 04978
64227 33150
80938 04301
22539 41240
29452 69521
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%)
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.
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.
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 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
When sampling for attributes, which of the following would decrease sample size?
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.
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.
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
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
Using the ratio estimation technique, the auditor’s estimate of year-end accounts
payable balance is
VT
-6,000,000
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.
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.