At Reviewer Part II - (May 2015 Batch)
At Reviewer Part II - (May 2015 Batch)
At Reviewer Part II - (May 2015 Batch)
Auditing Theory
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REVIEWER Part II
PSA 520, Analytical Procedures
1. Two analytical procedures available to the auditor are:
1) Compare current years balances with the preceding year.
2) Compare detail of a total balance with the preceding year.
Shortcomings of these two procedures are that
a. The first fails to consider growth or decline in business activity and the second ignores
relationships of data to other data.
b. The first ignores relationships of data to other data and the second fails to consider the growth or
decline in business activity.
c. Both fail to consider growth or decline in business activity and ignore relationships of data.
d. It is difficult, time consuming and therefore costly to perform these procedures.
2. The design of the specific analytical procedures depends upon
a. The objectives the auditor sets.
b. The data available.
c. The decision rules which apply.
d. The conclusion to be reached.
3. A basic premise underlying analytical procedures is that
a. Plausible relationships among data may reasonably be expected to exist and continue in the
absence of known conditions to the contrary.
b. These procedures cannot replace tests of details of transactions and balances.
c. Statistical tests of financial information may lead to the detection of material misstatements in the
financial statements.
d. The study of financial ratios is an acceptable alternative to the investigation of unusual
fluctuations.
4. Which one of the following statements regarding the use of appropriate data is not true?
a. For comparisons to be useful, the data must be relevant to the objectives involved.
b. It is of questionable value to compare current year unaudited data with data that is unreliable.
c. To determine trends that enable meaningful analysis, comparisons should be made of at least
four periods for each ratio and percentage used.
d. Analytical procedures performed on disaggregated data are not as effective as those applied to
the financial statement data.
5. Which of the following best describes the problem with the use of published industry averages for
analytical procedures?
a. Lack of comparability.
b. Lack of reliability.
c. Lack of competence.
d. Lack of availability.
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6. To help plan the nature, timing and extent of substantive auditing procedures, preliminary auditing
procedures, preliminary analytical procedures should focus on
a. Enhancing the auditors understanding of the clients business and event that have occurred since
the last audit date.
b. Developing plausible relationships that corroborate anticipated results with a measurable amount
of precision.
c. Applying ratio analysis to externally generated data such as published industry statistics or price
indices.
d. Comparing recorded financial information to the results of other tests of transactions and
balances.
7. Analytical procedures performed in the final review stage of an audit generally would include
a. Reassessing the factors that assisted the auditor in deciding on preliminary materiality levels and
audit risk.
b. Considering the adequacy of the evidence gathered in response to unexpected balances
identified in planning.
c. Summarizing uncorrected misstatements specifically identified in planning.
d. Calculating projected uncorrected misstatements estimated through audit sampling techniques.
8. Which of the following ratios would an engagement partner most likely calculate when reviewing the
balance sheet in the overall review stage of an audit?
a. Quick assets/current assets.
b. Accounts receivable/inventory.
c. Interest payable/interest receivable.
d. Total debt/total assets.
9. What should a prudent auditor do when the aggregate of uncorrected misstatements approaches the
materiality level?
a
Yes
Yes
b
No
Yes
c
No
No
d
Yes
Yes
Yes
Yes
Yes
No
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13. Of the four factors which determine the initial sample size (population size, tolerable deviation rate,
acceptable risk of overreliance and expected population deviation rate), a combination of two factors
has the greatest effect on the sample size.
a. Population size times expected population deviation rate.
b. Expected population deviation rate plus acceptable risk of overreliance.
c. Tolerable deviation rate minus expected population deviation rate.
d. Acceptable risk of overreliance minus tolerable deviation rate.
14. The sample deviation rate equals
a. The number of deviation in the population divided by the sample size.
b. The number of items in the population multiplied by the number of deviations in the sample.
c. The number of deviations in the sample divided by the sample size.
d. The number of deviations in the population divided by the population size.
15. One of the ways to eliminate non sampling risk is through
a. Proper supervision and instruction of the clients employees.
b. Proper supervision and instruction of the audit team.
c. The use of attribute sampling rather than variable sampling.
d. Controls which ensure that the sample drawn is random and representative.
16. PSA 530 states, The auditor may decide to select specific items from a population based on such
factors as the auditors understanding of the entity, the assessed risk of material misstatement, and
the characteristics of the population being tested. Specific items that may be selected for testing
usually include the following, except:
a. Items that are of high value.
b. Items that are suspicious, unusual, risk-prone, or have a history of error.
c. All items whose values do not exceed a certain amount so as to verify only a small portion of the
total amount of class of transactions or account balance.
d. Items that provide information about matters such as the nature of the entity, the nature of
transactions, and internal control.
17. An advantage of using statistical over non-statistical sampling methods in tests of controls is that
statistical methods
a. Afford greater assurance than a non-statistical sample size of equal size.
b. Provide an objective basis for quantitatively evaluating sampling risks.
c. Can more easily convert the sample into dual-purpose test useful for substantive testing.
d. Eliminate the need to use judgment in determining appropriate sample sizes.
18. The risk of assessing control risk too high is the probability that the compliance evidence in the
sample indicates
a. Low control risk when the actual degree of compliance does not justify a low control risk
assessment.
b. Low control risk when the actual degree of compliance justifies a low control risk assessment.
c. High control risk when the actual degree of compliance justifies a low control risk assessment.
d. High control risk when the actual degree of compliance justifies a high control risk assessment.
19. Auditors who prefer statistical sampling to nonstatistical sampling may do so because statistical
sampling helps the auditor
a. Measure the sufficiency of the evidential matter obtained.
b. Eliminate subjectivity in the evaluation of sampling results.
c. Reduce the level of tolerable misstatement (error) to a relatively low amount.
d. Minimize the failure to detect a material misstatement due to nonsampling risk.
20. Which of the following selection methods is least desirable for use by an auditor?
a. Block selection.
b. Random selection.
c. Systematic selection.
d. Haphazard selection.
21. In planning statistical sample test of controls, an auditor increased the expected population deviation
rate (EDR) from the prior years rate because of the results of the prior years tests of controls and
the overall control environment. The auditor most likely would then increase the planned
a. Risk of assessing control risk too low.
b. Sample size.
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c. Allowance for sampling risk.
d. Tolerable deviation rate.
22. An error that arises from an isolated event that has not recurred other than on specifically identifiable
occasions and is therefore not representative of similar errors in the population is a/an
a. Anomalous error.
b. Isolated error.
c. Scandalous error.
d. Non-recurring error.
23. What is the primary objective of using stratification as a sampling method in auditing?
a. To increase the confidence level at which a decision will be reached from the results of the
sample selected.
b. To determine the occurrence rate for a given characteristic in the population being studied.
c. To decrease the effect of variance in the total population.
d. To determine the precision range of the sample selected.
24. When planning a sample for a substantive test of details, the auditor should consider tolerable
misstatement for the sample. This consideration should
a. Be related to the auditors business risk.
b. Not be adjusted for qualitative factors.
c. Be related to preliminary judgments about materiality levels.
d. Not be changed during the audit process.
25. Which of the following statements regarding documentation of the sample selection process is not
true?
a. Regardless of the method used in selecting a random sample, it is necessary to have proper
documentation.
b. When comparing statistical sampling to judgmental sampling, it is more important that statistical
sampling be properly documented because of is mathematical nature.
c. Minimum documentation would include sufficient information to permit the reproduction of the
sample at a later date.
d. For documentation, it is permissible for the auditor to include in the working papers a copy of the
table used, with the random numbers identified.
PSA 540, Audit of Accounting Estimates
26. Which of the following procedures would an auditor ordinarily perform first in evaluating the
reasonableness of managements accounting estimates?
a. Review transactions occurring prior to the completion of fieldwork that indicate variations from
expectations.
b. Compare independent expectations with recorded estimates to assess managements process.
c. Obtain an understanding of how management developed its estimates.
d. Analyze historical data used in developing assumptions to determine whether the process is
consistent.
27. The auditor should adopt one or a combination of the following approaches in the audit of accounting
estimate:
I. Review and test the process used by management to develop the estimate.
II. Use an independent estimate for comparison with that prepared by management.
III. Review subsequent events which confirm the estimate made.
a. Any of the above.
b. None of the above.
c. Either I or II.
d. I only.
28. In evaluating the assumptions on which the estimate is based, the auditor would need to pay
particular attention to assumptions which are
a. Reasonable in light of actual results in prior periods.
b. Consistent with those used for other accounting estimates.
c. Consistent with managements plans which appear appropriate.
d. Subjective or susceptible to material misstatement.
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29. The auditor should normally concentrate on the key factors and assumptions used by management
including all of the following except those that are:
a. Insignificant to the accounting estimates.
b. Sensitive to variations.
c. Deviations from historical patterns.
d. Susceptible to misstatement and bias.
PSA 545, Auditing Fair Value Measurements and Disclosures
30. When auditing the fair value of an asset or liability, valuation issues ordinarily arise at the point of
Initial Recording
Subsequent to initial recording
a.
b.
c.
d.
Yes
Yes
No
No
Yes
No
Yes
No
31. Which of the following is least likely to be an approach when auditing the fair values of assets and
liabilities?
a. Review and test managements process of valuation.
b. Confirm valuations with audit committee members.
c. Independently develop an estimate of the value of the account.
d. Review subsequent events relating to the account.
PSA 550, Related Parties
32. Which of the following statements is correct concerning related-party transactions?
a. In the absence of evidence to the contrary, related party transactions should be assumed to be
outside the ordinary course of business.
b. An auditor should determine whether a particular transaction would have occurred if the parties
had not been related.
c. An auditor should substantiate that related-party transactions were consummated on terms
equivalent to those that prevail in an arms-length transactions.
d. The audit procedures directed toward identifying related party transactions should include
considering whether transactions are occurring, but are not being given proper accounting
recognition.
33. Which of the following would not necessarily be a related party transaction?
a. A purchase from another corporation that is controlled by the corporations chief shareholder.
b. A loan from the corporation to a major shareholder.
c. Sale of land to the corporation by the spouse of a director.
d. A sale of another corporation with a similar name.
34. When auditor searching for related party transactions should obtain an understanding of each
subsidiarys relationship to the total entity because
a. This may permit the audit of intercompany account balances to be performed as of concurrent
dates.
b. This may reveal whether particular transactions would have taken place if the parties had not
been related.
c. The business structure may be deliberately designed to obscure related party transactions.
d. Intercompany transactions may have been consummated on terms equivalent to arms-length
transactions.
35. An auditor most likely would modify an unqualified opinion if the entitys financial statements include
a footnote on related-party transactions
a. Disclosing loans to related parties at interest rates significantly below prevailing market rates.
b. Describing an exchange of real estate for similar party in a nonmonetary related-party
transaction.
c. Stating that a particular related-party transaction occurred on terms equivalent to those that
would have prevailed in an arms-length transaction.
d. Present the peso volume of related-party transactions and the effects of any change in the
method of establishing terms from prior periods.
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Which of the following audit procedures is most likely to assist an auditor in identifying conditions
and events that may indicate substantial doubt about an entitys ability to continue as a going
concern?
a. Review compliance with terms of debt agreements.
b. Confirm accounts receivable from principal customers.
c. Reconcile interest expense with outstanding debt.
d. Confirm bank balances.
40.
If the balance sheet of a publicly-held company is dated December 31, 2014, the audit report is
dated March 6, 2015, and both are released to the public on March 15, 2015, this indicates that the
auditor has searched for material subsequent transactions and events that occurred up to
a. December 31, 2014
b. March 6, 2015
c. March 15, 2015
d. None of these
41.
The auditors formal review of subsequent events normally should be extended through the date of
the
a. Auditors report.
b. Next formal interim financial statements.
c. Delivery of the audit report to the client.
d. Mailing of the financial statements to the stockholders.
42.
43.
Which of the following events occurring after the issuance of an auditors report most likely would
cause the auditor to make further inquiries about the previously issued financial statements?
a. An unissued natural disaster occurs that may affect the entitys ability to continue as a going
concern.
b. A contingency is resolved that have been disclosed in the audited financial statements.
c. New information is discovered concerning undisclosed lease transactions of the audited period.
d. A subsidiary is sold that accounts for 25% of the entitys consolidated net income.
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44.
Which of the following statements best describes the date of the financial statements?
a. The date on which those with the recognized authority assert that they have prepared the
entitys complete set of financial statements, including the related notes, and that they have
taken responsibility for them.
b. The date that the auditors report and the audited financial statements are made available to
third parties.
c. The date of the end of the latest period covered by the financial statements, which is normally
the date of the most recent balance sheet in the financial statements subject to audit.
d. The date on which the auditor has obtained sufficient appropriate evidence on which to base
the opinion on the financial statements.
45.
Which of the following events occurring after the issuance of an auditors report most likely would
cause the auditor to make further inquiries about the previously issued financial statements?
a. A technological development that could affect the entitys future ability to continue as a going
concern.
b. The entitys sale of a subsidiary that accounts for 30% of the entitys consolidated sales.
c. The discovery of information regarding a contingency that existed before the financial
statements were issued.
d. The final resolution of a lawsuit disclosed in the notes to the financial statements.
46.
Which of the following procedures would an auditor most likely perform in obtaining evidence about
subsequent events?
a. Determine that changes in employee pay rates after year-end were properly authorized.
b. Recompute depreciation charges for plant assets sold after year-end.
c. Inquire about payroll checks that were recorded before year-end but cashed after year-end.
d. Investigate changes in long-term debt occurring after year-end.
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51. Which of the following audit procedure most likely would assist an auditor in identifying conditions
and events that may include substantial doubt about an entitys ability to continue as a going
concern?
a. Reading the minutes of meetings of the stockholders and the board of directors.
b. Comparing the market value of property to amounts owed on the property.
c. Reviewing lease agreements to determine whether leased assets should be capitalized.
d. Inspecting the documents to verify whether any assets are pledged as collateral.
52.
Which of the following is incorrect about the managements responsibility to make an assessment of
an entitys ability to continue as a going concern?
a. In assessing whether the going concern assumption is appropriate, the management takes into
account all available information for the foreseeable future, which should be at least twelve
months from the balance sheet date.
b. Though there is a history of profitable operations and a ready access to financial statements,
management must make the assessments with detailed analysis.
c. Managements assessment of the going concern assumption involves making a judgment, at a
particular point of time, about the future outcomes of events or conditions which are inherently
uncertain.
d. Management should make explicit assessment of its ability to continue as a going concern.
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58. Which of the following statements is true with respect to management representations?
a. Management representations are dated as of the balance sheet date.
b. Management representations may serve as a substitute for various types of substantive
procedures.
c. Management representations are signed by the auditor and delivered to the clients officers.
d. Management representations are used to corroborate information obtained during the audit.
59. A written representation from a clients management that, among other matters, acknowledges
responsibility for the fair presentation of financial statements, should normally signed by the
a. Chief financial officer and the chair of the board of directors.
b. Chief executive officer and the chief financial officer.
c. Chief executive officer, the chair of the board of directors, and the clients lawyer.
d. Chair of the audit committee of the board of directors.
60. Which of the following expressions most likely would be included in a management representation
letter?
a. No events have occurred subsequent to the balance sheet date that require adjustment to, or
disclosure in the financial statements.
b. There are no reportable conditions identified during the prior years audit of which the audit
committee of the board of directors is unaware.
c. We do not intend to provide any information that may be construed to constitute a waiver of the
attorney-client privilege.
d. Certain computer files and other required evidential matter may exist only for a short period of
time and only in computer-readable form.
PSA 600, Using the Work of Another Auditor
61. When the principal auditor decides to refer to another auditor in his/her report, the report should
always include:
a. A qualified or adverse opinion.
b. A disclaimer of opinion regarding the financial statements audited by the other auditor.
c. The percentage and monetary amounts of the portion of the financials statements examined by
the other auditor.
d. Reference to a footnote where the division of responsibility between the principal auditor and
the other auditor is described in detail.
62. When the financial statements of the prior period were audited by another auditor
I. The predecessor auditor may reissue the audit report on the prior period with the incoming
auditor only reporting on the current period.
II. The incoming auditors report should state that the prior period was audited by another auditor
and the incoming auditors report should indicate that the financial statements of the prior period
were audited by another auditor.
a. I only
b. II only
c. Both I and II
d. Either I or II
63. The auditor with responsibility for reporting on the financial statements of an entity when those
financial statements include financial information of one or more components audited by another
auditor is the
a. Parent auditor.
b. Principal auditor.
c. External auditor.
d. Independent auditor.
64. As used in PSA 600 (Using the Work of Another Auditor), a _________ means a division, branch,
subsidiary or other entity whose financial information is included in financial statements audited by
the principal auditor.
a. Division.
b. Related party.
c. Component.
d. Separate entity.
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72. Which of the following statements is correct concerning an auditors use of the work of an expert?
a. The work of an expert who is related to the client may be acceptable under certain
circumstances.
b. If an auditor believes that the determination made by an expert are unreasonable, only a
qualified opinion may be issued.
c. If there is a material difference between the experts findings and the assertions in the financial
statements, only an adverse opinion may be issued.
d. An auditor may not use an expert in the determination of physical characteristics relating to
inventories.
73. In using the work of an expert, an auditor may refer to the expert in the auditors report, if as a result
of the experts findings, the auditor
a. Becomes aware of conditions causing substantial doubt about the entitys ability to continue as
a going concern.
b. Desires to disclose the experts findings, which imply that a more thorough audit was performed.
c. Is able to corroborate another specialists earlier findings that were consistent with
managements representations.
d. Discovers significant deficiencies in the design of the entitys internal control that management
does not correct.
PSA
700
(Revised)
The
Independent
Complete Set of a General Purpose Financial Statements
Auditors
Report
on
74. PSA 700 (Revised), The Independent Auditors Report on a Complete Set of General Purpose
Financial Statements, provides the following basic elements of the auditors report except
a. introductory paragraph
b. managements responsibility for the financial statements
c. auditors opinion paragraph.
d. starting and completion dates of the audit.
75. Which of the following elements is a basic element of the auditors standard report?
a. An audit includes assessing significant estimates made by management.
b. The auditor evaluated the internal control.
c. The disclosures provide reasonable assurance that the financial statements are free from
material misstatements whether due to fraud or error.
d. The financial statements are consistent with those of prior period.
76. Which of the following sentences or phrases from the auditors report is not correctly stated?
a. We have audited the accompanying..
b. We conducted our audit in accordance with generally accepted auditing standards.
c. In our opinion, the financial statements referred to above present fairly the financial position.
d. .. in conformity with generally accepted accounting principles.
77. Which of the following statements expresses the objective of the traditional audit of financial
statements?
a. To express an opinion on the fairness with which the statements present financial position,
financial performance, and cash flows in accordance with Philippine Financial Reporting
Standards.
b. To express an opinion on the accuracy with which the statements present financial position,
financial performance, and cash flows in accordance with Philippine Financial Reporting
Standards.
c. To make suggestions as to the form or content of the financial statements or to draft them in
whole or in part.
d. To assure adoption of sound accounting policies and the establishment and maintenance of
internal control.
78. Which of the following best describes why an independent auditor is asked to express an opinion
on the fair presentation of financial statements?
a. It is a customary courtesy that all shareholders receive an independent report on managements
stewardship in managing the affairs of the business.
b. The opinion of an independent party is needed because a company may not be objective with
respect to its own financial statements.
c. It is difficult to prepare financial statements that fairly present a companys financial position,
financial performance, and cash flows without the expertise of an independent auditor.
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d. It is managements responsibility to seek available independent aid in the appraisal of the
financial information shown in its financial statements.
79. Which of the following statements is a basic element of the auditors standard report?
a. The disclosures provide reasonable assurance that the financial statements are free of material
misstatement.
b. The auditor evaluated the overall internal control.
c. An audit includes assessing significant estimates made by management.
d. The financial statements are consistent with those of the prior period.
80. Which of the following circumstances would not be considered a departure from the auditors
standard report?
a. The auditor wishes to emphasize a particular matter regarding the financial statements.
b. The auditors opinion is based in part on the report of another auditor.
c. The financial statements are affected by a departure from a generally accepted accounting
principle.
d. The auditor is asked to report only on the balance sheet but has unlimited access to information
underlying all the basic financial statements.
81. The auditor would most likely issue a disclaimer of opinion because of
a. The clients failure to present supplementary information required by FRSC.
b. Inadequate disclosure of material information.
c. A client-imposed scope limitation.
d. The qualification of an opinion by the other auditor of a subsidiary where there is a division of
responsibility.
82. A limitation on the scope of the auditors examination sufficient to preclude an unqualified opinion
will always result when management
a. Engages an auditor after the year-end physical inventory count.
b. Refuses to furnish a representation letter.
c. Knows that direct confirmation of accounts receivable with debtors is not feasible.
d. Engages an auditor to examine only the balance sheet.
83. Which of the following will not result in modification of the auditors report to a scope limitation?
a. Restrictions imposed by the client.
b. Reliance placed on the report of another auditor.
c. Inability to obtain sufficient competent evidential matter.
d. Inadequacy in the accounting records.
84. When an accountant performs more than one level of service (for example, a compilation and a
review, or a compilation and an audit) concerning the financial statement of a non public entity, the
accountant should generally issue the report that is appropriate for
a. The lowest level of service rendered.
b. The highest level of service rendered.
c. A compilation engagement.
d. A review engagement.
85. An auditor may issue the standard audit report when the
a. Auditor refers to the findings of a specialist.
b. Financial statements are derived and condensed from complete audited from financial
statements that are filed with a regulatory agency.
c. Financial statements are prepared on the cash receipts and disbursements basis of accounting.
d. Principal auditor assumes responsibility for the work of another auditor.
PSA 705 Modifications to the Independent Auditors Report
86. An independent auditor discovers that a payroll supervisor of the company being audited has
misappropriated P50,000. The companys total assets and income before tax are P70 million and
P15 million, respectively. Assuming no other issues affect the report, the auditors report will most
likely contain a/an
a. Unqualified opinion.
b. Disclaimer of opinion.
c. Adverse opinion.
d. Scope qualification.
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87.
When financial statements contain a departure from an acceptable Financial Reporting Framework
(FRF) because, due to unusual circumstances, the statements would otherwise be misleading, the
auditor should explain the unusual circumstances in a separate paragraph and express an opinion
that is
a. Adverse
b. Qualified
c. Unqualified
d. Qualified or Adverse, depending on materiality
88.
When would the auditor refer to the work of an appraiser in the auditors report?
a. An adverse opinion is expressed based on a difference of opinion between the client and the
outside appraiser as to the value of certain assets.
b. A disclaimer of opinion is expressed because of a scope limitation imposed on the auditor by
the appraiser.
c. A qualified opinion is expressed because of a matter unrelated to the work of the appraiser.
d. An unqualified opinion is expressed and an emphasis of matter paragraph is added to disclose
the use of the appraisers work.
89.
90.
In which of the following situations would an auditor ordinarily choose between a qualified opinion
or an adverse opinion?
a. The auditor wishes to emphasize an unusually important subsequent event.
b. The financial statements fail to disclose information that is required by Philippine Financial
Reporting Standards.
c. Events disclosed in the financial statements cause the auditor to have substantial doubt about
the entitys ability to continue as a going concern.
d. The auditor did not observe the entitys physical inventory and is unable to become satisfied as
to its balance by other auditing procedures.
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95. The most common case in which conditions beyond the clients and auditors control can cause a
scope restriction is an engagement
a. Agreed upon after the clients balance sheet date.
b. Where the client would not allow auditor to confirm receivables for fear of offending his
customers.
c. Where the auditor does not have enough staff to audit all of the clients foreign subsidiaries
satisfactorily.
d. Where client is going through bankruptcy.
96. A scope and opinion qualification can be issued only when the auditor
a. Is not independent.
b. Has not been able to accumulate all the evidence required by generally accepted auditing
standards.
c. Has accumulated all the evidence required by generally accepted auditing standards.
d. Has been restricted by client from gathering the needed information to form an opinion.
97. A qualified opinion is appropriate when the auditor is satisfied that the financial statements are
a. Fairly stated.
b. Materially misstated.
c. Fairly stated, but there is a material exception.
d. Fairly stated, even though there is an immaterial exception.
98. When a client will not permit inquiry of outside legal counsel, the audit report will ordinarily contain
a/an
a. Disclaimer of opinion.
b. Adverse opinion.
c. Subject to qualified opinion.
d. Unqualified opinion with an emphasis of matter paragraph.
PSA 710 Comparatives
99. There are two broad financial reporting frameworks for comparatives: the corresponding figures
and the comparative financial statements. Which of the following statements is correct concerning
these reporting frameworks?
a. Under the corresponding figures framework, the corresponding figures for the prior period(s)
are integral part of the current period financial statements.
b. Under the corresponding figures framework, the corresponding figures for the prior period(s)
are considered separate financial statements.
c. Under the comparative financial statements framework, the comparative financial statements for
the prior period(s) are intended to be read in conjunction with the amounts and other
disclosures relating to the current period.
d. Under the comparative financial statements framework, the amounts and other disclosures for
the prior period(s) form part of the current period financial statements.
100. Unaudited financial statements for the prior year presented in comparative form with audited
financial statements for the current year should be clearly marked to indicate their status and
I. The report on the prior period should be reissued to accompany the current period report.
II. The report on the current period should include as a separate paragraph a description of the
responsibility assumed for the prior periods financial statements.
a. I only.
b. II only.
c. Both I and II.
d. Either I or II.
PSA 720, Other Information in Documents Containing Audited Financial Statements
101. Which of the following is considered unaudited information when included with historical financial
statement?
a. Interim information.
b. Segment information.
c. Notes to financial statements.
d. Investment security classifications.
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102. Which of the following statements regarding the auditors responsibilities for supplementary
information required by the FRSC?
a. Because the supplementary information is required part of the basic financial statements, the
auditor should apply normal auditing procedures.
b. The omission of, but not deficiencies in, supplementary information should be disclosed in the
opinion paragraph of the auditors report.
c. Because the supplementary information is not a required part of the basic financial statements ,
the auditor should apply only certain limited procedures.
d. The omission of supplementary information ordinarily requires the auditor to issue an adverse
opinion, but mere deficiencies require an except for qualified opinion.
103. Which of the following best describes the auditors responsibility for other information included in
the annual report to stockholders that contains financial statements and the auditors report?
a. The auditor has no obligation to read other information.
b. The auditor has no obligation to corroborate the other information but should read the other
information to determine whether it is materially inconsistent with the financial statements.
c. The auditor should extend the examination to the extent necessary to verify the other
information.
d. The auditor must modify the auditors report to state that the other information is audited or is
not covered by the auditors report.
104. According to PSA 720, when audited financial statements are presented in document (e.g. annual
report) containing other information, the auditor
a. Should read the other information to consider whether it is inconsistent with the audited
financial statements.
b. Has no responsibility for the other information because it is not part of the basic financial
statements.
c. Has an obligation to perform auditing procedures to corroborate the other information.
d. Is required to express a qualified opinion if the other information has a material misstatement of
fact.
105. Which of the following best describes the auditors reporting responsibility concerning information
accompanying the basic financial statements in an auditor-submitted document?
a. The auditor should report on all the information included in the document.
b. The auditor should report on the basic financial statements but may not issue a report covering
the accompanying information.
c. The auditor should report on the information accompanying the basic financial statements only
if the auditor participated in the preparation of the accompanying information.
d. The auditor should report on the information accompanying the basic financial statements only
if the document is being distributed to public shareholders.
PSA 800, The Auditors Report on Special Purpose Audit Engagements
106. Whenever special reports, filed on a printed form designed by authorities, call upon the
independent auditor to make an assertion that the auditor believes is not justified, the auditor
should
a. Submit a short-form report with explanations.
b. Reword the form or attach a separate report.
c. Submit the form with questionable items clearly omitted.
d. Withdraw from the engagement.
107. Reports are considered special reports when issued in connection with
a. Compliance with aspects of regulatory requirements related to audited financial statements.
b. Pro forma financial presentations designed to demonstrate the effect of hypothetical
transactions.
c. Feasibility studies presented to illustrate an entitys results of operations.
d. Interim financial information reviewed to determine whether modifications should be made to
conform with generally accepted accounting principles.
108. If the auditor believes that financial statements which are prepared on a comprehensive basis of
accounting other than generally accepted accounting principles are not suitably titled, the auditor
should
a. Modify the auditors report to disclose any reservations.
b. Consider the effects of the titles on the financial statements taken as a whole.
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c. Issue a disclaimer of opinion.
d. Add a footnote to the financial statements which explains alternative terminology.
109. When asked to perform an examination in order to express an opinion on one or more specified
elements, accounts, or items of a financial statement, the auditor
a. May not describe auditing procedures applied.
b. Should advise the client that the opinion will result in a piecemeal opinion.
c. May assume that the first standard of reporting with respect to generally accepted principles
does not apply.
d. Should comply with the request if they constitute a major portion of the financial statements on
which an auditor has disclaimed an opinion based on an audit.
110. The term special reports: may include all of the following, except reports on financial statements
a. Of an organization that has limited the scope of the auditors examination.
b. Prepared for limited purposes such as a report that relates to only certain aspects of financial
statements.
c. Of a not-for-profit organization which follows accounting by business enterprises organized for
profit.
d. Prepared in accordance with historical cost/constant peso accounting.
PSA 810, The Examination of Prospective Financial Information
111. An examination of a financial forecast is a professional service that involves
a. Compiling or assembling a financial forecast that is based on managements assumptions.
b. Limiting the distribution of the accountants report to management and the board of directors.
c. Assuming a responsibility to update management on key events for one year after the reports
date.
d. Evaluating the preparation of a financial forecast and the support underlying managements
assumptions.
112. An accountant may accept an engagement to apply agreed-upon procedures to prospective
financial statements provided that
a. Use of the report is restricted to the specified parties.
b. The prospective financial statements are also examined.
c. Responsibility for the adequacy of the procedures performed is taken by the accountant.
d. Negative assurance is expressed on the prospective financial statements taken as a whole.
113. Which of the following statements is correct concerning an auditors responsibilities regarding
financial statements?
a.
Making suggestions that are adopted about the form and content of an entitys financial
statements impairs an auditors independence.
b.
An auditor may draft an entitys financial statements based on information from
managements accounting system.
c.
The fair presentation of audited financial statements in conformity with GAAP is an implicit
part of the auditors responsibilities.
d.
An auditors responsibilities for audited financial statements are not confined to the
expression of the auditors opinion.
114.
When a CPA is associated with the preparation of forecasts, all of the following should be
disclosed except the
a.
Sources of information.
b.
Character of the work performed by the CPA.
c.
Major assumptions in the preparation of the forecasts.
d.
Probability of achieving estimates.
115.
On an audit engagement performed by a CPA firm with one office, at a minimum, knowledge of
the relevant professional accounting and auditing standards should be held by
a. The auditor with final responsibility for the audit.
b. All professionals working upon the audit.
c. All professionals working upon the audit and the partner in charge of the CPA firm.
d. All professionals working in the office.
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Reviewer- Part II
PSA establishes standards and procedures for which of the following engagements?
a. Assisting in adjusting the books of account for a partnership.
b. Reviewing interim financial data required to be filed with the SEC.
c. Processing financial data for clients of other accounting firms.
d. Compiling an individuals personal financial statements to be used to obtain a mortgage.
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c.
d.
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Implicitly
Explicitly
Implicitly
Explicitly
PAPS 1008, Risk Assessments and Internal Control CIS Characteristics and Considerations
133. Which of the following statements is not correct?
a. There is no distinction between the audit concepts applicable to complex electronic data
processing and those applicable to non-complex systems.
b. When computers or other aspects of EDP systems are introduced, generally accepted auditing
standards and their interpretations, the Code of Professional Conduct, legal liability, and the
basic concepts of evidence accumulation remain the same.
c. Most EDP-based accounting systems rely extensively on the same types of procedures for
control that are used in non-complex systems.
d. The specific methods appropriate for implementing the basic auditing concepts do not change
as systems become more complex.
134. Regardless of the nature of an entitys information system, the auditor must consider internal
control. In a CIS environment, the auditor, must, at a minimum, have
a. A background in programming procedures.
b. An expertise in computer systems analysis.
c. A sufficient knowledge of the computers operating system.
d. A sufficient knowledge of the computer information system.
135. Which of the following is not a general control?
a.
The plan of organization and operation of EDP activity.
b.
Procedures for documenting, reviewing and approving systems and programs.
c.
Processing controls.
d.
Hardware controls.
136. A hardware element that takes the computers digital information and transforms it into signals that
can be sent over ordinary telephone lines is a/an
a. Intelligent terminal.
b. Point-of-sale terminal.
c. Terminal emulator.
d. Modem.
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137. A CIS where two or more personal computers are linked together through the use of special
software and communication lines and allows the sharing of application software, data files, and
computer peripherals, such as printers and optical scanners is a/an
a. Local area network (LAN).
b. On-line system.
c. Batch processing system.
d. Wide area network (WAN).
138. A computer information system that allows individual users to develop and execute application
programs, enter and process data, and generate reports in a decentralized manner is called a/an:
a. Online system.
b. Batch processing system.
c. End-user computing.
d. Networking.
139. To protect the integrity of the database, data sharing by different users requires organization,
coordination, rules and guidelines. The individual responsible for managing the database resource
is the
a. Programmer.
b. Database administrator.
c. User.
d. CIS manager.
140. The following statements relate to internal control in an electronic data interchange (EDI)
environment. Which is false?
a. In EDI systems, preventive controls are generally more important than detective controls.
b. Control objectives for EDI systems generally are different from the objectives for other
computer information systems.
c. Internal controls that relate to the segregation of duties generally are the most important
controls in EDI systems.
d. Internal controls in EDI systems rarely permit control risk at below the maximum.
141. A systems analyst should have access to each of the following except
a. Edit criteria
b. Source code.
c. Password identification tables.
d. User procedures.
142. One of the major problems in a CIS environment is that incompatible duties may be performed by
the same individual. One compensating control is the use of
a. Computer-generated hash totals.
b. A computer log.
c. A self-checking digit system.
d. Echo checks.
143. Which of the following groups should have the operational responsibility for the accuracy and
completeness of computer-based information?
a. External auditors.
b. Internal auditors.
c. Users.
d. Top management.
144. Which of the following is not an example of an applications control?
a. An equipment failure causes an error message on the monitor.
b. There is preprocessing authorization of the sales transactions.
c. There are reasonableness tests for the unit selling price of a sale.
d. After processing, all sales transactions are reviewed by the sales department.
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145. An auditor may decide not to perform tests of controls related to computer portion of the clients
controls. Which of the following would not be valid reason for choosing to omit tests of controls?
a. The controls appear adequate.
b. The controls duplicate operative controls existing elsewhere in the system.
c. There appear to be major conditions that would preclude reliance on the stated procedure.
d. The time and peso costs of testing exceed the time and peso savings in substantive testing if
the tests of controls show the controls to be operative.
146. Controls within the computer system may leave no visible evidence indicating that the
procedures were performed. In such instances, the auditor should tests these controls by
a. Making corroborative inquiries.
b. Observing the separation of duties of personnel.
c. Reviewing transactions submitted for processing and comparing them to related output.
d. Reviewing the run manual.
147. One of the major problems in computer information system is that incompatible functions may be
performed by the same individual. One compensating control for this is use of
a. A tape library.
b. A self-checking digit system.
c. Computer generated hash totals.
d. A computer log.
148. The auditors computer program approach and the test data approach
a. Are complementary.
b. Are mutually exclusive.
c. Are incompatible.
d. Must be used simultaneously.
149. The reprocessing of live data to test program controls is called
a. Test data.
b. Test check.
c. Generalized audit software.
d. Parallel simulation.
150. Techniques needed to select the specific live data transactions of audit interest for testing would
not include
a. Audit hooks.
b. Test data.
c. Trap data.
d. Transaction tags.
151. Comparing data on separate files can be accomplished by generalized audit software to determine
whether compatible information is in agreement. Examples of such comparisons would not
include:
a. Payroll details with personnel records.
b. Current and prior inventory to details of purchases and sales.
c. Paid vouchers to disbursements.
d. Observation of inventory counts.
152. Which of the following is likely to be of least importance to an auditor in reviewing the internal
control in a company with a computerized system?
a. The segregation of duties within the data processing center.
b. The control over source documents.
c. The documentation maintained for accounting applications.
d. The cost/benefit ratio of data processing operations.
153. Which of the following is classified as general CIS controls that relates to segregation of duties?
a. Reconciliation of record counts.
b. Authorization of modifying the operating system.
c. A system of transaction logs.
d. Follow up all errors detected during processing.
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154. When the auditor encounters sophisticated computer-based systems, he or she may need to
modify the audit approach. Of the following conditions, which one is not a valid reason for
modifying the audit approach?
a. More advanced computer systems produce less documentation, thus reducing the visibility of
audit trail.
b. In a complex computer-based systems, computer verification of data at the point of input
replaces the manual verification found in less sophisticated data processing systems.
c. Integrated data processing has replaced the more traditional separation of duties that existed
in manual and batch processing systems.
d. Real-time processing of transactions has enabled the auditor to concentrate less on the
completeness assertion.
155. A computer-assisted audit technique that is most likely to be effective in a continuous auditing
environment is
a. Parallel simulation.
b. Controlled reprocessing.
c. Embedded audit modules.
d. Transaction tripping.
156. Which of the following is correct concerning electronic commerce security?
a. Since they cannot use both, companies must decide whether to use an electronic data
interchange approach or an approach using the Internet.
b. Companies that wish to use the Internet for electronic commerce must adhere to the Uniform
Internet Service Provider Code of Conduct.
c. Use of a website home page instead of encryption leads to a greater security in electronic
transactions.
d. The successful use of a firewall will help assure the security of a firms computer systems.
157. Which of the following is not a problem associated with the use of test data for computer-audit
purposes?
a. Auditing through the computer is more difficult than auditing around the computer.
b. It is difficult to design test data that incorporate all potential variations in transactions.
c. Test data may be commingled with live data causing operating problems for the client.
d. The program with which the test data are processed may differ from the one used in actual
operations.
158. In parallel simulation, actual client data are reprocessed using an auditor software program. An
advantage of using parallel simulation, instead of performing tests of controls without a computer,
is that
a. The test includes all types of transaction errors and exceptions that may be encountered.
b. The clients computer personnel do not know when the data are being tested.
c. There is no risk of creating potentially material errors in the clients data.
d. The size of the sample can be greatly expanded at relatively little additional cost.
159. A client that recently installed a new accounts payable system assigned employees a user
identification code (UIC) and a separate password. Each UIC is a persons name, and the
individuals password is the same as the UIC. Users are not required to change their passwords at
initial log-in nor do passwords over expire. Which of the following statements do not reflect a
limitation of the clients computer access control?
a. Employees can easily guess fellow employees passwords.
b. Employees are not required to change passwords.
c. Employees can circumvent procedures to segregate duties.
d. Employees are not required to take regular vacations.
160. Which of the following strategies would a CPA most likely consider in auditing an entity that
processes most of its financial data only in electronic form, such as a paperless system?
a. Continuous monitoring and analysis of transaction processing with an embedded audit module.
b. Increased reliance on internal control activities that emphasize the segregation of duties.
c. Verification of encrypted digital certificates used to monitor the authorization of transaction.
d. Extensive
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