POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

STA MESA MANILA

1. Although the validity of evidential matter is dependent on the circumstances under which it is obtained, there are
three general presumptions that have some usefulness. The situations given below indicate the relative reliability
that a CPA has placed on two types of evidence obtained in different situations. Which of these is an exception to
one of the general presumptions?
a. The CPA places more reliance on the balance in the scrap sales account at Plant A, where the CPA has made
limited tests of transactions because of effective controls, than at Plant B, where the CPA has made extensive
tests of transactions because of ineffective controls.
b. The CPA places more reliance on the CPAs computation of interest payable on outstanding bonds than on the
amount confirmed by the trustee.
c. The CPA places more reliance on the report of an expert on an inventory of precious gems than on the CPA’s
physical observation of the gems.
d. The CPA places more reliance on a schedule of insurance coverage obtained from the company’s insurance
agent than on one prepared by the internal audit staff.

2. Which of the following would not be a factor in determining the competence of evidential matter?
a. The source of the evidence c. The cost of gathering the evidence
b. The relevance of the evidence d. Timeliness of the evidence
e.
3. Which of the following statements is incorrect?
a. There are many ways an auditor can accumulate evidence to meet the overall audit objectives.
b. Sufficient competent evidence must be accumulated to meet the auditor’s professional responsibility.
c. The cost of accumulating the evidence should be minimized.
d. Gathering evidence and minimizing costs are equally important.
f.
4. Each of the following might, by itself, form a valid basis for an auditor of deciding to omit a test except for the:
a. Difficulty and expense involved in testing a particular item
b. Assessment of control risk at a low level
c. Inherent risk involved
d. Relationship between the cost of obtaining evidence and its usefulness
g.
5. The following statements were made in a discussion of audit evidence by two independent auditors. Which of
these statements is not valid?
a. “I am seldom convinced beyond all doubt about all aspects of the financial statements being audited.”
b. “I would not undertake that procedure because at best the results would only be persuasive and I’m looking
for convincing evidence.”
c. “I evaluate the degree of risk involved in deciding the kind of evidence I will gather.”
d. “I evaluate the usefulness of the evidence I can obtain against the cost to obtain it.”
h.
6. Management assertions that are embodied in the financial statements are
a. directly related to standards on auditing.
b. directly related to financial reporting framework.
c. indirectly related to standards on auditing.
d. indirectly related to financial reporting framework.
i.
7. Management assertions are
a. stated in the footnotes to the financial statements.
b. implied or expressed representations about the financial statements.
c. explicit representations about the financial statements.
d. provided to the auditor in the assertions letter, but are not disclosed in the financial statements.
j.
k.
l.
8. As used in auditing, which of the following statements best describes "assertions"?
a. Assertions are the representations of management as to the reliability of the information system.
b. Assertions are the auditor's findings to be communicated in his audit report.
c. Assertions are the representations of management as to the fairness of presentation of the financial
statements.

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 d. Assertions are found only in the notes to the financial statements.
m.
9. Financial statement assertions include all of the following except:
a. Occurrence c. Consistency and comparability
b. Presentation and disclosure d. Completeness
e.
10. The audit objective “that all transactions and accounts that should be presented in the financial statements are
included” is related to which assertion?
a. Occurrence c. Completeness
b. Rights and obligations d. Presentation and disclosure
e.
11. The audit objective “that all footnotes have been included in the financial statements” is related most closely to
which assertion?
a. Existence or occurrence c. Completeness
b. Rights and obligations d. Presentation and disclosure
e.
12. In determining the sufficiency of evidential matter, which of the following would not normally be a factor?
a. Cost/benefit considerations c. Audit risk
b. The sampling technique used d. Materiality of the account
e.
13. Which of the following statements is not true regarding the competence of audit evidence?
a. Relevance is enhanced by an effective information system.
b. To be competent, evidence must be both valid and relevant.
c. Validity is related to the quality of the client’s information system.
d. Relevance must always relate to audit objectives.
f.
14. Which of the following statements concerning evidence is correct?
a. Competent evidential matter supporting management’s assertions should be convincing rather than merely
persuasive.
b. Effective internal control unlikely contributes to the reliability of the evidence created within the entity.
c. The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence
should be obtained.
d. A client’s accounting data cannot be considered a sufficient audit evidence to support the financial
statements.
g.
15. Which of the following statements is incorrect about audit evidence?
a. Evidence obtained from an independent source outside the client organization is more reliable than that
obtained from within.
b. Documentary evidence is more reliable when it is received by the auditor directly from an independent
third party.
c. Documents that originate outside the company are considered more reliable than those that originate within
the client’s organization.
d. External evidence, such as communications from banks, is generally regarded as more reliable than the
information obtained from the client.
h.
16. Which of the following factors is most important in determining the competence of audit evidence?
a. The reliability of the evidence in meeting the audit objective
b. The objectivity of the auditor in gathering the evidence
c. The quantity of the evidence obtained
d. The independence of the source of evidence
i.
17. Which of the following pertains to the reliability of audit evidence?
a. The independence of the source of evidence
b. The experience 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
j.
18. Which of the following is not one of the characteristics of competent evidence?
a. Independence of the source of the evidence
b. Effectiveness of internal control structure under which the internal evidence has been developed
c. Size of the sample
d. Degree of objectivity of the auditor
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 k.
19. Which of the following presumptions does not relate to the competence of audit evidence?
a. The more effective the internal control is, the more assurance it provides about the accounting data and
financial statements.
b. An auditor’s opinion, to be economically useful, is formed within a reasonable time and based on evidence
obtained at a reasonable cost.
c. Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely
within the entity.
d. The independent auditor’s direct personal knowledge, obtained through observation and inspection, is more
persuasive than information obtained indirectly.
l.
20. Which of the following statements relating to the competence of evidential matter is always true?
a. Evidential matter gathered by an auditor from outside an enterprise is reliable.
b. Accounting data developed under satisfactory conditions of internal control are more relevant than data
developed under unsatisfactory conditions.
c. Oral representations made by management are not valid.
d. Evidence gathered by auditors must be both valid and relevant to be considered competent.
m.
21. Which statement is incorrect regarding analytical procedures?
a. Analytical procedures may be helpful in identifying the existence of unusual transactions or events, and
amounts, ratios, and trends that might indicate matters that have financial statement and audit implications.
b. In performing analytical procedures as risk assessment procedures, the auditor develops expectations about
plausible relationships that are reasonably expected to exist.
c. When comparison of those expectations with recorded amounts or ratios developed from recorded amounts
yields unusual or unexpected relationships, the auditor considers those results in identifying risks of material
misstatement.
d. When such analytical procedures use data agLaklak realidadated at a high level (which is often the
situation), the results of those analytical procedures provide a clear-cut indication about whether a material
misstatement may exist.
n.
22. Which statement is correct regarding business risks?
a. The risk of material misstatements in the financial statements is broader than business risk, though it includes
the latter.
b. The auditor should identify or assess all business risks.
c. All business risks give rise to risks of material misstatement.
d. A business risk may have an immediate consequence for the risk of misstatement for classes of transactions,
account balances, and disclosures at the assertion level or the financial statements as a whole.
o.
23. Inquiries directed towards those charged with governance may most likely
a. Relate to their activities concerning the design and effectiveness of the entity’s internal control and whether
management has satisfactorily responded to any findings from these activities.
b. Help the auditor understand the environment in which the financial statements are prepared.
c. Relate to changes in the entity’s marketing strategies, sales trends, or contractual arrangements with its
customers.
d. Help the auditor in evaluating the appropriateness of the selection and application of certain accounting
policies.
p.
24. Which statement is incorrect regarding significant risks that require special audit consideration?
a. The auditor should determine which of the identified risks are, in the auditor’s judgment, require special audit
consideration.
b. The auditor excludes the effect of identified controls related to the risk to determine whether the nature of
the risk, the likely magnitude of the potential misstatement including the possibility that the risk may give rise
to multiple misstatements, and the likelihood of the risk occurring are such that they require special audit
consideration.
c. Routine, non-complex transactions that are subject to systematic processing are more likely to give rise to
significant risks because they have higher inherent risks.
d. Significant risks are often derived from business risks that may result in a material misstatement.
q.
25. The assessment of the risks of material misstatement at the financial statement level is affected by the auditor’s
understanding of the control environment. Weaknesses in the control environment ordinarily will lead the auditor
to

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 a. Have more confidence in internal control and the reliability of audit evidence generated internally within the
entity.
b. Conduct some audit procedures at an interim date rather than at period end.
c. Modify the nature of audit procedures to obtain more persuasive audit evidence.
d. Decrease the number of locations to be included in the audit scope.
r.
26. Which of the following is least likely considered a financial statement audit risk factor?
a. Management operating and financing decisions are dominated by top management.
b. A new client with no prior audit history.
c. Rate of change in the entity’s industry is rapid.
d. Profitability of the entity relative to its industry is inconsistent.
s.
27. Which of the following is most likely to be considered a risk factor relating to fraudulent financial reporting?
a. Low turnover of senior management.
b. Extreme degree of competition within the industry.
c. Capital structure including various operating subsidiaries.
d. Sales goals in excess of any of the preceding three years.
t.
28. Which of the following is correct concerning requirements about auditor’s communications about fraud?
a. Fraud that involves senior management should be reported directly to the audit committee regardless of
the amounts involved.
b. All fraud with a material effect on the financial statements should be reported directly by the auditor to the
Securities and Exchange Commission.
c. Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor through
the use of an emphasis of a matter paragraph added to the audit report.
d. The auditor has no responsibility to disclose fraud outside the entity under any circumstances.
u.
29. Which of the following factors most likely would heighten an auditor’s concern about the risk of fraudulent
financial reporting?
a. Large amounts of liquid assets that are easily convertible into cash.
b. Low growth and profitability as compared to other entity’s in the same industry.
c. Financial management’s participation in the initial selection of accounting principles.
d. An overly complex organizational structure involving unusual lines of authority.
v.
30. Which of the following is most likely to be an overall response to fraud risks identified in an audit?
a. Only use certified public accountants on the engagement.
b. Place increased emphasis on the audit of objective transactions rather than subjective transactions.
c. Supervise members of the audit team less closely and rely more upon judgment.
d. Use less predictable audit procedures.
w.
31. When must an auditor perform analytical review procedures in a financial statement audit?
a. Testing controls over financial cycles
b. Performing tests to substantiate balances
c. Planning the nature, timing and extent of procedures
d. Performing tests to substantiate transactions
x.
32. The purpose of analytical procedures during the audit planning stage is to
a. aid in planning the observation of physical inventory.
b. identify unusual circumstances that the auditor may need to investigate further.
c. flag individual transactions for further review.
d. determine whether sales transactions are approved.
y.
33. Which of the following represents a procedure that the auditor may use because plausible relationships among
financial statement balances are expected to exist?
a. Attributes testing c. Inherent tests of control
b. Enterprise risk assessment d. Analytical review
e.
f.
34. The main purpose of risk assessment procedures is to
a. Obtain an understanding of the entity and its environment, including its internal control, to assess the risks
of material misstatement at the financial statement and assertion levels.

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 b. Test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements
at the assertion level.
c. Detect material misstatements at the assertion level.
d. All of the given choices are main purposes of risk assessment procedures.
e.
35. Which of the following statements is incorrect regarding obtaining an understanding of the entity and its
environment?
a. Obtaining an understanding of the entity and its environment is an essential aspect of performing an audit in
accordance with PSAs.
b. Understanding of the entity and its environment establishes a frame of reference within which the auditor
plans the audit and exercises professional judgment about assessing risks of material misstatement in the
financial statements and responding to those risks throughout the audit.
c. The auditor’s primary consideration is whether the understanding that has been obtained is sufficient to
assess the risks of material misstatement in the financial statements and to design and perform further audit
procedures.
d. The depth of the overall understanding that is required by the auditor in performing the audit is at least
equal to that possessed by management in managing the entity.
a.
36. The auditor should determine overall responses to address the risks of material misstatement at the financial
statement level. Such responses least likely include
a. Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating audit
evidence.
b. Assigning more experienced staff or those with special skills or using experts.
c. Incorporating additional elements of unpredictability in the selection of further audit procedures to be
performed.
d. Performing substantive procedures at an interim date instead of at period end.
e.
37. Which statement is incorrect regarding the nature of further audit procedures?
a. The nature of further audit procedures refers to their purpose and their type.
b. Certain audit procedures may be more appropriate for some assertions than others.
c. The higher the auditor’s assessment of risk, the less reliable and relevant is the audit evidence sought by
the auditor from substantive procedures.
d. The auditor is required to obtain audit evidence about the accuracy and completeness of information
produced by the entity’s information system when that information is used in performing audit procedures.
a.
38. Which statement is incorrect regarding the extent of further audit procedures?
a. Extent includes the quantity of a specific audit procedure to be performed.
b. The extent of an audit procedure is determined by the judgment of the auditor after considering the
materiality, the assessed risk, and the degree of assurance the auditor plans to obtain.
c. The auditor ordinarily decreases the extent of audit procedures as the risk of material misstatement
increases.
d. Increasing the extent of an audit procedure is effective only if the audit procedure itself is relevant to the
specific risk.
a.
39. The auditor should design and perform further audit procedures whose nature, timing, and extent are responsive
to the assessed risks of material misstatement at the assertion level. Which of the following is the most important
consideration in responding to the assessed risks?
a. The nature of the audit procedures. c. The extent of the audit procedures.
b. The timing of the audit procedures. d. All of these are equally important.
e.
40. While assessing the risk of material misstatement, the auditors identity risks, relate risk to what could go wrong,
consider the magnitude of risks and:
a. Assess the risk of misstatements due to noncompliance to laws and regulations.
b. Consider the complexity of the transactions involved.
c. Consider the likelihood that the risks could result in material misstatements.
d. Determine materiality level.
a.
b.

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41. 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 decisions in all cases.
d. Possess skills clearly above the average for the profession.
c.
42. Which of the following mostly describes the function of AASC?
a. To promulgate auditing standards, practices 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.
d.
43. 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.
e.
44. The following statements relate to RA 9298. Which statement is true?
a. The Professional Regulation Commission has the authority to remove any member of the Board of Accountancy
for negligence, incompetence, or any other just cause.
b. Insanity is not a ground for proceeding against a CPA.
c. A person shall be considered to be in the professional practice of accounting if, as an officer in a private
enterprise, he makes decisions requiring professional accounting knowledge.
d. After three years, subject to certain conditions, the Board of Accountancy may order the reinstatement of a CPA
whose certificate of registration has been revoked.
f.
45. Are the following CPAs required to comply with the requirements on continuing professional education?
g. a b c d
h. • CPAs in Public Accountancy Yes Yes Yes Yes
i. • CPAs in Commerce and Industry Yes Yes No No
j. • CPAs in Education/Academe Yes Yes Yes No
k. • CPAs in Government Yes No Yes No
l.
46. 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 FRSC.
b. To emphasize the auditor’s independence from the management of the corporation.
c. To encourage a policy of rotation of the independent auditors.
d. To provide the corporate owners with an opportunity to voice their opinion concerning the quality of the
auditing firm selected by the directors.
m.
47. A violation of the ethical standards would most likely have occurred when a CPA
a. made arrangement with a bank to collect notes issued by a client in payment of fees due.
b. joined an accounting firm made up of three non-CPA practitioners.
c. issued an unqualified opinion on the 2009 financial statements when fees for the 2008 audit were unpaid.
d. purchased a bookkeeping firm’s practice of monthly write-ups for a percentage of fees received over a three-
year period.
n.
48. The concept of materiality would be least important to an auditor when considering the
a. decision whether to use positive or negative confirmations of accounts receivable.
b. adequacy of disclosure of a client’s noncompliance with laws and regulations.
c. discovery of weaknesses in a client’s internal control structure.
d. effects of a direct financial interest in the client upon the CPA’s independence.
o.
49. Which of the following is a violation of Confidentiality rule of the Code of Professional Conduct?
a. The CPA, in response to a court subpoena, submits auditor-prepared working papers as evidence of possible
noncompliance with laws and regulations perpetrated by the client.
b. The CPA discloses to the board of directors a scheme concocted by top management to intentionally inflate
earnings.
c. The CPA warns Client B as to the inadvisability of acquiring Client A. The CPA bases this warning on
knowledge of Client A's financial condition and a belief that the management of Client A lacks integrity. This
knowledge was obtained by the CPA as a result of auditing Client A during the past several years.
d. The CPA, when questioned in court, admits of having a knowledge of certain noncompliance with laws and
regulations perpetrated by the client.
 p.
50. An auditor who accepts an audit engagement and 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 management that an unqualified opinion cannot be issued.
q.
51. Lucho, an auditor is auditing the receivable balance of Bon Company. Which of the following audit procedures
provides the best evidence about the collectability of notes receivable?
a. Confirmation of note receivable balances with the debtors.
b. Examination of notes for appropriate debtors ‘signatures.
c. Examination of cash receipts records to determine promptness of interest and principal payments.
d. Reconciliation of the detail of notes receivable and the provision for uncollectible amounts to the general
ledger control.
r.
52. Jerowm wishes to substantiate the gross balance of the account "Trade Notes Receivable" is considering the
advisability of performing the four procedures listed below. Which pair of procedures is best suited to this objective?
s. I. Age the receivables.
t. II. Confirm the notes with the makers.
u. III. Inspect the notes.
v. IV. Trace a sample of postings from the sales journal to the notes receivable ledger.
a. I and III only b. I and IV only c. II and III only d. II and IV only
w.
x. The next three questions are based on the case presented below:
y. The audit program of Ace, an auditor in the audit of cash balance of Jow-Ann Company includes the
confirmation of the bank accounts maintained by the company in different banks. A list of bank and respective
account balances were obtained by Ace. The working paper of Ace for the account balance is presented
below:
z.
aa.

53. Based on the information presented above, the best audit procedure that will represent A02 will be:
a. Re-performance of confirmation c. Review of bank reconciliation statement
b. Preparation of Proof of cash d. Inspection of book records and bank statements
bb.
54. In performing all procedures to support account balances, the auditor is required to obtained evidence. What is the
most appropriate and sufficient evidence that Ace must have?
 I. Confirmation letters from banks
II. December copy of bank statements obtained from client
III. January copy of bank statements obtained from client
IV. Cash receipts and cash disbursements journal
a. I and II only b. I and III only c. I, II and III only d. III and IV only e. All of them
cc.
55. Which of the following is not an objective of Ace in performing the procedure?
a. Existence b. Completeness c. Rights and obligation d. Valuation
dd.
56. Which of the following would best protect a company that wishes to prevent lapping?
a. Separating duties so that accounting staff has no access to an incoming mail.
b. Separating duties so that no employee has access both to checks from customers and money from daily cash
receipts.
c. Arrange that customers send payments directly to the company’s bank.
d. Requesting that customers checks be made payable to the company and be addressed to the treasurer.
ee.
57. Which of the following statements is correct?
a. Bank personnel are responsible for providing reasonable assurance that a response to a bank confirmation is
accurate.
b. Bank personnel are responsible for providing complete assurance that a bank confirmation is complete.
c. Bank personnel are not responsible for searching their records for bank balances or loans beyond those
included on the bank confirmation.
d. Bank personnel are not responsible for providing information related to interest on the bank confirmation.
ff.
58. The audit procedures for the subsequent events review can be divided into two categories: (1) procedures integrated
as a part of the verification of year-end account balances, and (2) those performed specifically for the purpose of
discovering subsequent events. Which of the following procedures is in category 1?
a. Inquiries of client regarding contingent liabilities.
b. Obtain a letter of representation written by client.
c. Subsequent period sales and purchases transactions are examined to determine whether the cutoff is
accurate.
d. Review journals and ledgers of year 2 to determine the existence of any transaction related to year 1.
gg.
59. The auditor must know the client’s capitalization policies to determine whether acquisitions are:
hh. ii. Recorded in jj. kk. Treated consistently ll. mm. Necess
accordance with with those of the ary
GAAP preceding year
nn. oo. Yes pp. qq. Yes rr. ss. Yes
a.
tt. uu. Yes vv. ww.No xx. yy. No
b.
zz. aaa. No bbb. ccc. No ddd. eee. No
c.
fff. ggg. Yes hhh. iii. Yes jjj. kkk. No
d.
lll.
60. Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment?
a. Verification of depreciation expense.
b. Analytical procedures.
c. Verification of current-period disposals.
d. Verification of the beginning balance in accumulated depreciation.
mmm.
61. Because the failure to record disposals of property, plant, and equipment can significantly affect the financial
statements, the search for unrecorded disposals is essential. Which of the following is not a procedure used to verify
disposals?
a. Make inquiries of management and production personnel about the possibility of the disposal of assets.
b. Review whether newly acquired assets replace existing assets.
c. Test the valuation of fixed assets recorded in prior periods.
d. Review plant modifications and changes in product line or insurance coverage.
nnn.
ooo.
62. Which of the following is (are) tool(s) used by the auditor in performing observation during inventory count.
a. Inventory listings from client
b. Inventory count sheets
 c. Inventory tags
d. Both a and b
e. All of them
ppp.
63. In observation during inventory count, the auditor noted some differences in the amount from inventory listings and
his own inventory count sheet. The auditor must:
a. Resolve the matter with the client after the inventory count.
b. Resolve the matter with the client when the differences were noted.
c. Adjust the inventory balance of the company immediately.
d. Let the client decide whether the difference is material or immaterial before proposing an adjustment.
qqq.
64. Which of the following is not an audit procedure which an independent auditor would perform with respect to
litigation, claims, and assessments?
a. Inquire of and discuss with management the policies and procedures adopted for identifying, evaluating, and
accounting for litigation, claims, and assessments.
b. Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the
balance sheet date.
c. Obtain assurance from management that it has disclosed all un-asserted claims that the lawyer has advised are
probable of assertion and must be disclosed.
d. Confirm directly with the client's lawyer that all claims have been recorded in the financial statements.
rrr.
65. An auditor who wishes to substantiate the gross balance of the account "Trade Notes Receivable" is considering the
advisability of performing the four procedures listed below. Which pair of procedures is best suited to this objective?
I. Age the receivables.
II. Confirm the notes with the makers.
III. Inspect the notes.
IV. Trace a sample of postings from the sales journal to the notes receivable ledger.
a. I and III b. I and IV c. II and III d. II and IV
sss.
ttt. The next three questions are based on the case presented below:
uuu. Assume that you are the audit manager in charge of the Laklak realidad’s Auto Parts audit, and that Sara
Dyosa, the in-charge senior auditor, has presented you with an "open items" audit working paper describing
the following unresolved issues:
vvv.
1. Laklak realidad’s Auto Parts, as of March 31, 2015, its fiscal year-end, had inventory on consignment in the
warehouse of its principal customer in Pasig awaiting sale during the summer buying season. Dyosa had the client
request the customer to confirm the existence and ownership of the inventory, but a reply has not been received as
of the close of audit field work, May 17, 2015. The goods represent 11% of the total finished goods inventory.
www.
2. Dyosa requested a copy of the debt restructuring agreement that would permit reclassifying certain current liabilities
as “short-term obligations expected to be refinanced.” The copy was not received as of the close of audit field work.
If not reclassified, Laklak realidad’s balance sheet will show a current ratio of 1:1 and a quick ratio of 1:2.
xxx.
3. A loan to Suko Nako, Laklak realidad’s Auto Parts’ chief executive officer, is purportedly secured by collateral
consisting of negotiable securities. As of the close of audit field work, Dyosa has yet to examine this collateral. A
request for broker’s confirmation has not been received. The loan is classified as a current asset and represents 20%
of total current assets.
yyy.
zzz. **For each of the following independent risk identified, select the best audit procedure(s) that an audit must
perform:
aaaa.
66. RISK: If the inventory does not exist, or if it is not owned by Laklak realidad’s Auto Parts, ending inventory and net
income will be overstated.
a. Ask the client to request the customer to return the confirmation.
b. Arrange to have correspondent auditors in Pasig inspect the inventory on a test basis.
c. Ask the client to perform a physical count.
d. Both A and B
e. None of the above
bbbb.
67. RISK: If the debt has not been restructured, the auditors, given the current and quick ratios, may need to increase
the doubt as to the ability of Laklak realidad’s Auto Parts to continue as a going concern.
a. Ask the client to confirm the existence of the agreement.
b. Obtained a signed copy of agreement.
c. Ask the client to prepare confirmation of the agreement and obtained a signed copy of the agreement.
 d. Inquire with client with the possible effect of the financial statement and have it documented.
e. None of the above.
cccc.
68. RISK: If this is in reality an unsecured loan, and if Efron is either unable or unwilling to repay it promptly, the client’s
current debt paying ability becomes even more precarious.
a. Inspection of the securities by Dyosa directly from broker.
b. Send another confirmation letter to the broker.
c. Both A and B
d. None of the above
dddd.
69. Richard, CPA, performs accounting services for Norton Corporation. Norton wishes to offer shares to the public and
asks Richard to audit the financial statements. Richard refers Norton to Cruz, CPA, who is more competent in the area
of registration statements. Cruz performs the audit of Norton's financial statements and subsequently thanks Richard
for the referral by giving Richard a portion of the audit fee. Richard accepts the fee. Who, if anyone, has violated
professional ethics?
a. Only Richard.
b. Both Richard and Cruz.
c. Only Cruz.
d. Neither Richard nor Cruz.
eeee.
70. The Code of Professional Conduct would be violated if a member accepted a fee for services and the fee was
a. Fixed by a public authority.
b. Based on a price quotation submitted in competitive bidding.
c. Based on the result of judicial proceedings.
d. Payable after a specified finding was attained.
ffff.
71. Inclusion of which of the following statements in a CPA's advertisement is not acceptable under the Code of
Professional Conduct?
a. Paul Fall
gggg. Certified Public Accountant
hhhh. Fluency in Spanish and French
b. Paul Fall
iiii. Certified Public Accountant
jjjj. Tax Specialist
c. Paul Fall
kkkk. Certified Public Accountant
llll. Free Consultation
d. Paul Fall
mmmm. Certified Public Accountant
nnnn. Endorsed by the PICPA
oooo.
72. Which of the following is prohibited by the Code of Professional Conduct?
a. A firm that designates itself “Members of the PICPA” when one partner has been expelled from the PICPA.
b. Practice of public accounting in the form of a professional corporation.
c. Use of the partnership name for a limited period by one of the partners in a public accounting firm after the
death or withdrawal of all other partners.
d. Holding as an investment 10 of 1,000 outstanding shares in a commercial corporation that performs bookkeeping
services.
pppp.
73. Which statement is incorrect regarding analytical procedures?
a. Analytical procedures may be helpful in identifying the existence of unusual transactions or events, and
amounts, ratios, and trends that might indicate matters that have financial statement and audit implications.
b. In performing analytical procedures as risk assessment procedures, the auditor develops expectations about
plausible relationships that are reasonably expected to exist.
c. When comparison of those expectations with recorded amounts or ratios developed from recorded amounts
yields unusual or unexpected relationships, the auditor considers those results in identifying risks of material
misstatement.
d. When such analytical procedures use data aggregated at a high level (which is often the situation), the results
of those analytical procedures provide a clear-cut indication about whether a material misstatement may
exist.
qqqq.
74. Which of the following is not a characteristic of the primarily substantive approach?
a. The auditor usually gathers all or most of the evidence with substantive tests.
b. Usually little or no reliance is placed on controls.
 c. The assessment of control risk is usually at or near maximum level.
d. Extensive tests of controls are performed.
rrrr.
75. If the auditor sets the preliminary judgment about materiality level at a relatively low peso amount,
a. more evidence will be required than for a high level.
b. less evidence will be required than for a high level.
c. the same amount of evidence will be required as for a high level.
d. the amount of evidence required will not be affected.
ssss.
tttt. *** END ***