a "PA REVIEW SCHOOL OF THE PHILIPPINES FIRST Pane “ene FEBRUARY 10, 2018 'D EXAMINATION SATURDAY, 5:00PM ~ 6:00PM SETA IN ONL RECTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING. FULLY SHADE BOX FOR EACH ITEM. STRICTLY NO ERASURES ALLOWED. 1 | |. The objective of a: A Audit committees have been identified as a major factor in promoting independence in both interna! and externa! auditors, Which of the following is the most important limitation on the effectiveness of audit committees? i A uct committee members do not normaly hive degrees in the accounting or auditing fs. ' B. Audit committees devote most of their efforts to external audit concerns and do not pay: much attention to intemal auditing and the overall control environment. C. Audit committee members are compensated by the organization and thus favor a shareholder's view. ! . Audit committees are composed of independent directors. However, those directors may have close personal and professional fiéndships with management. Which of the following services, if any, may a practitioner who is not independent provide? ‘A. Reviews but not compilations. 8. Compilations but not reviews. | C. Both compilations and reviews. | D. No services. rance services is to Improve the firm's outcomes. o B. Compare internal information and policies to fhose of other firms. C. Enhance decisian making. D. Provide more timely information. ACPA firm is reascnably assured of meeting its responsibility to provide services that conform with professional standards by | A. Maintaining an attitude of independence in its engagements. 8. Aghering to Philippine Standards on Auditing (PSAS). C. Having an appropriate system of quality contfol, D. Joining professional societies that entorce eti\ical conduct. \ [An auditor’s engagement letter most likely will in¢lude A. Management's acknowiedgraent of its responsibility for maintaining effective control. B. A request for permission to contact the client’s lawyer for assistance in identifying litigation, daims, and assessments. C. Aremindes that management is responsible for illegal acts committed by employees. 1. The auditor's preliminary assessment of the risk factors relating to misstatements arising from fraudulent financial reporting. Which of the following factors most likely would cause an auditor to decline a new engagement? A. Failure of management to satisfy the preconditions for an audit. B. An inability to preform preliminary analytical procedures before assessing control risk. C. The close proximity to the end af the entty’s fiscal year 1D. An inadequate understanding of the entity’s interna: control. In an audit hased on Philipsine Standards on Auditing (PSAs), a successor auditor would normally become satisfied with opening balances by Page 1 of 16 PagesCPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) ~ MANILA FIRST PREBOARD EXAMINATION AUDITING THEORY. FEBRUARY 10, 2018 / SATURDAY./ 5:00PM = 6.00PM A. Auditing the prior years financial statements. B. Interviewing the cent. C. Reviewing the predecessor's worung papers. D. Performing analytical procedures. Which of the following circumstances would permit an independent auditor to accept an engagement after the close of the fiscal year? Receipt of an assertion from the preceding auditor that the entity will be able to continue 5 @ going concern. An expectation of the effectiveness of internal control Issuance of a disdaimer of opinion as a result of inability to conduct certain tests required by PSAs due to the tming of the acceptance of the engagement. ©. Remedy of limitations resulting from accepting the engagement after the close of the end of the year, such as those relating to the existence of physical inventory. 8, . Se ee eae auditor about the termination of the engagement, the predecessor auditor should ete ter EE eb eel ieg te Sesto ore ee ae Seas cep See ey cee ee ene eee eee eee eee oem eae eae C. An internal contro! questionnaire identifying policies and procedures that assure specific / EEE eae ‘emcee en 21, Directors, management, extemal auditors, end internal auctors all play important roles in Greating proper control provesves, Senior management fs primarily fesponsible for A. Implementing and ontoring controls des-gred by the board of directors. B. Ensuring. thet external and internal auditors oversee the adminstration of risk | management and control processes, Cc. Reviewing the relooity and integrity of fnencial and operational information 5. Establishing nsk management and contol provesses. 12. Internal controts are designed to provide reasonable assurance thet ne fiSterialerroct or roud with prevenies, or detected ond carected, witvn a Umely ea by employess in te Course oF perfcrming their asaigned duties. ianagatmants pisnina, orsncina nd crn prose are propery evauoed sana aer errs plans have tox been crcuraventod By worker CoNMBON woe ier pov Jopartments, pucdance arid oversight of management's seSonmance is accomplished soonearicaly and emicient. one wean which of the following : from sales on account have ceen misappropriated, Which of te f 13. Cash recat from oe dctotention ana he laos iat 0 be detected by an autor? Fe rote eg tre anroutsrecelvatie contra acount A Srersating the accounts recelvaite subir #20 © Ghaerstaning the sales journal. S. UAderstating the cash roce ps souno! materials by the cient is to 14. The primary audit objective regarding the purchasing of materials By ¢ Te Soserve the annual physical count Br Ascertain that materials paid for are on page 2 of 18 PanesCPA REVIEW scx AUDTUNG THEORY. ME PALIPPINES (Coan) ~ ran FIRST PREBOARD EXAMINATION —_ FEBRUARY 10, 2018 / SATURDAY / 5:002M = 6:00PM Inve 9. caren Fecording of unusual transactions erates materials. Feliability of financial reporting by the purchasing function. 15. Th expert SPOU perform tests of controls when the auditor's risk assessment includes an A. That the B. That the C. Of the D. Of ar controls are not bei | ing applied. '€ controls are not suitably designed. | | ‘Operating effectiveness of internal control. low level of inherent risk. i 16. Observation is considered a reliable audit procedure but one that is limited in usefulness. now ‘ever, it is used in a number of different audit situations. Which of the following qatements is true regarding observation as audit technique? - tis most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place, 1 B. It is the most Persuasive audit technique for determining if fraud has occurred. C. It is the most persuasive methodology to leam how transactions are really processed during the period under audit. ! ©. It is the most effective audit methodology to use in filling out internal contro! Questionnaires. ; 17. An auditor’s documentation will least likely show how the A. Significant issues were resolved. B. Understanding of the dlient’s internal control was obtained and the risks of material misstatement were assessed, C. Client's schedules were prepared. | D. Engagement was planned. 18. Which of the following is not a financial statement assertion about cash? ‘A. The reported cash balance includes all cash transactions that should have been recorded. 8. Compensating cash balances are classified as other current assets. C. The client has rights to the reported cash. 1 D. rted cash exists. | 19. Confirmation of accounts payable with creditors is most appropriate when A. The majority of accounts payable balances are owed to related parties. 8. Accounts payable balances are immaterial. CC. Internal contro! over accounts payable is effective, and sufficient evidence exists to minimize the risk of a material misstatement. D. Creditor statements are not available, and internal control over accounts payable is unsatisfactory. 5 20. For several years a client's physical Inventory count has been lower than what was shown ‘on the books at the time of the count, and downward adjustments of the inventory account have been required. Contributing to the inventory problem could be material weaknesses in internal control that led to the failure to record some A. Sales returns received. B. Cash purchases. C. Sales discounts allowed. D. Purchases returned to vendors. | 24. During an audit engagement, pertinent data are compiled and included in the audit working papers. The working papers primarily are considered to be J. A dient-owned record of conclusions reached by the auditors who performed the engagement. F Evidence supporting financial statements. ‘Support for the auditor's representations as to compliance with relevant PSAS. ‘A record to be used as a basis for the following year’s engagement. poe Page 3 of 10 Pages