1.

All the information used by the auditor in arriving at the conclusions on which the audit opinion is based is called
A. Audit information
B. Audit evidence
C. Accounting records
D. Corroborating information

2. An entity’s accounting records generally include the records of initial entries and supporting records including
A. Confirmations from third parties
B. Information obtained by the auditor from such audit procedures as inquiry, observation, and inspection.
C. Worksheets and spreadsheets supporting cost allocations.
D. Other information developed by, or available to, the auditor to permit him/her to reach conclusions through
valid reasoning.

3. Audit evidence comprises

I. Information that supports and corroborates management’s assertions.
II. Any information that contradicts management’s assertions.

A. I only
B. II only
C. Neither I nor II
D. Both I and II

4. As defined in PSA 500,_____________is an individual or organization possessing the expertise in a field other
than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the
financial statements.
A. Auditor’s expert
B. Management’s expert
C. Auditor’s internal expert
D. Auditor’s external expert

5. If a management’s expert’s work is used to prepare the information to be used as audit evidence, the auditor
shall
I. Evaluate the competence, capabilities and objectivity of the management’s expert.
II. Obtain an understanding of the work of the management’s expert.
III. Evaluate the appropriates of the management’s expert’s work as audit evidence for the relevant
assertion.
A. I and II only
B. I and III only
C. II and III only
D. I, II and III

6. Which of the following statements concerning the management’s expert’s competence, capabilities, and
objectivity is correct?
A. Objectivity relates to the ability of the management’s expert to exercise the competence in the
circumstances.
B. Competence relates to the possible effects that bias, conflict of interest or the influence of others may
have on the professional or business judgement of the management’s expert.
C. Capability relates to the nature and level of expertise of the management’s expert.
 D. The management’s expert’s competence, capabilities, and objectivity are important factors in relation to
the reliability of any information prepared by the management’s expert.
7. Audit evidence is information used to draw reasonable conclusions on which to base the auditor’s opinion. Audit
evidence is obtained by performing
I. Risk assessment procedures
II. Further audit procedures

A. I only
B. II only
C. Either I or II
D. Both I and II

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

A. Appropriates is the measure of the quantity of audit evidence.
B. Sufficiency is the measure of the quality of audit evidence, that is, its relevance and reliability.
C. The quantity of audit evidence needed is affected by its quality and the risk of misstatement.
D. The sufficiency and appropriates of audit evidence are not interrelated.

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

A. An audit usually involves the authentication of documentation.
B. A given set of procedures may provide audit evidence that is relevant to certain assertions, but not others.
C. Audit evidence obtained from an independent external source is always reliable.
D. An enity’s accounting records can be sufficient audit evidence to support the financial statements.

10. Which of the following generalizations does not relate to the reliability of audit evidence?
A. Audit evidence is more reliable when it is obtained from independent sources outside the entity.
B. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or by
inference.
C. Audit evidence that is generated internally is more reliable when the related controls imposed by the entity
are effective.
D. An auditor’s opinion, to be economically useful, is formed within a reasonable time and based on audit
evidence obtained at a reasonable cost.
11. Which of the following statements concerning audit evidence is false?
A. The auditor uses professional judgment and exercises professional skepticism in evaluating the quantity and
quality of audit evidence, and thus its sufficiency and appropriateness, to support the audit opinion.
B. The auditor ordinarily finds it necessary to rely on audit evidence that is persuasive rather than conclusive.
C. In forming the audit opinion, the auditor does not examine all the information available because conclusions
ordinarily can be reached by using sampling approaches and other means of selecting items for testing.
D. The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for
omitting the test.

12. In representing that the financial statements are presented fairly, in all material respects, in accordance with the
applicable financial reporting framework, management implicitly or explicitly makes__________ regarding the
recognition, measurement, presentation, and disclosure of the various elements of financial statements and
related disclosures.
A. Assertions
B. Allegations
C. Conclusions
D. Assurances
13. The auditor is required 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 misstatement and the
design and performance of further audit procedures. Assertions about classes of transactions include
occurrence, completeness, accuracy, cutoff and
A. Valuation and allocation
B. Rights and obligations
C. Existence
D. Classification

14. The following are assertions about balances at the period end, except
A. Existence
B. Rights and obligations
C. Valuation and allocation
D. Cutoff

15. The following are assertions about presentation and disclosure, except
A. Occurrence and rights and obligations
B. Accuracy and valuation
C. Classification and understandability
D. Existence

16. Which of the following statements concerning the auditor’s use of assertions is correct?
A. The auditor may combine the assertions about transactions and events with the assertions about account
balances.
B. In every audit engagement, the auditor should use the assertions as described in PSA 500, i.e, the assertions
should always fall into three categories: assertions about classes transactions and events, account balances,
and presentation and disclosure.
C. There should always be a separate assertion related to cutoff of transactions and events.
D. The completeness assertion deals only with whether all transactions and events that should have been
recorded have been recorded.

17. Which of the following statements concerning audit objectives is incorrect?

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

18. The primary difference between an audit of the balance sheet and an audit of the income statement is that the
audit of the income statement addresses the verification of
A. Cutoffs
B. Authorizations
C. Transactions
D. Costs

19. Which of the following would least likely affect the appropriateness of evidence available to an auditor?
A. The sampling method employed by the auditor to obtain a sample of such evidence.
B. The relevance of such evidence to the financial statement assertion being verified.
 C. The relationshio of the preparer of such evidence to the entity being audited.
D. The timeliness of such evidence.

20. Which of the following forms of documentary evidence would be considered the most reliable by an auditor?
A. Internally generated
B. Prenumbered
C. Easily duplicated
D. Authorized by a reasonable official

21. 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. Evaluate whether managements’ policies and procedures operated effectively.
C. Detect material misstatements in the financial statements.
D. Compy with the Philippine Standards on Auditing (PSAs).

22. In testing the existence assertion for an asset, an auditor ordinarily works from the
A. Potentially unrecorded items to the financial statements.
B. Financial statements to the potentially unrecorded items
C. Supporting evidence to the accounting records
D. Accounting records to the supporting evidence.

23. In determining whether transactions have been recorded, the direction of the audit testing should be from the
A. General journal entries
B. Original source documents
C. General ledger balances
D. Adjusted Trial balance

24. Which of the following audit procedures consists of looking at a process or procedure being performed by
others?
A. Observation
B. Inspection of records and documents
C. Inspection of tangible assets
D. Inquiry

25. Which of the following elements ultimately determines the specific auditing procedures that are necessary in
the circumstances to afford a reasonable basis for an opinion?
A. Materiality
B. Audit risk
C. Auditor judgment
D. Reasonable assurance

26. The auditor should apply analytical procedures

I. As risk assessment procedures
II. As substantive procedures
III. In the overall review at the end of the audit.

A. I and II only
B. II and III only
C. I and III only
 D. I, II, and III

27. Analytical procedures include the consideration of comparisons of the entity’s financial information with

I. Comparable information for prior periods

II. Anticipated result of the enity
III. Similar industry information

A. I and II only
B. II and III only
C. I and III only
D. I, II and III

28. Which of the following should be considered by the auditor when designing and performing analytical
procedures as substantive procedures?
I. The suitability of using substantive analytical procedures given the assertions
II. The reliability of the data, whether internal or external, from which the expectation of recorded
amounts of ratios is developed.
III. Whether the expectation is sufficiently precise to identify a material misstatement at the desired level of
assurance.
IV. The amount of any difference of recorded amounts from expected values that is acceptable.

A. I,II and III only

B. I, III and IV only
C. II, III and IV only
D. I, II, III and IV only

29. The following statements relate to the use of analytical procedures as substantive procedures. Which is FALSE?
A. Substantive analytical procedures are applicable when there is only a small volume of transactions.
B. The application of substantive analytical procedures is based on the expectation that relationships among
data exist and continue in the absence of known conditions to the contrary.
C. The presence of relationships among data provides evidence as to the completeness, accuracy, and
occurrence of transactions captured in the information produced by the entity’s information system.
D. Reliance on the results of substantive analytical procedures will depend on the auditor’s assessment of the
risk that the analytical procedures may identify relationships as expected when, in fact, a material
misstatement exists.

30. Which of the following should be considered by the auditor in determining the suitability of substantive
analytical procedures given the assertions?
I. The assessment of the risk of material misstatement.
II. Any tests of details directed toward the same assertion.

A. I only
B. II only
C. Both I and II
D. Neither I nor II
31. The reliability of data is influenced by its nature and is dependent on the circumstances under which it is
obtained. Which of the following should the auditor consider in determining whether data is reliable for
purposes of designing substantive analytical procedures?
I. Source of the information available.
II. Comparability of the information available.
III. Nature and relevance of the information available.
IV. Controls over the preparation of the information.

A. I, III and IV only

B. II, III and IV only
C. I, II and III only
D. I, II, III and IV only

32. According to PSA 520, when analytical procedures identify significant fluctuations or relationships that are
inconsistent with other relevant information or that deviate from predicted amounts, the auditor should
investigate and obtain adequate explanations and appropriate corroborative audit evidence. The auditor’s
investigation of unusual fluctuations and relationships ordinarily begins with inquiries of management, followed
by
I. Corroboration of management’s responses
II. Consideration of the need to apply other audit procedures based on the results of such inquiries, if
management is unable to provide an explanation or if the explanation is not considered adequate.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

33. The following are the auditor’s principal objectives in the audit of revenues, EXCEPT
A. To determine whether all cash owned by the entity at the balance sheet date is included on the balance
sheet.
B. To determine whether earned revenue has been recorded and recorded revenue has been earned.
C. To determine whether revenues are reported in the income statement at the appropriate amounts.
D. To determine whether revenues are properly classified, described, and disclosed in the financial statements,
including notes, in conformity with an applicable financial reporting framework.

34. Auditors are often concerned with the possibility of overstatement of sales and receivables. However,
management may also have reasons for understating these balances. Which of the following would explain
understatement of sales and receivables?
I. To avoid paying taxes.
II. To windowdress the financial statements.
III. To meet budgets and forecasts.

A. I only
B. II only
C. I, and III only
D. I, II and III

35. In the audit of which of the following general ledger accounts will tests of controls be particularly appropriate?
A. Bank charges
 B. Equipment
C. Bonds payable
D. Sales

36. Which of the following might be detected by an auditor’s review of the entity’s sales cutoff?
A. Inflated sales for the year.
B. Lapping of year-end accounts receivable.
C. Unrecorded sales discounts.
D. Excessive goods returned fro credit.

37. An auditor most likely would review a client’s periodic accounting for the numerical sequence of shipping
documents and sales invoices to support management’s financial statement assertion of
A. Existence
B. Rights and obligations
C. Completeness
D. Valuation and allocation

38. If the objective of a test of details of transactions is to detect overstatements of sales, the auditor’s direction of
testing should be from the
A. Cash receipts journal to the sales journal.
B. Accounting records to the source documents.
C. Source documents to the accounting records.
D. Sales journal to the cash receipts journal.

39. 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. Accuracy
B. Classification
C. Rights and obligations
D. Cutoff

40. An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as
low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence
supporting
A. Beginning and ending inventory supporting
B. Cash receipts and accounts receivable
C. Cutoffs of sales and purchases.
D. Shipping and receiving activities.

41. Tracing bills of lading to sales invoices provides evidence that

A. Invoiced sales were shipped.
B. Recorded sales were shipped.
C. Shipments to customers were recorded as sales.
D. Shipments to customer were invoiced.

42. The auditor finds a situation in which one person has the ability to collect receivables, make deposits, issue
credit memos, and record receipt of payments. The auditor suspects the individual may be stealing cash
receipts. Which of the following audit procedures would be most effective in discovering fraud in this scenario?
 A. Perform a detailed review of debits to sales discounts, sales returns and allowances, or the debit accounts,
excluding cash posted to the cash receipts journal.
B. Take a sample of bank deposits and trace the detail in each bank deposit back to the entry in the cash
receipts journal.
C. Send negative confirmations to all outstanding accounts receivable customer.
D. Send positive confirmations to a random selection of customers.

43. Which of the following most likely would give the most assurance concerning the valuation and allocation
assertion of accounts receivable?
A. Vouching amounts in the subsidiary ledger to details on shipping documents.
B. Inquiring about receivables pledged under loan agreements.
C. Assessing the allowance for bad debts for reasonableness.
D. Comparing receivable turnover ratios with industry statistics for reasonablesness.

44. Which of the following is not a principal objective in auditing accounts receivable?
A. To determine whether receivables are carried at their net realizable value.
B. To determine whether receivables are properly classified, described, and disclosed in the financial
statements, including notes, in accordance with the applicable financial reporting framework.
C. To determine whether the entity has real claims in all receivables on the balance sheet.
D. To determine whether the accounts are collected by the balance sheet date.

45. A large university has relatively ineffective internal control. To obtain assurance that all tuition revenue has been
recorded, the auditor should
A. Confirm a sample of tuition payments with the students.
B. Prepare a year-end bank reconciliation.
C. Compare business office revenue records with registrar’s office records of students enrolled.
D. Observe tuition payment procedures on a surprise basis.

46. The process of obtaining and evaluating audit evidence through a direct communication from a third party in
response to a request for information about a particular item affecting assertions made by management in the
financial statements is called
A. Reperformance
B. External confirmation
C. Inquiry
D. Recalculation

47. The confirmation of customers’ accounts receivable rarely provides reliable evidence about the valuation
assertion because
A. Customers may not be inclined to report understatement errors in their accounts.
B. Auditors typically select many accounts with low recorded balances to be confirmed.
C. It is not practicable to ask the customer to confirm detailed information relating to its ability to pay the
account.
D. Recipients usually respond only if they disagree with the information on the request.

48. Auditors may use positive and/or negative forms of confirmation requests. An auditor most likely will use
A. The negative form for small balances.
B. The positive form, when the combined assessed level of inherent and control risk for related assertions is
acceptably low, and the negative form when It is unacceptably high.
C. The positive form to confirm all balances regardless of size.
 D. A combination of the two forms, with the positive form used for trade balances and the negative form for
other balances.

49. The following statements relate to the use of negative confirmation requests. Which is TRUE?
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.

50. In confirming accounts receivable, an auditor decided to confirm customers’ account balances rather than
individual invoices. Which of the following most likely would be included with the clients’ confirmation letter?
A. An auditor-prepared letter explaining that a nonresponse may cause an inference that the account balance
is correct.
B. An auditor-prepared letter requesting the customer to supply missing and incorrect information directly to
the auditor.
C. A client-prepared letter reminding the customer that a non-response will cause a second request to be sent.
D. A client-prepared statement of account showing the details of the customer’s account balance.

51. Which of the following statements concerning audit planning is INCORRECT?

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

52. In performing an audit of financial statements, the auditor should obtain a sufficient knowledge of a client’s
business and industry to
A. Develop an attitude of professional skepticism concerning management’s financial statement assertions.
B. Make constructive suggestions concerning improvements to the client’s internal control
C. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole
to be materially misstated.
D. Understand the events and transactions that may have an effect on the client’s financial statements.

53. Which of the following is the least likely procedure to be performed in planning a financial statement audit?
A. Selecting a sample of sales invoices for comparison with shipping documents.
B. Coordinating the assistance of entity personnel in data preparation.
C. Reading the current year’s interim financial statements.
D. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the
entity.

54. The establishment of an overall audit strategy involves

I. Determining the characteristics of the engagement that define its scope.
II. Ascertaining the reporting objectives of the engagement to plan the timing of the audit and the nature
of the communications required.
III. Considering the important factors that will determine the focus of the engagement team’s efforts.
 A. I and II only
B. II and III only
C. I and III only
D. I, II and III

55. Which of the following should be included in the audit plan?

I. The nature, timing and extent of planned risk assessment procedures.
II. The nature, timing and extent of planned further audit procedures at the assertion level.

A. I only
B. II only
C. Both I and II
D. Neither I nor II

56. Which of the following matters would an auditor least likely consider when setting the direction of the audit?
A. The selection of the engagement team and the assignment of audit work to the team members.
B. The engagement budget which includes consideration of the appropriate amount of time to allot for areas
where there may be higher risks of material misstatement.
C. The availability of client personnel and data.
D. The manner in which the auditor emphasizes to engagement team members the need to maintain a
questioning mind and to exercise professional skepticism in the gathering and evaluation of audit evidence.

57. Which of the following matters would an auditor most likely consider when establishing the scope of the audit?
A. The expected audit coverage, including the number and locations of the entity’s components to be included.
B. The entity’s timetable for reporting , such as at interim and final stages.
C. The discussion with the entity’s management concerning the expected communications on the status of
audit work throughout the engagement and the expected deliverables resulting from the audit procedures.
D. Audit areas where there is a higher risk of material misstatement.

58. In the planning stage of an audit engagement, the auditor is required to perform audit procedures to obtain an
understanding of the entity and its environment, including its internal control. These procedures are called
A. Risk assessment procedures
B. Substantive tests
C. Tests of controls
D. Dual-purpose tests

59. In planning the audit engagement, the auditor should consider each of the following except
A. The type of opinion that is likely to be expressed
B. The entity’s accounting policies and procedures
C. Matters relating to the entity’s business and the industry in which it operates.
D. Materiality level and audit risk.

60. Audit are modified to suit the circumstances of particular engagements. A complete audit program usually
should be developed
A. When the engagement letter is prepared
B. After obtaining an understanding of the control environment and control activities component of the
entity’s internal control
C. After auditor has obtained an understanding of the entity and its environment, including its internal control
and assessed the risk of material misstatement
 D. Prior to beginning the actual audit work

61. In designing written audit programs, an auditor should established specific audit objectives that relate primarily
to the
A. Selected audit techniques
B. Cost-benefit of gathering audit evidence
C. Timing of audit procedures
D. Financial statement assertion’s

62. An audit program should be designed for each individual audit and should incorporate steps and procedures to
A. Detect and eliminate fraud of any type
B. Gather sufficient amount of management information available
C. Provide assurance that the objectives of the audit are satisfied
D. Insure that only material items are audited

63. Which of the following is an aspect of scheduling and controlling the audit engagement?
A. Including in the engagement letter an estimate of the minimum and maximum audit fee
B. Writing a conclusion in individual working paper indicating how the result of audit will affect auditors report
C. Performing audit work only after the entity’s book have been closed for the period under audit
D. Including in the audit program a column for budgeted and actual time

64. In connection with the planning phase of an audit engagement which of the following statement is always
correct?
A. Find staffing decisions must be made prior to completion of the planning stage
B. Observation of inventory count should be performed at year – end
C. A portion of the audit of a continuing audit client can be performed at interim dates
D. An engagement should not be accepted after clients financial year end

65. The auditor shall undertake which of the following activities prior to starting an initial audit
I. Performing procedures required by PSA 220 (Quality control for an audit of Financial Statements) regarding
the acceptance of the client relationship and specific audit engagement
II. Communicating with the predecessor auditor , where there has been a change of auditors, in compliance
with relevant ethical requirements
A. I only
B. II only
C. Either I or II
D. Both I and II

66. ________________ is an individual or organization possessing expertise if a field other than accounting and
auditing, whose work in that field is used by the auditor to assist the auditor in obtaining sufficient appropriate
audit evidence.
A. Auditor’s expert
B. Management expert
C. Expert
D. Specialist

67. _____________ is an individual or organization possessing expertise in a field other than accounting or auditor,
whose work in that field other than accounting or auditing, whose work in that field is used by the entity to
assist the entity in preparing the financial statements.
 A. Auditor’s expert
B. Management expert
C. Expert
D. Specialist

68. When planning to use the work of an expert, the auditor should evaluate the expert’s
I. Professional competence
II. Objectivity
A. I only
B. II only
C. Both I and II
D. Neither I nor II

69. Which of the following statement is correct concerning the auditor’s use of the work of an expert?
A. The auditor is required to perform substantive test procedure to verify the experts assumptions and findings
B. The auditor should obtain an understanding of the methods and assumptions used by the expert
C. The entity should not have an understanding of the nature of the work to be performed by the expert
D. The expert should not have an understanding of the auditor’s corroborative use of the expert findings

70. Which of the following is not a expert upon whose work an auditor may rely?
A. An Actuary
B. An individual with expertise in complex modeling for purpose of valuing financial instruments
C. Expert in taxation law
D. An individual with expertise in applying methods of accounting for deferred income tax