FINALS REVIEWER – AUDTHEO

1. Which of the following procedures would an auditor most likely to perform in planning a
financial statement audit?

a. Examining computer-generated exception reports to verify the effectiveness of internal control.

b. Searching for unauthorized transactions that may aid in directing unrecorded liabilities.
c. Comparing the financial statements with anticipated results.
d. Inquiring about the client’s legal counsel concerning pending litigation.

2. After determining that a related party transactions has, in fact, occurred an auditor should

a. Perform analytical procedures to verify whether similar transactions have occurred, but were not
recorded.
b. Obtain an understanding of the purpose of the transactions.
c. Substantiate that related party transactions were consummated on terms equivalent to those that
prevail in arm’s-length transactions.
d. Determine whether a particular transaction would have occurred if the parties had not been
related.

3. When issuing an unmodified auditor’s report, the auditor

a .May refer to the work of an expert.

b. Should refer to the work of an expert to indicate a division of responsibility.
c. Should include in the auditor’s report the identity of the expert and the extent of the expert’s
involvement.
d. Should not refer to the expert’s work.

4. When auditing related party transactions, an auditor places primary emphasis on

a. Verifying the valuation of the related party transactions.

b. Evaluating the disclosure of the related party transactions.
c. Confirming the existence of the related parties.
d. Ascertaining the rights and obligations of the related parties.

5. Which of the following would an auditor most likely use in determining the auditor’s preliminary
judgment about materiality.

a. The results of the internal control questionnaire.

b. The anticipated sample size of the planned substantive tests.
c. The entity’s annualized interim financial statements.
d. The contents of the management representation letter.

6. Which of the following statements concerning analytical procedures is true?

a. Analytical procedures used in planning the audit should not use nonfinancial information.
b. Analytical procedures may be omitted entirely for some financial statement audits.
c. Analytical procedures usually are effective and efficient for tests of controls.
d. Analytical procedures alone may provide the appropriate level of assurance for some assertions.

Ganda ni AA
 7. In using the work of an expert, an understanding should exist among the auditor, the entity and
the expert as to the nature, scope, and objective of the expert’s work. The documentation of this
understanding should cover

a. A statement that the expert assumes no responsibility to update the expert’s report for future
events or circumstances.
b. The auditor’s disclaimer as to whether the expert’s findings corroborate the representations in the
financial statements.
c. The intended use by the auditor of the expert’s work, including the possible communication to
third parties of the expert’s identity and extent of involvement.
d. The conditions under which a division of responsibility may be necessary.

8. PSA 620 (Using the Work of an Expert) provides guidance on using the work of an expert as
audit evidence. According to this standard, an expert may be

a. Contracted or employed by the entity or auditor.

b. Contracted by the auditor but never by the entity.
c. Contracted but not employed by the entity.
d. Contracted by the entity but never by the auditor.

9. The primary objective of analytical procedures used in the overall review stage of an audit is to

a. Assist the auditor in assessing the validity of the conclusions reached.

b. Identify areas that represent specific risks relevant to the audit.
c. Satisfy doubts when questions arise about a client’s ability to continue in existence.
d. Obtain evidence from details testing to corroborate particular assertions.

10. If the external auditor decides that it is efficient to consider how the work performed by the
internal auditors may affect the nature, timing, and extent of audit procedures, he/she should
assess the internal auditors’

a. Independence and review skills

b. Efficiency and experience
c. Competence and objectivity
d. Training and supervisory skills

11. Materiality should be considered by the auditor when determining the nature, timing and extent
of audit procedures.

a. False
b. True

12. A basic premise underlying analytical procedures is that

a. Statistical tests of financial information may lead to the discovery of material misstatements in the
financial statements.
b. These procedures cannot replace tests of balances and transactions.
c. The study of financial ratios is an acceptable alternative to the investigation of unusual
fluctuations.
d. Plausible relationships among data may reasonably be expected to exist and continue in the
absence of known conditions to the contrary.
 13. Which of the following items tend to be the most predictable for purposes of analytical
procedures applied as substantive tests?

a. Relationships involving balance sheet accounts.

b. Transactions subject to management discretion.
c. Relationships involving income statement accounts.
d. Data subject to audit testing in the prior period.

14. Materiality need not be considered when evaluating the effect of misstatements.

a. False
b. True

15. Analytical procedures used in planning an audit should focus on

a. Enhancing the auditor’s understanding of the client’s business and identifying areas of potential
risk.
b. Providing assurance that potential material misstatements will be identified.
c. Assessing the adequacy of the available evidential matter.
d. Reducing the scope of tests of controls and substantive tests.

16. Which of the following is not an expert upon whose work an auditor may rely?

a. Appraiser
b. Actuary
c. Engineer
d. Internal auditor

17. If the results of the expert’s work do not provide sufficient appropriate audit evidence or are not
consistent with other audit evidence, the auditor should

a. Express an unqualified opinion with reference to the work of the expert.

b. Withdraw from the engagement.
c. Resolve the matter.
d. Report the matter to the appropriate regulatory agency of the government.

18. In assessing the technical competence of an internal auditor, an external auditor most likely
would obtain information about the

a. Entity’s commitment to integrity and ethical values.

b. Organizational level to which the internal auditor reports.
c. Influence of management on the internal auditor’ duties.
d. Quality of working paper documentation, reports, and recommendations.

19. There is an inverse relationship between materiality and the level of audit risk.

a. True
b. False
 20. Which of the following statements is correct concerning the auditor’s use of the work of an
expert?

a. The auditor should obtain an understanding of the methods and assumptions used by the expert.
b. The auditor is required to perform substantive test procedures to verify the expert’s assumptions
and findings.
c. The expert should not have an understanding of the auditor’s corroborative use of the expert’s
findings.
d. The should not have an understanding of the nature of the work to be performed by the expert.

21. The external auditor should obtain a sufficient understanding of the internal audit function
because

a. The work performed by internal auditors may be a factor in determining the nature, timing, and
extent of the external auditor’s procedures.
b. The procedures performed by the internal audit staff may eliminate the external auditor’s need for
considering internal control.
c. The understanding of the internal audit function is an important substantive test to be performed
by the external auditor.
d. The audit programs, working papers, and reports of internal auditors may often be used as a
substitute for the work of the external auditor’s staff.

22. Analytical procedures used in the overall review stage of an audit generally include

a. Gathering evidence concerning account balances that have not changed from the prior year.
b. Performing tests of transactions to corroborate management’s financial statement assertions.
c. Considering unusual or unexpected account balances that were not previously identified.
d. Retesting controls that appeared to be ineffective during the assessment of control risk.

23. Which of the following auditing procedures most likely would assist an auditor in identifying
related party transactions.

a. Vouching accounting records for recurring transactions recorded just after the balance sheet date.
b. Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.
c. Performing analytical procedures for indications of possible financial difficulties.
d. Reviewing confirmations of loans receivable and payable for indications of guarantees.

24. Which of the following most likely would indicate the existence of related parties?

a. Writing down obsolete inventory just before year-end.

b. Depending on a single product for the success of the entity.
c. Borrowing money at an interest rate significantly below the market rate.
d. Failing to correct previously identified internal control deficiencies.

25. Which of the following would not be considered an analytical procedure?

a. Projecting an error rate by comparing the results of a statistical sample with the actual population
characteristics.
b. Developing the expected sales based on the sales trend of the prior five years.
c. Computing accounts receivable turnover by dividing credit sales by the average net receivables.
 d. Estimating payroll expense by multiplying the number of employees by the average hourly wage
rate and the total hours worked.

26. An auditor most likely would review an entity’s periodic accounting for the numerical sequence
of shipping documents and invoices to support management’s financial statement assertion of

a. Valuation and allocation

b. Existence
c. Rights and obligations
d. Completeness

27. Management makes certain assertions that are embodied in financial statement components; for
example, two such categories of assertions are completeness and valuation and allocation. Which
of the following is not a broad category of management assertions?

a. Completeness
b. Errors or fraud
c. Rights and obligations
d. Existence

28. Which of the following might be detected by an auditor’s review of the client’s sales cut-off?

a. Excessive goods returned for credit.

b. Inflated sales for the year.
c. Lapping of year-end accounts receivable.
d. Unrecorded sales discounts.

29. Which of the following is an example of “other information” that could be used by an auditor as
evidential matter supporting the financial statements.

a. Worksheets supporting cost allocations.

b. Confirmation of accounts receivable.
c. Special journals.
d. Accounting manuals.

30. Which of the following generalizations does not relate to the appropriateness of evidence?

a. Audit evidence generated internally is more reliable when the related accounting and internal
control systems are effective.
b. An auditor’s opinion, to be economically useful, is formed within reasonable time and based on
evidence obtained at a reasonable cost.
c. Audit evidence obtained directly by the auditor is more reliable than that obtained from the entity.
d. Audit evidence from external sources (for example, confirmation received from a third party) is
more reliable than the generated internally.

31. PSA 500 requires the auditor to use assertions for classes of transactions, account balances, and
presentation and disclosures in sufficient detail to form a basis for the assessment of risks of
material misstatements and the design and performance of further audit procedures. Assertions
about classes of transactions include occurrence, completeness, accuracy, cutoff, and

a. Existence.
 b. Valuation and and allocation.
c. Rights and obligations.
d. Classification.

32. The objective of tests of details of transactions performed as substantive tests is to

a. Attain assurance about the reliability of the accounting system.

b. Comply with generally accepted auditing standards.
c. Evaluate whether management’s policies and procedures operated effectively.
d. Detect material misstatements in the financial statements.

33. The auditor may consider confirming accounts receivable balances at an interim date if

a. Negative confirmations are to be used for a sample of accounts.

b. The assessed level of risk of material misstatement relative to financial statement assertions about
receivables is acceptably low.
c. Cash and accounts receivable are audited at the same time.
d. Collections subsequent to year-end are to be reviewed

34. An auditor confirms a representative number of open accounts receivable as of December 31 and
investigates respondents’ exceptions and comments. By this procedure the auditor would be most
likely to learn of which of the following?

a. The credit manager has misappropriated remittances from customers whose accounts have been
written off.
b. One of the computer control clerks has been removing all sales invoices applicable to his account
from the data file.
c. One of the sales clerks has not been preparing charge slips for credit sales to family and friends.
d. One of the cashiers has been covering a personal embezzlement by lapping.

35. In determining whether transactions have been recorded, the direction of the audit testing should
be from the

a. General ledger balances

b. Original source documents
c. Adjusted trial balance
d. General journal entries

36. Each of the following might, by itself, form a valid basis for an auditor to decide to omit a test
except for the

a. Assessment of control risk at a low level.

b. Relationship between the cost of obtaining evidence and its usefulness.
c. Inherent risk involved.
d. Difficulty and expense involved in testing a particular item.

37. Confirmation is “the process of obtaining and evaluating a direct communication from a third
party in response to a request for information about a particular item affecting financial statement
assertions.” Two assertions for which confirmation of accounts receivable balances provides
primary evidence are
 a. Existence and completeness
b. Rights and obligations and existence
c. Valuation and rights and obligations.
d. Completeness and valuation.

38. In which of the following circumstances would the use of the negative form of accounts
receivable confirmation most likely to be justified?

a. A substantial number of accounts may be in dispute and the accounts receivable balance arises
from sales to a few major customers.
b. A substantial number of accounts may be in dispute and the accounts receivable balance arises
from sales to many customers with small balances.
c. A small number of accounts may be in dispute and the accounts receivable balance arises from
sales to many customers with small balances.
d. A small number of accounts may be in dispute and the accounts receivable balance arises from
sales to few major customers.

39. Which of the following statements is correct concerning the use of negative confirmation
requests?

a. Negative confirmation requests are effective when detection risk is low.

b. Unreturned negative confirmation requests indicate that alternative procedures are necessary.
c. Unreturned negative confirmation requests rarely provide significant explicit evidence.
d. Negative confirmation requests are effective when understatements of account balances are
suspected.

40. Which of the following most likely would give the most assurance concerning the valuation and
allocation assertion of accounts receivable?

a. Inquiring about receivables pledged under loan agreements.

b. Comparing receivable turnover ratios with industry statistics for reasonableness.
c. Assessing the allowance for uncollectible accounts for reasonableness.
d. Vouching amounts in the subsidiary ledger to details on shipping documents.

41. Which of the following types of audit evidence is the most persuasive?

a. Client worksheets supporting cost allocations.

b. Client representation letter.
c. Pre-numbered purchase order forms.
d. Bank statements obtained from the client.

42. Which of the following statements concerning audit evidence is correct?

a. To be appropriate, audit evidence should be either reliable or relevant, but it need not be both.
b. The measure of the validity of audit evidence lies in the auditor’s judgment.
c. The difficulty and expense of obtaining audit evidence concerning an account balance is a valid
basis for omitting the test.
d. A client’s accounting records can be sufficient audit evidence to support the financial statements.
 43. Which of the following statements concerning evidential matter is true?

a. Effective internal control contributes little to the reliability of the evidence created within the
entity.
b. The cost of obtaining evidence is not an important consideration to an auditor in deciding what
evidence should be obtained.
c. Appropriate evidence supporting management’s assertions should be convincing rather than
merely persuasive.
d. A client’s accounting records cannot be considered sufficient evidence to support the financial
statements.

44. Statement 1: The quantity of audit evidence needed is affected by the risk of misstatement and
also by the quality of such audit evidence. Statement 2: The reliability of audit evidence is
influenced by its source and by its nature and is dependent on the individual circumstances under
which it is obtained.

a. False; True
b. Both statements are true.
c. True; False
d. Both statements are false.

45. Audit evidence can come in different forms with different degrees of persuasiveness. Which of
the following is the least persuasive type of evidence?

a. Bank statement obtained from the client.

b. Pre-numbered purchase order forms.
c. Correspondence from the client’s attorney about litigation.
d. Test counts of inventory made by the auditor.

46. In testing the existence assertion for an asset, an auditor ordinarily works from the

a. Financial statements to the potentially unrecorded items.

b. Potentially unrecorded items to the financial statements.
c. Accounting records to the supporting evidence.
d. Supporting evidence to the accounting records.

47. Which of the following statements concerning audit evidence is correct?

a. An audit usually involves the authentication of documentation.

b. Audit evidence obtained from an independent external source is always reliable.
c. An entity’s accounting records can be sufficient audit evidence to support the financial
statements.
d. A given set of procedures may provide audit evidence that is relevant to certain assertions, but not
others.

48. Cutoff tests designed to detect credit sales made before the end of the year that have been
recorded in the subsequent year provide assurance about management’s assertion of

a. Classification
b. Existence
c. Rights and obligations.
d. Cutoff
 49. When an auditor does not receive replies to positive requests for year-end accounts receivable
confirmations, the auditor most likely would

a. Inspect the allowance account to verify whether the accounts were subsequently written off.
b. Increase the assessed level of inherent risk for the revenue cycle.
c. Increased the assessed level of detection risk for the valuation and completeness assertions.
d. Send the customer a second confirmation.

50. Which of the following is a false statement about audit objectives?

a. Audit objectives should be developed in light of management assertions about the financial
statement components.
b. There should be one- to –one relationship between audit objectives and procedures.
c. Selection of tests to meet audit objectives should depend upon the understanding of internal
control.
d. The auditor should resolve any substantial doubt about any of management’s material financial
statement assertions.

51. If the auditor concludes that the noncompliance has a material effect on the financial statements,
and has not been properly reflected in the financial statements, the auditor should express

a. A qualified opinion or a disclaimer of opinion.

b. An adverse opinion
c. A qualified or an adverse opinion.
d. An adverse opinion or a disclaimer of opinion

52. Under PSA 260, those matters that arise from the audit of financial statements and, in the opinion
of the auditor, are both important and relevant to those charged with governance in overseeing
the financial reporting and disclosure process are called

a. Significant audit matters.

b. Auditor’s findings
c. Material misstatements in the financial statements.
d. Audit matters of governance interest.

53. Under PSA 260, this term is used to describe the role of persons entrusted with the supervision,
control, and direction of an entity.

a. Governance
b. Control
c. Oversight
d. Direction

54. Fraud involving one or more members of management or those charged with governance is
referred to as

a. Employee fraud.
b. Misappropriation of assets.
c. Fraudulent financial reporting.
 d. Management fraud

55. The following are examples of fraud risk factors relating to misstatements arising from
misappropriation of assets, except

a. Inadequate segregation of duties or independent checks.

b. Inadequate physical safeguards over cash, investments, inventory, or fixed assets.
c. Adverse relationship between the entity and employees with access to cash or other assets
susceptible to theft created by recent changes made to employee compensation or benefit plans.
d. Recurring negative cash flows from operating activities while reporting earnings and earnings
growth.

56. ”Error” includes

a. Engaging in complex transactions that are structured to misrepresent the financial position or
financial performance of the entity.
b. An incorrect accounting estimate arising from oversight or misinterpretation of facts.
c. Intentional misapplication of accounting policies relating to amounts, classification, manner of
presentation, or disclosure.
d. Concealing, or not disclosing, facts that could affect the amounts recorded in the financial
statements.

57. According to PSA 250, the term “noncompliance” as used in the standard refers to acts of
omission or commission by the entity being audited, either intentional or unintentional, which
are contrary to the prevailing laws or regulations. Such acts do not include

a. Transactions entered into on the entity’s behalf by its management or employees.

b. Transactions entered into in the name of the entity.
c. Transactions entered into by the entity.
d. Personal misconduct (unrelated to the entity’s business activities) by the entity’s management or
employees.

58. Opportunities to misappropriate assets increase when there are

a. Inventory items that are small in size, of high value, or in high demand.
b. Known or anticipated future employee layoffs.
c. Recent or anticipated changes to employee compensation or benefit plans.
d. Promotions, compensation, or other rewards inconsistent with expectations.

59. Which of the following statements best describes an auditor’s responsibility regarding
misstatements?

a. An auditor’s failure to detect a material misstatement resulting from fraud is an indication of

noncompliance with the requirements of the Philippine Standards on
b. An auditor should obtain reasonable assurance that the financial statements taken as a whole are
free from material misstatement, whether caused by fraud or error.
c. An auditor is responsible to detect material errors but has no responsibility to detect material
fraud that is concealed through employee collusion or management override of internal control.
d. An auditor should obtain absolute assurance that material misstatements in the financial
statements will be detected.
 60. When planning the audit, the auditor should make inquiries of management. Such inquiries
should address the following, except

a. Management’s process for identifying and responding to the risks of fraud in the entity.
b. Management’s communication, if any, to those charged with governance regarding its processes
for identifying and responding to the risks of fraud in the entity.
c. Management’s assessment of the risk that the financial statements maybe misstated due to fraud.
d. Management’s consideration of how an element of unpredictability will be incorporated into the
nature, timing, and extent of the audit procedures to be performed.

61. The responsibility for the prevention and detection of noncompliance rests with

a. Management.
b. The client’s lawyer.
c. The auditor’s lawyer.
d. The auditor.

62. When obtaining an understanding of the entity and its environment, including its internal
control, the auditor may identify events or conditions that indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Such events or conditions are referred
to as

a. Fraud conditions
b. Fraud risk factors.
c. Fraud environment.
d. Fraudulent activities.

63. When the auditor identifies a misstatement 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

a. Communicate the information to regulatory and enforcement authorities.

b. Withdraw from the engagement.
c. Consider the implications of the misstatements in relation to other aspects of the audit.
d. Report the matter to the person or persons who made the audit appointment.

64. The primary responsibility for the prevention and detection of fraud rests with

a. Management of the entity.

b. Both those charged with governance of the entity and management.
c. The auditor.
d. Those charged with governance of the entity.

65. Because of the risk of material misstatement, an audit of financial statements in accordance with
PSAs should be planned and performed with an attitude of

a. Professional skepticism.
b. Objective judgment.
c. Impartial conservatism.
d. Independent integrity.
 66. The following statements relate to communication of misstatements resulting from fraud to
management and to those charged with governance. Which is false?

a. The auditor need not bring to the attention of those charged with governance any material
weaknesses in internal control related to the prevention and detection of fraud.
b. If the auditor has obtained evidence that indicates that fraud may exist (even if the potential effect
on the financial statements would not be material), the auditor should communicate these matters to the
appropriate level of management on a timely basis, and consider the need to report such matters to those
charged with governance.
c The auditor’s communication with those charged with governance may be made orally or in
writing.
d. If the auditor has identified a fraud, whether or not it results in a material misstatement in the
financial statements, the auditor should communicate these matters to the appropriate level of
management on a timely basis, and consider the need to report such matters to those charged with
governance.

67. PSA 230 (Documentation) requires the auditor to document matters which are important in
providing evidence to support the audit opinion, and states that the working papers include the
auditor’s reasoning on all significant matters which require the auditor’s judgment, together with
the auditor’s conclusion thereon. Which of the following should be documented by the auditor?

a. Auditor’s responses to identified fraud risk factors.

b. Fraud risk factors identified as being present during the auditor’s risk assessment process.
c. The standard does not require documentation of the identified fraud risk factors and the auditor’s
responses to them.
d. Both fraud risk factors identified as being present during the auditor’s risk assessment process
and the auditor’s response to any such factors.

68. Fraudulent financial reporting involves intentional misstatements including omissions of

amounts or disclosures in financial statements to deceive financial statement users. It may be
accomplished in a number of ways, including

a. Stealing physical assets or intellectual property.

b. Manipulation, falsification, or alteration of accounting records or supporting documentation from
which the financial statements are prepared.
c. Using an entity’s assets for personal use.
d. Embezzling receipts.

69. The auditor is concerned with fraud that causes a material misstatement in the financial
statements. There are two types of intentional misstatements that are relevant to the auditor:
misstatements resulting from fraudulent financial reporting and misstatements resulting from

a. Misappropriation of assets.
b. Employee fraud.
c. Management fraud.
d. Collusion within the entity or with third parties.

70. If the auditor is precluded by the entity from obtaining sufficient appropriate audit evidence to
evaluate whether noncompliance that may be material to the financial statements, has, or is likely
to have, occurred, the auditor should express

a. An adverse opinion
b. A qualified opinion or a disclaimer of opinion.
 c. An adverse opinion or a disclaimer of opinion.
d. A qualified or an adverse opinion.

71. Which of the following conditions or events may create incentives/pressures to commit fraud?

a. Excessive pressure on management or operating personnel to meet financial targets established by

those charged with governance, including sales or profitability incentive goals.
b. Lack of mandatory vacations for employees performing key control functions.
c. Inadequate access controls over automated records.
d. Inadequate system of authorization and approval of transactions.

72. As used in PSA 250 (Consideration of Laws and Regulations in an Audit of Financial
Statements), this term refers to acts of omission or commission by the entity being audited, either
intentional or unintentional, which are contrary to prevailing laws or regulations.

a. Noncompliance
b. Unforgivable acts
c. Erotic acts
d. Illegal acts

73. A special/temporary permit may be issued by the Board of Accountancy (BOA) to the following
persons, except

a. A foreign CPA called for consultation or for a specific purpose which, in the judgment of the
BOA, is essential for the development of the country and that there is no Filipino CPA qualified for such
consultation or specific purpose.
b. A foreign CPA called for consultation or for a specific purpose which, in the judgment of the
BOA, is essential for the development of the country regardless of whether there are Filipino CPAs who
are qualified for such consultation or specific purpose.
c. A foreign CPA engaged as a professor, lecturer or critic in fields essential to accountancy
education in the Philippines and his/her engagement is confined to teaching only.
d. A foreign CPA who is an internationally recognized expert or with specialization in any branch of
accountancy and his/her service is essential for the advancement of accountancy in the Philippines.

74. 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. Lethal injection.
b. A fine of not less than P50,000 or by imprisonment for a period not exceeding two years or both.
c. A fine of not more than P50,000.
d. Imprisonment for a period not exceeding two years.

75. As defined in Annex “C” of the IRR, this refers to the inculcation, assimilation and acquisition of
knowledge, skills, proficiency and ethical and moral values, after the initial registration of a
professional that raise and enhance the professional’s technical skills and competence.

a. Continuing Professional Development

b. Continuing Professional Education.
c. Professional Growth and Development
d. Professional Development.
 76. In order to achieve the objectives of the accountancy profession, professional accountants have
to observe a number of prerequisites or fundamental principles. Which of the following
fundamental principles requires a professional accountant to be straightforward and honest in
performing professional services.

a. Integrity
b. Objectivity
c. Professional competence and due car
d. Confidentiality

77. Publicity by individual professional accountants in public practice is acceptable provided

a. It is in good taste and is professionally dignified.

b. It avoids frequent repetition of, and any undue prominence given to the name of the professional
accountant in public practice.
c. All of the above.
d. It has as its object the notification to the public of matters of fact in a manner that is not false,
misleading or deceptive.

78. Republic Act 9298 is known as the

a. Code of Ethics for Professional Accountants.

b. Philippine Accountancy Law of 2004.
c. Revised Accountancy Law
d. Philippine Accountancy Act of 2004.

79. Safeguards created by the profession, legislation or regulation include the following, except

a. Educational, training, and experience requirements for entry into the profession.
b. Professional standards and monitoring and disciplinary processes.
c. Continuing Professional Education (CPE) requirements.
d. When the assurance client’s management appoints the firm, persons other than management ratify
or approve the appointment.

80. The Board of Accountancy has the power to conduct an oversight into the quality of audits of
financial statements through a review of the quality control measures instituted by auditors in
order to ensure compliance with the accounting and auditing standards and practices. This power
of the BOA is called

a. Quality review
b. Peer review
c. Quality control
d. Appraisal

81. The communication to the public of facts about a professional accountant which are not designed
for the deliberate promotion of that professional accountant is

a. Advertising
b. Publicity.
c. Solicitation
 d. Promotion.

82. The following actions should be taken by a professional accountant in public practice entrusted
with clients’ money, except

a. Use such money only for the purpose for which it is intended.
b. Keep such money separately from personal or firm money.
c. When it seems likely that the client’s money will remain on client account for a significant period
of time, place such money in an interest-bearing account within a reasonable time, even without the
client’s concurrence.
d. At all times, be ready to account for the money to any person entitled to such accounting.

83. The following statements relate to the practice of public accountancy. Which statement is
incorrect?

a. Single practitioners and partners of partnerships organized for the practice of public accountancy
shall be registered CPAs in the Philippines.
b. The Securities Commission shall not register any corporation organized for the practice of public
accountancy.
c. From the effectivity of RA 9298, a Certificate of Accreditation shall be issued to CPAs in public
practice only upon showing, in accordance with rules and regulations promulgated by the Board and
approved by the PRC, that such registrant has acquired a minimum of two(2) years meaningful
experience in any of the areas of public practice including taxation.
d. A partnership engaged in the practice of public accountancy may be carried on in the form of a
general partnership (GP) or a limited liability partnership (LLP) organized in accordance with Philippine
laws.

84. The following statements relate to the professional accountant’s obligation to respect the
confidentiality of information about a client’s or an employer’s affairs acquired in the course of
professional services. Which is false?

a. The duty of confidentiality continues even after the end of the relationship between the
professional accountant and the client or employer.
b. Confidentiality should always be observed by a professional accountant unless specific authority
has been given to disclose information or there is a legal or professional duty to disclose.
c. When authorization to disclose confidential information is given by the client or the employer,
third parties’ interests that might be affected need not be considered.
d. A professional accountant may disclose confidential information to protect his/her professional
interests in legal proceedings.

85. The following statements relate to the term of office of the chairman and members of the Board
of Accountancy (BOA). Which is false?

a. 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.
b. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of
the term only.
c. The chairman and members of the BOA shall hold office for a term of three (3).
d. Appointment to fill up an unexpired term is not to be considered as a complete term.
 86. The following statements relate to the use of seal by registered CPAs. Which is incorrect?

a. The seal should be of a design prescribed by the Board bearing the CPA’s name, registration
number, and title.
b. A registered CPA shall obtain and use a seal of a design that will suit his/her taste.
c. The seal of a CPA shall be circular in form.
d. The auditor’s reports shall be stamped with the CPA’s seal, indicating therein his/her current
Professional Tax Receipt (PTR) number, date/place of payment when filed with government authorities
or when used professionally.

87. The members of the Professional Regulatory Board of Accountancy shall be appointed by the

a. Philippine Institute of CPAs (PICPA)

b. Association of CPAs in Public Practice (ACPAPP)
c. Professional Regulation Commission (PRC)
d. President of the Philippines.

88. The practice of accountancy includes

a. Practice in Education/ Academe.

b. Practice of Public Accountancy
c. All of the above.
d. Practice in Commerce and Accountancy

89. The PRC CPE Council shall assist the BOA in implementing its CPE program. Which of the
following statements is incorrect concerning the Council’s composition?

a. The first member shall be the president or, in his/her absence or incapacity, any officer chosen by
the Board of Directors of PICPA.
b. The second member shall be the president, or in his/her absence or incapacity, any officer of the
organization of deans or department heads of schools, colleges or universities offering the degree
requiring licensure examination.
c. The PRC CPE Council shall be composed of a chairperson and two (2) members.
d. The chairperson shall be chosen from among the members of the BOA by the PRC.

90. To pass the CPA licensure examination, a candidate must obtain a

a. General average of seventy-five percent (75%).

b. General average of sixty-five percent (65%).
c. General average of sixty-five percent (65%), with no grades lower than seventy-five percent
(75%) in any given subject.
d. General average of seventy-five percent (75%), with no grades lower than sixty-five percent
(65%) in any given subject.

91. Which of the following independence requirements for assurance engagements is incorrect?

a. For an audit engagement, the members of the assurance team, the firm, and network firms are
required to be independent of the client.
 b. For a non-audit assurance engagement, when the report is expressly restricted for use by
identified users, the members of the assurance team are required to be independent of the client and the
firm should not have a material direct or indirect financial interest in the client.
c. For a non-audit assurance engagement, when the report is not expressly restricted for use by
identified users, the members of the assurance team and the firm are required to be independent of the
client.
d. For a non-audit assurance engagement, when the report is not expressly restricted for use by
identified users, the members of the assurance team, the firm, and network firms are required to be
independent of the client.

92. Which of the following is a function of the Board of Accountancy?

a. To supervise the regulation, licensure, and practice of accountancy in the Philippines.

b. To issue, suspend, revoke, or reinstate the certificate of registration for the practice of the
accountancy profession.
c. To prescribe and adopt the rules and regulations necessary for carrying out the provisions of the
Philippine Accountancy Act of 2004.
d. All of the above.

93. Which of the following is NOT a factor to consider in determining the professional fee of a
professional accountant in public practice?

a. The time necessarily occupied by each person engaged in performing the professional services.
b. The skill and knowledge required for the type of professional services involved.
c. The level of training and experience of the persons necessarily engaged in performing the
professional services.
d. The result of the assurance work.

94. Which of the following is not a qualification of an applicant for the CPA licensure examination?

a. He/she is at least 21 years of age.

b. He/she is of good moral character.
c. He/she is a holder of the degree of Bachelor of Science in Accountancy.
d. He/she is a Filipino citizen.

95. Which of the following is NOT an objective of the Philippine Accountancy Act of 2004?

a. The examination for registration of certified public accountants.

b. The supervision, control, and regulation of the practice of accountancy in the Philippines.
c. The development and improvement of accounting standards that will be generally accepted in the
Philippines.
d. The standardization and regulation of accounting education.

96. Which of the following is the accredited national professional organization of CPAs (APO)?

a. ASC
b. FRSC
c. PICPA
d. AASB
 97. Which of the following statements best explains why accountancy profession has found it
essential to promulgate ethical standards and to establish means for ensuring their observance?

a. A distinguishing mark of a profession is acceptance of its responsibility to the public.

b. Ethical standards that emphasize excellence in performance over material rewards establish
reputation for competence and character.
c. A professional accountant’s primary responsibility is to satisfy the needs of an individual client or
employer.
d. Strict implementation and enforcement of ethical requirements is the best way to prevent
unscrupulous acts.

98. Which of the following statements concerning a CPA’s disclosure of confidential client
information is ordinarily correct?

a. Disclosure should not be made even if such disclosure will protect the CPA’s professional
interests in legal proceedings.
b. Disclosure may be made to any party on consent of the client.
c. Disclosure maybe made to any government agency without subpoena.
d. Disclosure should be made only if there is a legal or professional duty to make the disclosure.

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

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

100. An accountant’s report on a review of the financial statements of an entity should state
that the accountant

a. Does not express an opinion or any form of limited assurance on the financial statements.
b. Conducted the review in accordance with the Philippine Standard on Review Engagements.
c. Obtained reasonable assurance about whether the financial statements are free of material
misstatements.
d. Examined evidence, on a test basis, supporting the amounts and disclosures in the financial
statements.

101. 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.

a. I only
b. II only
c. Neither I nor II
d. Both I and II only
 102. When compiling an entity’s financial statements, an accountant would be least likely to

a. Obtain an acknowledgement from management of its responsibility for the financial statements.
b. Read the compiled financial statements and consider whether they appear to include adequate
disclosures.
c. Plan the work so that an effective engagement will be performed.
d. Perform analytical procedures designed to identify relationships that appear to be unusual.

103. The primary source of information to be reported about litigation, claims and assessments
is the

a. Client’s management
b. Court records
c. Client’s lawyer
d. Independent auditor

104. The following statements relate to unaudited prior year financial statements that are
presented in comparative form with audited current year financial statements. Which is
incorrect?

a. The incoming auditor need not perform audit procedures regarding opening balances of the
current period.
b. The incoming auditor should state in the auditor’s report that the comparative financial statements
are unaudited.
c. In situations where the incoming auditor identifies that the prior year unaudited figures are
materially misstated, the auditor should request management to revise the prior year’s figures or if
management refuses to do so, appropriately modify the report.
d. Clear disclosure in the financial statements that the comparative financial statements are
unaudited is encouraged.

105. The likelihood of assessing control risk too high is the risk that the sample selected to test
controls

a. Contains proportionately fewer deviations from prescribed internal controls than exist in the
balance or class as a whole.
b. Does not support the tolerable misstatement for some or all of management’s assertions.
c. Contains misstatements that could be material to the financial statements when aggregated with
misstatements in other account balances of transactions classes.
d. Does not support the auditor’s planned assessed level of control risk when the true operating
effectiveness of internal control justifies such an assessment.

106. Which of the following statements is correct concerning statistical sampling in tests of
controls?

a. There is an inverse relationship between the sample size and the tolerable rate.
b. The quantitative aspects of deviations are not considered by the auditor.
c. As the population size doubles, the sample should also double.
d. Deviations from control procedures at a given rate usually result in misstatements at a higher rate.
 107. When an accountant examines prospective financial statements, the accountant’s report
should include a separate paragraph that

a. Contains an opinion as to whether the prospective financial statements are properly prepared on
the basis of the assumption and are presented in accordance with generally accepted accounting
principles in the Philippines.
b. States that the accountant is responsible for events and circumstances up to 1 year after the
report’s date.
c. Disclaims an opinion on whether the assumptions provide a reasonable basis for the prospective
financial statements.
d. Provides an explanation of the differences between an examination and an audit.

108. The risk of incorrect acceptance and the likelihood of assessing control risk too low relate
to the

a. Efficiency of the audit.

b. Effectiveness of the audit.
c. Tolerable misstatement.
d. Preliminary estimates of materiality levels.

109. Financial statements of an entity that have been reviewed by an accountant should be
accompanied by a report stating that a review

a. Does not contemplate obtaining corroborating evidential matter or applying certain other
procedures ordinarily performed during an audit.
b. Consists principally of inquiries of company personnel and analytical procedures applied to
financial data.
c. Includes examining, on a test basis, information that is the representation of management.
d. Provides only limited assurance that the financial statements are fairly presented.

110. An accountant may accept an engagement to apply agreed-upon procedures that are not
sufficient to express an opinion on one or more specified accounts or items of a financial
statement provided that

a. The accountant’s report does not enumerate the procedures performed.

b. Distribution of the accountant’s report is restricted.
c. The accountant is also the entity’s consulting auditor.
d. The financial statements are prepared in accordance with a comprehensive basis of accounting
other than generally accepted accounting principles.

111. While performing a 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

a. Assessing control risk too high.

b. Incorrect rejection
c. Incorrect acceptance
d. Assessing control risk too low.

112. Audit sampling involves the

a. Application of audit procedures to all items over a certain amount and those that are unusual or
have a history of error.
 b. Application of audit procedures to all items that comprise a class of transactions or an account
balance.
c. 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.
d. Selection of all items over a certain amount.

113. When compiling the financial statements of an entity, an accountant should

a. Inquire of key personnel concerning related parties and subsequent events.

b. Perform ratio analyses of the financial data of comparable prior periods.
c. Review agreements with financial institutions for restrictions on cash balances.
d. Understand the accounting principles and practices of the entity’s industry.

114. Which of the following statistical selection techniques is least desirable for use by an
auditor?

a. Sequential selection
b. Block selection
c. Stratified selection
d. Systematic selection

115. An accountant who reviews the financial statements of an entity should issue a report
stating that a review

a. Provides negative assurance that internal control is functioning as designed.

b. Provides only limited assurance that the financial statements are fairly presented.
c. Is substantially more in scope than a compilation.
d. Provides less assurance than an audit.

116. An underlying feature of random-based selection of items is that each

a. Item in the accounting population should have an opportunity to be selected.

b. Stratum of the accounting population be given equal representation in the sample.
c. Item in the accounting population be randomly ordered.
d. Item must be systematically selected using replacement.

117. The primary reason an auditor requests that letters of inquiry be sent to a client’s
attorneys is to provide the auditor with

a. A description and evaluation of litigation, claims and assessments that existed at the balance sheet
date.
b. The probable outcome of asserted claims and pending or threatened litigation.
c. The attorney’s opinions of the client’s historical experiences in recent similar litigation.
d. Corroboration of the information furnished by management about litigation, claims and
assessments.
 118. A financial forecast consists of prospective financial statements that present an entity’s
expected financial position, results of operations, and cash flows. A forecast

a. Is based on assumptions reflecting conditions expected to exist and courses of action expected to
be taken.
b. Unlike a projection, may contain a range.
c. Is based on the most conservative estimates.
d. Present estimates given one or more hypothetical assumptions.

119. Which of the following best illustrates the concept of sampling risk?

a. An auditor may select audit procedures that are not appropriate to achieve the specific objective.
b. A randomly chosen sample may not be representative of the population as a whole on the
characteristic of interest.
c. An auditor may fail to recognize errors in the documents examined for the chosen sample.
d. The documents related to the chosen sample may not be available for inspection

120. Which of the following should not be included in an accountant’s report based upon the
compilation of an entity’s financial statements?

a. A statement that the accountant does not express an opinion but provides only negative assurance
on the statements.
b. A statement that management is responsible for the financial statements.
c. A statement that a compilation of the company’s financial statements was made in accordance
with the Philippine Standard on Related Services applicable to compilation engagements.
d. A statement that the accountant has not audited or reviewed the statements.

121. Financial statements of an entity that have been reviewed by an accountant should be
accompanied by a report stating that

a. The scope of the inquiry and analytical procedures performed by the accountant has not been
restricted.
b. A review is greater in scope than a compilation, the objective of which is to present financial
statements that are free of material misstatements.
c. The financial statements are the responsibility of the company’s management.
d. A review includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.

122. A prospective financial information prepared on the basis of assumptions as to future

events which management expects to take place and the actions management expects to take as
of the date the information is prepared (best-estimate assumptions) is known as

a. Forecast
b. Hypothetical financial information
c Best-estimate projection
d. Projection

123. It will be appropriate to audit all the items that make up a class of transactions or account
balance (100% examination), except

a. When the repetitive nature of a calculation or other process performed automatically by the
client’s computer information system (CIS) makes a 100% examination effective.
 b. When the class of transactions or account balance consists of a large number of small value items.
c. When the class of transactions or account balance consists of a small number of large value items.
d. When there is a significant risk of misstatement and other selection methods do not provide
sufficient appropriate audit evidence.

124. The following statements relate to the examination of prospective financial information.
Which is false?

a. The auditor should not accept, or should withdraw from, an engagement to examine prospective
financial information when the assumptions are clearly unrealistic.
b. Before accepting an engagement to examine prospective financial information, the auditor should
consider the intended use of the information.
c. When in the auditor’s judgment an appropriate level of satisfaction has been obtained, the auditor
is not precluded from expressing positive assurance regarding the assumptions.
d. The auditor should express an opinion as to whether the results shown in the prospective financial
information will be achieved.

125. The expected population deviation rate of client billing errors is 3%. The auditor has
established a tolerable rate of 5%. In the review of client invoices the auditor should use

a. Discovery sampling
b. Attribute sampling
c. Variable sampling
d. Stratified sampling

126. Which of the following sampling methods would be used to estimate a numerical
measurement of a population, such as peso value?

a. Attributes sampling
b. Variable sampling
c. Random-number sampling
d. Stop-or-go sampling

127. In designing audit procedures, the auditor is required to determine appropriate means of
selecting items for testing to gather audit evidence. Which of the following means is/are
available to the auditor? I. Selecting all items (100% examination); II. Selecting specific items;
III.Audit sampling

a. I and III only

b. I, II and III
c. III only
d. I and II only

128. Given one or more hypothetical assumptions, a responsible party may prepare, to the best
of its knowledge and belief, an entity’s expected financial position, results of operations, and
cash flows. Such prospective financial statements are known as

a. Financial projections
b. Financial forecasts
c. Proforma financial statements
d. Partial presentations
 129. Which of the following is a prospective financial information for general use upon which
an accountant may appropriately report?

a. Partial presentation
b. Proforma financial statements
c. Financial projection
d. Financial forecast

130. Which of the following should be considered by the auditor in deciding which means ( or
combination of means) to use in selecting items for testing? I. The risk of material misstatement
related to the assertion being tested; II. Audit efficiency.

a. I only
b. II only
c. Neither I nor II
d. Both I and II only

131. An advantage of statistical over nonstatistical sampling methods in tests of controls is

that in statistical methods

a. Eliminate the need to use judgment in determining appropriate sample sizes.

b. Can more easily convert the sample into a dual-purpose test useful for substantive testing.
c. Afford greater assurance than a nonstatistical sample of equal size.
d. Provide an objective basis for quantitatively evaluating sampling risks.

132. A written representation from a client’s management that, among other matters,
acknowledges responsibility for the fair presentation of financial statements, should normally be
signed by the

a. Chair of the audit committee of the board of directors.

b. Chief financial officer and the chair of the board of directors.
c. Chief executive officer, the chair of the board of directors, and the client’s lawyer.
d. Chief executive officer and the chief financial officer.

133. After determining that a related party transactions has, in fact, occurred, an auditor should

a. Substantiate that the transaction was consummated on terms equivalent to an arm’s-length

transaction.
b. Add a separate paragraph to the auditor’s report to explain the transaction.
c. Obtain an understanding of the business purpose of the transaction.
d. Perform analytical procedures to verify whether similar transactions occurred, but were not
recorded.

134. After issuing a report, an auditor has no obligation to make continuing inquiries or
perform other procedures concerning the audited financial statements, unless

a. Information, which existed at the report date and may affect the report, comes to the auditor’s
attention.
 b. Information about an event that occurred after the date of the auditor’s report comes to the
auditor’s attention.
c. Final determinations or resolutions are made of contingencies that had been disclosed in the
financial statements.
d. The control environment changes after the issuance of the report.

135. An auditor is testing internal control procedures that are evidenced on an entity’s
vouchers by matching random numbers. If a random number matches the number of a voided
voucher, that voucher ordinarily should be replaced by another voucher in the random sample if
the voucher

a. Cannot be located.
b. Constitutes a deviation.
c. Has been properly voided.
d. Represents an immaterial peso amount.

136. An auditor plans to examine a sample of 20 purchase orders for proper approvals as
prescribed by the client’s internal control procedures. One of the purchase orders in the chosen
sample cannot be found, and the auditor is unable to use alternative procedures to test whether
that purchase was properly approved. The auditor should

a. Consider this test of sample invalid and proceed with substantive tests since internal control can
not be relied upon.
b. Select a completely new set of 20 purchase orders.
c. Choose another purchase order to replace the missing purchase order in the sample.
d. Treat the missing purchase order as a deviation for the purpose of evaluating the sample.

137. An auditor searching for related party transactions should obtain understanding of each
subsidiary’s relationship to the total entity because

a. This permit the audit of intercompany account balances to be performed as of the concurrent
dates.
b. The business structure may be deliberately designed to obscure related party transactions.
c. Intercompany transactions may have been consummated on terms of equivalent to arm’s-length
transactions.
d. This may reveal whether particular transactions would have taken place if the parties had not been
related.

138. If certain forms are not consecutively numbered

a. Random number tables cannot be used.

b. Stratified sampling should be used.
c. Systematic sampling may be appropriate.
d. Selection of a random sample probably is not possible.

139. 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

a. Discovery sampling
b. Random sampling
c Variables sampling
 d. PPS sampling

140. PSA 570 (Going Concern) states that a fundamental principle in the preparation of
financial statements is the going concern assumption. Under this assumption, an entity is
ordinarily viewed as continuing in business for the foreseeable future with neither the intention
nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to
laws and regulations. The responsibility to make an assessment of an entity’s ability to continue
as a going concern rests with the

a. Auditor
b. Entity’s creditors
c. SEC
d. Entity’s management

141. The date of the management representation letter should coincide with the date of the

a. Latest related party transaction

b. Auditor’s report
c. Latest interim financial information
d. Balance sheet

142. The following statements relate to unaudited prior year financial statements that are
presented in comparative form with audited current year financial statements. Which is
incorrect?

a. Clear disclosure in the financial statements that the comparative financial statements are
unaudited is encouraged.
b. The incoming auditor should state in the auditor’s report that the comparative financial statements
are unaudited.
c. In situations where the incoming auditor identifies that the prior year unaudited figures are
materially misstated, the auditor should request management to revise the prior year’s figures or if
management refuses to do so, appropriately modify the report.
d. The incoming auditor need not perform audit procedures regarding opening balances of the
current period.

143. The tolerable rate of deviations for a test of a control is generally

a. Unrelated to the expected rate of errors in the related accounting records.

b. Lower than the expected rate of errors in the related accounting records.
c. Identical to the expected rate of errors in the related accounting records.
d. Higher than the expected rate of errors in the related accounting records.

144. What type of opinion should be expressed if the client’s management refuses to provide a
representation that the auditor considers necessary?

a. Unqualified opinion.
b. Adverse opinion or a disclaimer of opinion.
c. Qualified opinion or a disclaimer of opinion
d. Qualified opinion or an adverse opinion.
 145. When an audit is made in accordance with generally accepted auditing standards, the
auditor should always

a. Employ analytical procedures as substantive tests to obtain evidence about specific assertions
related to account balances.
b. Observe the taking of physical inventory on the balance sheet date.
c. Obtain certain written representations from management.
d. Document the understanding of the client’s internal control and the basis for all conclusions about
the assessed level of control risk for financial statement assertions.

146. When an auditor concludes that there is substantial doubt about a continuing audit
client’s ability to continue as a going concern for a reasonable period of time, the auditor’s
responsibility is to

a. Report to the client’s audit committee that management’s accounting estimates may need to be
adjusted.
b. Consider the adequacy of disclosure about the client’s possible inability to continue as a going
concern.
c. Reissue the prior year’s auditor’s report and add an emphasis of matter paragraph that specifically
refers to “substantial doubt” and “ going concern”.
d. Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on
the financial statements.

147. When considering the use of management’s written representations as audit evidence
about the completeness assertion, an auditor should understand that such representations

a. Replace a low assessed level of control risk as audit evidence to support the assertion.
b. Constitute sufficient appropriate audit evidence to support the assertion when considered in
combination with a sufficiently low assessed level of control risk.
c. Are not part of the audit evidence considered to support the assertion.
d. Complement, but do not replace, substantive tests designed to support the assertion.

148. When performing a test of a control with respect to control over cash receipts, an auditor
may use a systematic sampling technique with a start at any randomly selected item. The biggest
disadvantage of this type of sampling is that the items in the population

a. Must systematically occur more than once in the sample.

b. May occur in a systematic pattern, thus destroying the sample randomness.
c. Must be recorded in a systematic pattern before the sample can be drawn.
d. Must be systematically replaced in the population after sampling.

149. Which of the following audit procedures would most likely assist an auditor in
identifying conditions and events that may indicate there could be substantial doubt an entity’s
ability to continue as a going concern?

a. Confirmation of accounts receivable from major customers.

b. Reconciliation of interest expense with debt outstanding.
c. Review of compliance with terms of debt agreements.
d. Confirmation of bank balances.
 150. Which of the following conditions or events most likely would cause an auditor to have
substantial doubt about an entity’s ability to continue as a going concern?

a. Arrearages in principal stock dividends are paid.

b. Cash flows from operating activities are negative.
c. Significant related party transactions are pervasive.
d. Stock dividends replace annual cash dividends.

151. Which of the following conditions or events most likely would cause an auditor to have
substantial doubt about an entity’s ability to continue as a going concern?

a. Restrictions on the disposal of principal assets are present.

b. Arrearages in principal stock dividends are paid.
c. Usual trade credit from suppliers is denied.
d. Significant related party transactions are pervasive.

152. 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
disbursement?

a. Set the tolerable rate of deviation at a lower level than originally planned.
b. Stratify the cash disbursements population so that the unusually large disbursements are selected.
c. Continue to draw new samples until all the unusually large disbursements appear in the sample.
d. Increase the sample size to reduce the effect of the unusually large disbursements.

153. Which of the following events most likely indicates the existence of related parties?

a. Discussing merger terms with a company that is a major competitor.

b. Borrowing a large sum of money at a variable rate of interest.
c. Making a loan without scheduled terms of repayment of the funds.
d. Selling real estate at a price that differs significantly from its book value.

154. Which of the following events occurring after the issuance of an auditor’s report most
likely would cause the auditor to make further inquiries about the previously issued financial
statements?

a. A technological development that could affect the entity’s future ability to continue as a going
concern.
b. The final resolution of a lawsuit disclosed in the notes to the financial statements.
c. The entity’s sale of a subsidiary that accounts for 30% of the entity’s consolidated sales.
d. The discovery of information regarding a contingency that existed before the financial statements
were issued.

155. Which of the following is a prospective financial information for general use upon which
an accountant may appropriately report?

a. Partial presentation
b. Financial forecast
c. Financial projection
d. Proforma financial statements
 156. Which of the following procedures would an auditor most likely to perform to obtain
evidence about the occurrence of subsequent events?

a. Inquiring as to whether any unusual adjustments were made after the date of the financial
statements.
b. Confirming a sample of material accounts receivable established after the date of the financial
statements.
c. Investigating personnel changes in the accounting department occurring after the date of the
financial statements.
d. Comparing the financial statements being reported on with those of the prior period.

157. Which of the following statements best describes the “date of the financial statements”?

a. The date of the end of the latest period covered by the financial statements, which is normally the
date of the most recent balance sheet in the financial statements subject to audit.
b. The date that the auditor’s report and audited financial statements are made available to third
parties.
c. The date on which those with the recognized authority assert that they have prepared the entity’s
complete set of financial statements, including the related notes, and that they have taken responsibility
for them.
d. The date on which the auditor has obtained sufficient appropriate audit evidence on which to base
the opinion on the financial statements.

158. Which of the following statements best describes the auditor’s responsibility concerning
the appropriateness of the going concern assumption in the preparation of the financial
statements?

a. The auditor’s responsibility is to consider the appropriateness of management’s use of the going
concern assumption and consider whether there are material uncertainties about the entity’s ability to
continue as a going concern that need to be disclosed in the financial statements.
b. The auditor’s responsibility is to predict future events or conditions that may cause the entity to
cease to continue as a going concern.
c. The auditor’s responsibility is to make a specific assessment of the entity’s ability to continue as a
going concern.
d. The auditor’s responsibility is to give a guarantee in the audit report that the entity has the ability
to continue as a going concern.

159. Which of the following statements best expresses the auditor’s responsibility with respect
to facts discovered after the date of the audio’s report but before the date the financial statements
are issued?

a. The auditor should consider whether the financial statements need amendment, discuss the matter
with management, and consider taking actions appropriate in the circumstances.
b. The auditor should amend the financial statements.
c. If the facts discovered will materially affect the financial statements, the auditor should issue a
new report which contains either a qualified opinion or an adverse opinion.
d. The auditor should withdraw from the engagement.

160. Which of the following statements concerning management representations is incorrect?

a. Representations by management can be a substitute for other audit evidence that the auditor could
reasonably expect to be available.
 b. If a representation by management is contradicted by other audit evidence, the auditor should
investigate the circumstances and, when necessary, reconsider the reliability of other representations by
management.
c. If the auditor is unable to obtain sufficient appropriate audit evidence regarding a matter, which
has, or may have, a material effect on the financial statements and such audit evidence is expected to be
available, this will constitute a limitation in the scope of the audit, even if a representation from
management has been received on the matter.
d. The auditor’s working papers would ordinarily include a summary of oral discussions with
management or written representations from management.

161. Which of the following statistical sampling plans does not use a fixed sample size for
tests of controls?

a. Variables sampling
b. Attributes sampling
c. PPS sampling
d. Sequential sampling

162. In which of the following circumstances would an auditor most likely add an emphasis of
matter paragraph to the auditor’s report while expressing an unqualified opinion?

a. Certain transactions cannot be tested because of management’s records retention policy.

b. Management’s estimates of the effects of future events are unreasonable.
c. There is substantial doubt about the entity’s ability to continue as a going concern.
d. No depreciation has been provided in the financial statements.

163. Which paragraphs of an auditor’s report on financial statements should refer to Philippine
Financial Reporting Standards?

a. Management’s Responsibility and Opinion.

b. Introductory and Opinion.
c. Introductory and Auditor’s Responsibility.
d. Auditor’s Responsibility and Management’s Responsibility

164. There are two broad financial reporting frameworks for comparatives: the corresponding
figures and the comparative financial statements. Which of the following statements is correct
concerning these reporting frameworks?

a. Under the corresponding figures framework, the corresponding figures for the prior period(s) are
considered separate financial statements.
b. Under the corresponding figures framework, the corresponding figures for the prior period(s) are
integral part of the current period financial statements.
c. Under the corresponding figures framework, the comparative financial statements figures for the
prior period(s) are intended to be read in conjunction with the amounts and other disclosures relating to
the current period.
d. Under the corresponding figures framework, the amounts and other disclosures for the prior
period(s) form part of the current period financial statements.

165. An auditor concludes that there is a material inconsistency in the other information in an
annual report to shareholders containing audited financial statements. If the auditor concludes
that the financial statements do not require revision, but the client refuses to revise or eliminate
the material inconsistency, the auditor may
 a. Revise the auditor’s report to include an emphasis of matter paragraph describing the material
inconsistency.
b. Consider the matter closed because the other information is not in the audited statements.
c. Disclaim an opinion on the financial statements after explaining the material inconsistency n an
emphasis of matter paragraph.
d. Express a qualified opinion after discussing the matter with the client’s directors.

166. In which of the following circumstances would an auditor’s report least likely include
specific reference to the corresponding figure?

a. When the auditor’s report on the prior period, as previously issued, included a modified opinion
and the matter which gave rise to the modification is resolved and properly dealt with in the financial
statements.
b. When the auditor’s report on the prior period, as previously issued, included a modified opinion
and the matter which gave rise to the modification is unresolved but does not result in a modification of
the auditor’s report regarding the current period figures.
c. When the auditor’s report on the prior period financial statements containing a material
misstatement included an unmodified opinion and the prior period financial statements have not been
revised and reissued, and the corresponding figures have not been properly restated and/or appropriate
disclosures have not been made.
d. When the auditor’s report on the prior period, as previously issued, included a modified opinion
and the matter which gave rise to the modification is unresolved, and results in a modification of the
auditor’s report regarding the current period figures.

167. Which of the following phrases would an auditor most likely include in the auditor’s
report when expressing a qualified opinion because of inadequate disclosure?

a. Do not present fairly in all material respects.

b. With the foregoing explanation of these omitted procedures.
c. Subject to the departure from generally accepted accounting principles, as described above.
d. Except for the omission of the information included in the preceding paragraph.

168. The following statements relate to the auditor’s reporting responsibilities regarding
comparatives. Which is incorrect? I. For corresponding figures, the auditor’s report only refers to
the financial statements of the current period; II.For comparative financial statements, the
auditor’s report refers to each period that financial statements are presented.

a. I only
b. II only
c. Neither I nor II
d. Both I and II only

169. Which of the following is included in the introductory or opening paragraph of the
auditor’s report?

a. A statement that the audit was conducted in accordance with Philippine Standards on Auditing.
b. A statement that the financial statements re the responsibility of the entity’s management.
c. Identification of the financial statements audited, including the date of and period covered by the
financial statements.
d. A statement that the responsibility of the auditor is to express an opinion on the financial
statements based on the audit.
 170. According to PSA 710, the incoming auditor may refer to the predecessor auditor’s report
on the corresponding figures in the incoming auditor’s report for the current period. The
incoming auditor’s report should indicate, I. That the financial statements of the prior period
were audited by another auditor; II. The type of report issued by the predecessor auditor; III.The
date of the predecessor auditor’s report.

a. I and III only.

b. I and II only.
c. I, II and III.
d. II and III only.

171. The predecessor auditor, who is satisfied after properly communicating with the
incoming auditor, has reissued his/her auditor’s report on prior year financial statements. The
predecessor auditor’s report should

a. Refer to both the work and the report of the incoming auditor only in the opinion paragraph.
b. Refer to the report of the incoming auditor only in the scope paragraph.
c. Not refer to the report or the work of the incoming auditor.
d. Refer to the work of the incoming auditor in the scope and opinion paragraphs.

172. Mary Ruth, CPA, audited MDG Company’s prior-year financial statements. These
statements are presented with those of the current year for comparative purposes without Ruth’s
auditor’s report, which expressed a qualified opinion. In drafting the currents year’s auditor’s
report, Christine Marie, CPA, the incoming auditor, should; I. Not name Mary Ruth as the
predecessor auditor; II. Indicate the type of report issued by Mary Ruth; III.Indicate the
substantive reasons for Mary Ruth’s qualification; IV.Indicate the date of Mary Ruth’s auditor’s
report.

a. I, II, III and IV.

b. I, II and IV only.
c. I, II and II only.
d. II, III and IV only.

173. Comparative financial statements include the financial statements of the prior year that
were audited by a predecessor auditor whose report is not presented. If the predecessor’s report
was qualified, the incoming auditor should

a Express an opinion only on the current year’s statements and make no reference to the prior year’s
statements.
b. Request the client to reissue the predecessor’s report on the prior year’s statements.
c. Issue an updated comparative audit report indicating the division of responsibility.
d. Indicate the substantive reasons for the qualification in the predecessor auditor’s opinion.

174. When audited financial statements are presented in a document (e.g., annual report)
containing other information, the auditor

a. Han an obligation to perform auditing procedures to corroborate the other information.

b. Has no responsibility for the other information because it is not part of the basic financial
statements.
c. Should read the other information to consider whether it is inconsistent with the audited financial
statements.
d. Is required to express a qualified opinion if the other information has a material misstatement of
fact.
 175. To distinguish it from reports that might be issued by others, such as by officers of the
entity, the board of directors, or from the reports of other auditors who may not have to abide by
the same ethical requirements as the independent auditor, the auditor’s report should have an
appropriate

a. Opinion
b. Title
c. Signature
d. Addressee

176. PSA 720 states, “If, on reading the other information, the auditor identifies a material
inconsistency, the auditor should determine whether the audited financial statements or the other
information needs to be amended.” What type of opinion should be expressed if the client refuses
to make the necessary amendment in the financial statements?

a. Qualified opinion or disclaimer of opinion.

b. Disclaimer of opinion.
c. Qualified or adverse opinion.
d. Unqualified opinion with an emphasis of matter paragraph describing the material inconsistency.

177. An auditor who uses the work of an expert may refer to and identify the expert in the
auditor’s report if the

a. Auditor indicates a division of responsibility related to the work of the expert.

b. Auditor expresses a qualified opinion or an adverse opinion related to the work of the expert.
c. Expert’s work provides the auditor greater assurance of reliability.
d. Expert is employed by the entity.

178. The auditor’s report should be addressed

a. Only to the shareholders of the entity whose financial statements are being audited.
b. Only to the board of directors of the entity whose financial statements are being audited.
c. Either to the shareholders or board of directors, or both, of the entity whose financial statements
are being audited.
d. Either to the shareholders or board of directors of the entity whose financial statements are being
audited.

179. When comparative financial statements are presented, the auditor’s opinion on the
financial statements “taken as a whole” should be considered to apply to the financial statements
of the

a. Periods presented plus one preceding period.

b. Current and immediately preceding period only.
c. Current period and those of the other periods presented.
d. Current period only.

180. The opinion paragraph of the auditor’s report. I. Identifies the applicable financial
reporting framework on which the financial statements are based; II. Expresses an opinion on the
financial statements.

a. II only
b. I only
c. Both I and II only
d. Neither I nor II

181. A note to the financial statements of the Prudent Bank indicates that all of the records
relating to the bank’s business operations are stored on magnetic disks, and that no emergency
backup systems or duplicate disks are stored because the bank and its auditors consider the
occurrence of a catastrophe to be remote. Based upon this note, the auditor’s report should
express

a. An unqualified opinion
b. An adverse opinion
c. A qualified opinion
d. A “subject to” opinion

182. An auditor’s responsibility to express an opinion on the financial statements is

a. Explicitly represented in the “Auditor’s Responsibility” paragraph of the auditor’s report.

b. Implicitly represented in the auditor’s report.
c. Explicitly represented in the “Management’s Responsibility” paragraph of the auditor’s report.
d. Explicitly represented in the opinion paragraph of the auditor’s report.

183. An auditor’s report includes the following statement: “In our opinion, because of the
effects of the matters discussed in the preceding paragraph, the financial statements do not
present fairly, in all material respects, the financial position of ABC Company as of December
31, 20X1, and of its financial performance and its cash flows for the year then ended in
accordance with Philippine Financial Reporting Standards.” This auditor’s report contains a/an

a. Adverse opinion
b. Qualified opinion
c. Unqualified opinion
d. Disclaimer of opinion

184. When two or more auditing firms participate in an audit, one firm should be the principal
auditor. If the principal auditor makes reference to another auditor in an audit that would
otherwise result in an unqualified opinion, the type of audit report issued should be

a. An adverse opinion
b. A disclaimer of opinion
c. A qualified opinion
d. An unqualified opinion

185. PSA 710 states that the extent of audit procedures performed on the corresponding
figures is significantly less than for the audit of the current period figures. The auditor’s
procedures are ordinarily limited to ensuring that the corresponding figures have been correctly
reported and are appropriately classified. The auditor should assess whether, I. Accounting
policies used for the corresponding figures are consistent with those of the current period or
whether appropriate adjustments and/or disclosures have been made; II. Corresponding figures
agree with the amounts and other disclosures presented in the prior period or whether appropriate
adjustments and/or disclosures have been made.

a. I only
b. Neither I nor II
 c. Both I and II only
d. II only

186. The following statements relate to the date of the auditor’s report. Which is false?

a. The date of the auditor’s report should not be later than the date on which the financial statements
are signed or approved by management.
b. The auditor should date the report as of the completion date of the audit.
c. The date of the auditor’s report should not be earlier than the date on which the financial
statements are signed or approved by management.
d. The date of the auditor’s report should always be later than the date on which the financial
statements (i.e., the balance sheet date).

187. In which of the following situations would an auditor ordinarily choose between
expressing a qualified opinion or an adverse opinion?

a. The auditor wishes to emphasize an unusually important subsequent event.

b. Events disclosed in the financial statements cause the auditor to have substantial doubt about the
entity’s ability to continue as a going concern.
c. The financial statements fail to disclose information that is required by Philippine Financial
Reporting Standards.
d. The auditor did not observe the entity’s physical inventory and is unable to become satisfied as to
its balance by other auditing procedures.

188. When would an auditor refer to the work of an appraiser in the auditor’s report?

a. A disclaimer of opinion is expressed because of a scope limitation imposed on the auditor by the
appraiser.
b. A qualified opinion is expressed because of a matter unrelated to the work of the appraiser.
c. An adverse opinion is expressed based on a difference of opinion between the client and the
outside appraiser as to the value of certain assets.
d. An unqualified opinion is expressed and an emphasis of matter paragraph is added to disclose the
use of the appraiser’s work.

189. An auditor should disclose the substantive reasons for expressing an adverse opinion in
an emphasis of matter paragraph

a. Following the introductory paragraph

b. Preceding the opinion paragraph
c. Within the notes to the financial statements.
d. Following the opinion paragraph

190. An independent auditor discovers that a payroll supervisor of the company being audited
has misappropriated P50,000. The company’s total assets and income before tax are P70 million
and P15 million, respectively. Assuming no other issues affect the report, the auditor’s report
will most likely contain a/an

a. Adverse opinion
b. Scope qualification
c. Disclaimer of opinion
d. Unqualified opinion
191. When the prior period financial statements are not audited, the incoming auditor should
state in the auditor’s report that, I. The corresponding figures are unaudited; II. The incoming
auditor is not required to perform procedures regarding opening balances of the current period.

a. II only.
b. Neither I nor II.
c. Both I and II.
d. I only.