Bobadilla AUD Compilation PDF

MODULE 1 AUDITING CONCEPTS PSA BASED QUESTIONS 1. The primary purpose of an independent audit of financial statements is to A. provide a basis for assessing management‘s performance. B. comply with laws and regulations. C. assure management that the financial statements are unbiased and free from material misstatements. D. provide users with an unbiased opinion about the fairness of information presented in the financial statements. 2. Which of the following statements best describes a review service? A. A review engagement focuses on providing assurance on the assertions contained in the financial statements of a public company. B. A review engagement focuses on providing assurance on the internal controls of a public company. C. A review engagement focuses on providing limited assurance on financial statements of a private company. D. A review engagement focuses on providing advice in a three-party contract. 3. Professional skepticism dictates that when management makes a statement to the auditor, the auditors should A. disregard the statement because it ranks low of the evidence quality scale. B. corroborate the evidence with other supporting documentation whenever possible. C. require that the statement be put in writing. D. believe on the statement in order to maintain the professional client-auditor relationship. 4. In performing a financial statement audit, which of the following would an auditor least likely consider? A. Internal control B. Compliance with GAAP C. Quality of managements‘ business decisions D. Fairness of the financial statement amounts 5. The level of assurance provided by an audit of detecting a material misstatement is referred to as: A. Absolute assurance. B. High assurance. C. Negative assurance D. Reasonable assurance. 6. 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. Accounting standards generally accepted in the Philippines. B. International Accounting Standards. C. Authoritative financial reporting framework. D. Philippine Standards on Auditing. 7. Which of the following statements is (are) true regarding the provision of assurance services? I. The third party who receives the assurance generally pays for the assurance received. II. Assurance services always involve a report by one person to a third party on which an independent organization provides assurance. III. Assurance services can be provided either on information or processes. A. I and II. B. I and III. C. III only. D. I, II, and III. 8. Which of the following is least likely an objective of an assurance engagement? A. The engagement is intended to prevent the issuance of materially misleading information. B. The engagement is intended to enhance the credibility of information about a subject matter. C. An assurance engagement is intended for a professional accountant to express a conclusion that provides the intended users with a level of assurance about the subject matter. D. The engagement is intended to provide a level of assurance to be issued by a professional accountant about the information of being in conformity, in all material respects, with suitable criteria. 9. The broad range of assurance engagements includes all, but which of the following? 1.) Engagements intended to provide high or moderate levels of assurance. 2.) Preparation of tax returns, though no conclusion is expressed. 3.) Attest and direct reporting engagements. 4.) Engagements to report externally, but not internally. 5.) Engagements in the private and public sector. 6.) Agreed-upon procedure engagement. A. 2, 4, 5 B. 2, 4, 6 C. 2, 5, 6 D. 4, 6 10. Which statement does not accurately describe an assurance engagement? A. The objective of an assurance engagement is for a professional accountant to evaluate or measure a subject matter that is the responsibility of another party against identified suitable criteria, and to express a conclusion that provides the intended user with a level of assurance about that subject matter. B. Not all engagements performed by professional accountants are assurance engagements. C. A particular engagement, to be an assurance engagement, depends upon whether it exhibits all the following elements: a two-party relationship, a subject matter, suitable criteria, and a conclusion. D. An engagement in form of agreed-upon procedures result in the expressions of factual findings. 11. Which of the following is not an element of an assurance engagement? A. A subject matter. B. Suitable criteria. C. A conclusion. D. A two-party relationship. 12. A draft of statement, studies or standards should be discussed by the Council en banc. How many members of AASC are required to approve the draft for exposure? A. Majority B. Ten C. Eight D. Twelve 13. 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. The professional accountants employ testing process. B. The internal control has its inherent limitations. C. The use of judgments in gathering evidence and drawing conclusions based on that evidence. D. The lack of expertise of the professional accountants in doing a systematic engagement process. 14. Which is not true of the intended user? A. The intended user is the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose. B. The intended user(s) is (are) always limited to the addressee of the professional accountant‘s report. C. The responsible party may also be the one of the intended users. D. The intended user(s) may not be the addressee of the professional accountant‘s report. 15. Which of the following is least likely a subject matter of an assurance engagement? A. Data. B. System and processes. C. Compliance and regulations. D. Degree of loyalty of employees to their employer. 16. The practitioner‘s report on an assurance engagement should always include the following, except: A. A description of the engagement and identification of the subject matter. B. Identification of the standards under which the engagement was conducted. C. Reference to the work of an expert. D. Identification of the criteria. 17. Some or all of the following are planning considerations: I. Criteria to be used. II. Nature and extent of involvement of the experts. III. Possible sources of evidence. IV. Type of conclusion to be issued. V. Preliminary judgment about materiality and engagement risk. VI. Content of the management letter. Which of the following are matters that need to be considered in planning an assurance engagement? A. All of them. B. I, II, III, V C. II, III, IV, VI D. I, III, V, VI 18. How many members of the AASC are needed to approve the exposed draft as Philippine Standards on Auditing? A. Majority of the regular members. B. At least eight. C. At least ten D. At least twelve. 19. Which of the following is required if the professional accountant uses experts who are not professional accountants? A. The ultimate responsibility or the professional service is assumed by the expert who is not a professional accountant. B. The professional accountant is discouraged to engage the services of experts who are not a professional accountant. C. The professional accountant must take steps to see that such experts are aware of the ethical requirements of the profession. D. Experts who are not professional accountants need not be informed of ethical requirements because they are not members of the Accountancy profession. 20. Which of the following is expected of AASC to do? A. AASC should normally expose a proposed interpretation of statements. B. AASC should normally expose its opinion on specific queries from a practicing CPA. C. When it is deemed necessary to expose its statement for a comment on proposed interpretations of statements, the exposure period is understandably shorter than those of the regular drafts of standards. D. To make the statements on Philippine Standards on Auditing operative, the final statement shall be submitted to the Board of Accountancy for approval. 21. Which one of the following is not a key attribute that is essential to perform an assurance service? A. Subject matter knowledge B. Independence C. Established suitable criteria D. Accounting skills 22. As it relates to an audit, materiality is A. not taken into consideration. B. related party to the sufficiency of procedures performed. C. based upon audit fees. D. determined based upon the importance to a user of the financial statement. 23. The suitability of the criteria to which the professional accountant will base his evaluation of the subject matter partly depends on: A B C D Relevance YES YES YES NO Reliability YES YES YES YES Understandability YES NO YES NO Neutrality NO NO YES YES 24. How did the framework of Philippine Standards on Auditing conceptually describe assurance? A. It refers to the auditor‘s satisfaction as to the reliability of an assertion being made by one party for use by another party. B. The level of assurance that may be provided is determined by the reporting objective. C. An assurance is expressed positively in the report. D. Because of the inherent limitation in an audit, the assurance is of limited one. 25. It provides a threshold or cutoff point rather than being a primary qualitative characteristic which information must have if it is to be useful. A. Materiality B. Reliability C. Relevance D. Misstatement QUIZZERS 1. The difference between what the public expects to get from the audited financial statements and what the public is actually getting is known as: A. Credibility gap B. Audit gap C. Expectation gap D. Level of assurance gap 2. Which of the following statements does not properly describe an element of the theoretical framework of auditing? A. The data to be audited can be verified. B. Short-term conflicts may exist between the managers who prepare the data and the auditors who examine them. C. Auditors act on behalf of management. D. An audit benefits the public. 3. An audit of financial statements is conducted in order to determine if the A. organization is operation efficiently and effectively. B. auditee is following specific procedures or rules set down by some higher authority. C. overall financial statements are stated in accordance with specified criteria. D. client entity prescribes a good internal control system. 4. Which of the following does not describe a condition that creates a demand for auditing? A. Conflict between an information provider 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. 5. Why does a company choose to have an independent auditor report on its financial statements? A. Independent auditors will always detect management fraud. B. The company‘s management preparing the statements may have a vested interest in reporting certain results. C. Independent auditors guarantee the accuracy of the financial statements. D. An independent audit is designed to search for deficiencies in the company‘s internal control. 6. Which of the following criteria is unique to the independent auditor‘s attest function? A. General competence B. Familiarity with the particular industry in which each client operates C. Due professional care D. Independence 7. Which of the following best describes the main reason why the independent auditor‘s report on an entity‘s financial statements? A. A management fraud may exist, and it is likely to be detected by independent auditors. B. The management that prepares the statements and the persons who use the statements may have conflicting interests. C. Misstated account balances may be corrected as a result of an independent audit work. D. The management that prepares the statements may have overlooked a poorly designed system of internal control. 8. Information risk refers to the risk that A. the client‘s financial statements may be materially false and misleading. B. the auditor may express an unqualified opinion on financial statements that are materially misstated. C. the client entity may not be able to remain in business. D. errors and frauds would not be detected by the auditor‘s procedures. 9. Which of the following is responsible for an entity‘s financial statements? A. The entity‘s management B. The entity‘s audit committee C. The entity‘s internal auditors D. The entity‘s board of directors 10. A typical objective of an operational audit for the auditor to A. determine whether the financial statements fairly present the client entity‘s operations. B. evaluate the feasibility of attaining the client entity‘s operational objectives. C. make recommendations to client for improving its performance. D. report on the entity‘s relative success in maximizing its profits. 11. Which of the following types of audit is performed in order to determine whether an entity‘s financial statements are fairly stated, in all material respects in conformity with the generally accepted accounting principles? A. Operational audit B. Financial statement audit C. Compliance audit D. Performance audit 12. An independent audit is important to the readers of financial statements because it A. provides a measure of management‘s stewardship function. B. measures and communicates the financial data included in the financial statements. C. objectively examines and reports on management‘s financial statements. D. reports on the accuracy of information in the financial statements. 13. Which of the following types of audit uses laws and regulations as its criteria? A. Operational audit B. Financial statements audit C. Compliance audit D. Financial audit 14. Which of the following types of auditing is performed most commonly by CPAs on a contractual basis? A. Internal auditing B. Government auditing C. BSP bank audit D. External auditing 15. The primary goal of the CPA in performing the attest function is to A. detect fraud. B. examine individual transactions that the auditor may certify as to their validity. C. determine whether the client‘s assertions as embodied in the financial statements are fairly stated. D. assure the consistent application of correct accounting procedures. 16. An independent audit goal aids in the communication of economic data because the audit A. confirms the accuracy of management‘s financial representation. B. lends credibility to financial statements. C. guarantees that financial data are fairly presented. D. assures the readers of financial statements that any fraudulent activity has been detected and its effect has been corrected. 17. Which of the following best describes the attest process? A. Providing accuracy of the books and records. B. Gathering sufficient evidence about specific and known assertions. C. Assisting management in the successful operations of the company. D. Assembling and filing tax returns and related supplemental information. 18. The assumption underlying an audit of financial statements is that they will be used by A. the regulatory agencies to verify information that is relevant to their supervisory functions. B. the board of directors as basis of detecting cash dividends. C. the general public in making investment decisions. D. different groups for different purposes. 19. Which of the following is an example of an assertion made by the management in an entity‘s financial statements? A. The financial statements are prepared in an unbiased manner. B. The reported inventory balances reflect all related transactions for the period. C. The reported accounts receivable do not include any uncollectible accounts. D. The scope of the auditor‘s investigation is not limited in any way by management. 20. A CPA certificate is an evidence of A. recognition of independence. B. basic competence at the time the certificate is granted. C. culmination of the education process. D. membership in the PICPA. 21. An audit can have a significant effect on A. information risk. B. business risk. C. the risk-free interest rate. D. all of these. 22. Which of the following is a cause of information risk? A. voluminous data. B. biases and motives of the provider of information. C. remoteness of the provider of the information. D. each of these is a cause of information risk. 23. The main way(s) to reduce information risk is to have A. the user verify the information. B. the user share the information risk with management. C. audited financial statements provided. D. all of these. 24. The predominant type of attestation service performed by CPAs is A. audit. B. review. C. compilation. D. management consulting. 25. Upon completion of a typical audit, the auditor has A. total assurance that all material errors and irregularities have been found. B. high level of assurance that all material errors and irregularities have been found. C. a low level of assurance that all material errors and irregularities have been found. D. no assurance that all material errors and irregularities have been found. 26. The single feature that most clearly distinguishes auditing, attestation, and assurance is the A. type of service being rendered. B. training required to perform the service. C. scope of services. D. CPA‘s approach to the service. 27. Which of the following attributes is more closely associated with assurance services performed by a CPA firm than with other lines of professional work? A. Integrity B. Competence C. Independence D. Keeping informed on current professional developments. 28. An investor, while recording the financial statements of Silver Corporation, learned that the statements are accompanied by an unqualified auditor‘s report. From this the investor may conclude that: A. Any disputes over significant accounting issues have been settled to the auditor‘s satisfaction. B. The auditor is satisfied that Silver‘s operationally efficient. C. Informative disclosures in the financial statements but not necessarily in the notes to financial statements are to be regarded as reasonably adequate. D. The auditor has ascertained that Silver‘s financial statements have been prepared accurately. 29. A CPA should maintain objectively and be free of conflicts of interest when performing: A. Audits, but not any other professional services B. All attestation services, but not other professional services C. All attestation and tax services, but not other professional services D. All professional services 30. A summary of findings rather than assurance is most likely to be issued n which engagement? A. Agreed-upon B. Compilation C. Examination D. Review 31. Which of the following professional has primary responsibility for the performance of an audit? A. The managing partner of the firm B. The senior assigned t the engagement C. The manager assigned to the engagement D. The partner in charge of the engagement 32. Which of the following services provides the highest level of assurance to third parties about a company‘s financial statements? A. Audit B. Review C. Compilation D. Each of the above provides the same level of assurance 33. The most common type of audit report contains a(n): A. Adverse opinion B. Disclaimer of opinion C. Qualified opinion D. Unqualified opinion 34. The auditor‘s judgment concerning the overall fairness of presentation of financial position, results of operation, and changes in cash flow is applied within the framework of A. Quality control B. Generally accepted auditing standards which include concept of materiality C. The auditor‘s evaluation of the audited company‘s internal control D. Philippine Financial Reporting Standards 35. In ―auditing‖ accounting data, the auditor is concerned with A. determining whether recorded information properly reflects the economic events that occurred during the accounting period. B. determining if fraud as occurred. C. determining if taxable income has been calculated correctly. D. analyzing the financial information to be sure that it complied with government requirement. 36. In all cases, audit reports must A. be signed by the individual who performed that audit procedures. B. certify the accuracy of the quantitative information which was audited. C. inform readers of the degree of correspondence between the quantifiable information and the established criteria. D. communicate the auditor‘s findings to the general public. 37. Which one of the following is an example of management expectations from the independent auditor? A. An expert providing a written communication as the product of the engagement. B. Individuals who perform day-to-day accounting functions on behalf of the company. C. An active participant in management decision-making. D. An individual source of expertise on financial and other matters. 38. When providing consulting services, the CPA acts primarily as a(n): A. independent accountant. B. expert on compliance with industry standards. C. technology specialist. D. objective advisor on how to use the information. 39. In performing attestation services, a CPA will normally: A. improve the quality of information, or its context, for better use of the decision makers B. recommend how to use the information. C. perform market analysis and cost estimates. D. states a conclusion about a written assertion. 40. Which of the following best describes an operational audit? A. It requires a constant review of the administrative controls by internal auditors as they relate to operations of the company. B. It concentrates on implementing financial and accounting control in a newly organized company. C. It attempts of verifying the fair presentation of a company‘s results of operations. D. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls. 41. Evidence is defined as any information used by the auditor to determine whether the quantifiable information being audited is stated in accordance with the established criteria. Evidence takes many different forms, including A. oral representation (testimony) from the client management. B. written communication (confirmation) with outsiders. C. observations made by the auditor. D. all of these. 42. Because the client company pays the external auditor a professional fee, he A. is absolutely independent and may conduct an audit. B. may be sufficiently independent to conduct an audit. C. is never considered to be independent. D. must receive approval of the Securities and Exchange Commission before conducting an audit. 43. A typical objective of an operational audit is to determine whether an entity‘s A. financial statements fairly present financial position and cash flows. B. financial statements present fairly the results of operations. C. financial statements fairly present financial position, results of operations, and cash flows. D. specific operating units are functioning efficiently and effectively. 44. 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. 45. An audit which is undertaken in order to determine whether the auditee is following specific procedures or rules laid down by somme higher authority is classified as a(n) A. audit of financial statements. B. compliance audit. C. operational audit. D. production audit. 46. Assurance services involve which of the following? A. Relevance as well as reliability. B. Non-financial information as well as traditional financial statements. C. Electronic databases as well as printed reports. D. All of these. 47. Which of the following is a difference between attestation and auditing standards? A. Attestation standards cover attest engagements other than those involving GAAP financial statement. B. Attestation standards do not require independence in mental attitude. C. Auditing standards apply only to CPAs while attestation standards apply to all accountants. D. Attestation standards do not include standards of reporting. 48. Which of the following pertains to the reliability of audit evidence? A. The independence of the source of evidence. B. The expertise level of the auditor who obtains the evidence. C. Whether the audit client uses a manual or computerized accounting system. D. The quantity of the evidence obtained. 49. The audit committee of the board of directors of a company is responsible for: A. hiring the auditor. B. preparing the financial statements. C. the audit workpapers. D. independence and obtaining evidence. 50. Which of the following statements is true concerning a compliance audit? A. Compliance audits are only performed by government auditors. B. Risks such as inherent risk, control risk, and detection risk are not appropriate in planning and performance of a compliance audit. C. Materiality is difficult to measure in a compliance audit. D. A report on compliance can only include negative assurance. 51. Audits of financial statements include an expression of a conclusion about which of the following financial statement characteristics? A. Governance B. Reliability C. Relevance D. Timeliness 52. A review of company‘s financial statements by a CPA firm: A. is significantly less in scope than an audit and results in a report which provides positive assurance, although not absolute assurance. B. is similar in scope to an audit and adds similar credibility to the statements. C. concludes with the issuance of a report expressing the CPA‘s opinion as to the fairness of the statements. D. is designed to provide only limited or moderate assurance. 53. The attest function: A. is an essential part of every engagement performed by a CPA. B. require a complete review of all transactions during the period under examination. C. requires a review of all transactions during the period under examination. D. includes the preparation of a written report about the CPA‘s conclusion. 54. Broadly defined, the subject matter of any audit consists of A. assertions. B. operating data. C. financial statements. D. economic data. 55. The expertise that distinguishes auditors from accountants is in terms of the A. ability to interpret generally accepted accounting principles. B. requirement to possess education beyond the Bachelor‘s degree. C. accumulation and interpretation of evidence. D. ability to interpret accounting standards. 56. Most of the independent auditor‘s work in formulating an opinion on financial statements consists of A. studying and evaluating internal control. B. obtaining and examining evidential matter. C. examining cash transactions. D. comparing recorder accountability with physical existence of property. 57. Attestation risk is limited to a low level in which of the following engagement(s)? A. Both examination and review B. Examination but not review C. Review but not examination D. Neither examination nor review 58. An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is referred to as a(n): a. Peer review engagement b. Quality control engagement c. Quality assurance engagement d. Attestation engagement 59. The review of a company‘s financial statements by a CPA firm A. is substantially less in scope of procedures than an audit. B. requires detailed analysis of major accounts. C. has similar scope as an audit and adds similar credibility to the statements. D. culminates in issuance of a report expressing the CPA‘s opinion as to the fairness of the statements. 60. The risk associated with a company‘s survival and profitability is referred to as: A. Business risk B. Information risk C. Detection risk D. Control risk 61. An operational audit differs in many ways from an audit of financial statements. Which of the following is the best example of these differences? A. The unusual audit financial statement covers the four basic financial statements whereas the operational audit is usually limited either the balance sheet or the income statement. B. The boundaries of an operation audit are often drawn from an organization chart and are not limited to a single accounting period. C. Operation audits do not ordinarily result in preparation of a report. D. The operational audit deals with operating profit while financial audit considers both the operating and net profits. 62. The audit of historical financial statements should be conducted by the CPA professionals in accordance with A. Philippine Financial Reporting Standards B. Philippine Standards on Auditing C. The auditor‘s judgment D. The audit program 63. Whenever a CPA professional is engaged to perform an audit of financial statements according to Philippine Standards on Auditing, he is required to comply with those standards in order to A. eliminate audit risk. B. eliminate the professional judgment in resolving audit issues. C. have a measure of the quality of audit performance. D. to reduce the audit program to be prepared by the auditor. 64. What is the overall objective of internal auditing? A. To attest to the efficiency with which resources used. B. Ascertain that the cost of internal control is justified. C. To ascertain that financial statements present accurately the financial position, operating results, and changes in cash and stockholders‘ equity. D. To help other members of the organization of effectively discharging their responsibilities. 65. In determining the primary responsibility of external auditor for an audit if a company‘s financial statements, the auditor owes primarily allegiance to: A. the management of the audit client because the auditor is hired and paid by management. B. the audit committee to the audit client because that committee is responsible for coordinating and reviewing all audit objectives within the company. C. stockholders, creditors, and the investing public. D. the Auditing and Assurance Standards Council, because it determines auditing standards and auditor‘s responsibility. 66. Which of the following would not represent one of the primary problems that would lead the users to demand for independent audits of a company‘s financial statements? A. Management bias in preparing financial statements. B. The downsizing of business and financial markets. C. The complexity of transactions affecting financial statements. D. The remoteness of the user from the organization and thus the inability of the user to directly obtain financial information from the company. 67. Assurance services involve all the following except: A. Improving the quality of information for decision purposes. B. Improving the quality of the decision model used. C. Improving the relevance of information. D. Implementing a system that improves the processing of information. 68. Which of the following is the broadest and most inclusive concept? A. Audits of financial statements B. Internal control audit C. Assurance services D. Compilation services 69. Which of the following is a correct statement? A. An audit provides limited assurance by attesting to the fairness of the client‘s assertions. B. A review provides positive assurance by attesting the reliability of the client‘s assertions. C. Management consulting services provide attestation in all cases. D. Accounting services do not provide attestation. 70. Unlike consulting services, assurance services: A. Make recommendation to management B. Report on how to use information C. Report on the quality of information D. Are two-party contracts 71. Financial statement audits: A. Reduce the cost of capital B. Report on compliance with laws and regulations C. Assess management‘s efficiency D. Overlook information risk 72. A summary of findings rather than assurance is most likely to be included in a(n): A. Agreed-upon procedures report B. Compilation report C. Examination report D. Review report 73. The risk associated with a company‘s survival and profitability is referred to as: A. Business risk B. Information risk C. Detection risk D. Control risk 74. An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is referred to as a(n): A. Peer review engagement B. Quality control engagement C. Quality assurance engagement D. Attestation engagement 75. Attestation risk is limited to a low level in which of the following engagement(s)? A. Both examination and reviews B. Examination but not reviews C. Review but not examinations D. Neither examination nor reviews 76. An operational audit differs in many ways from an audit of financial statements. Which of the following is the best example of these differences? A. The unusual audit financial statement covers the four basic financial statements whereas the operational audit is usually limited either the balance sheet or the income statement. B. The boundaries of an operation audit are often drawn from an organization chart and are not limited to a single accounting period. C. Operation audits do not ordinarily result in preparation of a report. D. The operational audit deals with pre-tax income. 77. The review of a company‘s financial statements by a CPA firm A. is substantially less in scope of procedures than an audit. B. requires detailed analysis of major accounts. C. is of similar scope as an audit and adds similar credibility to the statements. D. culminates in issuance of a report expressing the CPA‘s opinion as to the fairness of the statements. 78. When performing an engagement to review a nonpublic entity‘s financial statements, an accountant most likely would: A. Obtain an understanding of the entity‘s internal control. B. Limit the distribution of the accountant‘s report. C. Confirm a sample of significant accounts receivable balances. D. Ask about actions taken a board of directors meetings. 79. Which of the following professionals has primary responsibility for the performance of an audit? A. The managing partner of the firm B. The senior assigned to the engagement C. The manager assigned to the engagement D. The partner in charge of the engagement 80. Assurance services may include which of the following? A. Attesting to financial statements B. Examination of the economy and efficiency if governmental operations C. Evaluation of a division‘s performance for management D. All of the given choices 81. The auditor of financial statements must make very difficult interpretations regarding authoritative literature. Additionally, the auditor must A. Proceed beyond PFRS to assess how the economic activity is portrayed in the financial statements. B. Force management to make certain decisions regarding their financial statements. C. Disregard independence in order to find the underlying truth of the evidence. D. Establish new criteria by which financial statements may be compared. 82. Which one of the following is not a part of the attest process? A. Gathering evidence about assertions B. Providing the accuracy of the books and records C. Evaluating evidence against objective criteria D. Communicating the conclusions reached 83. Which one of the following is not a reason why the users of financial statements desire for an independent assessment of the financial statement presentation? A. Complexity f transactions affecting the financial statements B. Lack of criteria on which to base information C. Remoteness of the user from the organization D. All of them are potential reasons 84. Independent professional services that are provided on financial or other information that improve the quality of decision making are known as A. Internal auditing B. Financial auditing C. Assurance services D. Attestation services 85. An audit which determines whether organizational policies are being followed nd whether external mandates are being met is known as A. A financial audit B. A compliance audit C. An operational audit D. None of the above 86. Which of the following statements is correct regarding a review engagement if a nonpublic entity? A. An accountant must establish an understanding with the client in an engagement letter. B. An accountant must obtain an understanding if the client‘s internal control when performing a review. C. A review provides an accountant with a basis for expressing limited assurance on the financial statements. D. A review report contains an accountant‘s opinion that the financial statements, taken as a whole, present fairly the assertions issued by the management. 87. May a CPA hire for the CPA‘s public accounting firm a non CPA system analyst who specializes in developing computer systems? A. Yes, provided the CPA is qualified to perform each of the specialist‘s tasks. B. Yes, provided the CPA is able to supervise the specialist and evaluate the specialist‘s end product. C. No, because non CPA professionals are not permitted to be associated with CPA firms in public practice. D. No, because developing computer systems is not recognized as a service performed by public accountants. 88. Which of the following services may a CPA perform in carrying out a consulting service for client? I. Analysis of the client‘s accounting system II. Review of the client‘s proposed business plan III. Preparation of information for obtaining financing A. I and II only B. I and III only C. II and III only D. I, II, and III 89. Which of the following describes how the objective of a review of financial statements differs from the objective of a compilation engagement? A. The primary objective of a review engagement is to test the completeness of the financial statements prepared, but a compilation tests for reasonableness. B. The primary objective of a review engagement is to provide positive assurance that the financial statements are fairly presented, but a compilation provides no such assurance. C. In a review engagement, accountants provide limited assurance, but a compilation expresses no assurance. D. In a review engagement, accountants provide reasonable or positive assurance that the financial statements are fairly presented, but a compilation provides limited assurance. 90. Which of the following factors most likely would cause a CPA to decline a new audit engagement? A. The CPA does not understand the entity‘s operations and industry. B. Management acknowledges that the entity has had recurring operating losses. C. The CPA is unable to review he predecessor auditor‘s working papers. D. Management is unwilling to permit inquiry of its legal counsel. MODULE 2 AUDITING STANDARDS 1. As guidance measuring the quality of the performance of an auditor, the auditor should refer to A. Statements of Financial Accounting Standards Board B. Philippine Standards on Auditing C. Interpretations of Rules of Conduct. D. Statement on Quality Control Standards. 2. Generally Accepted Auditing Standards (GAAS) and Philippine Standards on Auditing (PSA) should be looked upon by practitioners as A. ideals to work for, but which are not achievable. B. maximum standards which denote excellent work C. minimum standards of performance which must be achieved on each audit engagement. D. benchmarks to be used on all audits, reviews, and compilations. 3. The auditor‘s responsibility for the detection of client's noncompliance with laws and regulation is A. Greater than for errors or fraud. B. Less than for errors or fraud. C. Restricted to information that comes to his attention. D. The same as it is for errors or fraud. 4. Reasonable assurance means: A. Gathering of all available corroborating evidence for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole. B. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements, taken as a whole, are free from misstatements. C. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements are free of material unintentional misstatements. D. Gathering of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole. 5. Required auditor communication to the Audit Committee concerning noncompliance with laws and regulations that were detected includes: A. All material items. B. All those which are not adequately addressed by management. C. All those that constitute management fraud. D. Any of such acts. 6. An auditor who accepts an audit engagement but does not possess the industry expertise of the business entity should A. Engage financial experts familiar with the nature of the business entity. B. Obtain a knowledge of matters that relates to the nature of the entity's business. C. Refer a substantial portion of the audit to another CPA who will act as the principal auditor D. First inform the Client management that on unqualified opinion cannot be issued. 7. Auditors focus on A. areas where the risk of material errors and irregularities is least B. areas where the risk of material errors and irregularities is greatest C. all areas equally D. a random selection of all areas. 8. The decision as to how much evidence to be accumulated for a given set of circumstance is. A. provided by following the generally accepted accounting principles. B. one requiring professional judgment C. determined by statistical analysis D. provided in the Philippine Standards on Auditing. 9. Which of the following statements best describes the primary purpose of Philippine Standards of Auditing? A. They are guides intended to set forth auditing procedures that are applicable to a variety of situations. B. They are procedural outlines which are intended to narrow down the areas of inconsistency and divergence of auditor‘s opinion. C. They are authoritative statements, enforced through the Code of Professional Conduct, that are intended to limit the degree of auditor's judgment. D. They are interpretations which are intended clarify the meaning of "generally accepted auditing standards.‖ 10. An auditor need not abide by, a Philippines Standard on Auditing 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. 11. Auditing standards are A. statutory in nature B. rules imposed by the securities exchange commission C. rules imposed by the picpa D. general guidelines to help the auditors. 12. Though PSAs do not provide ―hard and fast rules‖ they provide subjective guidance which allow the auditors to: A. Tailor their audit to procedures requested by management B. Only apply those standards that are important to the audit C. Accurately interpret the profession‘s Code of Professional Conduct. D. Use adequate professional judgment when applying the standards. 13. Every independent audit engagement involves both auditing standards and auditing procedures. The relationship between the two may be illustrated by how they apply from management to engagement. The best representation of this application is that, from one audit engagement to the next. A. Both auditing standards and auditing procedures are applied uniformly B. Auditing standards are applied uniformly, but auditing procedures may vary. C. Auditing standards may vary but auditing procedures are applied uniformly. D. Auditing standards are applied uniformly, but auditing procedures are optional. 14. Philippine Financial Reporting Standards (PFRS] are distinguished from generally accepted auditing standards (GAAS) is that: A. PFRS are the principles for presentation of financial statements and underlying transactions, while GAAS are the standards that the auditors should follow when conducting an audit. B. PFRS are the principles auditors follow when conducting an audit, while GAAS are the standards for presentation of financial statements and underlying transactions. C. PFRS are promulgated by the SEC, while GAAS are promulgated by the FRSC D. When PFRS are violated sufficiently strong GAAS may make up for most PFRS deficiencies 15. The Philippine Standards on Auditing issued by the Auditing and Assurance Standards Council (AASC). A. are interpretations of generally accepted auditing standards B. are the equivalent of laws for audit practitioners. C. must be followed in all situations. D. are optional guidelines which an auditor may choose not to follow when conducting an audit. 16. Competence as a certified public accountants includes all of the following except A. Having the technical qualifications to perform an engagement. B. Possessing the ability to supervise and evaluate the quality of staff work. C. Warranting the infallibility of the work performed. D. Consulting others if additional technical information is needed. 17. In any case in which the incoming accountant is not qualified to perform the work, a professional obligation exists to A. Acquire the required level of knowledge and skills. B. Recommend someone else who is qualified to perform the work. C. Decline the engagement. D. Any of the given choices. 18. Ultimately, the decision about whether or not an auditor is independent must be made by the A. auditor B. audit committee C. client D. public 19. To be independent, the auditor: A. cannot place any reliance on the client's verbal and written assertion B. is responsible only to third-party users of the financial statements. C. cannot perform any other professional services for an audit client D. must be impartial when dealing with the client 20. What is the meaning of the generally accepted auditing standard that requires that the auditor the auditor be independent? A. the auditor must be without bias with respect to the client entity. B. the auditor must adopt a critical attitude during the audit. C. the auditor‘s sole obligation is to third parties. D. the auditor may have a direct ownership in the client‘s business if it is not material. 21. A CPA, while performing on audit, strives to achieve independence in appearance in order to A. Reduce risk and liability. B. Comply with the generally accepted standards of field work. C. Become independent in fact. D. Maintain public confidence in the profession. 22. Which of the following best describes why publicly-traded corporations follow the practice of having the outside auditor appointed by the board of directors or elected by the stockholders? A. To comply with the regulations of the Financial Reporting Standards Council. B. To emphasize the auditor‘s independence from the management of the client entity. C. To encourage a policy of rotation of the independent auditor. D. To provide the corporate owners with an opportunity to voice their opinion concerning the quality of the auditing firm selected by the directors. 23. Practitioner's independence: A. minimizes risk. B. helps achieve public confidence C. defends against professional liability D. achieves compliance with the standards of fieldwork 24. If the client refuses to accept an audit report that is qualified due to a known existence of noncompliance to laws and regulation, the auditor should: A. Issue on adverse opinion if management agrees lo fully disclose the matter B. Withdraw from the engagement and communicate the reasons to the audit committee in willing C. Withdraw from the engagement and communicate the reasons to the Securities and Exchange Commission or other regulatory body in writing. D. Issue an unqualified opinion if management agrees to fully disclose the matter. 25. Which of the following is not required by the Generally Accepted Auditing Standard that states that due professional care is to be exercised in the performance of the audit? A. Observance of the standards of field work and reporting. B. Critical review of the audit work performed at every level of supervision. C. Degree of skill commonly possessed by others in the profession. D. Responsibility for losses because of errors of judgment. 26. The standard of due audit care requires the auditor to A. Apply judgment in a conscientious manner, carefully weighing the relevant factors before reaching a decision. B. Ensure that the financial statements are free from error C. Make perfect judgment decision in all cases. D. Possess skills clearly above the average for the profession. 27. Which of the following mostly describes the function of AASC? A. To promulgate auditing standards practice and procedures that shall be generally accepted by the accounting profession in the Philippines. B. To monitor full compliance by all auditors to PSAs. C. To assist the Board of Accountancy in conducting administrative proceedings on erring CPAs in audit practice. D. To undertake continuing research on both auditing and financial accounting in order to make them responsive to the needs of the public. 28. The exercise of due professional care requires that an auditor A. Examine all available corroborating evidence B. Critically review the judgment exercised at every level of supervision. C. Reduce control risk below the maximum. D. Attain the proper balance of professional experience and formal education. 29. Which of the following best describes the reference to the expression ―taken as a whole‖ in the fourth generally accepted auditing standard of reporting? A. It applies only to a complete set of financial statements. B. It applies equally to each item in each financial statement. C. It applies equally to each material item in each financial statement. D. It applies equally to a complete set of financial statements and to each individual financial statement. 30. Philippine Standards on Auditing issued by AASC A. apply to independent examination of financial statements of any entity when such an examination is conducted for the purpose of expressing an opinion. B. must not apply to other related activities of auditors. C. need not to be applied on all audit-related engagements. D. require that in no circumstances would an auditor may judge it necessary to depart from a psa, even though such a departure may result to more effective achievement of the objective of an audit. 31. Which of the following is required by the Generally Accepted Auditing Standard that states that du professional care is to be exercised in the performance of an audit? A. Observance of the standards of fieldwork and reporting B. Critical review of the audit work performed of every level of supervision. C. Degree of skill commonly possessed by others in the profession. D. Responsibility for losses because of errors of judgment. 32. A CPA who has been retained by a client that operates in an industry that is totally new to him. A. May not accept such engagement. B. May accept the engagement only if the accounting firm specializes in the audit of commercial banks. C. May accept the engagement after attaining a suitable level of understanding of the transactions and accounting practices unique to commercial banking. D. May accept the engagement because his training as a CPA transcends unique industry characteristics. 33. Which of the following is the best statement concerning the concept of materiality? A. materiality is determined by reference to PSA matrix. B. materiality depends only on the peso amounts involves. C. materiality depends on the nature of an item rather than on the peso amount. D. materiality is o matter of professional judgment. 34. The first standard of field work, which states that the work is to be adequately planned and assistants, if any, are to be properly supervised, recognizes that A. Early appointment of the auditor is advantageous, both to the auditor and to the client. B. Acceptance of an audit engagement after the close of the client‘s fiscal year is generally not permissible. C. Appointment of the auditor subsequent to the physical count of inventories requires a disclaimer of opinion D. Performance of substantial parts of the engagement is necessary at interim dates 35. Which of the following underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting? A. Elements of materiality and risk B. Element of corroborating evidence C. Element of internal control D. Element of reasonable assurance 36. Which of the following is not an attestation‘s standard? A. The engagement shall be performed by a practitioner having adequate knowledge in the subject matter of the assertion. B. Sufficient evidence stroll be obtained to provide a reasonable basis for the conclusion that is expressed in the report. C. The work shall be adequately planned, assistants, if any, shall be properly supervised. D. The report shall state whether the financial statements are presented in accordance with generally accepted accounting principles. 37. Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards? A. The attestation standards provide a framework for the attest function beyond historical financial statements. B. The requirement that the practitioner be independent in mental attitude is omitted from the attestation standard C. The attestation standards do not permit an attest engagement to be part of a business acquisition study or a feasibility study D. None of the standards of fieldwork in generally accepted auditing standards are included in the attestation standards. 38. The auditor‘s judgment concerning the overall fairness of the presentation of financial position, results of operations, and changes in financial position is applied within the framework of A. Philippine Financial Reporting Standards B. Generally accepted auditing standards C. Internal Control D. Information systems control 39. The auditor communicates the results of his or her work through the issuance of: A. Engagement letter B. Management letter C. Audit report D. Financial statements 40. The four major steps in conducting an audit are: I. Testing internal control II. Audit report III. Planning IV. Testing transactions and balances The proper sequence in applying the above steps is: A. III, I, IV, II B. III, IV, I, II C. II, III, IV, I D. I, IV, III, II MODULE 3 PROFESSIONAL AND LEGAL RESPONSIBILITY PSA BASED QUESTIONS 1. The revised Code of Ethics is mandatory for all CPAs and is applicable to professional services performed in the Philippines on or: A. Before June 30, 2008 B. After June 30, 2008 C. Before January 1, 2008 D. After January 1, 2008 2. Which of the following is not explicitly referred to in the Code of Ethics as source of technical standards? A. Commission on Audit (COA) B. Auditing and Assurance Standards Council (AASC) C. Securities and Exchange Commission (SEC) D. Relevant legislation 3. Immediate family includes: A. Parent B. Sibling C. Non-dependent child D. Spouse 4. Close family includes the following except: A. Parent B. Sibling C. Non-dependent child D. Spouse 5. Firm includes the following except A. A sole practicing professional accountant. B. An entity that controls a partnership of professional accountants. C. An entity controlled by a partnership of professional accountants. D. A sole practitioner, partnership or corporation of professional accountants. 6. Existing accountant, as defined in the Code of Ethics, means: A. A professional accountant employed un industry, commerce, the public sector or education. B. A professional accountant in public practice currently holding an audit appointment or carrying out accounting taxation, consulting or similar professional services for a client. C. Those persons who hold a valid certificate issued by the Board of Accountancy D. A sole proprietor or each partner or person occupying a position similar to that of a partner and each staff in a practice providing professional services to a client irrespective of their functional classification (e.g. audit, tax or consulting) and professional accountants in a practice having managerial responsibilities. 7. The term professional accountant in public practice includes the following except: A. A sole proprietor providing professional services to a client. B. Each partner or person occupying a position similar to that of a partner staff in a practice providing professional services to a client. C. Professional accountants employed in the public sector having managerial responsibilities. D. A firm of professional accountants in public practice. 8. The term receiving accountant includes the following except: A. A professional accountant in public practice to whom the existing has referred tax engagement. B. A professional accountant in public practice to whom the client of the existing accountant has referred audit engagement. C. A professional accountant in public practice who is consulted in order to meet the needs of the client. D. A professional accountant in public practice currently holding an audit appointment or carrying out accounting, taxation, consulting or similar professional services for a client. 9. Related entity is an entity that has any of the following relationships with the client, except: A. An entity that has direct or indirect control over the client provided that the client is material to such entity. B. An entity with a direct financial interest in the client even though such entity has no significant influence over the client provided the interest in the client is material to such entity. C. An entity over which the client has direct or indirect control. D. An entity which is under common control with the client (referred to as a ―sister entity‖) provided the sister entity and the client are both material to the entity that controls both the client and sister entity. 10. A primary purpose for establishing a code of ethics within a professional organization is to: A. Demonstrate the acceptance of responsibility to the interest of those served by the profession. B. Reduce the likelihood that members of the profession will be sued for substandard work. C. Ensure that all members of the profession posses approximately the same level of competence. D. Require the members of profession to exhibit loyalty in all matters pertaining to the affairs of the organization. 11. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines? A. Professional accountants refer to persons who are registered in the PRC AS Certified Public Accountants (CPA) and who hold a valid certificate issued by the Board of Accountancy. B. Where a national statutory requirement is in conflict with a provision of the IFAC Code, the IFAC Code requirement prevails. C. The Code of Ethics for Professional Accountants in the Philippines is mandatory for all CPAs and is applicable to professional services performed in the Philippines on or after June 30, 2008. D. Professional accountants should consider the ethical requirements as the basic principles, which they should follow in performing their work. 12. The communication to the public of facts about a professional accountant, which are not designed for the deliberate promotion of that professional accountant. A. Publicity B. Indirect Promotion C. Advertising D. Solicitation 13. Advertising, as defined in the Code of Ethics, means A. The communication to the public of facts about a professional accountant which are not designed for the deliberate promotion of that professional accountant. B. The approach to a potential client for the purpose of offering professional services. C. The communication to the public of information as to the services or skills provided by professional accountants in public practice with a view to procuring professional business. D. Any of the given choices. 14. The following bodies develop and or issue technical and professional standards for implementation: I. Board of Accountancy II. II. National Economic Development Authority III. Financial Reporting Standards Council IV. Securities and Exchange Commission V. Auditing and Assurance Standards Council VI. Cooperative Commission of the Philippines According to the revised code of ethics for CPAs, which of the foregoing are sources of technical and professional standards in the Philippines? A. I, III, IV, V B. I, III, IV, V, VI C. I, III, IV D. All of them 15. The attainment of professional competence can be fulfilled by a combination of: I. Period of work experience II. High standard for professional education III. High standard of general education IV. Training and examination in professionally relevant subjects What should be the logical pattern of the foregoing development for a professional accountant? A. III, II, IV, I B. III, I, II, IV C. II, III, IV, I D. II, III, I, IV 16. Which of the following is least likely the basis of determining audit fees? A. The skill and knowledge required for the type of work involved. B. The degree of responsibility ad urgency that the work entails. C. The expected outcome of the engagement. D. The required level of training and experience of the persons engaged on the work. 17. Which of the following is not allowed by the revised code of ethics? A. A professional accountant in public practice may issue to client or, in response to an unsolicited request, to a non-client a factual and objectively worded of the services provided. B. Booklets and other documents bearing the name of a professional and giving technical information for the assistance of staff or clients may be issued to such persons, or other professional accountants or other interested parties. C. The use of the name of an international accounting firm affiliation/ correspondence is generally allowed. D. A firm or CPA practitioner can continue to use the term ―Accredited‖ or any similar words or phrase calculated to convey the same meaning if the claimed accreditation has not expired. 18. How frequent can a professional accountants have press and other media releases commemorating their anniversaries in public practice by informing the public of their achievements or accomplishments in contributing toward nation building or enhancing the image r standards of the accounting profession? A. 2 years B. 3 years C. 5 years D. 6 years 19. Which of the following is not allowed to be included in a website of a firm of professional accountants? A. Names of partners/ principals with their educational attainment. B. Membership in any professional body. C. Awards received D. Listing of the firm‘s clients. 20. In their fiduciary role, the professional accountants owe their primary loyalty to: A. The accounting profession B. The general public C. The client D. Government regulatory agencies 21. Which of the following is a distinguishing mark of the accountancy profession? A. A drive to excellence B. Acceptance of the responsibility to act in the public interest C. Professional objectivity D. Professional skepticism 22. Which statement is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines? A. The objectives as well as the fundamental principles are of a general nature and are not intended to be used to solve a professional accountant‘s ethical problems in a specific case. B. The code is divided in two parts, part A and part B. C. Part A applies to all professional accountants unless otherwise specified. D. Part B applies only to those professional accountants in public practice. 23. A professional accountant should comply with relevant laws and regulations and should avoid any action that discredits the profession. This is a fundamental principle of: A. Objectivity B. Professional competence and due care C. Professional behavior D. Integrity 24. The IFAC Code of Professional Conduct will ordinarily be considered to have been violated when the member represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the A. Actual fee would be substantially higher. B. Actual fee would be substantially lower than the fees charged by other members for comparable services. C. Fee was a competitive bid. D. Member would not be independent. 25. Which of the following is not one of the fundamental principles of ethical conduct for professional accountants? A. Integrity B. Confidentiality C. Loyalty D. Professional competence and due care 26. To what fundamental principle does the following statement best fit? A professional accountant is likened to a prudent father to his son. A. Professional competence and due care B. Confidentiality C. Integrity D. Objectivity 27. Which fundamental principle is seriously threatened by an engagement that is compensated based on the net proceeds on loans received by the client from a commercial bank? A. Objectivity B. Professional behavior C. Confidentiality D. Integrity 28. Which of the following is required to comply with the fundamental principle of professional competence and due care? A. A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional or business judgment. B. A professional accountant should act diligently and in accordance with technical and professional standards when providing professional services. C. A professional accountant should comply D. The accountant should observe fair dealings and truthfulness. 29. ―A professional accountant should be straight-forward and honest in all his professional and business relationships.‖ This description appropriately describes the fundamental principle of: A. Integrity B. Objectivity C. Confidentiality D. Professional Behavior 30. It is essential that uses of the audited financial statements regard CPA firms as A. Competent B. Unbiased C. Technically proficient D. All of the given choices 31. The Code of Professional Ethics states, in part, that a CPA should maintain integrity and objectivity. Objectivity refers to the CPA‘s ability to A. Determine accounting practices that were consistently applied B. Maintain an impartial attitude on all matters which come under his review C. Determine the materiality of items D. Insist on all matters regarding audit procedures 32. Which of the following values is not necessary for a professional accountant? A. Honesty B. Objectivity C. Integrity D. A primary commitment to self-interest 33. Which of the following is not a fundamental principle in codes of ethics for professional accountants? A. Act in the client‘s best interest B. Objectivity and independence C. Maintain the good reputation of the profession D. Maintain confidentiality 34. Which of the following statements about conceptual framework of the code of ethics is incorrect? A. A conceptual framework that requires a professional accountant to identify, evaluate and address threats to compliance with the fundamental principles, rather than merely with a set of specific rules which may be arbitrary is in the public interest. B. As a concern to public interests, the professional accountant should comply with a set of specific rules rather than arbitrarily identify, evaluate and address threats to compliance with fundamental principles. C. If identifies threats are other than clearly insignificant, a professional accountant should appropriately apply safeguards to eliminate the threats or reduce them to an acceptable level. D. The Code provides a framework to assist a professional accountant to identify, evaluate and respond to threats to compliance with the fundamental principles. 35. Which of the following is true of the conceptual framework approach? A. It is impossible to define every situation that creates specific threats and and specify the appropriate mitigating action. B. A professional accountant should take qualitative but not quantitative factors into account when considering the significance of a threat. C. A professional accountant should take quantitative but not qualitative factors into account when considering the significance of a threat. D. All inadvertent violations of the code of Ethics, irrespective of their nature and significance, always compromise compliance with the fundamental principles 36. Which of the following appropriately describes an advocacy threat? A. The professional accountant may be deterred from acting objectivity by threats, actual or perceived. B. Because of a close relationship, a professional accountant becomes too sympathetic to the interest of others. C. The professional accountant should provides a position or opinion to the point that subsequent objectivity may be compromised. D. The professional accountant needs to be reevaluate his previous judgment. 37. A threat that prevents the professional accountant from acting objectively by threats, actual or perceived. A. Self-interest B. Familiarity C. Intimidation D. Advocacy 38. A form of threat which may occur when a previous judgment needs to be reevaluated by the professional accountant who is responsible for that judgment. A. Self-interest threat B. Self-review threat C. Familiarity threat D. Advocacy threat 39. Advocacy threat may occur: A. As a result of the financial or other interests of a professional accountant or an immediate or close family member. B. When, because of a close relationship, a professional accountant becomes too sympathetic to the interests of others. C. When a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised. D. When a professional accountant may be deterred from acting objectively by threats, actual or perceived. 40. It occurs when a firm or member of the assurance team could benefit from a financial interest in, or other self-interest conflict with, an assurance client. A. Self-interest threat B. Self-review threat C. Advocacy threat D. Familiarity threat 41. A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has no control. A. Indirect financial interest B. Financial instrument C. Direct financial interest D. Clients‘ monies 42. Financial interest means: A. Any bank account which is sued solely for the banking of clients‘ monies. B. Any monies received by a professional accountant in public practice to be held or paid out on the instruction of the person from whom or on whose behalf they are received. C. A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has no control. D. An equity interest or other security, debenture, loan or other debt instrument of an entity, including rights and obligations to acquire such an interest and derivatives directly related to such interest. 43. Direct financial interest is a financial interest: A B C D  Owned directly by and under the control of an individual or entity (including those Yes Yes Yes No managed on a discretionary basis by other)  Beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the Yes Yes No No individual or entity has control  Benecially owned through a collective investment vehicle, estate, trust or other intermediary over which the Yes No No Yes individual or entity has no control 44. Occurs when any product or judgment of a previous assurance engagement or non- assurance engagement needs to be re-evaluated in reaching conclusions on the assurance engagement or when a member of the assurance team was previously a director or officer of the assurance client, or was an employee in a position to exert direct and significance influence over the subject matter of the assurance engagement. A. Self-interest threat B. Self-review threat C. Advocacy threat D. Familiarity threat 45. Intimidation threat A. is not a threat to independence. B. occurs when a member of the assurance team may be deterred from acting objectively and exercising professional skepticism by threat, actual or perceived, from the directors, officers or employees of an assurance client. C. occurs when, by virtue of a close relationship with an assurance client, its directors, officers or employees, a firm or a member of the assurance team becomes too sympathetic to the client‘s interests. D. occurs when a firm, or a member of the assurance team, promotes, or may be perceived to promote, an assurance client‘s position or opinion to the point that objectivity may, or may be perceived to be, compromised. 46. Safeguards created by the profession, legislation or regulation, include the following, except: A. Educational, training and experience requirements for entry into the profession. B. Continuing education requirements. C. Legislation governing the independence requirements of the firm. D. Policies and procedures that emphasize the assurance client‘s commitment to fair financial reporting. 47. Which of the following is an example of engagement-specific safeguards? A. Advising partners and professional staff of those assurance clients and related entities from which the must be independent. B. Consulting an independent third party, such as committee of independent directors, a professional regulatory body or another professional accountant. C. Policies and procedures that will enable the identification of interests or relationships between the firm or members of engagement teams and clients. D. External review by a legally empowered third party of the reports, returns, communications or information produced by a professional accountant. 48. Which of the following is not a safeguard created by the profession, legislation or regulation? A. Professional standards B. Professional and procedures to implement and monitor quality control of engagements. C. Continuing professional development requirements D. Educational, training and experience requirements for entry into the profession. 49. Safeguards may eliminate or reduce threats to an acceptable level. The following are examples of these safeguards: I. Professional or regulatory monitoring and discipline procedures. II. Documented internal policies and procedures requiring compliance with the fundamental principles. III. Policies and procedures to monitor and, if necessary, manage the reliance on revenue received from a single client. Which of the foregoing examples of safeguards is/ are classified firm-wide safeguards in the work environment? A. All of these B. I and II C. II and III D. I and III 50. Which of the following fundamental principles is compromised when a professional accountant is associated with reports or returns that are significantly misleading? A. Integrity B. Competence and due professional care C. Objectivity D. Professional behavior 51. Safeguards may eliminate or reduce threats to an acceptable level. The following are examples of these safeguards: I. Professional or regulatory monitoring and disciplinary procedures. II. Documented internal policies and procedures requiring compliance with the fundamental principles. III. Policies and procedures to monitor and, if necessary, manage the reliance on revenue received from a single client. IV. Corporate governance regulations Which of the foregoing examples of safeguards that can be applied is(are) created by the profession, legislation or regulation? A. I and III B. II and Iv C. I and IV D. II and III 52. Which of the following examples of safeguards that may effectively reduce threats to compliance with the fundamental of principles is created by the profession, legislation or regulation? A. Published policies and procedures to encourage and empower staff to communicate to senior levels within the firm any issue relating to compliance with the fundamental principles that concerns them. B. Effective, well-publicized complaints system operated by the employing organization, the profession or a regulator, which enable colleagues, employers and members of the public to draw attention to unethical behavior. C. Designating a member of senior management to be responsible for overseeing the adequate functioning of the firm‘s quality control system. D. Disclosing to those charged with governance of the client the nature of services provided and the extent of fees charged. 53. Professional accountants may encounter problem in identifying unethical behavior or in resolving an ethical conflict. When faced with significant ethical issues, professional accountants should do the following except A. Follow the established policies of the employing organization to seek a resolution of such conflict. B. Review the conflict problem with the immediate superior if the organization‘s policies do not resolve the ethical conflict. C. If the problem is not resolved with the immediate superior and the professional accountant determines to go to the next higher managerial level, the immediate superior need not be notified of the decision. D. Seek counseling and advice on a confidential basis with an independent advisor or the applicable professional accountancy body or regulatory body to obtain an understanding of possible courses of action. 54. As a resolution of the conflict in the application of fundamental principles, the auditor, after considering the ethical issues and relevant facts may do any of the following except: A. Must immediately resign from the engagement or the employing entity. B. Should weigh the consequences of each possible course of action. C. Should consult with other appropriate persons within the firm or employing organization foe help to finally resolve the matter. D. The professional accountant may wish to obtain professional advice from the relevant professional body without breaching confidentiality if significant conflict cannot be resolved. 55. Which of the following is incorrect regarding integrity and objectivity? A. Integrity implies not merely honesty but fair dealing and truthfulness. B. The principle of objectivity imposes the obligation on all professional accountants to be fair, intellectually honest and free of conflicts of interest. C. Professional accountants serve in many different capacities and should demonstrate their objectivity in varying circumstances. D. Professional accountants should neither accept nor offer any gifts or entertainment. 56. If a professional accountant is billing an audit client a number of hours greater than those actually worked, which of the following fundamental principles is likely violated? A. Objectivity B. Integrity C. Professional due care D. Confidentiality 57. Which of the following is incorrect regarding professional competence? A. Professional accountants may portray themselves as having expertise or experience they do not possess. B. Professional competence may be divided into two separate phases. C. The attainment of professional competence requires initially a high standard of general education. D. The maintenance of professional competence requires a continuing awareness of development in the accountancy profession. 58. In which of the following circumstances may disclosure of confidential information be appropriate? A. Disclosure is necessary as required by legal proceedings. B. The professional accountant volunteered to reveal information in order to help a faster resolution of legal proceedings. C. Working papers are returned over to other professional accountant who purchased the accounting practice. D. Detailed listing of inactive customers of one assurance client is passed on to other non- assurance client. 59. The underlying reason for a code of professional conduct for any profession is A. the need for public confidence in the quality of service of the profession. B. that it provides a safeguard to keep unscrupulous people out. C. that it is required by the congress. D. that it allows Professional Regulation Commission to have a yardstick to measure deficient performance. 60. A professional accountant may be associated with a tax return that A. contains a false or misleading statement. B. contains statements r information furnished recklessly or without any real knowledge of whether they are true or false. C. omits or obscures information required to be submitted and such omission or obscurity would mislead the revenue authorities. D. uses of estimates if such use is generally acceptable or if it is impractical under the circumstances to obtain exact data. 61. There are fundamental principles that the professional accountant has to observe when performing assurance engagements. The requirement of which principle is of particular importance in an assurance engagement in ensuring that the conclusion of the professional accountant has value to the intended user? A. Integrity B. Confidentiality C. Professional competence D. Objectivity 62. If a professional accountant is auditing a public company and he receives from his client its shares of stock as payment for his audit services, he will be violating the fundamental principle of: A. Integrity B. Professional due care C. Objectivity D. Confidentiality 63. Which of the following is least likely an indication that the CPA violates the Integrity principle? The CPA is associated with reports or information that: A. The CPA issues a qualified opinion due to scope limitation because he fails to arrive at a clear-cut conclusion. B. Contains a materially false or misleading statement. C. Omits or obscures information required to be included when such omission or obscurity would make the information misleading, D. Contains statements or information furnished recklessly. 64. Which of the following is the least required in attaining professional competence? A. High standard of general education B. Specific education, training and examination in professionally relevant subjects. C. Period of meaningful work experience. D. Continuing awareness of development in the accountancy profession. 65. Which of the following is incorrect regarding confidentiality? A. Professional accountants have an obligation to respect the confidentiality of information about a client‘s or employer‘s affairs acquired in the course of professional services. B. The duty of confidentiality ceases after the end of the relationship between the professional accountant and the client or employer. C. Confidentiality should always be observed by a professional accountant unless specific authorization has been given to disclose information or there is a legal or professional duty to disclose. D. Confidentiality requires that a professional accountant acquiring information in the course of performing professional services neither uses nor appear to use that information for personal advantage or for the advantage of a third party. 66. A professional accountant is auditing Maiden Company and providing consulting services to Widow Company. Both clients are in the same industry. IF the professional accountant uses specific information from Maiden‘s audit to prepare a business plan for Widow, he will be violating the principle of: A. Integrity B. Professional behavior C. Objectivity D. Confidentiality 67. Which of the following statements is incorrect about the principle of confidentiality? A. The professional accountants must refrain from disclosing confidential information acquired as a result of professional and business relationships to any party outside the firm or employing organization unless there is a legal or professional right or duty to disclose. B. The professional accountants must never disclose confidential information obtained as a result of professional business relationships. C. The need to comply with confidentiality principle continues even after the end of relationships between a professional accountant and a client or employer. D. A professional accountant should consider that some information may be kept confidential within the firm or employing organization. 68. The confidential relationship applies to A. all services provided by CPAs. B. only audit a d attestation services. C. audit and tax services, but not MAS services. D. audit and MAS services, but not tax services. 69. Which of the following may not be a professional duty to disclose confidential information? A. In compliance with the quality review of a member body or professional body. B. In compliance with technical standards and ethics requirements. C. In response to specific inquiry from the major stockholder. D. In protecting the professional interests of the professional accountant in case of litigation. 70. The professional accountant has a professional duty or right to disclose confidential information in each of the following, except A. To comply with technical standards and ethics and requirements. B. To disclose to BIR fraudulent scheme committed by the client on payment of income tax. C. To comply with the quality of review of a member body or professional body. D. To respond to an inquiry or investigation by a member body or regulatory body. 71. What kind of threat to noncompliance to fundamental principles is created if the professional if the professional fees due from a financial statement audit client remain unpaid for a long time? A. Self-interest review threat B. Self-review threat C. Familiarity threat D. No threat is created 72. A CPA in public practice shall not disclose any confidential client information without the specific consent of the client. The confidentiality rule is violated if the CPA discloses information without a client‘s consent as a result of a A. subpoena or summons B. peer review C. complaint filed with the trial board of the Board of Accountancy. D. request from a client‘s largest stockholder. 73. The confidential relationship will be violated if, without the client‘s permission, the CPA provides working papers about the client to A. a court of law which subpoenas them. B. another CPA firm as part of a peer review. C. another CPA firm which has just purchased the CPA‘s entire practice. D. an investigate or disciplinary body which is conducting a review of the CPA‘s practice. 74. Assurance team include A B C D  All professionals participating In the assurance engagement Yes Yes Yes Yes  All others within a firm who can directly influence the outcome of the assurance engagement Yes Yes No No  For the purposes of an audit client, all those within a network firm who can directly influence the outcome of the audit engagement Yes No No Yes 75. Examples of circumstances that may create self-interest threat include: A. Contingent fees relating to assurance engagements. B. A direct financial interest or material indirect financial interest in an assurance client. C. A loans or guarantee to or from an assurance client or any if its directors or officers. D. All of the given choices 76. Which of the following is least likely create ―self-interest threat‖? A. Undue dependence on total fees from an assurance client. B. Concern about the possibility of losing the engagement. C. Having a close business relationship with an assurance client. D. Pressure to reduce inappropriately the extent of work performed in order to reduce fees. 77. If the firm is involved in the preparation of accounting records or financial statements and those financial statements are subsequently the subject matter of an audit engagement of the firm, this will most likely create A. self-interest threat B. self-review threat C. intimidation threat D. familiarity threat 78. Examples of circumstances that may create self-review threat least likely include A. preparation of original data used to generate financial statements or preparation of other records that are the subject matter of the assurance engagement. B. a member of the assurance team being, or having recently been, an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement. C. potential employment with an assurance client. 79. Family and personal relationships between a member of the assurance team and a director, an officer or certain employees, depending on their role, of the assurance client, least likely create A. self-interest threat B. self-review threat C. intimidation threat D. familiarity threat 80. A director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement has been a member of the assurance team or partner of the firm. This situation least likely create A. self-interest threat B. advocacy threat. C. intimidation threat. D. famili

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