1. The primary reason for an audit by an independent, external audit firm isa. To guarantee that there are no misstatements in the financial statementsb. To relieve management of responsibility for the financial statementsc. To provide increased assurance to users as to the fairness of the financial statements d. To insure that any fraud will be discovered

2. The communication between an external auditor and a client is confidential. Ordinarily,a. The client is not required to answer an external auditor’s questions in certain circumstancesb. An external auditor is not permitted to testify in a court of law without the permission of the clientc. An external auditor is not required to divulge client information even if demanded by a subpoenad. An external auditor should not disclose information obtained in the course of the engagement without

the client’s permission 3. The risk that an external auditor may not detect a material error or fraud during an audit is increased by the

possibility ofa. Executive appealb. Late appointment of the auditorc. Management override of internal controld. Audit committee review of the management letter

4. In planning the audit, the auditor considers audit risk. Audit risk is thea. Susceptibility of an assertion to material misstatement assuming there are no related controlsb. Risk that a material misstatement in an assertion will not be prevented or detected on a timely basis by

the client’s internal controlc. Risk that the auditor’s procedures for verifying account balances will not detect a material misstatement

that in fact existsd. Risk that the auditor may unknowingly fail to appropriately modify the opinion on financial statements

that are materially misstated5. Inherent risk is

a. The susceptibility of an assertion to a material misstatement, assuming that there are no related controlsb. The risk the auditor may unknowingly fail to appropriately modify his or her opinion on financial

statements that are materially misstatedc. The risk that a material misstatement that could occur in an assertion will not be prevented or detected

on a timely basis by the entity’s internal controld. The risk that the auditor will jot detect a material misstatement that exists in an assertion

6. The steps that an audit firm should take prior to accepting an audit engagement include all of the ff except a. Obtaining a thorough understanding of the client’s businessb. Evaluating independencec. Assessing the firm’s competence to perform the auditd. Determining the firm’s ability to use due professional care

7. Which of the following best describe the interrelated components of internal control?a. Organizational structure, management philosophy, and planningb. Control environment, risk assessment, control activities, information and communication systems, and

monitoringc. Risk assessment, backup facilities, responsibility accounting, and natural lawsd. Legal environment of the firm, management philosophy, and organizational structure

8. Which of the following statements does not correctly describe the relationship of the internal auditor and the scope of the external audit of a company’s financial statements?a. The nature, timing, and extent of the external auditor’s substantive tests may depend upon the work of

the internal auditorb. The internal auditors may assist the external auditor in performing substantive tests under certain

circumstances

c. The internal auditors may assist the external auditor in performing tests of controls under certain circumstances

d. The internal auditor may determine the extent to which audit procedures should be employed by the external auditor

9. An external auditor will use internal auditors to assist in the audit of accounts receivable. Of the ff procedures, the one that would be most appropriate for the internal auditors to perform is thea. Assessment of control risk for accounts receivableb. Determination of the number of positive confirmation requests to be mailed to substantiate the

existence of accounts receivablec. Preparation of an aged trial balance of accounts receivabled. Establishment of the amount of accounts receivable that is considered material

10. Documentary evidence is one of the principal types of corroborating information used by an auditor to substantiate an opinion. Which one of the following examples of documentary evidence would be the most reliable?a. Time ticketsb. Material requisition slipsc. Copies of sales invoiced. Bank statements

11. An internal control objective in the revenue cycle is to insure that recorded sales are valid and documented. Which evidence is least likely to satisfy the objectivea. Bills of lading existing for all invoiceb. Customer purchase orders support invoicec. Shipping documents existing for all invoicesd. Credit sales have been approved by the credit department

12. An auditor should be able to collect and evaluate documentary evidence. When evaluating and interpreting evidence, the auditor must be concerned about drawing unwarranted conclusions. An example of a valid conclusion isa. Correct inventory valuation determined from observation of physical inventory countsb. Proper accounts payable cut-off at year-end determined from a review of raw materials requisitions c. Existence of a company car determined from the examination of a paid invoiced. Client ownership determined from outside inquiries about consigned goods

13. A proof of cash used by an auditora. Proves that the client’s year-end balance of cash is fairly statedb. Confirms that the client has properly separated the custody function from the recording function with

respect to cashc. Validates that client’s bank did not make an error during the period being examinedd. Determines if there were any unauthorized disbursements or unrecorded deposits for the given period

14. Which of the following statements regarding the confirmation of accounts payable is truea. The confirmation of accounts payable must be done exclusively by the internal audit staffb. The confirmation of accounts payable contributes little or nothing to determining whether unrecorded

accounts payable existc. The confirmation of accounts payable must be done exclusively by the independent auditord. The confirmation of accounts payable is an important method of establishing the existence of

unrecorded accounts payable15. Which of the following statements best describes a positive request for confirmation of an accounts

receivable balancea. The customer will be asked to indicate to the auditor the current balance in the accountb. The customer will be asked to respond to the confirmation request only if the balance indicated in the

request in incorrect

c. The customer will be asked to inform the auditor whether the balance indicated in the request is correct and to respond regardless of whether such stated balance is correct

d. The customer will be asked to indicate to the auditor the balance in his/her account only if it is positive (eg greater that zero)

16. Which of the following statements concerning sampling risk and no sampling risk is correct a. Neither sampling risk nor nonsampling risk can be reduced by the auditorb. Sampling risk, but not nonsampling risk, can be reduced by the auditorc. Nonsampling, but not sampling risk, can be reduced by the auditord. Both sampling risk and nonsampling risk can be reduced by the auditor

17. The probability that an auditor’s conclusion confusion based on a sample might be different from the conclusion based on an audit of the entire population is the concept ofa. Sampling riskb. Control riskc. Over relianced. Tolerable rate

18. The upper precision limit in statistical sampling isa. A statistical measure, at a specified reliability, level, of the maximum rate of occurrenceb. The percentage of items in a sample that possess a particular attributec. The percentage of items in a population that possess a particular attributed. The maximum rate of exception that the auditor would be willing to accept in the population without

altering the planned reliance on the attribute19. The auditor may express an unqualified opinion with any emphasis of matter paragraph under all of the

following circumstance except a. A scope limitation resulting from the client’s refusal to permit confirmation of receivables b. For uncertainty accounted for in conformity with generally accepted accounting principlesc. A substantial doubt about an entity’s going concern status accounted for in conformity with generally

accepted accounting principlesd. An opinion based in part on the report of an another auditor

20. All of the following are examples of substantive tests to verify the valuation of net accounts receivable except thea. Recomputation of the allowance for bad debts b. Inspection of accounts for current versus noncurrent status in the statement of financial positionc. Inspection of the accounts receivable aging scheduled. Comparison of the allowance for bad debts with past periods

21. In performing an audit, which one of the ff procedures would be considered a “substantive test”a. Comparing last year’s interest expense with this year’s interest expenseb. Comparing signatures on checks with the signatures of authorized check signersc. Reviewing initials on receiving documentsd. Reviewing procedures, followed in receiving, depositing, and disbursing of cash

22. The effect of a satisfactory internal audit function upon the work of the independent auditor will most likely bea. A reduction in the scope of audit procedures necessary by the independent auditorb. A substitution of the work of the internal auditor for the work of the independent auditorc. A substitution of the internal auditor’s opinion of the financial statements in place of the independent

auditor’s opiniond. An acceptance of the financial statements as a fair representation of financial position and results of

operations 23. Audit risk is composed of

a. Tolerable error risk, sampling error risk, and inherent risk

b. Tolerable rate risk, sampling risk, and inherent riskc. Allowable for sampling risk, allowance for nonsampling risk, and allowance for inherent riskd. Inherent risk, control risk, and detection risk

24. The primary purpose of the representation letter is thea. Acceptance of the auditor’s engagement letterb. Evaluation by management of the auditor’s performancec. Acknowledgement of management’s responsibility for the financial statementsd. Agreement by management to engage the auditor for the next annual audit

25. The most reliable forms of documentary evidence are those documents that are a. Prenumberedb. Internally generatedc. Issued sequentiallyd. Authorized by a responsible officer

26. The most reliable form of evidence, other than subsequent cash receipts, concerning the validity of a note receivable balance is a(n)a. Bill of ladingb. Confirmationc. Customer purchase orderd. Sales invoice

27. Attribute sampling in statistical sampling isa. A method of sampling that divides the population into strata and then selects random samples from the

stratab. A procedure used to determine an estimated occurrence rate of a particular characteristic in a

populationc. A method of sampling in which individual items are drawn at random from a population so that each

sample of a given size has equal chance of being selectedd. A procedure in which each characteristic selected permits a specified probability of locating an

occurrence in a population 28. When the auditor performs substantive tests of balances, the primary concern is

a. Assessing control risk too highb. Assessing control risk too lowc. Incorrect rejection of an account balanced. Incorrect acceptance of an account balance

29. In performing audit tests, the auditor may use either nonstatistical or statistical sampling. The credit difference between the two types of sampling is thata. The sampling plan for nonstatistical sampling eliminates procedures required for statistical samplingb. Statistical sampling enables quantification and control of a sampling riskc. Nonsampling risk is lower in statistical samplingd. Statistical sampling eliminates both sampling and nonsampling risk

30. The tolerable rate occurrence in statistical sampling isa. A statistical measure at a specified reliability level, of the maximum rate of occurrence of an attributeb. The percentage of items in a sample that possess a particular attributec. The percentage of items in a population that possess a particular attributed. The maximum rate of exception that the auditor would be willing to accept in the population without

altering the planned reliance on the attributable31. When the auditor performs tests of controls, the primary concern is

a. Incorrect acceptance of an account balanceb. Incorrect rejection of an account balancec. Assessing control risk too low

d. Assessing control risk too high32. An auditor would use, variables sampling to

a. Determine the total estimated value of ending merchandise inventoryb. Determine the number of inventory items improperly costedc. Determine how often credit sales of a certain magnitude were not approvedd. Estimate how often sales invoices were not verified for mathematical accuracy

33. The date of the CPA’s opinion on the financial statements of his or her client should be the date of thea. Closing of the client’s booksb. Receipt of the client’s letter of representationc. Completion of all important audit procedures d. Submission of the report to the client

34. If a principal auditor decides that he or she will refer in his report to the audit of another auditor, he or she is required to disclose thea. Name of the auditorb. Nature of his inquiry into the other auditor’s professional standing and extent of his review of the other

auditor’s workc. Portion of the financial statements audited by the other auditord. Reasons why he or she is unwilling to assume responsibility for the other auditor’s work

35. A CPA will issue an adverse auditor’s opinion ifa. The scope of his or her audit is limited by the clientb. His or her exception to the fairness of presentation is so material that an “except for” opinion is not

justifiedc. He or she did not perform sufficient auditing procedures to form an opinion on the financial statements

taken as a wholed. Major uncertainties exist concerning the company’s future

36. Ogirt, CPA, has a small public accounting practice. One of Ogirt’s clients desires services that Ogirt cannot adequately provide. Ogirt has recommended a larger CPA firm, Ogirp and Company, yo his client, and in return, Ogirp has agreed to pay Ogirt 10 percent of the fee for services rendered by Ogirp for Ogirt’s client. Who, if anyone, is in violation of the Code of Ethics for Professional Accountantsa. Both Ogirp and Ogirtb. Neither Ogirp nor Ogirtc. Only Ogirpd. Only Ogirt

37. In which one of the following situations would a CPA be in violation of the Code of Professional Ethics for Professional Accountants in determining his or her audit fee?a. A fee based on whether the CPA’s report on the client’s financial statements result in the approval of a

bank loanb. A fee based on the outcome of a bankruptcy proceedingc. A fee based on the nature of the service rendered and the CPA’s expertise instead of the actual time

spent on the engagementd. A fee based on the face charged by the prior auditor

38. An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that might have a material effect on the financial statements. Which of the following, if material, would be a fraud as defined by PSA 240?a. Misappropriation of an asset or groups of assetsb. Clerical mistakes in the accounting data underlying the financial statements c. Mistakes in the application of accounting principlesd. Misrepresentation of facts that existed when the financial statements were prepared

39. What is the responsibility of a successor auditor with respect to communicating with the predecessor auditor in connection with a prospective new audit client a. The successor has no responsibility to contact the predecessor auditorb. The successor auditor should obtain permission from the prospective client to contact the predecessor

auditorc. The successor auditor should contact the predecessor regardless whether the prospective client

authorized contactd. The successor auditor need not contact the predecessor if the successor is aware of all available relevant

facts40. During an audit engagement, pertinent data are compiled and included in the audit working papers. The

working papers primarily are considered to be a. A client-owned record of conclusions reached by the auditors who performed the engagementb. Evidence supporting financial statementsc. Support for the auditor’s representations as to compliance with PSAsd. A record to be used as basis for the following year’s engagement

41. What is the independent auditor’s principal purpose for obtaining an understanding of internal control and assessing control riska. To comply with PSAsb. To obtain a measure of assurance of management’s efficiencyc. To maintain a state of independence in mental attitude during the auditd. To determine the nature, timing, and extent of subsequent audit work

42. On the basis of audit evidence gathers and evaluated, an auditor decides to increase assessed control risk from that originally planned. To achieve an audit risk level that is substantially the same as the planned audit risk level, the auditor woulda. Increase inherent riskb. Increase materiality levelsc. Decrease substantial testingd. Decrease planned detection risk

43. The auditor looks for an indication on duplicate sales invoice to see if the invoices have been verified. This is an example ofa. a test of details of balancesb. a test of control c. a substantive test of transactionsd. both a test of control and a substantive test of transactions

44. Which of the following statements about tests of control is most accuratea. Auditing procedures cannot concurrently provide both evidence of the effectiveness of internal control

procedures and evidence required for substantive testsb. Test of controls include observations of the proper segregation of duties that ordinarily may be limited

to the normal audit periodc. Tests of controls should be based upon proper application of an appropriate statistical sampling pland. Test of controls ordinarily should be performed as of the balance sheet date or during the period

subsequent to that date 45. A manufacturing company received a substantial sales return in the last month of the year, but the credit

memorandum for the return was not prepared until after the auditors had completed their field work. The returned merchandise was included in the physical inventorya. Aged trial balance of accounts receivable is preparedb. Credit memoranda are prenumbered and all numbers are accounted forc. A reconciliation of the trial balance of customer’s accounts with the general ledger control is prepared

periodically

d. Receiving report are prepared for all materials received and such reports are accounted for on a regular basis

46. The sales manager credited a salesman, Emily Nobel, with sales that were actually “house account” sales. Later, Nobel divided his excess sales commissions with the sales managera. The summary sales entries are checked periodically by persons independent of sales functionsb. Sales orders are reviewed and approved by persons independent of the sales departmentc. The internal auditor compares the sales commissions statements with the cash disbursement s recordd. Sales orders are prenumbered and all numbers are accounted for

47. A sales invoice for P5,200 was computed correctly but, by mistake, was key entered as P2,500 to the sales journal and to the accounts receivable master file. The customer remitted only P2,500 the mount on his monthly statementa. Prelistings and predetermined total are used to control postingsb. Sales invoice serial numbers, prices, discounts, extensions, and footings are independently checkedc. The customers’ monthly statements are verified and mailed by a responsible person other than the

bookkeeper who prepared themd. Unauthorized remittance deductions made by customers or other matters in dispute are investigated

promptly by a person independent of the accounts receivable function48. Copies of sales invoices show different unit prices for apparently identical items

a. All sales invoices are checked as to all details after their preparationb. Differences reported by customers are satisfactorily investigatedc. Statistical sales data are complied and reconciled with recorded salesd. All sales invoices are compared with the costumers’ purchase orders

49. Auditors sometimes use comparison of ratios as audit evidence. For example an unexplained decrease in the ration of gross profit to sales may suggest which of the following possibilitiesa. Unrecorded acquisitionsb. Unrecorded salesc. Merchandise acquisitions being charged to selling and general expensed. Fictitious sales

50. A CPA is auditing the financial statements of a small telephone company and wishes to test whether customers are being billed. One procedure that he or she might use is toa. Check a sample of listings in the telephone directory to the billing controlb. Trace a sample of postings from the billing control to the subsidiary accounts receivable recordsc. Balance the accounts receivable master files to the general ledger control accountd. Confirm a representative number of accounts receivable

Questions 51 through 53 are based on the following informationThe following sales procedures were encountered during the annual audit of Masaya Wholesale Distributing CompanyCustomer orders are received by the sales order department. A clerk computes the approximate peso amount of the order and sends it to the credit department for approval. Credit approval is stamped on the order and sent to the accounting department. A computer is then used to generate two copies of sales invoice. The order is filed in the customer order file.

The customer copy of the sales invoice is held in the pending file awaiting notification that the order was shipped. The shipping copy of the sales invoice is routed through the warehouse, and the shipping department has authority for the respective departments to release and ship the merchandise. Shipping department personnel pack the order manually prepare a three-copy bill of lading: the original copy is mailed to the customer, the second cop is sent with the shipment, and the other is filed in sequence in the

bill of lading file. The sales invoice shipping copy is sent to the accounting department with any changes resulting from lack of available merchandise.

A clerk in accounting matches the received sales invoice shipping copy with the sales invoice customer copy from the pending file. Quantities on the two invoices are compared and prices are compared on an approved price list. The customer copy is then mailed to the customer, and the shipping copy is sent to the data processing department.

The data processing clerk in accounting enters the sales invoice data onto the computer, which is used to prepare the sales journal and update the accounts receivable master file. She files the shipping copy in the sales invoice file in numerical sequence.

51. In order to determine whether the internal controls operated effectively to minimize instances of failure to post invoices to customers’ accounts receivable master file, the auditor would select a sample of transactions from the population represented by thea. Customer order fileb. Bill of lading filec. Customers’ accounts receivable master filed. Sales invoice file

52. In order to determine whether the internal controls operated effectively to minimize instances of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented bya. Customer order fileb. Bill of lading filec. Customers’ accounts receivable master filed. Sales invoice file

53. In order to gather evidence that uncollected items in customers’ accounts represented existing trade receivables, the auditor would select a sample of items from the population represented by thea. Customer order fileb. Bill of lading filec. Customers’ accounts receivable master filed. Sales invoice file

54. The negative form of accounts receivable confirmation request is useful except whena. Internal control surrounding accounts receivable is considered to be effectiveb. A large number of small balances are involvedc. The auditor has reason to believe the persons receiving the request are likely to give them considerationd. Individual account balances are relatively large

55. Tanya decides to use stratified sampling. The reason for using stratifies sampling rather than unrestricted random sampling is toa. Reduce as much as possible the degree of variability in the overall populationb. Give every element in the population the degree of variability in the overall populationc. Allow the person selecting the sample to use his or her own judgment in deciding which elements should

be included in the sampled. Reduce the required sample size from a nonhomogeneous population

56. Which of the following is true of generalized audit software programsa. They can be used only in auditing on-line computer systemsb. They can be used on any computer without modificationc. They each have their own characteristics that the auditor must carefully consider before using in a given

audit situationd. They enable the auditor to perform all manual tests of controls procedures less expensively

57. The CPA reviews Bell’s payroll procedures. An example of an internal control weakness is to assign to a department supervisor the responsibility fora. Distributing payroll checks to subordinate employeesb. Reviewing and approving time reports for subordinatesc. Interviewing applicants for subordinate positions prior to hiring by the personnel departmentd. Initiating requests for salary adjustments for subordinate employees

58. Which of the following is an internal control that would prevent paid cash disbursement documents from being presented for payment a second timea. Unsigned checks should be prepared by individuals who are responsible for signing checksb. Cash disbursement documents should be approved by at least two responsible management officialsc. The date on cash disbursement documents should be within a few days of the date that the document is

presented for paymentd. The official signing the check should compare the check with the documents and should deface the

documents.59. Which of the following analytical procedures should be applied to the income statement

a. Select sales and expense items and trace amounts to related supporting documentsb. Ascertain that the net income amount in the statement of cash flows agrees with the net income

amount in the net income statementc. Obtain from the proper client representatives the beginning and ending inventory amounts that were

used to determine cost of salesd. Compare the actual revenue and expenses with the corresponding figures of the previous year and

investigate significant differences60. Before expressing an opinion concerning the results of operations, the auditor would best proceed with the

audit of the income statement bya. Applying a rigid measurement standard designed to test for understatement of net incomeb. Analyzing the beginning and ending balance sheet inventory amountsc. Making net income comparisons to published industry trends and ratiosd. Auditing income statement accounts concurrently with the related balance sheet accounts

61. The audit step most likely to reveal the existence of contingent liabilities isa. A review of vouchers paid during the month following the year-endb. Accounts payable confirmationsc. An inquiry directed to legal counseld. Mortgage-not confirmation

62. When obtaining evidence regarding litigation against a client, the CPA would be least interested in determininga. An estimate of when the matter will be resolvedb. The period in which the underlying cause of the litigation occurredc. The probability of an unfavourable outcomed. An estimate of the potential loss

63. A principal purpose of a letter of representation from management is toa. Serve as an introduction to the company personnel and an authorization to examine the recordsb. Discharge the auditor from legal liability for the auditc. Confirm in writing management ‘s approval of limitations on the scope of the auditd. Remind management of its primary responsibility for financial statements

64. A major customer of an audit client suffers a fire just prior to completion of year-end field work. The audit client believes that this event could have a significant effect on the financial statements. The auditor shoulda. Advise management to disclose the event in notes to the financial statementsb. Disclose the event in the auditor’s report

c. Withhold submission of the auditor’s report until the extent of the direct effect on the financial statements is known

d. Advise management to adjust the financial statements 65. A practitioner who is engaged to perform an assurance engagement other than an audit or review of

historical financial information should comply with which of the ff standardsa. PSAEsb. PSAEs and PSAsc. PSAs and PSREsd. PSAEs, PSREs, and PSAs

66. As defined in PSA 540, “accounting estimates” means an approximation of the amount of an item in the absence of a precise means of measurement. Which of the following are examples of accounting estimates

A B C DProvision for loss from a lawsuit Yes No Yes NoCost of inventory purchased Yes Yes No NoProvision to meet warranty claims No Yes Yes YesAllowance to reduce inventory to net realizable value No Yes Yes Yes

67. Which of the following statements concerning accounting estimates is incorrecta. The auditor is responsible for making accounting estimates included in financial statementsb. Accounting estimates are often made in conditions of uncertainty regarding the outcome of events that

have occurred or are likely to occur and involve the use of judgementc. The risk of material misstatement is grater when accounting estimates are involved and in some cases

that auditor may determine that it is a significant risk that requires special audit considerationd. The auditor should obtain sufficient appropriate audit evidence regarding accounting estimates

68. For initial audit engagements, the auditor should obtain sufficient appropriate audit evidence thatI. The opening balances do not contain misstatements that materially affect the current period’s

financial statementsII. The prior period’s closing balances have been correctly brought forward to the current period, or

when appropriate, have been restatedIII. Appropriate accounting policies are consistently applied or changes in accounting polices have

been properly accounted for and adequately presented and disclosed a. I and I onlyb. II and III onlyc. I and III onlyd. I, II and III

69. Which of the following statements concerning the audit of opening balances is incorrecta. When the prior year’s financial statements were audited by another auditor, the current auditor maybe

able to obtain sufficient appropriate evidence regarding opening balances by reviewing the predecessor auditor’s working papers

b. For current assets and liabilities some audit evidence can ordinarily be obtained as part of the current period’s audit procedures

c. For noncurrent assets and liabilities the auditor will ordinarily examine the accounting records and other information underlying the opening balances

d. PSA 510 prohibits the auditor to obtain confirmation of opening balances with third parties 70. An entity’s management is responsible for the preparation and fair presentation of the financial statements.

Its responsibility includes the following excepta. Designing, implementing, and maintaining internal control relevant to the preparation and presentation

of financial statementsb. Making accounting estimates that are reasonable in the circumstancesc. Selecting and applying appropriate accounting policies

d. Assessing the risks of material misstatement of the financial statements71. A client makes test counts on the basis of a statistic plan. The auditor observes such counts as are deemed

necessary and is able to become satisfied as to the reliability of the client’s procedures. In reporting on the results of the results of the audit, the auditora. Must qualify the opinion if the inventories were materialb. Can express an unqualifiedc. Must comment in an emphasis of matter paragraph as to the inability to observe year-end inventoriesd. Is required to disclaim an opinion if the inventories were material

72. An auditor decides to express a qualified opinion on an entity’s financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor’s report should state that the qualification pertains toa. A client-imposed scope limitationb. A departure from PFRSc. Inadequate disclosure of necessary informationd. The possible effects on the financial statements

73. Under which of the following circumstances would a disclaimer of opinion not be appropriatea. The financial statements fail to contain adequate disclosure concerning related party transactionsb. The auditor is engaged after fiscal year-end and is unable to observe the physical inventories or apply

alternative procedures to verify their balances 74. Comparative financial statements include the prior year’s statements that were audited by a predecessor

auditor whose report is not presented. If the predecessor’s report was unqualified, the incoming auditor shoulda. Indicate in the auditor’s report that the predecessors auditor expressed an unqualified opinionb. Express an opinion on the current year’s statements alone and make no reference to the prior year’s

statementsc. Obtain a letter of representations from the predecessor auditor concerning any matters that might

affect the incoming auditor’s opiniond. Request the predecessor auditor to reissue the prior year’s report

75. PSA 710 states, “In performing the audit on the current period financial statements, the incoming auditor, in certain unusual circumstances, may become aware of a material misstatement that affects the prior period financial statements on which the predecessor auditor had previously reported without modification.” In these circumstances, the incoming auditor should

I. Discuss the matter with management.II. After obtaining management’s authorization, contact the predecessor auditor and propose that the prior period financial statement statements be restated.

a. I onlyb. II onlyc. Both I and IId. Neither I nor II

76. PSA 800 applies toa. Review engagementsb. Agreed-upon proceduresc. Compilation engagementsd. Engagements to report on specified accounts, elements of accounts, or items in a financial statement

77. An auditor may report on summarized financial statements that are derived from complete audited financial statements if thea. Auditor indicates whether the information in the summarized financial statements is consistent with the

audited financial statements from which it was derivedb. Summarized financial statements are distributed only to management and the board of directors

c. Auditor describes the additional review procedures performed on the summarized financial statementsd. Summarized financial statements are presented in comparative form with the prior year’s summarized

financial statements 78. Which of the following procedures should a practitioner perform during an engagement to review an entity’s

financial statementsa. Examining cash disbursements in the subsequent period for unrecorded liabilitiesb. Sending bank confirmation letters to the entity’s financial institutionsc. Obtaining a client representation letter from members of managementd. Communicating material internal control weaknesses during the assessment of control risk

79. Which of the following would not be included in a practitioner’s report based upon a review of an entity’s financial statementsa. A statement that the financial statements are the responsibility of the company’s managementb. A statement describing the principal procedures performedc. A statement that the review was conducted in accordance with generally accepted auditing standards in

the Philippinesd. A statement describing the practitioner’s conclusions based upon the results of the review

80. An agreed-upon procedures engagement may involve the accountant in performing certain procedures concerning

I. Individual items of financial dataII. A financial statementIII. A complete set of financial statements

a. I and II onlyb. II and III onlyc. I and III onlyd. I, II and III

81. Which of the following is least likely to be included in an agreed-upon procedures engagement reporta. Identification of the purpose for which the agreed-upon procedures were performedb. A summary of procedures performedc. Limited assurance on the information presentedd. Use of the report is restricted

82. The objective of a compilation engagement isa. For the accountant to use accounting expertise, as opposed to auditing expertise, to collect, classify, and

summarize financial informationb. For the auditor to carry out procedures of an audit nature to which the auditor and the entity and any

appropriate third parties have agreed and to report on factual findingsc. To enable an auditor to state, on basis of the procedures which do not provide all the evidence that

would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared in all material respects, in accordance with an identified reporting framework

d. For the auditor to provide a high, but not absolute, level of assurance that the financial information is free of material misstatement

83. Where compiling an entity’s financial statements, an accountant would be least likely toa. Obtain an acknowledgment from management of its responsibility for the financial statementsb. Perform analytical procedures designed to identify relationships that appear to be unusualc. Plan the workd. Read the compiled financial statements and consider whether they appear to include adequate

disclosure84. Which of the following statements concerning the objective of an engagement to review interim financial

information is correct

a. To obtain reasonable assurance that the interim financial information is free from material misstatement

b. To enable the auditor to express a conclusion whether , on the basis of the review, anything has come to the auditor’s attention that causes the auditor to believe that the interim financial information is not prepared, in all material respects, in accordance with an applicable financial reporting framework

c. To provide a basis for expressing an opinion whether the interim financial information is presented fairly, in all material respects, in accordance with an applicable financial reporting framework

d. The objective of a review of interim financial information is similar to that of an audit conducted in accordance with GAAS in the Philippines

85. The following procedures are ordinarily performed in an engagement to review interim financial information, excepta. Tests of the accounting records through inspection, observation, or confirmationb. Obtaining an understanding of the entity and its environment, including its internal control, as it relates

to the preparation of both annual and interim financial informationc. Inquiring of members of management responsible for financial and accounting mattersd. Communicating with other auditors who are performing a review of the interim financial information of

the reporting entity’s significant components86. The party responsible for assumptions identified in the preparation of prospective financial statements is

usuallya. The client’s managementb. The client’s independent auditorc. The reporting accountant.d. A third-party lending institution

87. An examination of financial forecast is a professional service that involvesa. Assuming responsibility to update management on key events for one year after the reports dateb. Compiling or assembling a financial forecast that is based on management’s assumptionsc. Limiting the distribution of the accountant’s report to management and the board of directorsd. Evaluating the preparation of a financial forecast and the support underlying management’s

assumptions88. Which of the following are elements of a CPA firm’s quality control that should be considered in establishing

its quality control policies and proceduresEthical Requirements Human Resources Engagement Performance

a. No Yes Nob. Yes No Noc. Yes Yes Yesd. No No Yes

89. The following statements relate to the engagement partner’s responsibility to conduct timely reviews of the audit documentation to be satisfied that sufficient appropriate evidence has been obtained to support the conclusions reached and for the auditor’s report issued. Which is falsea. The engagement partner’s review of the audit documentation allows the significant matters to be

resolved on a timely basis to his/her satisfaction before the auditor’s report issuedb. The engagement partner should review all audit documentationc. The engagement partner should document the extent and timing of the reviewsd. The reviews cover critical areas of judgment, especially those relating to difficult or contentious matters

identified during the course of the engagement, significant risks, and other areas the engagement partner considers important

90. Who should take responsibility for the overall quality on each audit engagementa. Engagement quality control reviewb. Engagement partner

c. Engagement teamd. CPA firm

91. Which of the following is a false statement concerning frauda. Fraud generally involves incentive or pressure to commit fraud, a perceived opportunity to do so, and

some rationalization of the actb. Two types of misstatement relevant to the auditor include material misstatements arising from

fraudulent financial reporting and material misstatements arising from fraudulent financial reporting and material misstatements arising from misappropriation of assets

c. Fraud involves actions of management but excludes the actions of employees or third partiesd. An Audit rarely involves the authentication of documentation; thus, fraud may go undetected by the

auditor92. Which of the following statements best describes why the auditor’s examination cannot reasonably be

expected to bring all acts of non-compliance with existing laws and regulations by the client to the auditor’s attentiona. Acts of non-compliance by clients often relates to accounting aspects rather than operating aspectsb. Non-compliance may involve conduct designed to conceal it, such as collusion, forgery, deliberate failure

to record transactions, senior management override of controls, or intentional misrepresentations being made to the auditor

c. Non-compliance may be perpetrated by the only person in the client’s organization with access to both assets and accounting records

d. The clients internal control may be so strong that the auditor performs only minimal substantive testing93. Before the completion of the audit engagement, an auditor is requested to change the engagement to one

that provides a lower level of assurance. If the auditor concludes that there is a reasonable justification for the change in engagement, the report to be issued woulda. Be that appropriate for the revised terms of the engagementb. Include reference to the original engagementc. Include reference to any procedures that may have been performed in the original engagement