Janilyn F.

Viernes
BSAC 4-1

1. The objective of the ordinary audit of financial statements is the expression of an opinion on:
a. The fairness of the financial statements in all material respects.
b. The accuracy of the financial statements.
c. The accuracy of annual report.
d. The accuracy of the balance sheet and income statement.

2. The responsibility for the preparation of the financial statements and the accompanying footnotes belongs
to.
a. The auditor.
b. Management
c. Both management and the auditor equally.
d. Management for the statements and the auditor for the notes.

3. Auditors accumulate evidence to:

a. Defend themselves in the events of a lawsuit.
b. Justify the conclusions they have otherwise reached.
c. Satisfy the requirements of the Securities and Exchange Commission.
d. Enable them to reach conclusions about the fairness of the financial statements.

4. Management assertions are:

a. Directly related to the financial reporting framework used by the company.
b. Stated in the footnotes to the financial statements.
c. Explicitly expressed representations about the company’s financial condition.
d. Provided to the auditor in the assertions letter, but are not disclosed on the financial statements.

5. This assertions addresses whether all transactions that should be included in the financial
statements are in fact included:
a. Occurrence
b. Completeness
c. Rights and obligations
d. Existence

6. Which of the following statements is not correct?

a. It would be a violation of the completeness assertion if management would record a sale
that did not take place.
b. The completeness assertions deals with matters opposite from those of the existence assertions.
c. The completeness assertion is concerned with inclusion of amount that should have been included.
d. The existence assertion is concerned with inclusion of amount that should not have been.

7. Which of the following assertions does not relate to balances at period end?
a. Existence
b. Occurrence
c. Valuation or allocation
d. Rights and obligation

8. Which of the following statements is correct?

a. Existence relates to whether the amounts in accounts are understated.
b. Completeness relates to whether balances exist.
c. Existence relates to whether the balances are valid.
d. Occurrence relates to whether the amounts in accounts occurred in the proper year.

9. Which of the following management assertions is not associated with transaction-related audit objectives?
a. Occurrence
b. Classification and understandability
c. Accuracy
d. Completeness

10. An assertion that transactions are recorded in the proper accounting period is:
a. Classification
b. Accuracy
c. Occurrence
d. Cut-off
11. The auditor is determining that the recorded sales are for the amount of goods shipped are correctly billed
and recorded. The auditor is gathering evidence about which transaction related audit objective?
a. Existence
b. Completeness
c. Accuracy
d. Cut-off

12. In testing for cutoff, the objective is to determine:

a. Whether all of the current period’s transactions are recorded.
b. Whether transactions are recorded in the correct accounting period.
c. The proper cutoff between capitalizing and expensing.
d. The proper cutoff between disclosing items in footnotes or in account balances.

13. Which of the following statement is not correct?

a. These are many ways an auditor can accumulate evidence to meet the overall audit objectives
b. Sufficient appropriate 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 considerations that affect the approach the
auditor selects.

14. When the auditor develops supporting evidence for amounts posted to account balances with documentary
evidence, that process is called:
a. Inquiry
b. Confirmation
c. Vouching
d. Physical examination

15. When the auditor uses tracing as an audit procedure for tests of transactions, the auditor is primarily
concerned with which audit objective?
a. Occurrence
b. Completeness
c. Cut-off
d. Classification

16. When auditors use documentation to support recorded transactions and amounts, the process
is usually called:
a. Tracing
b. Confirmations
c. Vouching
d. Performance

17. When the auditor used the audit procedure vouching, the auditor is primarily concerned with
which of the following audit objectives when testing classes of transactions?
a. Occurrence
b. Completeness
c. Authorization
d. Classification

18. In performing your audit for a privately-held firm your inquiries have yielded that one of the company’s
owner’s primary motivations is to pay the least amount of income tax that is possible. Based on this
observation which audit objectives for ending inventory would the auditor be most concerned about
ascertaining?
a. Completeness
b. Accuracy
c. Rights and obligations
d. Existence

19. After the auditor has completed all audit procedures, it is necessary to combine the information
obtained to reach an overall conclusion as to whether the financial statements are fairly presented.
This is a highly subjective process that relies heavily on:
a. Generally accepted auditing standards.
b. The Code of Professional Ethics.
c. PFRS.
d. The auditor’s professional judgment
20. Which of the following audit procedures is used extensively throughout the audit and often is
complementary to performing other audit procedures?
a. Inspection
b. Observation
c. Inquiry
d. Confirmation

21. Which statement is incorrect regarding Inquiry?

a. Responses to inquiries may provide the auditor with information not previously possessed
or with corroborative audit evidence.
b. Responses to inquiries might provide information that differs significantly from other
information that the auditor has obtained.
c. Responses to inquiries may provide a basis for the auditor to modify of modify or perform
additional audit procedures.
d. Inquiry alone is sufficient to test the operating effectiveness of controls.

22. Observation
a. Consists of looking at a process or procedure being performed by others.
b. Consist of seeking information of knowledgeable persons, both financial and non-financial,
throughout the entity or outside the entity.
c. Is the process of obtaining a representation of information or of an existing condition
directly from a third party.
d. Is the auditor’s independent execution of procedures or controls that were originally
performed as part of the entity’s internal control.

23. This consist of checking the mathematical accuracy of documentations or records.

a. Reperformance
b. Recalculation
c. Confirmation
d. Inspection

24. Even with the most effectively designed internal control, the auditor must obtain audit evidence, beyond
testing the controls, for every:
a. Transaction
b. Financial statement account
c. Material financial statement account
d. Financial statement account that will be relied upon by third parties

25. The sequence of steps in gathering evidence as the basis of the auditor’s opinion is
a. Substantive tests, documentation of control structure, and tests of controls
b. Documentation of control structure, test of controls, and substantive tests
c. Documentation of control structure, substantive tests, and test of controls
d. Test of controls, documentation of control structure, and substantive controls

26. Which of the following is the correct order of steps in the audit process?
A. Perform tests of control
B. Develop an overall strategy for the expected conduct and scope of the audit
C. Obtain client’s written representation
D. Prepare engagement letter
E. Perform substantive tests
a. D,A,B,E,C
b. D,B,A,E,C
c. D,B,C,A,E
d. D,B,E,A,C

27. Which of the following would an auditor least likely perform as part of the auditor’s preliminary engagement
activities?
a. Perform procedures regarding the continuance of the client relationship and the specific audit engagement.
b. Evaluate compliance with ethical requirements, including independence.
c. Establish an understanding of the terms of the engagement.
d. Obtain understanding of the legal and regulatory framework applicable to the entity
28. Which of the following is not one of the reasons why auditor should perform preliminary engagement
activities?
a. To ensure that the auditor maintains the necessary independence and ability to perform the engagement.
b. To help ensure that there are no issues with management integrity that may affect the auditor’s willingness
to continue the engagement.
c. To ensure that there is no misunderstanding with the client as to the terms of the engagement.
d. To ensure that sufficient appropriate evidence will be obtained to support the auditor’s opinion on the
financial statements.

29. Which of the following is not normally performed in the preplanning or pre-engagement phase?
a. Deciding whether to accept or reject an audit engagement
b. Inquiring from predecessor auditor
c. Preparing an engagement letter
d. Making a preliminary estimate of materiality

30. In making a decision to accept or continue with a client, the auditor should consider:
a. b. c. d.
Its competence YES YES YES YES
Its independence YES NO YES NO
Its ability to serve the client properly YES YES YES NO
The integrity of client’s management YES YES NO YES

31. Before accepting an engagement to audit a new client, a CPA is required to obtain
a. A preliminary understanding of the prospective client’s industry and business.
b. The prospective client’s signature to the engagement letter.
c. An understanding of the prospective client’s control environment.
d. A representation letter from the prospective client.

32. Preliminary knowledge about the client’s business and industry must be obtained prior to the acceptance of
the engagement primarily to
a. Determine the degree of knowledge and expertise required by the engagement.
b. Determine the integrity of management.
c. Determine whether the firm is independent with the client.
d. Gather evidence about the fairness of the financial statements.

33. A CPA firm’s quality control procedures pertaining to the acceptance of a prospective audit client would
most likely include
a. Inquiry of management as to whether disagreements between the predecessor auditor and the
prospective client were resolved satisfactorily.
b. Consideration of whether sufficient competent evidential matter may be obtained to afford a reasonable
basis for an opinion.
c. Inquiry of third parties, such as the prospective client’s bankers and attorneys, about information regarding
the prospective client and its management.
d. Consideration of whether the internal control structure is sufficiently effective to permit a reduction in the
required substantive tests.

34. Prior to the acceptance of an audit engagement with a client who has terminated the services of the
predecessor auditor, the CPA should
a. Contact the predecessor auditor without advising the prospective client and request a complete report of the
circumstance leading to the termination with the understanding that all information disclosed will be kept
confidential.
b. Accept the engagement without contacting the predecessor auditor since the CPA can include audit
procedures to verify the reason given by the client for the termination.
c. Not communicate with the predecessor auditor because this would be in effect be asking the auditor and
client.
d. Advise the client of the intention to contact the predecessor auditor and request permission for the
contact.

35. The purpose of the requirement in having communication between the predecessor and successor auditors
is to:
a. Allow the predecessor to disclose information which would otherwise be confidential.
b. Help the successor auditor evaluate whether to accept the engagement.
c. Help the client by facilitating the change of auditors.
d. Ensure the predecessors collects all unpaid fees prior to a change in auditor.
36. Jenna, CPA, has been retained to audit the financial statements of JMV Co. JMV’s predecessor auditor
was Moshe, CPA, who has been notified by JMV that Moshe’s services have been terminated. Under these
circumstances, which party should initiate the communication between Jenna and Moshe?
a. Jenna, the incoming auditor
b. Moshe, the predecessor auditor
c. JMV’s controller
d. The chairman of JMV’s board of directors

37. In an audit, communication between the predecessor and incoming auditor should be
a. authorized in an engagement letter
b. acknowledges in a representation letter
c. either written or oral
d. written and included in the working papers

38. The predecessor auditor is required to respond to the request of the successor auditor for information, but
the response can be limited to stating that no information will be provided when:
a. the predecessor auditor has poor relations with the successor auditor.
b. the client is dissatisfied with the predecessor’s work.
c. there are actual or potential legal problems between the client and the predecessor.
d. the predecessor believes that the clients lacks integrity.

39. Arnel, CPA, is succeeding Von, CPA, on the audit engagement of Jin Corporation. Arnel plans to consult
Von and to review Von’s prior year working papers. Arnel may do so if
a. Von and Jin consent
b. Jin consents
c. Von consents
d. Von and Arnel consent

40. Upon discovering material misstatements in a client’s financial statements that the client would not revise,
the auditor withdrew from the engagement. If asked by the incoming auditor about the termination the
engagement, the predecessor auditor should
a. State that he found material misstatements that the client would not revise
b. Suggest that the incoming auditor ask the client
c. Suggest that the incoming auditor obtain the client’s permission to discuss the reasons
d. Indicate that a misunderstanding occurred

41. Before accepting an engagement to audit a new client, a CPA is required to obtain
a. An understanding of the prospective client’s industry and business
b. The prospective client’s signature to the engagement letter.
c. A preliminary understanding of the prospective client’s control environment
d. The prospective client’s consent to make inquiries of the predecessor auditor, if any.

42. Before accepting an audit engagement, a new successor auditor should make specific inquiries of the
predecessor auditor regarding
a. Disagreements the predecessor had with the client concerning auditing procedures and accounting
principles
b. The predecessor’s evaluation of matters of continuing accounting significance.
c. The degree of cooperation the predecessor received concerning the inquiry of the client’s lawyer.
d. The predecessor’s assessments of inherent risk and judgements about materiality.

43. Before accepting an audit engagement, a successor auditor should make specific inquiries of
the predecessor auditor regarding the predecessor’s
a. Opinion of any subsequent events occurring since the predecessor’s audit report was issued.
b. Understanding as to the reasons for the change of auditors
c. Awareness of the consistency in the application of PFRS between periods.
d. Evaluation of all matters of continuing accounting significance

44. An incoming auditor most likely would make specific inquiries of the predecessor auditor regarding
a. Specialized accounting principles of the client’s industry
b. The competency of the client’s internal audit staff.
c. The uncertainty inherent in applying sampling procedures.
d. Disagreements with management as to auditing procedures.
45. Which of the following should an incoming auditor obtain from the predecessor auditor prior to accepting
and audit engagement?
a. Analysis of balance sheet accounts
b. Analysis of income statement accounts
c. All matters of continuing accounting significance
d. Facts that might bear on the integrity of management

46. What information should an incoming auditor obtain during the inquiry of the predecessor auditor prior to
acceptance of the audit?
I. Facts that bear on the integrity of management
II. Whether statistical or non-statistical sampling was used to gather evidence
III. Disagreement with management concerning auditing procedures.
IV. The effect of the client’s internal audit function on the scope of the independent auditor’s examination.
a. I and II
b. I and III
c. I and IV
d. III and IV

47. An incoming auditor should request the new client to authorize the predecessor auditor to allow
a review of the predecessor’s
Engagement letter Working Paper
a. Yes Yes
b. Yes No
c. No Yes
d. No No

48. Which of the following factors most likely would cause an auditor not to accept a new audit engagement?
a. An inadequate understanding of the entity’s interval control structure
b. The close proximity to the end of the entity’s fiscal year
c. Concluding that the entity’s management probably lacks integrity
d. An inability to perform preliminary analytical procedures before assessing control risk

49. Which of the following factors most likely would influence an auditor’s determination of the auditability of
the entity’s financial statements
a. The complexity of the accounting system
b. The existence of related party transactions
c. The adequacy of the accounting records
d. The operating effectiveness of control procedures

50. In auditing the financial statements of Star Corp., Land discovered information leading Land to believe that
Star’s prior year’s financial statements, which are audited by Jell, require substantial revisions. Under these
circumstances, Land should
a. Notify Star’s audit committee and stockholders that the prior year’s financial statements cannot be
relied on.
b. Request Star to reissue the prior year’s financial statements with appropriate revisions.
c. Notify Jell about the information and make inquiries about the integrity of Star’s management.
d. Request Star to arrange a meeting among the three parties to resolve the matter.

51. Hawkins requested permission to communicate with the predecessor auditor and review certain portions of
the predecessor auditor’s work papers. The prospective client’s refusal to permit this will bear directly on
Hawkins decision concerning the:
a. Adequacy of the preplanned audit program
b. Ability to establish consistency in application of accounting principles between years
c. Apparent scope limitation
d. Integrity of management

52. Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor’s working
paper analyses relating to
Contingencies Balance sheet accounts
a. Yes Yes
b. Yes No
c. No Yes
d. No No

53. In making client acceptance decisions the audit firm will consider:
a. inherent and control risk of the client.
b. audit risk to the CPA Firm.
c. the client’s business risk and the CPA firm’s engagement risk.
d. CPA Firm’s potential ongoing revenue from the audit client.
54. The purpose of an engagement letter is to:
a. document the CPA firm’s responsibility to external users of the audited financial statements.
b. document the terms of the engagement.
c. notifies the audit staff of an upcoming engagement so that personnel scheduling can be facilitated.
d. emphasizes management’s responsibility for approving the audit program.

55. Before performing any audit procedures. The auditor and the client should agree on the
Type of opinion to be expressed Terms of the engagement
a. Yes Yes
b. No Yes
c. No Yes
d. Yes Yes

56. Engagement letters

a. may be either oral or written.
b. must be written.
c. must be written and notarized.
d. must be written if the client is regulated by the Securities and Exchange Commission.

57. According to PSA 210, the auditor and the client should agree on the terms of engagement.
The agreed terms would need to be recorded in a(n)
a. memorandum to be placed in the permanent section of the auditing working papers
b. engagement letter
c. client representation letter
d. comfort letter

58. The auditor should document the understanding established with a client through a(n)
a. Oral communication with the client
b. Written communication with the client
c. Written or oral communication with the client
d. Completely detailed audit plan

59. Which of the following is (are) valid reasons why an auditor sends to his client an engagement
letter?
abcd
To avoid misunderstanding with respect to engagement Yes Yes No Yes
To confirm the auditor’s acceptance of the appointment Yes Yes Yes No
To document the objective and scope of the audit Yes Yes Yes Yes
To ensure CPA’s compliance to PSA Yes No No Yes

60. Written communication that the auditor will provide reasonable assurance for the detection of fraud is found
in:
a. engagement letter.
b. representation letter.
c. responsibility letter.
d. client letter.

61. Which of the following normally signs the engagement letter for an audit of a private company?
a. Management
b. Board of director’s representative
c. Audit committee representative
d. Corporate treasurer

62. If an auditor believes that an understanding with the client has not been established, he or she
should ordinarily
a. Perform the audit with increased professional skepticism
b. Decline to accept or perform the audit
c. Assess the control risk at the maximum level and perform a primarily substantive audit
d. Modify the scope of the audit to reflect an increased risk of material misstatement due to fraud.

63. Engagement letter that documents and confirms the auditor’s acceptance of the engagement
would normally be sent to the client.
a. before the audit report is issued.
b. after the audit report is issued
c. at the end of fieldwork
d. before of the commencement of the engagement
64. An engagement letter should ordinarily include information on the objectives of the engagement and
CPA’s responsibilities Client’s responsibilities Limitation of engagement
a. Yes Yes Yes
b. Yes No Yes
c. Yes No No
d. No No No

65. Which of the following matters is generally included in an auditor’s engagement letter?
a. Management’s responsibility for the entity’s compliance with laws and regulations
b. The factors to be considered in setting preliminary judgements about materiality
c. Management’s explicit liability for illegal acts committed by its employees
d. The auditor’ responsibility to search for significant internal control deficiencies

66. CIS has several significance effects on an organization. Which of the following would not be important from
an auditing perspective?
a. Organizational changes
b. The visibility of information
c. The potential for material misstatement
d. None of the above; i.e, they are all important

67. Which statement is incorrect when auditing in a CIS environment?

a. A CIS environment exists when a computer of any type or size is involved in the processing by the entity of
financial information of significance to the audit, whether that computer is operated by the entity or by a third
party
b. The auditor should consider how a CIS environment affects the audit
c. The use of a computer changes the processing, storage and communication of financial information and
may affect the accounting and internal control systems employed by the entity
d. The CIS environment changes the overall objective and scope of an audit

68. An important characteristic of CIS is uniformity of processing. Therefore, a risk exists that:
a. Auditors will not be able to across data quickly
b. Auditors will not be able to determine if data is processed consistently
c. Erroneous processing can result in the accumulation of a great number of misstatements in a short period of
time
d. All of the above

69. The characteristics that distinguish computer processing from manual processing include of the following:
1) Computer processing uniformly subjects like transactions to the same instruction
2) Computer systems always ensure that complete transaction trails useful for audit purposes
are preserved for indefinite periods
3) Computer processing virtually eliminates the occurrence of clerical errors normally associated with manual
processing.
4) Control procedure as to segregation of functions may no longer be necessary in computer environment
a. All of the above statements are true
b. Only statements (2) and (4) are true
c. Only statements (1) and (3) are true
d. All of the above statements are false

70. Which of the following is not a risk specific to CIS environments?

a. Reliance on the functioning capabilities of hardware and software
b. Increased human involvement
c. Loss of data due to insufficient backup unauthorized access
d. Control procedure as to segregation of functions may no longer be necessary in computer environment

71. Which of the following is not a risk in a computerized information system (CIS)?
a. Need for CIS experienced staff
b. Separation of CIS duties from accounting functions
c. Improved audit trail
d. Hardware and data vulnerability

72. Which of the following statements is not correct?

a. The overall objective and scope of an audit do not change in a CIS environment
b. When computers or CIS are introduced, the basic concept of evidence accumulation remains the same
c. Most CIS rely extensively on the same type of procedures for control that are used in manual processing
system
d. The specific methods appropriate for implementing the basic auditing concepts do not change, as systems
become more complex
73. The use of CIS will least likely effect the
a. The procedures followed by the auditor in obtaining a sufficient understanding of the accounting and internal
control systems
b. The auditor’s specific audit objectives
c. The consideration of inherent risk and control risk through which the auditor arrives at the assessment
d. The auditor’s design and performance of tests of control and substantive procedures appropriate to meet the
audit objective

74. Which of the following in unique to CIS?

a. Error listing
b. Flowchart
c. Questionnaire
d. Pre-numbered documents

75. Where the computer processing is used in significant accounting applications, internal
control procedures may be defined by classifying control procedures in two types: general and
a. Administrative
b. Specific
c. Application
d. Authorization

76. A control which relates to all parts of the CIS is called a(n)
a. System control
b. General control
c. Application control
d. Universal control

77. Controls which apply to a specific use of the system are called
a. System controls
b. General controls
c. Applications controls
d. User controls

78. Some CIS control procedures relate to all CIS activities (general controls) and some relate to
specific tasks (application controls). General controls include
a. Controls designed to ascertain that all data submitted to CIS for processing have been properly authorized
b. Controls that relate to the correction and re submission of data that were initially incorrect
c. Controls for documenting and approving programs and changes to programs
d. Controls designed to assure the accuracy of the processing results.

79. Which of the following is correct?

a. Auditors should evaluate application controls before evaluating general controls
b. Auditors should evaluate application controls and general controls simultaneously
c. Auditors should evaluate general controls before evaluating application controls
d. None of these statements is correct

80. Which of the following is a component of general controls?

a. Processing controls
b. Output controls
c. Back-up and contingency planning
d. Input controls