Audit Overview PDF

***Audit an Overview*** *Audit in general* 1. When auditing financial statements, the primary concern is with a. Determining whether recorded information properly reflects the economic events that occurred during the accounting period. b. Determining if fraud has occurred. c. Determinin...

***Audit an Overview*** *Audit in general* 1. When auditing financial statements, the primary concern is with a. Determining whether recorded information properly reflects the economic events that occurred during the accounting period. b. Determining if fraud has occurred. c. Determining if taxable income has been calculated correctly. d. Analyzing the financial information to be sure that it complies with government requirements. 2. Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called a. Finance b. Auditing c. Accounting d. Economics 3. The trait that distinguishes auditors from accountants is the a. Auditor's ability to interpret accounting standards. b. Auditor's education beyond the Bachelor's degree. c. Auditor's continuing professional development. d. Auditor's accumulation and interpretation of evidence related to the company's financial statements. 4. The subject matter of any audit consists of a. Assertion about economic actions and events b. Economic data c. Financial statements d. Operating data 5. An audit involves ascertaining the degree of correspondence between assertions and established criteria. In the case of financial statement audit, which of the following is **[not]** a valid criterion? a. Philippine Standards on Auditing b. Philippine Financial Reporting Standards c. PFRS for Small and Medium-sized Entities d. PFRS for Small Entities. 6. The criteria for evaluating quantitative information vary. For example, in the case of an independent audit of financial statements by CPA firms, the criteria are usually the a. Philippine Standards on Auditing b. Philippine Financial Reporting Standards c. National internal Revenue Code d. Regulations of the Securities and Exchange Commission 7. Most of the independent auditor's work in formulating an opinion in the financial statements consist of a. Obtaining and examining evidence b. Examining cash transactions c. Comparing recorded accountability with assets d. Studying and evaluation internal control 8. An audit of financial statements is conducted to determine if the a. Organization is operating efficiently and effectively b. Client is following specific procedures or rules set down by some higher authority c. Overall financial statements are stated in accordance with the applicable financial reporting framework d. Client's internal control is functioning as intended 9. An audit involves ascertaining the degree of correspondence between assertions and established criteria. In the case of an audit of financial statements, which of the following would be a valid criterion? a. International Standards on Auditing b. Philippine Standards on Auditing c. Philippines Financial Reporting Standards d. Quality Control Standards 10. In financial statement audits, the audit process should be conducted in accordance with a. The audit program b. The Philippines Standards on Auditing c. The Philippine Accounting Standards d. The Philippine Financial Reporting Standards 11. Which of the following types of audits uses laws and regulations as its criteria? a. Operational audit b. Financial statement audit c. Compliance audit d. Performance audit 12. An audit designed to provide reasonable assurance of detecting violations of a specific provisions of contracts or grant agreements would be called a(n): a. Performance audit b. Management audit c. Operational audit d. Compliance audit 13. An audit that involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity's operating activities in relation to specified objectives is a(n): a. External audit b. Compliance audit c. Operational audit d. Financial statement audit 14. Which of the following is more difficult to evaluate objectively? a. Efficiency and effectiveness of operations b. Compliance with applicable government regulations c. Presentation of financial statements in accordance with the applicable financial reporting criteria d. All the given criteria are equally difficult to evaluate objectively 15. Which of the following best describes an operational audit? a. It attempts of verifying the fair presentation of a company's results of operations b. It concentrates on implementing financial and accounting control in a newly organized company c. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls d. It requires a constant review of the administrative controls by internal auditors as they relate to operation of the company 16. A typical objective of an operational; audit is to determine whether an entity's a. Internal control structure is adequately operating as designed b. Operational information is in accordance with generally accepted accounting principles c. Specific operating units are functioning efficiently and effectively d. Financial statements present fairly the results of operations 17. One objective of an operational audit is to: a. Determine whether the financial statements fairly present the entity's operations b. Evaluate the feasibility of attaining the entity's operational objectives c. Make recommendations for improving performance d. Report in the entity's relative success in attaining profit maximation 18. The auditor communicates the results of his or her work through the medium of the a. Engagement letter b. Audit report c. Management letter d. Financial statements 19. When performing an operational audit, the internal audit team must first determine that a. A financial audit has been performed by an independent auditor b. A financial audit has been performed by an internal auditor c. A review was performed by either and independent or an internal auditor d. Specific criteria are developed to define effectiveness 20. Which of the following types of auditing is performed most commonly by CPA's on a contractual basis? a. Internal auditing b. Income tax auditing c. Government auditing d. External auditing 21. An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit? a. Operational audit b. Compliance audit c. Financial statement audit d. Production audit 22. Which of the following is **[not]** one of the major differences between financial and operational auditing? a. The financial audit is oriented to the past, but an operational audit concerns performance for the future b. The financial audit report has widespread distribution, but the operational audit report has limited distribution c. Financial audits deal with the information on the financial statements, but operational auditors are concerned with the information in the ledgers and journals d. Financial audits are limited to matters that directly affect the fairness of the financial statement presentation, but operational audits cover any aspect of efficiency and effectiveness 23. The overall objective of internal auditing is to a. Attest to the efficiency with which resources are employed b. Ascertain that controls are costs justified c. Provide assurance that financial data have been accurately recorded d. Assist members of the organization in the effective discharge of their responsibilities 24. Internal auditing is an independent appraisal function established within an organization to examine and evaluate its activities. To that end, internal auditing provides assistance to a. External auditors b. Stockholders c. Management and the board of directors d. Government 25. Internal auditor's independence is enhanced when they report to a. The audit committee of the board of directors b. The head of the finance department c. The external auditors d. The president of the Company 26. Which of the following groups could **[not]** be involved in an operational audit? a. External auditors b. Internal auditors c. Government auditors d. All of the above could be involved 27. Which of the following statements is **[not]** a distinctions a. External auditors represent third party users, whereas internal auditors report directly to management b. Although external auditors stive for both validity and relevance of evidence, internal auditors are concerned almost exclusively with validity c. Internal auditors are employees of the auditee, whereas independent auditors are independent contractors d. The internal auditor's span of coverage goes beyond financial auditing to encompass operational and performance auditing ***Financial Statement Audit*** 28. The objective of the ordinary examination by the independent auditor is the expression of an opinion on a. The fairness of the financial statements b. The accuracy of the financial statements c. The accuracy of the annual report d. The balance sheet and income statement 29. Auditors accumulate evidence to a. Defend themselves in the event of a lawsuit b. Justify the conclusions they have otherwise reached c. Satisfy the requirements of the Securities and Exchange Commission d. Enable them to reach conclusions about the fairness of the financial statements and issue an appropriate audit report 30. The responsibility for the preparation of the financial statements and the accompanying notes belongs to a. The auditor b. The management c. Both management and the auditor equally d. The management for the statements and the auditor for the notes 31. Independent auditing can best be described as a a. Professional activity that measures and communicates financial accounting data b. Subset of accounting c. Professional activity that attests to the fair presentation of the financial statements d. Regulatory activity that prevents the issuance of misleading financial information 32. An audit of the financial statements of JMV Corporation is being conducted by an external auditor. The external auditor is expected to a. Express an opinion as to the fairness of JMV's financial statements b. Express an opinion as tot the attractiveness of JMV for investment purposes c. Certify the correctness of JMV's financial statements d. Examine all evidence supporting JMV's financial statements 33. Which of the following statements about independent financial statement audit is correct? a. The audit iof financial statements relieves management of its responsibilities for the financial statements b. An audit is designed to provide limited assurance that the financial statements taken as a whole are free from material misstatement c. The procedures required to conduct an audit in accordance with PSAs should be determined by the client who engaged the services of the auditor d. The auditor's opinion is not an assurance as to the future viability of the entity as well as the effectiveness and efficiency with which management has conducted the affairs of the entity 34. The primary purpose of an independent financial statement audit is to a. Provide a basis for assessing management's performance b. Comply with government regulatory requirements c. Assure management that the financial statements are unbiased and free from material error d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements 35. The level of assurance provided by an auditor when expressing an opinion on the financial statement is a. Low b. Reasonable c. Limited d. None 36. By providing high level of assurance on audit reports on financial statement, the auditor a. Guarantees the fair presentation of the financial statements b. Confirms the accuracy of the financial statements c. Enhances the credibility of the financial statements d. Assures the readers that fraudulent activities of employees have been detected 37. The reason an independent auditor gathers evidence is to a. Form an opinion on the financial statements b. Detect fraud c. Evaluate management's performance d. Evaluate the entity's internal control 38. Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance to an absolute level of assurance. In practice, the professional accountants cannot provide absolute assurance because of the following except, a. There are inherent limitations of audit that cannot be eliminated b. The auditor employs testing process when performing audit procedures c. The auditor usually lacks the expertise necessary to verify the financial statements d. The auditor uses professional judgment in gathering evidence and drawing conclusion based on that evidence 39. Which of the following is not one of the limitations of an audit? a. The use of testing b. Limitations imposed by client c. Human error d. Nature of evidence obtained 40. Which of the following statements does not properly describe a limitation of an audit? a. Many audit conclusions are made on the basis of examining a sample of evidence b. Some evidence supporting peso representation in the financial statements must be obtained by oral or written representation of managements c. Fatigue can cause auditors to overlook pertinent evidence d. Many financial statement assertions cannot be audited 41. Which of the following is one of the limitations of an audit? a. The possibility that management may prevent the auditor from performing the necessary audit procedures b. The likelihood that the auditor may not be able detect material misstatements in the financial statements because the auditor is engaged only after year-end c. The fact that most audit evidence is persuasive rather than conclusive in nature d. The risk that the auditor may not possess the training and proficiency required by the engagement 42. The primary reason for an audit by an external audit firm is a. To satisfy governmental regulatory requirements b. To guarantee that there are no misstatements in the financial statements c. To provide increased assurance to users as to the fairness of the financial statements d. To ensure that any fraud will be discovered 43. The independent audit is important to readers of financial statements because it a. Determines the future stewardship of the management of the company whose financial statements are audited b. Measures and communicates financial and business data involved in financial statements c. Involves the objective examination of and reporting on management prepared statements d. Reports on the accuracy of all information in the financial statements 44. The best statements of the responsibility of the auditor with respect to audited financial statements is: a. The auditor's responsibility on fair presentation of financial statements is limited only up to the date of the audit report b. The auditor's responsibility is confined to the expression of opinion on the financial statement audited c. The responsibility over the financial statements rests with the management and the auditor assumes responsibility with respect to the notes of financial statements d. The auditor is responsible only to his unmodified opinion but not for any other types of opinion 45. Which of the following is incorrect about the responsibility for financial statements? a. Management is responsible for fair presentation of the financial statements b. Auditor is responsible for expressing an opinion on the financial statements c. Audit of financial statements does not reduce management's responsibility d. The fair presentation of financial statements is an implicit part of the auditor's responsibility 46. Which of the following statements about independent financial statement audit is incorrect? a. Scope of the audit refers to audit procedures deemed necessary in the circumstances to achieve the objective of the audit b. The auditor's opinion enhances the credibility of the financial statements c. Internal auditors are not independent enough to express an opinion on the financial statements of an entity where they are employed d. The risk that the auditor will fail to uncover material misstatement is eliminated when the auditor conducts the audit in accordance with the PSAs 47. Which of the following statements does not properly describe a limitation of an audit? a. Many audit conclusions are made on the basis of examining a sample of evidence b. The work undertaken by the auditor is permeated by judgment c. The auditor might misinterpret the evidence obtained d. Most of the items in the financial statements do not have supporting evidence 48. Which of the following is one of the limitations of an audit a. Nature of evidence obtained b. Inadequacy of the accounting records c. Confidentiality of information d. Scope limitations imposed by the entity 49. The assumption underlying an audit of financial statements is that they will be used by a. Different groups for different purposes b. The general public in making investment decisions c. The board of directors d. As basis of declaring cash dividends e. The regulatory agencies to verify information that is relevant to their supervisory functions 50. The procedures deemed necessary in the circumstances to achieve the objective of a financial statement audit shall be determined by the a. Client management b. Independent auditor c. Internal auditor d. Those charged with governance 51. Which one of the following is an example of management expectations from the independent auditors? a. An active participant in management decision making b. An internal source of expertise of financial and other matters c. An expert providing a written communication as to the product of the engagement d. Individuals who perform day-today accounting functions on behalf of the company 52. Which of the following is not one of the general principles governing an audit of financial statements? a. The auditor should plan and perform the audit with an attitude of professional skepticism b. The auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to draw reasonable conclusions c. The auditor should conduct the audit in accordance with PSA d. The auditor should comply with the Philippine Code of Professional Ethics 53. Which one of the following is **[not]** among the conditions that give rise to a demand by external users for independent audits of financial statements? a. Remoteness of users b. Complexity of making economic decisions c. Potential conflict of interest between users and preparers of the statements d. Consequence for making decisions 54. Which of the following would **[not]** represent one of the primary problems that would lead the users to demand for independent audits of company's financial statements? a. The downsizing of business and financial markets b. Management bias in preparing financial statements c. The complexity of transactions affecting financial statements d. The remoteness of the user to directly obtain financial information from the company 55. The need for independent audits of financial statements can be attributed to all of the following conditions **[except]**: a. Remoteness b. Consequence c. Complexity of subject matter d. Validity 56. Which of the following best describes the reason why an independent auditor reports on financial statements? a. A management fraud may exist, and it is more likely to be detected by independent auditors b. Different interests may exist between the company preparing the statements and the persons using the statements c. A misstatements of account balances may exist and is generally corrected as the result of the independent auditor's work d. A poorly designed internal control system may be in existence 57. Which of the following statements does **[not]** describe a condition a condition that creates a demand for auditing? a. Conflict between information preparer and a user can result in biased information b. Information can have substantial economic consequences for a decision-maker c. Expertise is often required for information preparation and verification d. Users can directly assess the quality of information 58. There are four conditions that give rise to the need for independent audits of financial statements. One of these conditions is consequence. In this context, consequence means that the a. Users of the statements may not fully understand the consequence of their actions b. Auditor must anticipate all possible consequences of the report issued c. Impact of using different accounting methods may not be fully understood by the users of the statements d. Financial statements are used for making important decisions 59. One of the conditions that give rise to a demand for an external audit of financial statements is expertise. Which of the following best describes the meaning of expertise as used in this context? a. Auditors usually rely on the work of an expert as a basis for evaluating some assertions embodied in the financial statements b. The readers of the financial statements must possess the necessary expertise to be able to understand the financial statements c. Users usually lack the necessary expertise to verify the reliability of the financial information d. As experts, auditors are expected to detect all material misstatements in the financial statements 60. Upon completion of a financial statement audit, the auditor has a. No assurance that the financial statements are fairly presented b. Absolute assurance that the financial statements are fairly presented c. Reasonable assurance that all material errors and fraud affecting the financial statements have been detected d. A low level of assurance that all material errors and irregularities have been found 61. An auditor should recognize that the application of auditing procedures may produce evidential matter indicating the possibility of errors or fraud and therefore should a. Plan and perform the engagement with an attitude of professional skepticism b. Not depend on internal accounting control features that are designed to prevent or detect errors or fraud c. Design audit tests to detect unrecorded transactions d. Extend the work to audit most recoded transactions and records of an entity 62. An attitude that includes a questioning mind and a critical assessment of audit evidence is referred to as a. Due professional care b. Professional skepticism c. Reasonable assurance d. Supervision 63. Professional skepticism requires that an auditor assume that management is a. Hones, in the absence of fraud risk factors b. Dishonest until completion of audit tests c. Neither honest nor dishonest d. Offering reasonable assurance of honesty 64. Which of the following is **[not]** one of the reasons why auditors cannot provide absolute assurance when auditing financial statements? a. The auditor commonly examines a sample, rather than the entire population of transactions b. The nature of the financial reporting frameworks usually requires the use of complex estimates which involve uncertainty c. The fact that most audit evidence is only persuasive and not conclusive in nature d. The auditors are usually prevented by the client from verifying certain accounts in the financial statements 65. Which of the following is not one of the major assumptions when auditing financial statements? a. The data in the financial statements are verifiable b. Compliance to PFRS results in fair presentation of financial statements c. Effective internal control system contributes little to the reliability of financial statements d. The auditor should be independent 66. Which of the following statements does **[not]** properly describe an element of theoretical framework of auditing? a. The date to be audited can be verified b. Short-term conflicts may exist between managers who prepare the data and auditors who examine the data c. Auditors act on behalf of the management d. An audit benefits the public 67. Auditing is based on the assumption that financial data are verifiable. Data are verifiable when two or more qualified individuals, a. Working together, can prove, beyond doubt, the accuracy of the data b. Working independently, each reach essentially similar conclusions c. Working independently, can prove, beyond reasonable doubt, the truthfulness of the data d. Working together, can agree upon the accuracy of the data 68. Which of the following statements is true when the CPA has been engaged to do an audit engagement? a. The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client b. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are the statement users c. Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact client's financial statements either positively or negatively, the CPA is free to endorse the choice which is in the client's interests d. As long as CPA firms are competent, it is not required that they remain unbiased 69. In determining the primary responsibility of the external auditor for an audit of a company's financial statements, the auditor owes primary allegiance to: a. Stockholders, creditors and the investing public b. The management of the audit client because the auditor is hired and paid by management c. The Auditing and Assurance Standards Council, because it determines auditing standards and auditor's responsibility d. The audit committee of the audit client because that committee is responsible for coordinating and reviewing all audit activities within the company 70. Which of the following has the primary responsibility for the fairness of the representations made in the financial statements? a. Client's management and those charged with governance b. Audit committee c. Independent auditor d. Board of Accountancy 71. Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements? a. Making suggestions that are adopted about the form and content of an entity's financial statements impairs an auditor's independence b. An auditor may draft an entity's financial statements based on information from management's accounting system c. The fair presentation of audited financial statements in conformity with PFRTS is an implicit part of the auditor's responsibilities d. An auditor's responsibilities for audited financial statements are not confined to the expression of the auditor's opinion. ***The Professional Standards*** *Generally Accepting Auditing Standards (GAAS)* 1. Which of the following best describes what is meant by generally accepted auditing standards? a. Audit objectives generally determined on audit engagements b. Acts to be performed by the auditor c. Measures of the quality of the auditor's performance d. Procedures to be used to gather evidence to support financial statements 2. In the auditing environment, failure to meet auditing standards is often a. An accepted practice b. A suggestion of negligence c. Conclusive evidence of negligence d. Tantamaount to criminal behavior 3. Audit standards require the auditor to a. Perform procedures that are designed to detect all instances of fraud b. Provide reasonable assurance that the financial statements are not materially misstated c. Issue an unmodified opinion only when the auditor is satisfied that no instances of fraud have occurred d. Design the audit program to meet financial statements users' expectations concerning fraud 4. Which of the following underlies the application of generally accepted auditing standards, particularly the standards of field work and reporting? a. Element of internal control b. Elements of materiality and risk c. Element of reasonable assurance d. Element of corroborating evidence 5. Requirements for training, independence and due professional care are included in which group of the generally accepted auditing standards? a. Fieldwork b. General c. Reporting d. Quality control 6. The general standards of the generally accepted auditing standards include a requirement that a. The fieldwork to be adequately planned b. The auditor's report to state whether the financial statements are presented in conformity with PFRS c. Due professional care be exercised by the auditor d. The auditor to obtain sufficient, competent evidential matter 7. Which of the following reflects a concept from the general standards of GAAS? a. The confirmation of accounts receivable b. Completing an internal control questionnaire c. The initial planning of the audit with the audit partner, manger, senior, staff and client personnel d. The assignment of audit personnel to an engagement where they have no financial interest 8. What is the general character of the three generally accepted auditing standards classified as general standards? a. Criteria for competence, independence, and professional care of individuals performing the audit b. Criteria of evidence gathering c. Criteria for the content of the auditors' report in financial statements and related footnote disclosures d. The requirements for the planning of the audit and supervision of assistants, if any 9. Which of the following does not pertain to the standards of fieldwork? a. Adequate planning and supervision b. Obtaining sufficient competent evidential matter c. Proper study and evaluation of internal control as a basis for reliance thereon d. Technical training and proficiency 10. While performing audit services for their clients, professional accountants have a duty to provide a level of care which is a. Reasonable b. Greater than average c. Superior d. Guaranteed to be free from error 11. The standard of due audit care requires the auditor to a. Make perfect judgment decisions in all cases b. Ensure that the financial statements are free from error c. Possess skills clearly above the average for the profession d. Apply judgment in a conscientious manner, carefully weighing the relevant factors before reaching a decision 12. Which of the following is most likely to be unique to the audit work of CPAs as compared to work performed by practitioners of other professions? a. Due professional care b. Competence c. Independence d. Complex body of knowledge 13. The third general standard states that due care is to be exercised in the performance of an audit. This standard is ordinarily interpreted to require a. Thorough review of the existing safeguards over access to assets and records b. Limited review of the indications of employee fraud and illegal acts c. Objective review of the adequacy of the technical training and proficiency of firm personnel d. Critical review of the judgment exercised at every level of supervision 14. What is the general character of the three generally accepted auditing standards classified as standards of field work? a. The competence of persons performing the audit b. Criteria for the content of the auditor's report on financial statements and related footnote disclosures c. The criteria of audit planning and evidence-gathering d. The need to maintain an independence in mental attitude in all matters relating to the audit 15. The third standard of field work states that sufficient competent evidential matter may in part be obtained through the following method except a. Inspection b. Confirmation c. Observation d. Reconciliation 16. The generally accepted standards of reporting encompass all of the following except a. Consideration of internal control b. Consistent application of accounting principles c. Informative disclosures d. Conformity of financial statements with GAAP 17. The third generally accepted standard of reporting in auditing refers to a. Whether financial statements are presented in conformity with GAAP b. Whether accounting principles have been consistently observed c. Adequacy of disclosures d. An expression of opinion on the financial statements taken as a whole 18. The objective of the consistency standard is to provide assurance that a. There are no variations in the format and presentation of financial statements b. Substantially different transactions and events are not accounted for on an identical basis c. The auditor is consulted before material changes are made in the application of accounting principles d. The comparability of financial statements between periods is not materially affected by changes in accounting principles without disclosure 19. The fourth generally accepted auditing standard of reporting requires an auditor to render a report whenever an auditor's name is associated with financial statements. The overall purpose of the fourth standard of reporting is to require that reports: a. State that the examination of financial statements has been conducted in accordance with generally accepted auditing standards b. Indicate the character of the auditor's examination and the degree of responsibility assumed by the auditor c. Imply that the auditor is independent in mind as well as in appearance with respect to the financial statements under examination d. Express whether the accounting principles used in preparing the financial statements have been applied consistently in the period under examination 20. The fourth reporting standard requires the auditor's report to contain an expression of opinion regarding the financial statements taken as a whole, or an assertion to the effect that an opinion cannot be expressed. The objective of the fourth standard is to prevent a. An auditor from reporting on one basic financial statement and not on the others b. An auditor from expressing different opinions on each of the basic financial statements c. Management from reducing its final responsibility for the basic financial statements d. Misinterpretations regarding the degree of responsibility the auditor is assuming 21. The auditor is not liable to his client for a. Negligence b. Fraud dishonesty\\errors in the application of judgment c. Dishonesty d. Errors in the application of judgment ***The Philippine Standards on Auditing (PSA)*** 22. The Philippine Standards on Auditing (PSAs) issued by the Auditing and Assurance Standards Council: a. Are interpretations of the generally accepted auditing standards b. Are the criteria used in evaluating the fair presentation of the financial statements c. Are interpretations of the generally accepted accounting principles d. Are optional guidelines which an auditor may choose to follow or not follow when conducting an audit 23. According to Philippine Standards on Auditing, because there are inherent limitations in an audit that affect the auditor's ability to detect material misstatements, the auditor: a. A guarantor but not an insurer of the statements b. An insurer but not a guarantor of the statements c. Neither a guarantor nor an insurer of financial statements d. Both a guarantor and an insurer of the financial statements 24. An auditor does not have to comply with a specific requirement of the PSA if the auditor believes that: a. The amount is insignificant b. The requirement of the PSA is impractical to perform c. The requirement of the PSA is impossible to perform d. Any of the given three choices is correct 25. The Philippine Standards on Auditing can be described as a. Providing very specific guidance about the specific activities an auditor must perform on each engagement b. Similar to Philippine Financial Reporting Standards (PFRS) c. Defining the minimum standards of performance for an auditor d. Providing assurance that an auditor will not issue an inappropriate audit opinion 26. Which of the following best describes the function of Auditing and Assurance Standards Council (AASC)? a. To establish and promulgate generally accepted accounting principles in the Philippines b. To investigate violations of the Accountancy Law c. To promulgate auditing standards, practices and procedures that shall be generally accepted by the accounting profession in the Philippines d. To determine the minimum requirements for admission in the accounting profession 27. Pronouncement issued by AASC may be in the form of Philippine Standards on Auditing Philippine Standards on Assurance Engagements Philippine Standards on Review Engagements Philippine Standards on Related Services ---- ---------------------------------- ----------------------------------------------- -------------------------------------------- ------------------------------------------ a. Yes Yes Yes Yes b. Yes No Yes No c. Yes Yes Yes No d. No Yes No Yes 28. Which of the following is correct about the Philippine Auditing Practices Statements (PAPS)? a. These are issued to resolve issues relating to PSAs b. These statements are intended to hafve the authority of PSAs c. These statements are issued to provide practical assistance to auditors in implementing PSAs or to promote good practice d. These statements are forms of interpretations issued by AASC 29. Which of the following pronouncements issued by the AASC is designed to resolve issues relating to {Sas? a. Philippine Auditing Practices Statements b. Interpretations c. Statements of Auditing Standards in the Philippines d. Generally Accepted Auditing Standards 30. Based on the structure of AASC pronouncements, related services include? Audit Review Agreed-upon procedures Compilation ---- ------- -------- ------------------------ ------------- a. Yes Yes No No b. No No Yes Yes c. Yes Yes Yes No d. No Yes Yes Yes 31. The risk that an auditor will fail to uncover a material misstatement is eliminated a. If client has good internal control b. If auditor observes the Code of Professional Ethics c. When the auditor complies with PSA d. Under no circumstances 32. The auditor's best defense when material misstatements are not uncovered is to have conducted the audit a. In accordance with PSA b. As effectively as reasonably possible c. In a timely manner d. Only after an adequate investigation of the management team 33. The failure of the auditor to meet the requisites of PSA is a. An accepted practice b. A suggestion of negligence c. An evidence of negligence d. Tantamaount to criminal behavior ***Assurance Engagements and Related Services*** 1. The Pronouncements of the Auditing and Assurance Standards Council (AASC) do not cover a. Review Engagement b. Compilation engagement c. Consultancy d. Agreed-upon procedures engagement 2. Which of the following best describes "related services"? e. Audit and Review of financial statements f. Assurance and audit engagements g. Compilation and agreed-upon procedures engagements h. Review, compilation, and agreed-upon procedures engagements 3. The auditor's satisfaction as to the reliability of an assertion being made by one part is called: i. Assurance j. Audit Risk k. Precision l. Materiality 4. The concept of limited assurance is provided for in which of the following engagements? m. Audit n. Review o. Compilation p. Agreed-upon procedures 5. A CPA may issue a review report q. Only if the CPA is independent r. Only if the CPA's report contains an expression of an opinion s. Provided the client is responsible for the adequacy of the procedures to be performed t. Even if the CPA is not independent 6. Which of the following statements best describes a review engagement? u. A review engagement focuses on providing advice in a three party contract. v. A review engagement focuses on providing assurance on the internal controls of a public company. w. A review engagement focuses on providing limited assurance on financial statements of a company. x. A review engagement focuses on providing reasonable assurance on the assertions contained in the financial statements of a company. 7. The objective of a review of financial statements is to y. Express an opinion on the overall financial statements z. Carry out audit procedures agreed on with the client and other users of report a. Assist the client in the preparation of of the financial statements b. State whether anything has come o the auditor's attention that indicates that the financial statements are not presented fairly. 8. When performing a review of financial statements, the CPA is required to c. Apply analytical procedures and make inquiries from third parties by sending confirmation letters. d. Asses the effectiveness of the client's accounting and internal control systems. e. Obtain corroborative evidence to support management's responses to inquiries. f. Obtain understanding of the client's business and industry. 9. Which of the following procedures is not included in a review engagement? g. Inquiries of management h. Inquiries regarding subsequent events i. Procedures designed to identify unusual fluctuations j. A study and evaluation of internal control 10. When providing limited assurance that nothing came to the CPA's attention that would indicate that the financial statements are not in accordance with the applicable financial reporting framework, the CPA should k. Obtain corroborative evidence to support management's responses to inquiries. l. Test the accounting records that identify inconsistencies with prior year's financial statements. m. Understand the accounting principles of the industry in which the business entity operates. n. Develop an audit program 11. Assurance provided by a review is substantially less than an audit. Which of the following statements is true regarding these services? o. A review requires more substantive evidence than an audit. p. An audit requires less evidence related to internal control than a review q. A review requires less evidence than an audit r. None of the above statements is true 12. When performing an engagement to review an entity's financial statements, the practitioner most likely would s. Limit the distribution of the review report t. Ask about actions taken at board of director's meeting u. Obtain an understanding of the effectiveness of entity's internal control v. Confirm a sample of significant accounts receivable balances. 13. Inquiry and analytical procedures are the preliminary abasis for a CPA to issue w. A compilation report x. A review report y. A management advisory services report z. An audit report 14. Which of the following procedures is not included in a review engagement? a. Inquiries of management b. Inquiries regarding events subsequent to the balance sheet date. c. Any procedures designed to identify relationships among data that appear to be unusual d. Communicating any material weaknesses discovered during the study and evaluation of internal accounting control 15. A review does not provide assurance that the CPA will become aware of all significant matters that would be disclosed in an audit. However, if the CPA becomes aware that information coming to his attention is incorrect, incomplete or otherwise unsatisfactory, he should e. Withdraw immediately from the engagement f. Perform the additional procedures he deems necessary to achieve limited assurance g. Perform a complete audit and issue an audit report with appropriate qualifications h. Downgrade the engagement to a compilation and issue the appropriate report 16. If the CPA has reasons to believe that the information subject to review may be materially misstated, the CPA should i. Express a qualified negative assurance. j. Express and adverse opinion k. Withdraw from the engagement. l. Carry out additional or more extensive procedures. 17. The review of a company's financial statements by a CPA firm m. Requires detailed analysis of the major accounts. n. Is substantially less in scope of procedures than an audit. o. Has similar scope as an audit and adds similar credibility to the statements. p. Culminates in issuance of a report expressing the CPA's opinion as to the fairness of the statements 18. A practitioner's unmodified report on a review of the financial statements should state that q. The practitioner does not express an opinion or any form of assurance on the financial statements r. Nothing has come to the practitioner's attention that causes the practitioner to believe that the financial statements are not presented fairly, in all material respects in accordance with PFRS. s. The practitioner obtained reasonable assurance about whether the financial statements are free of material misstatements. t. The practitioner examined evidence, on a test basis, supporting the amounts and disclosures in the financial statements. 19. If there had been a material scope limitation on a review engagement, the CPA may u. Express either qualified opinion or disclaim an opinion on the financial statements v. Not provide any assurance on the financial statements w. Issue the unmodified review report x. Issue an audit report that contains an unmodified opinion about the financial statements. y. 20. If the financial statements reviewed contain material misstatements, the practitioner's review report should: a. Express a qualified conclusion. b. Give an adverse conclusion. c. Not provide any assurance. d. Either a or b. 21. The statement that "nothing came to our attention which would indicate that these statements are not fairly presented" expresses which of the following: z. Disclaimer of Opinion a. Negative assurance b. Negative confirmation c. Piecemeal opinion 22. A practitioner has accepted an engagement in which inquiry and analytical procedures will be employed. These procedures will form the basis for the issuance of: d. A compilation report. e. An audit report on supplemental information issued by the client. f. A management advisory report requested by the audit committee. g. A review report on comparative financial statements for a non-public company. 23. A report on factual findings is the end product of the auditor when performing: h. Examination i. Audit j. Review k. Agreed-upon procedures 24. An agreed-upon procedures engagement is one in which: l. The practitioner and management agree that procedures will be applied to all accounts and circumstances. m. The practitioner and management agree that procedures will not be applied to all accounts and circumstances. n. The practitioner and management or a third party agree that the engagement will be limited to certain specific procedures. o. The practitioner and management or a third party agree that the practitioner will apply his or her judgment to determine procedures to be performed. 25. Which of the following is true of the report based on agreed-upon procedures? p. The report is restricted to those parties who have agreed to the procedures to be performed. q. The CPA provides the recipients of the report limited assurance as to reasonableness of the assertion(s) presented in the financial information. r. The report states that the practitioner has not recognized any basis that requires revision of the financial statements. s. The report should state that the procedures performed are limited to analytical procedures and inquiry. 26. Engagement to apply agreed-upon procedures on certain accounts within a financial statement may be accepted provided: t. The CPA has expressed opinion on the financial statements taken as a whole. u. The CPA takes full responsibility for the adequacy of the procedures to be performed. v. The CPA provides only a limited assurance about the reliability of the financial statements. w. The distribution of the report is limited only to specified parties involved. 27. An engagement to apply agreed-upon procedure engagement may be accepted, provided: x. The CPA has audited the financial statements of the client. y. The CPA is independent with respect to the client. z. The client takes full responsibility for the adequacy of procedures to be performed. a. The adequacy of the procedures to be performed will be determined by the CPA. 28. Which of the following ethical principles does not apply to an agreed-upon procedure engagement? b. Independence c. Confidentiality d. Professional behavior e. Professional competence and due care 29. Which of the following is true of the report based on agreed-upon procedures? f. The report is restricted to those parties who have agreed to the procedures to be performed. g. The CPA provides the recipients of the report limited assurance as to reasonableness of the assertion(s) presented in the financial information. h. The report states that the auditor has not recognized any basis that requires revision of financial statements. i. The report should state that the procedures performed are limited to analytical procedures and inquiry. 30. A summary of findings rather than assurance is most likely to be issued on which engagement? j. Review k. Compilation l. Examination m. Agreed-upon procedures 31. Which statement is incorrect regarding agreed-upon procedures? n. Users of the report assess for themselves the procedures and findings reported by the auditor and draw their own conclusions from the auditor's work. o. The report is restricted to those parties that have agreed to the procedures to be performed since others, unaware of the reasons for the procedures, may misinterpret the results. p. The auditor should conduct an agreed-upon procedures engagement in accordance with PSRS and the terms of the engagement. q. Where the auditor is not independent, a statement to that effect need not be made in the report of factual findings. 32. Distribution of which of the following types of reports is limited? r. Audit s. Review t. Agreed-upon procedures u. Compilation ***Compilation of the Financial Statements*** 33. A CPA is not required to comply with the "Code of Ethics for Professional Accountants" promulgated by the Board of Accountancy when performing: v. Review w. Agreed-upon procedures x. Compilation y. None of the above 34. What level of assurance does an accountant give on a compilation report? z. None a. Moderate b. Low c. High 35. Which of the following procedures would a CPA most likely perform in a compilation engagement? d. Collect, classify, and summarize financial information e. Apply analytical procedures f. Assess risk components g. Test the accounting records h. 36. Ethical principles governing compilation of financial statements include: Independence \| Competence \| Confidentiality i. Yes Yes Yes j. Yes Yes No k. Yes No No l. No Yes Yes 37. The procedures employed in doing compilation are: m. Designed to enable the accountant to express a limited assurance n. Designed to enable the accountant to express a negative assurance o. Not designed to enable the accountant to express any form of assurance p. Less extensive than review procedures but more extensive than agreed-upon procedures 38. Which of the following is incorrect about a compilation engagement? q. The CPA uses his auditing expertise to collect, classify, and summarize financial information. r. The engagement ordinarily entails reducing detailed data to a manageable and understandable form. s. The CPA should exercise due care when engaged to compile financial statements. t. The procedures performed do not enable the accountant to express any form of assurance. 39. Which of the following procedures is normally performed in connection with a compilation engagement? u. Inquire of management about subsequent events. v. Making inquiries of management concerning actions taken at board meetings. w. Applying analytical review procedures. x. Assemble financial information. 40. What level of assurance does the CPA provide under the following engagements? Audit Review Agreed-upon procedure Compilation a\. High Moderate None None b\. Reasonable Limited Low None c\. Moderate Moderate None None d\. High Negative None Low 41. The use of negative assurance in audit reports on financial statements is: y. A violation of the professional standards. z. Encouraged by PICPA. a. A help in clarifying the degree of responsibility being assumed by the auditor. b. Properly located in the opinion paragraph of the unmodified report***.*** 42. When an independent CPA is associated with the financial statements of a publicly held company but has not audited or reviewed the financial statements, the appropriate form of report that must be issued must include a(n): c. negative assurance d. compilation opinion e. disclaimer of opinion f. adverse opinion 43. Which of the following statements is not true about the reports provided by a CPA? g. In the audit engagement, the auditor provides a high level of assurance that the financial information is free of material misstatement. h. In a review engagement, the CPA's moderate assurance is expressed in the form of negative assurance. i. For agreed-upon procedures, the CPA provides a report on factual findings and no assurance is expressed. j. In a compilation engagement, no assurance is expressed and the users of financial information do not derive any benefit from the CPA's involvement. 44. An auditor is associated with the financial information when he: Attaches report to Consents to the use of his the financial information name in a professional connection a\. Yes No b\. Yes Yes c\. No Yes d\. No No 45. A CPA who is not independent may issue a: k. Review report l. Special report m. Report expressing a qualified opinion n. Compilation report 46. A CPA should perform analytical procedures during engagement to: o. Yes Yes Yes p. Yes Yes No q. No Yes No r. Yes No No 47. In a compilation engagement, if the accountant becomes aware of material misstatements, the accountant should try to agree appropriate amendments with the entity. If such amendments are not made and the financial information is considered to be misleading, the accountant should s. Do nothing t. Withdraw from the engagement u. Issue a qualified or adverse opinion v. Issue a negative assurance 48. Your accounting firm has accepted a compilation engagement from a client in which your firm is not independent. In that case you: w. May not accept the engagement x. May accept the engagement and disclose the lack of independence y. May accept the engagement and not disclose the lack of independence z. May accept the engagement and disclose the lack of independence and the reason for the lack of independence 49. The concept of reasonable assurance is provided for in which one of the following engagements? a. Review b. Compilation c. Audit d. Agreed upon procedures 50. Which of the following engagements would result in a conclusion that represents positive assurance? e. Review f. Compilation g. Examination h. Agreed upon procedure engagement 51. The distribution of which of the following types of reports is unrestricted? i. Audits and reviews j. Reviews and agreed upon procedures k. Examinations and agreed upon procedures l. Examinations, reviews, and agreed upon procedures ***Assurance Engagements*** 52. Which of the following statements about assurance engagements is not correct? m. Assurance engagements are intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria. n. The subject matter of an assurance engagement may take many forms such as data, systems and processes or behavior. o. Not all engagements performed by professional accountants are assurance engagements. p. The Philippine Standards on Assurance Engagements issued by the AASC describe the objectives and elements of assurance engagements to provide high, moderate or low level of assurance. 53. Which of the following is an example of an assurance engagement? q. Management advisory services r. Reporting on financial statements prepared using other comprehensive basis of accounting. s. Compilation of financial information t. Preparation of tax returns 54. Which of the following services provides a moderate level of assurance about the client's financial statements? u. Forecasts and projections v. Compliance with contractual agreement w. Review x. Compilation 55. Which of the following is not one of the elements of an assurance engagement? y. Sufficient appropriate evidence z. A subject matter a. Suitable criteria b. An opinion about whether the subject matter conform, in all material respects, with identified criteria. 56. According to PSAE 3000, assurance engagement should exhibit five elements including c. Financial information d. A two party relationship e. Financial reporting framework f. A written assurance report 57. Subject matter of an assurance engagement may take many forms including Data Systems Behavior g. Yes Yes Yes h. Yes No Yes i. Yes Yes No j. No Yes Yes 58. Which of the following is not one of the requirements before accepting an assurance engagement? k. The practitioner should be competent and independent. l. The practitioner should accept the engagement only if the subject matter is the responsibility of another party. m. The practitioner should accept the engagement only if the subject matter is identifiable and in the form that can be subjected to evidence gathering procedures. n. The responsible party and the intended users of assurance report should be from different organizations. 59. Which of the following generalizations is incorrect about the reliability of evidence gathered by practitioners? o. Evidence from external sources is more reliable than that generated internally p. Evidence generated internally is more reliable when subject to appropriate controls within the entity q. Evidence obtained indirectly by the practitioner is more likely reliable than that obtained directly r. Evidence in the form of documents and written representation is more likely to be reliable 60. Which of the following is false? PSAE 3000 s. Describes the objective and elements of assurance engagements intended to provide either a high or moderate level of assurance. t. Establishes standards for and provides guidance to professional accountants in public practice for the performance of engagements intended to provide a high level of assurance. u. Specifies the procedures that the professional accountant should adopt in the performance of all assurance engagements. v. Acts as a framework for the development by the Auditing and Assurance Standards Council of specific standards for particular type of assurance engagement. 61. When a CPA is associated with the preparation of forecasts, all of the following should be disclosed except: w. Sources of information x. Character of work performed y. Major assumptions used z. Probability of achieving the forecast ***Prospective Financial Statements*** 62. 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. This prospective financial information is known as a. Pro-forma financial statements b. Partial presentation c. Financial projection d. Financial forecast 63. In an engagement to examine prospective financial information, the auditor should obtain sufficient appropriate evidence as to whether: I. Management's best-estimate assumptions on which the prospective financial information is based are not unreasonable and, in the case of hypothetical assumptions, such assumptions are consistent with the purpose of the information. II. The prospective financial information is properly prepared on the basis of the assumptions. III. The prospective financial information is properly presented and all material assumptions are adequately disclosed, including a clear indication as to whether they are best-estimate assumptions or hypothetical assumptions. IV. The prospective financial information is prepared on a consistent basis with historical financial statements, using appropriate accounting principles. e. I, II and III f. I and II g. I, II and IV h. I, II and IV 64. Financial forecast is a: i. Financial information based on assumptions about events that may occur in the future and possible actions by an entity. j. 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. k. Prospective financial information prepared on the basis of hypothetical assumptions about future events and management actions which are not necessarily expected to take place. l. Prospective financial information prepared on the basis of a mixture of best-estimate and hypothetical assumptions. 65. An examination of financial forecast is a professional service that involves: m. assembling financial forecast that is based on management assumptions n. limiting the distribution of the accountant's report to management and board of directors o. assuming responsibility on the financial forecast p. evaluating the preparation of the financial forecast and the support underlying management assumptions 66. When an accountant examines financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the accountant should describe the assumption in the accountant's report and issue a report that contains a(an): q. qualified opinion r. unmodified opinion with emphasis of matter paragraph s. adverse opinion t. disclaimer of opinion 67. Accepting an engagement to examine financial projection most likely would be appropriate if the projection will be distributed to: u. all employees who work for the entity v. investing public w. a bank with which the entity is negotiating for a loan x. all stockholders of record as of the report date 68. Which of the following is correct concerning prospective financial statements? y. Only financial forecast would normally be appropriate for limited use. z. Only financial projection would normally be appropriate for limited use. a. Any type of prospective financial statements would normally be appropriate for limited use. b. Any type of prospective financial statements would normally be appropriate for general use. 69. Financial forecasts are based on: Hypothetical Best estimates A mixture of hypothetical assumptions assumptions and best estimates c. Yes Yes No d. No Yes Yes e. No Yes No f. No No Yes 70. When the auditor believes that the presentation and disclosure of the prospective financial information is not adequate, the auditor should: g. Express a qualified opinion on the prospective financial information. h. Express an adverse opinion on the prospective financial information. i. Disclaim an opinion on the prospective financial information. j. Either a or b. 71. The party responsible for assumptions identified in the preparation of prospective financial statements is usually: k. A third-party lending institution l. The client's m. The reporting accountant n. The independent auditor ***ANSWER KEY*** 1. A 2. C 3. D 4. A 5. A 6. B 7. A 8. C 9. B 10. B 11. C 12. D 13. C 14. A 15. C 16. C 17. C 18. B 19. D 20. D 21. A 22. C 23. D 24. C 25. A 26. D 27. B *Financial Statement Audit* 28. A 29. D 30. B 31. C 32. A 33. D 34. D 35. ? 36. C 37. A 38. C 39. B 40. D 41. C 42. C 43. C 44. B 45. D 46. D 47. D 48. A 49. A 50. B 51. C 52. B 53. B 54. A 55. D 56. B 57. D 58. D 59. C 60. C 61. A 62. B 63. C 64. ? 65. ? 66. C 67. B 68. B 69. A 70. A 71. D *The Professional Standards* 1. C 2. C 3. B 4. B 5. B 6. C 7. D 8. A 9. D 10. A 11. D 12. C 13. D 14. C 15. D 16. A 17. C 18. D 19. B 20. D 21. D 22. A 23. C 24. D 25. C 26. C 27. A 28. C 29. B 30. B 31. D 32. A 33. C *Assurance Engagements and Related Services* 1. C 2. C 3. A 4. B 5. B 6. C 7. D 8. D 9. D 10. C 11. C 12. B 13. B 14. D 15. B 16. D 17. B 18. B 19. B 20. D 21. B 22. D 23. D 24. C 25. A 26. D 27. C 28. A 29. A 30. D 31. D 32. C *Compilation of the Financial Statements* 33. D 34. A 35. A 36. D 37. C 38. A 39. D 40. A 41. A 42. C 43. D 44. B 45. D 46. B 47. B 48. B 49. C 50. C 51. A *Assurance Engagements* 52. D 53. B 54. C 55. D 56. D 57. A 58. D 59. D 60. C 61. D *Prospective Financial Statements* 62. C 63. A 64. B 65. D 66. C 67. C 68. C 69. C 70. D 71. B