AUDIT SAMPLING

1. When the auditor decides to be select less than 100 percent of the population for testing, the auditor is
said by using
A. Audit sampling C. Representative sampling
B. Poor judgment D. None of the above

2. It involves the application of audit procedures to less than 100% of items within an account balance or
class of transactions to be able to draw conclusions about the characteristics of the entire population.
A. Audit sampling C. Random testing
B. Incomplete tests D. Selective testing

3. For a given audit procedure, the evidence obtained from a sample of 200 would ordinarily be
A. Less sufficient than from a sample of one hundred
B. More sufficient than from a sample of one hundred
C. Less competent than from a sample of one hundred
D. More competent than from a sample of one hundred

4. Sampling risk is
A. The risk that an auditor reaches incorrect conclusion because the sample is not a representative of the
population
B. The risk that an auditor reaches the correct conclusion after considering the non-sampling risk
introduced by auditor judgment
C. A and B
D. Neither A nor B

5. Sampling risk may be controlled by

A. Adjusting the sample size
B. Always using random sampling
C. Using whatever sample selection technique is appropriate for the population
D. A and C

6. The auditor's failure to recognize an error in an amount or an error in an internal control data
processing procedure is described as:
A. Non-sampling error B. Sampling error
C. Standard error of the mean D. Statistical error

7. Non-sampling errors occur when the audit tests do not uncover existing exceptions in the
A. Financial statements. C. Population.
B. Planning stage. D. Sample

8. An error that arises from an isolated event that has not recurred other than on specifically identifiable
occasions and is therefore not representative of errors in the population.
A. Anomalous error C. Sampling error
B. Von-sampling error D. Tolerable error

9. Which of the following statements is correct?

A. The auditor's failure to recognize an exception is a significant cause of sampling risk
B. The use of inappropriate audit procedures is a significant cause of non- sampling risk
C. The use of an appropriate sample selection technique ensures a representative sample
D. A sample of all items of a population will eliminate sampling risk, but increase non-sampling risk

10. This refers to the mathematical completeness of sampling risk.

A. Assurance error C. Expected error
B. Confidence levels D. Tolerable levels

11. Principal methods of sampling selection include all of the following except
A. Haphazard C. Statistical
B. Random number D. Systematic
12. When using statistical sampling, which of the following need not be known to evaluate the results of
an attribute sample?
A. Number of deviations in the population. B. Number of deviations in the sample.
C. Risk of assessing control risk too low. D. Sample size.

13. Which of the following statements is a valid criticism of the use of non-statistical sampling methods?
A. The cost of performing random selection of testing often exceeds the benefits.
B. Non-statistical sampling does not differ substantially from statistical sampling method.
C. Many audit tests, such as footing of journals, must be performed outside a statistical context
D. Conclusion may be drawn in more precise ways when using statistical sampling methods.

14. Which of the following statements is true?

A. The audit procedures will vary as a result of using either statistical or non-statistical sampling.
B. The same audit procedures are performed in the same manner for either statistical or non-statistical
sampling. C. The audit procedures will be the same for either statistical or non- sampling. but they must
be performed differently for each.
D. Statistical sampling requires quantitative audit procedures, whereas non- statistical sampling requires
judgmental audit procedures.

15. Which of the following statements is NOT correct?

A. It is acceptable for auditors to use statistical sampling methods.
B. It is acceptable for auditors to use non-statistical sampling methods.
C. The primary benefit of statistical sampling methods is the quantification of sampling risk.
D. An advantage of using statistical sampling is that the cost/benefit ratio is always positive.

16. A method of sampling selection that involves selecting a group of contiguous items from within the
population is called
A. Block selection B. Stratified selection
C. Systematic selection D. Value- weighted selection

17. When an auditor intends to evaluate a sample statistically, the only acceptable selection method is:
A. Block selection. B. Haphazard selection.
C. Judgmental selection. D. Probabilistic selection.

18. Which following statements regarding replacement and non-replacement sampling is NOT true?
A. Auditors rarely use replacement sampling.
B. In non-replacement sampling, an element in the population can be included in the sample only once.
C. In replacement sampling, an element in the population will not be included in the sample more than
once.
D. If the random number corresponding to an element is selected more than once in non-replacement
sampling, it is treated as a discard the second time.

19. When selecting a stratified sample, the sample size is

A. always larger than if unstratified sampling had been used.
B. determined for each stratum and selected from that stratum.
C. determined for the unstratified population and then apportioned to each stratum.
D. determined for each stratum and selected randomly from the entire unstratified population.

20. In systematic selection, the number of sampling units in the population is divided by the sample size
to determine the
A. Sampling risk B. Non-sampling risk.
C. Sampling interval D. Pattern that may exist in the population

21. Audit efficiency may be improved when the sampling unit is defined as the individual monetary units
that comprise the population. The technique is called
A. Random selection B. Stratification
C. Systematic selection D. Value-weighted selection

22. 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. Minimum documentation would include sufficient information to permit the
reproduction of the sample at a later date.
C. For documentation, it is permissible for the auditor to include in the working papers a copy of the table
sued, with random numbers identified.
D. When comparing statistical sampling important that statistical sampling be mathematical nature. to
judgmental sampling, it is more properly documented because of its

Attribute sampling

23. A statistical method used to estimate the proportion of items in a population containing a
characteristic of interest is
A. Attributes sampling B. Variables sampling
C. Estimation sampling D. Population-proportional-to- size sampling

24. Place the following steps in their proper order:

1. Analyze exception 2
2. Select the sample
3. Define attributes and exception conditions
4. State the objectives of the audit test
 5. Define the sampling unit
A.1,2,3,4,5 C. 4,3,1,2,5
B. 1,3,2,4,5 D. 4,3,5,2,1

25. Audit sampling for test of controls is generally appropriate when

A. control leaves evidence of performance
B. control leaves no evidence of performance
C. either a or b
D. neither a or b

26. Unless a precise statement of what constitutes an attribute is made in advance, the staff person who
performs the audit procedure will have no guidelines
A. For identifying deviations
B. For performing all three of the above
C. To use when evaluating the results of analytical review procedures
D. To determine what documents to obtain and review for the observation tests

27. Tolerable error means

A. An error that the auditor expects to be present in the population.
B. The maximum error in a population that the auditor is willing to accept.
C. An error that arises from an isolated event that has not recurred other than on specifically identifiable
occasions and is therefore not representative of errors in the population.
D. The possibility that the auditor's conclusion, based on a sample may be different-from the conclusion
reached if the entire population were subjected to the same audit procedure.

28. The auditor's best estimate of the population exception rate is the
A. Sample exception rate
B. Tolerable exception rate (TER)
C. Experience of the previous year
D. Computed upper exception rate (CUER)

29. If an auditor, without statistical sampling, selects a sample of one hundred items from a population
and finds two exceptions, the auditor
A. Can conclude that the sample exception rate is 2%
B. Can conclude that the population exception is 2%
C. Can calculate the highest exception rate expected in the population
D. Cannot make am conclusions about either the sample or the population
30. The highest estimated exception rate in the population at a given acceptable risk of assessing control
risk too low is
A. Estimated population exception rate
B. The computed upper exception rate
C. The tolerable exception rate
D. The upper exception rate

31. Before the population can be considered acceptable based on the acceptable risk of assessing
control risk too low
(ARACR), the computed upper exception rate (CUER) must be
A. Less than the tolerable exception rate
B. Greater than the tolerable exception rate
C. Less than or equal to the tolerable exception rate
D. Greater than or equal to the tolerable exception rate

32. The tolerable exception rate (TER) has a significant effect on sample size. The relationship
of TER to a sample size is
A. Not determinable
B. Direct (larger TER=larger sample)
C. Inverse (larger TER=smaller sample)
D. Variable (sometimes larger, sometimes smaller)

33. Which of the following factors is generally not considered in determining sample size for a
test of controls?
A. Population size
B. Tolerable exception rate
C. Expected population exception rate
D. Risk of assessing control risk is too low

34. In planning a statistical sample for a test of controls, an auditor increased the expected
population deviation rate (EDR) from the prior year’s rate because of the results of the prior
year’s tests of controls and the overall control environment. The auditor most likely would then
increase the planned
A. Sample size
B. Tolerable deviation rate
C. Allowance for sampling risk
D. Risk of assessing control risk too low

35. When using statistical sampling, the auditor would probably require a smaller sample if the
A. Population increases
B. Desired reliability decreases
C. Desired precision interval narrows
D. Expected exception rate increases

36. Increase in the planned allowance for sampling risk have what effect on required sample
size?
A. Decreases C. Indeterminate
B. Increases D. No effect

37. If an auditor tested 50 transactions and found two deviations from an important control
procedure, the auditor could conclude from this test that the:
A. Tolerable rate is 0.4
B. Sample had two deviations
C. Critical rate of occurrence is 0.04
D. Expected population deviation rate is 0.4

38. When audit procedures have been completed for an attributes sampling application, the
auditor must generalize from the sample to the population. Which of the following statements
would be incorrect regarding this process?
A. The computed upper exception rate is the highest exception rate at a given acceptable risk
B. The auditor would use an attributes sampling table to determine the computed upper
exception rate
C. It would be wrong for the auditor to conclude that the population exception rate is exactly the
same as exception rate
D. In selecting the table corresponding to the risk of overreliance, it should be the same as the
ARACR used for determining the initial sample size

39. Which of the following statements is correct concerning statistical sampling in tests of
controls?
A. As the population size increase, the sample size should increase proportionately
B. In determining the tolerable rate, an auditor considers detection risk and the sample size
C. There is an inverse relationship between the expected population deviation rate and the
sample size
D. Deviations from specific control activities at a given rate ordinarily result in misstatements at
a lower rate

Variable sampling

40. While performing a substantive tests of details during an audit, the auditor determined that
the sample result supported the conclusion that the recorded account balance was materially
misstated. It was, in fact, not materially misstated. This situation illustrates the risk of
A. Assessing control risk too high C. Incorrect acceptance
B. Assessing control risk too low D. Incorrect rejection

41. When the auditor’s objective is to test for overstatement of accounts payable, the population
could be defined as
A. Accounts payable listing C. Unpaid invoice
B. Receiving report D. Vendor’s statement

42. The variables sampling method which generally results in smaller sample size than any other
method is:
A. Difference estimation C. Peso-unit sampling
B. Mean per unit estimation D. Ration estimation
43. In a probability-proportional-size (PPS) sample, all population physical audit units with an
amount equal to or greater to than the amount of the interval will automatically be included in
the sample if the auditor uses
A. Block selection C. Stratified selection
B. Random selection D. Systematic selection

44. In which sampling method is the probability of selection of an item proportional to the size or
the value of the item (e.g., a P1 ,000 item is 10 times more likely to be selected than a P100
item)?
A. Discovery sampling C. Stratified sampling
B. Ratio estimation D. Value-weighted sampling

45. A type of value weighted selection in which sample size, selection and evaluation results in a
conclusion in monetary amounts
A. Financial sampling C. Random sampling
B. Monetary unit sampling D. Stratified sampling

46. GQ, CPA audited the May Company accounts receivable with a book value of P3,000,000
and 4,400 accounts. In a sample of 400 accounts, GQ found P13,200 understatement errors. The
projected likely misstatement for the sample is:
A. P13,200 C. P272,727
B. P145,200 D. 435,600

Audit in a CIS Environment

Basic EDP Concepts

47. The purpose of an entity’s accounting information and communication system is to

__________
A. Capture transactions
B. Monitor transactions
C. Record and process transactions
D. A and C Only

48. The characteristics that distinguish computer processing from manual processing include the
following
I. Computer processing uniformly subjects like transactions to the same instructions
II. Computer system always ensure that complete transaction trails useful for audit purposes are
preserved for indefinite periods
III. Computer processing virtually eliminates the occurrence of clerical errors normally
associated with manual processing
IV. Control procedures as to segregation of functions may no longer be necessary in computer
environment
A. Only statements (1) and (3) are true
B. Only statements (2) and (4) are true
C. All of the above statements are true
D. All of the above statements are false

49. Which of the following is unique to EDP systems?

A. Error listing C. Pre-numbered documents
B. Flowcharts D. Questionnaires

50. A manufacturer of complex electronic equipment such as oscilloscopes has been shipping its
products with thick paper manuals but wants to reduce the cost of producing and shipping this
documentation. The best medium for the manufacturer to use to accomplish this is
A. Compact disc/read-only memory
B. Computer output- -microfilm to
C. Digital audio tape
D. Write once, read many

51. Which of the following represents a type of applications software that a large client is most
likely to use?
A. Central processing unit C. Operating system
B. Enterprise resource planning D. Value-added network
52. In a computerized system, procedure or problem-oriented language is converted to machine
language through:
A. A verifier C. A converter
B. A complier D. An interpreter

53. There are two common types of workstations general – purpose terminals and special
purpose terminals. Which of the following is general-purpose terminal? not a
A. Basic keyboard and monitor C. Personal computers
B. Intelligent terminals D. Point of sale devices

54. Errors in data processed in a batch computer system may not be detected immediately
because
A. There are time delays in processing transactions in a batch system
B. Random errors are most likely in a batch system than in an online system
C. Errors in some transactions cause rejection of other transactions in the batch
D. Transactions trails in batch systems are available only for a limited period of time

55. These are computer systems that enable users to access data and programs directly through
workstations:
A. In-line computer systems
B. On-line computer systems
C. Personal computer environment
D. Transaction processing systems
56. These are economical yet powerful self-contained general-purpose computers
A. Cray II Supercomputer
B. Personal computers or PCs
C. RISO graph photocopy machines
D. Pentium computers and multimedia station

57. The following are common characteristics of personal computers, except:

A. Relatively inexpensive
B. Portability (small enough to be transportable)
C. Must be configured for a long time before use
D. Provide users with substantial computing capabilities

58. A personal computer can be used in any of the following configurations, except:
A. A workstation connected to a server
B. A server connected to another server
C. A workstation which is part of a local area network of personal computers
D. A stand-alone workstation operated by a single user or a number of users at the different times

59. When personal computers are accessible to many users, the concern is on the risk relating to
A. Alteration C. Custody
B. Authorization D. Recording

60. Management can contribute to the effective operation of stand-alone computers by

prescribing and enforcing policies for their control and use, such as policies for:
A. Management responsibilities
B. Training requirements and personal usage policies
C. Standards of report format and report distribution controls
D. All of the answers

61. This refers to a collection of data that is shared and used by a number of different users for
different purposes
A. Database C. Master file
B. Information file D. Transaction file

62. A database management system

A. Physically stores each element of data only once
B. Allows quick retrieval of data, but it needs to update filed continually
C. Allows quick retrieval of data but at a cost of inefficient use of file space
D. Stores same data on different files for different purposes, but always knows where they are
how to retrieve them
63. Which two important characteristics distinguish database systems?
A. Data integrity and user integrity
B. Data independence and data sharing
C. Data integrity and data independence
D. Data sharing and data interconnection

64. A software within the database management system which is required to keep track of the
location of data in the database
A. Data dictionary C. Data tracker
B. Data discussion D. Documentation dictionary
65. User access to the various elements of a database may be control through the use of
passwords. These restrictions apply to
A. Individuals, terminal devices and programs
B. Individuals but not to terminal devices and not to programs
C. Programs but not to individuals and not to terminal devices
D. Terminal devices but not to individuals and not to programs

66. These controls require a database administrator to assign security attributes to data that
cannot be changed by database users:
A. Discretionary access controls C. Mandatory access controls
B. Distributed access controls D. Password controls

67. These controls allow user to specify who can access data they own and what action privileges
they have with respect to that data
A. Discretionary access controls C. Mandatory access controls
B. Distributed access controls D. Password controls
68. This is an arrangement where two or more personal computers are linked together through
the use of special software communication lines. This may also be referred to as a distributed
system
A. Local area network C. Wide area network
B. Unit to unit workstation D. World Wide Web

69. Which of the following statements is correct regarding the Internet as a commercially viable
network?
A. Organizations must use firewalls if they wish to maintain security over internal data
B. Companies must apply to the Internet to gain permission to create a homepage to engage in
electronic commerce
C. Companies that wish to engage in electronic commerce on the Internet must meet required
security standards established by the coalition of Internet providers
D. All of the above

70. The electronic transmission of documents between organizations in machine-readable form

A. Computer processing
B. Cryptography
C. Electronic data interchange
D. Short messaging service

71. A combination of hardware and software that protects a WAN, LAN or PC from
unauthorized access through the Internet and from the introduction of unauthorized or harmful
software, data or other material in electronic form
A. Access monitor C. Firewall
B. Anti-virus program D. Security update

72. This is the individual responsible in preparing specifications for the systems to guide
programmer, and writes procedures and user instructions
A. IT control group supervisor C. Systems analyst
B. Network administrator D. None of these

73. This is the individual responsible for the development and management of data
communication systems and reviews documentation to ensure compliance with standards and
provides approval of documentation when standards are met
A. IT control group C. Systems analyst
B. Network administrator D. None of these

74. A computer programmer has written program for updating perpetual inventory records.
Responsibility for initial testing (debugging) of the program should be assigned to the:
A. Internal audit control group C. Machine operator
B. IT department control group D. Programmer

75. When erroneous data are detected by computer program controls, such data may be excluded
from processing and printed on an error report. Who should review and follow-up this error
report?
A. Computer operator C. Data control group
B. Computer programmer D. System analyst

Internal Control in an EDP System

76. The users of computer in data processing systems frequently eliminates the basic internal
control of:
A. Information processing
B. Cost should not exceed benefit
C. Appropriate segregation of duties
D. Using vouchers for authorization of disbursements

77. Which of the following is not a benefit of using IT based controls?

A. Over-reliance on computer generated reports
B. Ability to process large volumes of transactions
C. Ability to replace manual controls with computer-based controls
D. Reduction in misstatements due to consistent processing of transactions
78. Parity check, read after write checks and duplicate circuity checks are IT controls that are
designed to detect:
A. Illogical uses of hardware
B. Illogical programming commands
C. Erroneous internal handling of data
D. Lack of sufficient documentation for computer processes

79. More than one file may be stored on a single magnetic memory disk. Several programs may
be in the core storage unit simultaneously. In both cases it is important to prevent the mixing of
data. One way to do this is:
A. To use Boundary protection C. To use Interleaving
B. To use File integrity control D. To use Paging

80. The policies and procedures that the entity implements and the IT infrastructure (hardware,
operating systems, etc.) and application software that it uses to support business operations and
achieve business strategies
A. Application controls C. Internal control
B. General controls D. IT environment

81. In comparing the control environment in complex versus non-complex IT systems, the
control environment in complex IT systems is:
A. More controls because there is a greater potential for errors and irregularities
B. Less critical because the complexity ensures that controls will be built into the system
C. Less critical because non-experts do not have the opportunity to interact with the system and
mess it up
D. More critical because of the high degree of technical competence needed

82. Which of the following terms best describes the type of control evidenced by a segregation of
duties between computer programmers and computer operators?
A. Applications control
B. Hardware control
C. Organizational control
D. Systems development control

83. Internal controls in an on-line computer system include the following:

A. Access controls
B. Transactions logs
C. Controls over Use IDs and passwords
D. All of these
84. Which of the following is not a general control?
A. Reasonableness test for unit selling price of a sale
B. Equipment failure causes error messages on monitor
C. Separation of duties between programmer and operators
D. Adequate program run instructions for operating the computer

85. Reports that are designed to create an audit trail for each on-line transaction. Such reports
often document the source of a transaction (terminal, time and user) as well as the transaction’s
details
A. Batch processing logs C. Transaction logs
B. Embedded audit modules D. Transmittal sheets

86. Which of the following is not a major reason why an accounting audit trail should be
maintained for a computer system?
A. Analytical procedures C. Monitoring purposes
B. Deterrent to irregularities D. Query answering

87. Input documents are typically the responsibility of the:

A. Accounting department which prepares and records them
B. Computer department since they will have to be responsible for inputting them
C. User department that transmits the documents to accounting before processing
D. Production and quality control department to see that they are prepared properly

88. These are procedures designed to restrict access to on-line terminal devices, programs and
data
A. Access controls C. User authentication
B. General IT controls D. User authorization

89. This access control typically attends to identify a user through unique logon identification,
passwords, access cards or biometric data
A. Access controls C. User authentication
B. General IT controls D. User authorization

90. User authorization procedures are designed to prevent or detect the following, except:
A. Entry of authorized transactions
B. Unauthorized changes to data files
C. Unauthorized access to on-line terminal devices, programs and data
D. The use of computer programs by unauthorized personnel and the use of computer programs
that have not been authorized

91. The following, except one, are internal control techniques which can be used for data and
program security:
A. Employing passwords
B. Disconnecting from the office work
C. Using anti-virus software programs
D. Segregating data info files organized under separate file directories

92. Which of the following statement is incorrect

A. It may be more efficient to review the design of the general CIS controls before reviewing the
CIS application controls
B. If general CIS controls are not effective, there may be a risk that misstatements might occur
and go undetected in the application systems
C. The purpose of general CIS controls is to establish a framework of overall control over the
CIS activities and to provide an absolute level of assurance that the overall objectives of internal
control are achieved
D. The purpose of CIS application control is to establish specific control procedures over the
application systems in order to provide reasonable assurance that all transactions are authorized
and recorded, and are processed accurately on a timely basis

93. Which of the following statements about general controls is not correct?
A. The chief information officer should report to senior management and the board
B. Successful IT development efforts require the involvement of IT and non-IT personnel
C. Programmers should have access to computer operations to aid users in resolving problems
D. Backup and disaster recovery plans should identify alternative hardware to process company
data

94. Which of the following is not an application control?

A. Preprocessing authorization of sales transaction
B. Reasonableness test for unit selling price of sale
C. Separation of duties between computer programmer and operators
D. Post-processing review of sales transactions by the sales department

95. Which of the following statements related to application controls is correct?

A. Application controls relate to all aspects of the IT function
B. Application controls relate to the processing of individual transactions
C. Application controls relate to various aspects of the IT function including software acquisition
and the process of transactions
D. Application control relate to various aspects of the IT function including physical security and
the processing of transactions in various cycles

96. The purpose of input controls is to ensure the:

A. Authorization of access to data files
B. Authorization of access to program files
C. Completeness, accuracy and validity of input
D. Completeness, accuracy and validity of update
97. These are programmed routines that check the input data and processing results for
completeness, accuracy and reasonableness
A. Cut-off procedures
B. Master file controls
C. Pre-processing authorization
D. Edit, reasonableness and validation controls

98. Procedures designed to prevent or detect improper changes to computer programs that are
accessed through on-line terminal devices
A. Edit checks C. Limit checks
B. IT application controls D Programming controls

99. A receiving clerk keyed in a shipment from a remote terminal and inadvertently omitted the
purchase order number. Which of the following controls would most likely detect this error?
A. Compatibility check C. Reasonable check
B. Completeness check D. Sequence check

100. A company uses the account code 614 for maintenance expense. However, one of the
company clerks often codes maintenance expense as 641. The highest account code in the system
is 620. What would be the best internal control check to build into the company’s computer
system to detect this error?
A. A manual re-check of the code C. Valid-character test
B. Sequence check D. Valid-code test

101. This is the process of establishing control totals over data being submitted for processing
through workstations and comparing the control totals during and after processing to ensure that
complete and accurate data are transferred to each processing phase:
A. Balancing C. Footing
B. Cross-casting D. Posting

102. In a CIS environment, which of the following is not a control objective, associated with
processing controls?
A. Processing is complete
B. Transactions are authorized
C. All changes to computer records are accurate
D. Access to computer files is limited to authorized personnel

103. Controls over output are not designed to assure that data generated by the computer are
A. Accurate
B. Relevant
C. Complete
D. Distributed only to authorized personnel
104. The most important output control is
A. Logic tests which verify that no mistakes were made in processing
B. Control totals which are used to verify that the computer’s results are correct
C. Review of the data for reasonableness by someone who knows what the output should look
like
D. Distribution control which assures that only authorized personnel receives the reports
generated by the system

105. During one processing run, several transactions have been rejected by the IT system.
Accordingly, the IT department:
A. It is not responsible for the resolution of rejected transactions
B. Should contract the user departments and inform them of the rejection
C. Should re-encode the inputs previously made by the computer operators and re-process the
transactions
D. Is responsible for ensuring that these transactions are in fact resubmitted and re-entered for
processing

106. The total of the individual account balances in the accounts receivable master files equals
the
A. Total sales for the period
B. Balance of the sales account in the general ledger
C. Total sales less the total cash received for the period
D. Balance of the accounts receivable account in the general ledger

107. When posting the sales journal, details of the journal are posted “x” and journal total are
posted to “y”
A. X = the sales account Y = the general ledger
B. X = the accounts receivable the master file Y = the general ledger
C. X = the sales account Y = the accounts receivable subsidiary ledger
D. X = the accounts receivable account in general ledger Y = the sales account in the general
ledger

108. An entity installed antivirus software on all its personal computers. The software was
designed to prevent initial infections, stop replication attempts, direct infections after their
occurrence, mark affected system components, and remove viruses from infected components.
The major risk in relying on antivirus software is that it may
A. Not detect certain viruses
B. Interfere with system operations
C. Consume too many system resources
D. Make software installation too complex
109. An entity’s contingency plans for computer information systems should include appropriate
backup agreements. Which of the following arrangements would be considered to vendor-
dependent when vital operations require almost immediate availability of computer resources?
A. A “hot site” arrangement
B. A “cold site” arrangement
C. A “cold and hot site” arrangement
D. Using excess capacity at another data center within the entity

Study & Evaluation of EDP Controls

110. When the IT system is significant, the auditor should also obtain an understanding of the IT
environment and whether it may influence the assessment of
A. Control and detection risks
B. General and application controls
C. Inherent and control risks
D. Inherent and detection risks

111. It relates to materiality of the financial statement assertions affected by the computer
processing
A. Complexity C. Significance
B. Relevance D. Threshold

112. The two requirements crucial to achieving audit efficiency and effectiveness with a personal
computer are selecting:
A. The appropriate audit tasks for personal computer application and the appropriate software to
perform the selected audit tasks
B. The appropriate software to perform the selected audit tasks and data that can be accessed by
the auditor’s personal computer
C. Company data that can be accessed by the auditor’s personal computer and the appropriate
audit tasks for personal computer applications
D. The appropriate sample of company data to test with the auditor’s personal computer and the
appropriate software to perform the selected audit tasks

113. S1: In a personal computer environment, it may not be practicable or cost-effective for
management to implement sufficient controls to reduce the risks of undetected errors to a
minimum level
S2: The auditor may often assume that control risk is high in personal computer environments
with insufficient internal controls
A B C D
S1 True True False False
S2 True False True False

Understanding EDP Control

114. Involves tracing a few transactions through the accounting system
A. Analytical procedures C. Test of controls
B. Substantive procedures D. Walk-through test

Risk assessment
115. An important characteristic of IT is uniformity of processing. Therefore, a risk exists that
A. Auditors will not be able to access 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

116. Which of the following is not a risk specific to IT environments?

A. Increased human involvement
B. Reduced segregation of duties
C. Loss of data due to insufficient backup
D. Reliance on the functioning capabilities of hardware and software

Auditing around the computer

117. When the auditor considers only the non-IT controls in assessing control risk, it is
commonly referred to as
A. Auditing around the computer C. The single-stage unit
B. Generalized audit software (GAS) D. The test deck approach

118. When the client uses a computer, but the auditor chooses to use only the non-IT segment of
internal control to assess control risk, it is referred to as auditing around the computer. Which
one of the following conditions need not be present in order to audit around the computer?
A. Computer programs must be available in English
B. The source documents must be available in a non-machine language
C. The documents must be filed in a manner that makes it possible to locate them
D. The output must be listed in sufficient detail to enable the auditor to trace individual
transactions

119. Auditing by testing the input and output of a system instead of the computer program itself
will
A. Provide the auditor with the same type of evidence
B. Detect all program errors, regardless of the nature of the output
C. Not detect program errors which do not show up in the output sampled
D. Not provide the auditor with confidence in the results of the auditing procedures

120. The application of auditing procedures using the computer as an audit tool refer to
A. Auditing through the computer
B. Computer assisted audit techniques
C. Data-based management system
D. Integrated test facility

121. Which of the following is a disadvantage of the integrated test facility approach?
A. ITF is simply an automated version of auditing “around” the computer
B. In establishing fictitious entities, the auditor may be compromising audit independence
C. The auditor may not always have a current copy of the authorized version of the client’s
program
D. Removing the fictitious transactions from the system is somewhat difficult and, if not done
carefully, may contaminate the client’s file

122. One common type of CAAT is the use of audit software to process data of audit
significance from the entity’s information system. An audit software that has widespread
popularity because it is easy to use and requires little computer background on the part of the
auditor; it can be used on both mainframe and PC systems; it allows the auditor to performs
his/her tests independent of the entity’s computer processing personnel; and it can be usedto
audit the data in most file formats and structures is called a
A. Utility program
B. Customized program
C. Purpose-written program
D. Package or generalized audit software (GAS)

123. An independent auditor studies and evaluates a client’s IT system. The auditor’s study
includes two phases: (1) a review of the system and (2) tests of controls. The latter phase might
include which of the following?
A. Examination of system flowcharts to determine whether they reflect the current status of the
system
B. Examination of the systems manuals to determine whether existing procedures are satisfactory
C. Examination of the machine room log book to determine whether control information is
properly recorded
D. Examination of organization charts to determine whether IT department responsibilities are
properly separated to afford effective control

124. Most auditors evaluate application and general controls in what manner?
A. Most auditors evaluate application and general controls simultaneously
B. Most auditors evaluate the effectiveness of application controls before evaluating general
controls
C. Most auditors evaluate the effectiveness of general controls before evaluating application
controls
D. Most auditors evaluate application and general and general controls only if they do not intent
to rely on systems controls

125. To obtain evidence that user identification and password controls are functioning, an auditor
would most likely
A. Attempt to sign on to the system using invalid user identification and passwords
B. Write a computer program that simulates the logic of the client’s access control software
C. Extract a random sample of processed transactions and ensure that the transactions were
appropriately authorized
D. Examine statements signed by employees stating that they have not divulged their user
identifications and passwords to any other person

126. Which of the following is not one of the three categories of testing strategies when auditing
through the computer?
A. Embedded audit module C. Pilot simulation
B. Parallel simulation D. Test data approach

127. A file for recording individual acquisition, cash disbursements and acquisition returns and
allowances for each vendor is the
A. Accounts payable master file
B. Acquisitions transactions file
C. Cash disbursement transaction file
D. Summary acquisition report

128. The client’s accounts payable master file should be the same as the vendor’s statement,
except for the following:
A. Disputed amounts C. Both a and b
B. Timing differences D. none of the answers

129. An important control in the accounts payable and IT departments is to require that those
personnel who record acquisitions do not have access to the:
A. Vendor’s price lists
B. The accounts payable master file
C. Lists of vendor’s name and addresses
D. Cash, trading securities and other assets

130. The total of the individual earnings in the payroll employees’ l master file equals the:
A. Total gross pay for the current week’s payroll
B. Total of the checks drawn to employees for payroll
C. Total balance of gross payroll in the general ledger accounts
D. Total gross payroll plus the total contributed by the employer for payroll taxes

131. An auditor who is testing IT controls in a payroll system would most likely use test data that
contain conditions such as
A. Time tickets with invalid job numbers
B. Overtime not approved by supervisors
C. Deductions not authorized by employees
D. Payroll checks with authorized signatures
132. The most common control deficiency in the personnel and payroll cycle is the:
A. Inadequate segregation of duties
B. Unlimited access to payroll systems
C. Attitude of management towards control
D. Little comparison of personnel and payroll records

133. Perpetual inventory master files provide a record:

A. Of items on hand
B. Of the use of raw materials and sale of finished goods
C. That can be used to pinpoint responsibility for custody
D. For all three of the above
 Standard Audit Report
Introduction
1. A document issued by an entity, ordinarily on an annual basis, which includes its financial
statements together with the auditor’s report thereon.
A. Annual report
B. Auditor’s report
C. Management assertions
D. Statement of management’s responsibility

2. The auditing profession recognized the need for uniformity in reporting as a means of
A. Defending against lawsuits
B. Upgrading the communication skills of auditors
C. Standardizing the policies of various CPA firms
D. Promoting credibility of the report in the global market place

3. A measure of the uniformity in the form and content of the auditor’s report is desirable
because:
A. It helps the auditors avoid legal liability
B. It helps the readers understand the report
C. It helps the auditor identify the usual circumstances that are expected to occur
D. It makes the auditors more informed of their responsibilities with respect to audit report

4. The element of the auditor’s report that distinguishes it from reports that might be issued by
others is
A. Addressee C. Opinion paragraph
B. Auditor’s signature D. title

5. The element of the auditor’s report that identifies the financial statement audited is the
A. Introductory paragraph C. Opinion paragraph
B. Management’s responsibility D. Title

6. Auditing standards require that the audit report must be titled. This is done in order to
A. Indicate that the auditor is a CPA
B. Identify the financial statements audited
C. Distinguish the report from the report that might be issued by others
D. Emphasize that the report is not a guarantee as to the fair presentation of the financial
statements

7. Auditing standards require that the audit report must be titled, and the title must
A. Include the word “independent”
B. Indicate whether the auditor is CPA
C. Not include any discriminatory language
D. Indicate whether the auditor is proprietorship, partnership or incorporated
Unqualified Opinion
8. A client makes test counts on the basis of a statistical plan. The auditor observes such counts
are deemed necessary and is able to become satisfied as to the reliability of the client’s
procedures. In reporting on the results of the audit, the auditor
A. Can express an unmodified opinion
B. Must qualify the opinion if the inventories were material
C. Is required to disclaim an opinion if the inventories were material
D. Must comment in an Emphasis of Matter paragraph as to the inability to observe year-end
inventories

The Standard Audit Report

9. Which of the report following is not one of the basic elements of the auditor’s
A. Auditor’s signature C. Date of the report
B. Client’s address D. Title

10. An entity’s management is responsible for the preparations and fair presentation of the
financial statements its responsibility includes the following, except
A. Selecting and applying appropriate accounting policies
B. Making accounting estimates that are reasonable in the circumstances
C. Assessing the risks of material misstatement of the financial statements
D. Designing, implementing and maintaining internal control relevant to the preparation and
presentation of financial statements

11. The introductory paragraph of the auditor’s report should

A. Identify the name of the entity for whom the report is prepared
B. Refer to the summary of significant accounting policies and explanatory notes
C. State the auditor’s responsibility to express an opinion on the financial statements
D. State that the management is responsible for the preparation and fair presentation of the
financial statements

12. Which of the following statements is not included in the auditor’s responsibility selection of
the standard audit report?
A. That the audit was conducted in accordance with Philippines standards on Auditing
B. That the auditor’s responsibility is to express an opinion on the financial statements based on
the audit
C. That the responsibility of the auditor is to express an opinion on the financial statements based
on the audit
D. That audit includes examining on a test-basis evidence supporting the amounts and
disclosures in the financial statements
13. How are management’s responsibility and the auditor’s responsibility represented in the
standard auditor’s report
A B C D
Management’s responsibility Explicitly Explicitly Implicitly Implicitly
Auditor’s responsibility Explicitly Implicitly Explicitly Implicitly

14. Which of the following is not a true statement? In the opinion paragraph of the standard
unqualified report, the auditor required to state
A. That the financial statements are presented fairly
B. An opinion about the financial statements taken as a whole
C. Whether management has or has not made adequate disclosure
D. A conclusion about whether the company followed the applicable financial reporting
framework

15. The fair presentation of the financial statements in accordance with financial reporting
standards is the responsibility of the:
A. The internal auditor
B. The external auditor
C. The company’s management
D. The Securities and Exchange Commission

16. The auditor’s judgement as to whether the financial statements are presented fairly, in all
material respects, is made in the context of
A. Philippine Standards on Auditing
B. The professional ethical requirements
C. Generally accepted auditing standards
D. Applicable financial reporting framework

17. The auditor gives an audit opinion on the fair presentation of the financial statements and
associates his or her name with it when, on the basis of adequate evidence, the auditor concludes
that the financial statements are unlikely to mislead
A. A prudent user C. Management
B. Investors D. The reader

18. The most common type of audit report contains a(n)

A. Advance opinion C. Qualified opinion
B. Disclaimer of opinion D. Unqualified opinion

19. If a misstatement is immaterial relative to the financial statements of the entity for the current
period and is not expected to have a material effect in future periods, it is appropriate to issue
A. A disclaimer of opinion C. An adverse opinion
B. A qualified opinion D. An unmodified opinion
20. Which of the following is not specifically stated in the standard auditor’s report?
A. The auditor’s responsibility is to express an opinion on the financial statements based on his
or her audit
B. The auditor believes that sufficient appropriate evidence was obtained to provide a basis for
an auditor’s opinion
C. An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements
D. The auditor is responsible for the preparation and the fair presentation of the financial
statements in accordance with the applicable financial reporting framework

21. Which of the following is incorrect about the standard audit report?
A. The opinion paragraph of an auditor’s report on financial statements refers to PFRS
B. Examination of evidence on a test basis is explicitly represented in the standard auditor’s
report
C. The consistent application of accounting principles is implicitly represented in the standard
auditor’s report
D. The management’s responsibility for the financial statements is explicitly represented in the
auditor’s standard audit report

Explanatory Language Added To the Auditor’s Standard Report

22. When financial statements contain a departure from financial reporting framework 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 pervasiveness of effect on financial statements

23. Which of the following circumstances will not affect the auditor’s opinion?
A. Significant uncertainties affecting the financial statements
B. A limitation on the scope of the auditor’s work imposed by the client
C. A limitation on the scope of the auditor’s work imposed by the circumstances
D. Material misstatements in the financial statements that the client refuses to correct

24. When the auditor concludes that there is substantial doubt about the entity’s ability to
continue as a going concern for a reasonable period of time, the auditor should
A. Issue either qualified or adverse opinion
B. Report to the audit committee the need to adjust management estimates
C. Consider the adequacy of disclosure in the notes to financial statements
D. Re-issue the prior year’s audit report and add explanatory paragraph that specifically refers to
“substantial doubt” and “going concern”
25. The independent auditor has concluded that a substantial doubt remains about a client’s
ability to continue in existence, but the client’s financial statements have properly disclosed all
of its solvency problems. The auditor would probably issue a(n)
A. Standard unqualified report
B. “Except for” qualified opinion
C. Unqualified opinion with other matter paragraph
D. Unqualified opinion with emphasis of a matter paragraph

26. An auditor concludes that there is substantial doubt about an entity’s ability to continue as a
going concern for a reasonable period of time. If the entity’s disclosures concerning this matter
are adequate, the audit report may include a(n):
A B C D
Adverse opinion Yes Yes No No
Qualified opinion Yes No Yes No

27. Which of the following is a matter that does not affect the auditor’s opinion?
A. Emphasis of matter
B. Scope limitations imposed by the client
C. Scope limitations imposed by circumstances
D. Disagreement with management regarding acceptability of accounting policies and the
methods of their application

28. An auditor includes an explanatory paragraph in an otherwise unqualified report in order to

emphasize an item disclosed in the notes to the financial statements. The inclusion of this
paragraph:
A. Is considered a qualification of the report
B. Is appropriate and would not negate the unqualified opinion
C. Necessities a revision of the opinion paragraph to include the phrase “with the foregoing
explanation”
D. Is a violation of generally accepted reporting standards if this information is disclosed in
footnotes to the financial statements

29. What is the purpose of the following paragraph in an audit report on financial statements:
“……… we draw attention to not X in the financia l statements ………”?
A. An inappropriate reporting C. Other matter paragraph
B. Emphasis of a matter D. Qualification of an opinion

30. If an auditor is satisfied that sufficient evidence supports management’s assertions about an
uncertainty and its presentation or disclosure, the auditor should
A. Express an unmodified opinion with an Other Matter Paragraph
B. Express a modified opinion with an Emphasis of Matter paragraph
C. Express an unmodified opinion with an Emphasis of Matter paragraph
D. Express a qualified opinion or disclaim an opinion, depending upon the materiality of the loss
31. The auditor’s report on financial statements include the following sentences:
“ ………………………… we draw attention to Note X to the financial statements. The
Company is the defendant I a lawsuit alleging infringement of certain patent rights and claiming
royalties and punitive damages. The Company has filed a counter action, and preliminary
hearings and discovery proceedings on both actions are in progress. The ultimate outcome of the
matter cannot presently be determined, and no provision for any liability that may result has been
made in the financial statements.” The above statement:
A. Is a disclaimer of opinion C. Is an emphasis of a matter
B. Is a qualification of an opinion D. Is not appropriate

32. Addition of an “emphasis of a matter” paragraph to what remains an unqualified opinion is

least likely for which of the following situations?
A. An uncertainty
B. Scope limitation
C. A subsequent event
D. Early adoption of accounting standards approved by FRSC

33. The emphasis of a matter paragraph is normally placed:

A. Before the opinion paragraph
B. Between the auditor’s responsibility and opinion paragraphs
C. After the opinion paragraph that contains the auditor’s qualification or disclaimer of opinion
D. After the opinion paragraph but before the section containing other reporting responsibilities

34. An auditor may wish to emphasize a matter included in the financial statements by adding a
separate paragraph to the audit report. In this case the following paragraphs of the audit report
should be modified:
A. Introductory paragraph
B. Auditor’s responsibility paragraph
C. Opinion paragraph
D. None

35. Which of the following statements is correct about “emphasis of a matter paragraph”?
A. The addition of such paragraph does not affect the auditor’s opinion
B. The paragraph would preferably be presented before the opinion paragraph
C. The addition of such paragraph is to be construed as a modification of the auditor’s report
D. The paragraph is normally used by the auditor to explain the reasons for lack of independence

36. Which of the following statements is not correct about “emphasis of a matter paragraph”?
A. The addition of such paragraph does not affect the auditor’s opinion
B. The paragraph would preferably be presented after the opinion paragraph
C. The addition of such paragraph is not to be construed as a modification of the auditor’s report
D. The paragraph is normally used by the auditor to highlight certain items in the financial
statements
37. A major customer of an audit client suffers a fire prior to completion of year-ended field
work. The audit client believes that this event could have a significant direct effect on the
financial statements. The auditor should:
A. Disclose the event in the auditor’s report
B. Advise management to adjust the financial statements
C. Advice management to disclose the event in notes to the financial statements
D. Withhold submission of the auditor’s report until the extent of the direct effect on the
financial statements is known

Addressing the Report

38. The auditor may address the report to all of the following, except:
A. The client company
B. The stockholders of client company
C. The board of directors of client company
D. The president or the chief executive officer of the client company

Dating the Report

39. 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 financials statements subject to audit
A. Date of the audit report
B. Date of financial statements
C. Date of management approval
D. Date of financial statements issuance

40. This is the date selected by the practitioner date the report
A. Date of report C. Dual date
B. Date of signing D. Last day of field work

41. The audit date indicates

A. The last day of fiscal period
B. The last day on which users may institute a lawsuit against either client or auditor
C. The date on which the financial statements were filed with the Securities and Exchange
Commission
D. The last day of auditor’s responsibility for the review of significant events that occurred after
the date of the financial statements

42. The date of the audit report is important because

A. It should coincide with the date of the financial statements
B. PSA’s require all audits to be performed on a timely basis
C. The auditor bills time to the client up to and including the audit report date and the statement
to the client should reflect this date
D. The user has a right to expect that the auditor has performed certain procedures to detect
subsequent events that would materially affect the financial statements through the date o the
report

43. The appropriate date for the audit report is the one on which the
A. Client’s fiscal year ended
B. Auditor and client entered into a contract
C. Auditor types and delivers the report to client
D. Auditor has concluded procedures in the field

44. The date of the auditor’s report normally coincides with the date
A. The audit report is issued
B. The financial statements are issued
C. The client engaged the services of the auditor
D. The management approves the financial statements

45. The audit report should not be dated

A. Later than the balance sheet date
B. Earlier than the date of the issuance of the audit report
C. Earlier than the date of issuance of the financial statements
D. Earlier than the date on which the auditor obtains sufficient appropriate evidence

46. The date on which those with the recognized authority assert that they have prepared the
entity’s complete set of financial statements, including the related notes, and that they have taken
responsibility of them
A. Date of the auditor’s report
B. Date of the financial statements
C. Date of the financial statements are issued
D. Date of approval of the financial statements

47. If the balance sheet of a privately held company is dated December 31, 2005, the audit
report is dated March 6, 2006, and both are released on March 15, 2006, this indicates that the
auditor has searched for material unrecorded 21 transactions and events that occurred up to
A. December 31, 2005 C. March 15, 2006
B. March 6, 2006 D. None of these

Departure from Unqualified Opinion

Types of Reports
48. Whenever an auditor issues a qualified opinion, the implication is that the auditor
A. Is satisfied that the statements are presented fairly
B. Does not know if the statements are presented fairly
C. Does not believe the statements are presented fairly
D. Is satisfied that the statements are presented fairly “except for” a specific aspect of them
49. An auditor may reasonably issue a qualified opinion for
A B C D
Inadequate disclosure Yes Yes No No
Scope limitation Yes No Yes No

50. An auditor may reasonably issue a qualified opinion for

A B C D
Disagreement with management regarding Yes Yes No No
accounting polices
Scope limitation Yes No Yes No

51. A qualified opinion should be expressed as being:

A. Tantamount to standard audit report
В. Tantamount to disclaimer of opinion
C. "Except for" the effects of the matter to which the qualification relates
D. "Subject to" the effects of the matter to which the qualification relates

52.The least severe type of report for disclosing departures from PFRS is the
A. Adverse opinion
B. Disclaimer of opinion
C. Qualified opinion
D. Report on unaudited financial statements

53. On January 2, 2013, the TANYA CO. received a notice from its primary suppliers that effective
immediately all wholesale prices would be increased by 10%. On the basis of the notice, TANYA
revalued its December 31, 2012, inventory to reflect its higher costs. As a result, the statement of
financial position reflects inventory stated at an amount higher than its net realizable value. The inventory
constituted a material proportion of total assets; however, the effect of the revaluation was inaterial to the
current assets but not to total assets or net income. In reporting on the company's financial statentents for
the year ended December 31, 2012, in which inventory is valued at the adjustment amount, the auditor
would most likely
A. Disclaim an opinion.
B. Express a qualified opinion.
C. Express an adverse opinion.
D. Express an unmodified opinion provided the nature of the adjustment, and the amounts
involved are disclosed in notes to the financial statements.

54. The auditor shall express an adverse opinion when

A. The auditor, having obtained sufficient appropriate evidence, concludes that misstatements,
individually or in the aggregate, are both material and pervasive to the financial statements.
B. The auditor, having obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are material, but not pervasive, to the financial
statements.
C. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the
opinion, but the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be material but not pervasive.
 D. The auditor is unable to obtain sufficient appropriate audit evidence on which to base the
opinion, and the auditor concludes that the possible effects on the financial statements of
undetected misstatements, if any, could be both material and pervasive.

55. Under which of the following circumstances is a disclaimer of opinion inappropriate?

A. The client refuses to permit its attorney to furnish information requested in a letter of audit
inquiry.
B. The financial statements fail to contain adequate disclosure concerning related party
transactions.
C. The auditor is unable to determine the amounts associated with fraud committed by the client's
management.
D. The auditor is engaged after fiscal year end and is unable to observe physica! inventories or
apply alternative procedures to verify their balances.

56. When the management does not amend the financial statements in circumstances where the auditor
believes they need to be amended and the auditor's report has not been released to the entity, the auditor
should express
A. Unqualified opinion
B. Qualified or adverse opinion
C. Qualified or disclaimer of opinion
D. Unqualified opinion with explanatory

57. If the results of the audit procedures do not enable the auditor to conclude that the aggregate of
uncorrected misstatements is not material and the management refuses to adjust the financial statements,
the auditor's report should be modified to include:
A disclaimer of opinion
B. Either qualified or adverse opinion
C. Either qualified or disclaimer of opinion
D. An unqualified opinion with explanatory paragraph

58. When the auditor knows that the financial statements may be misleading because they were not
prepared in conformity with PFRS issue
A. A qualified opinion
B. An adverse opinion
С. A disclaimer of opinion
D. A qualified or an adverse opinion, depending on the materiality of the item in question.

59. In a qualified, adverse, or disclaimer report, the auditor

A. Has not performed a satisfactory audit
В. Is not satisfied that the financial statements are presented fairly
C. Either a or b
D. None of these

Modifications to the Audit Report

60. When the auditor expresses an opinion that is other than the unqualified, a clear description of all the
substantive reasons should be included in the report and, unless impracticable, a quantification of possible
effects on the financial statements. This information would ordinarily be set out in
A. The opinion paragraph of the auditor's report
B. A separate paragraph following the opinion paragraph
C. A separate paragraph preceding the opinion paragraph
 D. The paragraph that describes the auditor's responsibility

61. An auditor should disclose the substantive reasons for expressing an adverse opinion in an
explanatory paragraph
A. Following the opinion paragraph
B. Preceding the opinion paragraph
C. Within the notes to the financial statements
D. Preceding the management's tesponsibility paragraph

Scope Limitation

62. Which of the following would ordinarily result to a modification of opinion on financial statements?
A. Going concern uncertainties
В. Limitations that are beyond the control of management
C. Significant uncertainties affecting the financial statements
D. Emphasis of a matter discussed in the notes to the financial statements

63. Which of the following does not properly describe a scope of limitation?
A. The client's accounting records are inadequate.
B. The auditor is unable to perform necessary audit procedures.
C. The auditor is unable to gather sufficient appropriate evidence
D. The client refuses to disclose essential information in the notes to financial statements.

64. An auditor concludes during the planning and internal control phase that the client is not auditable
because of deficient accounting records. Under such circumstances, the auditor must not:
A. Issue an adverse opinion.
B. Issue a disclaimer of pinion.
C. Send the client a bill for services rendered.
D. Withdraw from the engagement without issuing a report.
65. If the auditor is unable to gather sufficient appropriate evidence concerning the opening balance, the
auditor's report should include:
A B C D
Qualified opinion Yes Yes No No
Adverse opinion Yes No Yes No
Disclaimer of opinion No Yes No Yes

Departure From GAAP

66. When management prepares financial statements on the basis of a going concern and the auditor
believes the company may not continue as a going concern the auditor should issue
A. adverse opinion
B. qualified opinion
C. disclaimer of opinion
D. unqualified opinion with an explanatory paragraph

Accounting Changes

67. If the current periods accounting policies have not been consistently applied in relation to the opening
balances and if the change has not heen properly accounted forand disclosed, the auditor's report should
include:
 A B C D
Qualified opinion Yes Yes No No
Adverse opinion Yes No Yes No
Disclaimer of opinion No Yes No Yes

Inadequate Disclosures

68. An auditor who concludes that an uncertainty is not adequately disclosed in the financial statements
would most likely issue a:
A. Special report
B. Qualified report
C. Disclaimer of opinion
D. Unqualified report with emphasis of a matter paragraph

69. Inadequacy of disclosures in the notes to financial statements normally requires the auditor to express
a qualified opinion on the client's financial statements. When this occurs, the auditor should disclose the
substantive reasons for expressing a qualified opinion in an explanatory paragraph
A. Following the opinion paragraph
B. Preceding the opinion paragraph
C. Within the notes to the financial statentents
D. Preceding the paragraph that describes the auditor's responsibility

Going Concern & Uncertainties

70. In extreme cases, such as situations involving multiple uncertainties that are significant to the
financial statements, the auditor may consider it appropriate to express a
A. Unqualified opinion
B. Disclaimer of opinion
C. Qualified or adverse opinion
D. Unqualified opinion with explanatory paragraph

71. When there are multiple uncertainties significantly affecting the financial statements, the auditor's
report would most likely contain
A. a disclaimer of opinion
B. a qualified opinion
C. an adverse opinion
D. an unqualified opinion

72. When the auditor concludes that there is a material going concern uncertainty the appropriate audit
report would be
A. A disclaimer of opinion
B. A qualified opinion with an explanatory paragraph
C. An unqualified opinion with emphasis of matter paragraph
D. A and C are correct

Unaudited Inforsation

73. When an independent CPA is associated with the financial statements of a publicly held company but
has not audited or reviewed the financial statements, the propriate form of report that must include
A. Compilation opinion
B. Disclaimer of opinion
 C. Explanatory
D. Negative assurance

Comprehensive

74. An auditor may not be able to express an unqualified opinion when the following circumstances exist
and, in the auditor's judgment, the effect of the matter is or may be material to the financial statements:
A B C D
There is a limitation on the scope of the auditor’s Yes Yes No No
work
There is a disagreement with management Yes Yes Yes No
regarding the acceptability of the accounting
policies selected, the method of their application
or the adequacy of financial statement
disclosures
The auditor wants to give emphasis to an Yes No No Yes
important matter affecting the financial
statement

75. Conditions requiring a departure from an unqualified audit report include all, but which of the
following?
A. The audit partner's dependent child received a gift of 10 shares of a client's stock for her
birthday from a grandparent.
B. Management refused to allow the auditor to confirm significant accounts receivable for which
there were no alternative procedures performed.
C. Management has determined that certain equipment should be reported in the balance sheet at
their replacement values rather than historical costs. The auditors do not concur.
D. Management has decided to not allow the auditor to confirm significant accounts receivable,
but the auditor examined subsequent cash receipts related to the accounts in question.

76. They are not presented as complete financial statements capable of standing alone but are integral part
of the current period.
A. Comparative financial statements
B. Corresponding figures
C. Notes of financial statements
D. Supplementary report

77. Amount and other disclosures relating to the curent period.

A. Current period figures
B. Existing disclosures.
C. Financial statement ancillaries.
D. Notes to the financial statement.

78. The "other information" is a published report containing audited financial statements may be relevant
to an independent auditor's examination. With respect to "other information"
A. the auditor must include the " other information" in the report
B. the auditor need not be concerned with the "other information"
C. the auditor's responsibility does not extend beyond the financial information identified in the
report
D. the auditor is obligated to perform auditing procedures to corroborate "other information"
contained in a document
79. The "other information" in a published report containing audited financial Statements may be relevant
to an independent auditor's examination. With respect to "other information"
A. The auditor must include the " other information" in the report
B. The auditor need to be concerned with the " other information"
C. The auditor is obliged to perform auditing procedures to corroborate "other information"
D. The auditor's responsibility does not extend beyond the financial information identified in the
report

80. Which of the following best describes the auditor's responsibility for "other information" included in
the annual report to the stockholders that contains financial statements and the auditor's report?
A. The auditor has no obligatior to read the other information.
B. The auditor should extend the examination to the extent necessary to verify
the other information.
C. The auditor must modify the auditor's report to state that the other information is unaudited or
not covered by the auditor's report.
D. The auditor has no obligation to corroborate the other information but should read it to
determine whether it is materiality inconsistent with the financial

81. This exists, when other information, not related to matters appearing in the financial statements, is
incorrectly stated or presented.
A. Material inconsistency
B. Material misstatement
C. Material misstatement of fact
D. Material error affecting the other information

82. This exists when other information contradicts information contained in the audited financial
statements
A. material difference
B. material error
C. material inconsistency
D. Material misstatement of fact

83. It exists when other information contradicts information contained in the audited financial statements
A. Material inconsistency
B. Material misstatement of fact
C. Material weakness
D. Misstatement

84. If an amendment to other information in a document containing audited financial statements is

necessary and the entity refuses to make the amendment, the auditor would consider issuing:
A. Unqualified opinion
B. Qualified or adverse opinion
C. Qualified or disclaimer of opinion
D. Unqualified opinion with other matter paragraph

85. An auditor concludes that there is a material inconsistency in the other information in an annual report
to shareholders containing audited financial statements. If the auditor concludes that the financial
statements do not require revision, but the client refuses to revise or eliminate the material inconsistency
the auditor may
A. consider the matter closed since the other information is in the audited financial statements
B. issues nerd of for qualified opinion ater discussing the matter with the
C. revise the auditor's report to include a separate paragraph describing the material inconsistency
D. disclaim an opinion on the financial statements after explaining the material inconsistency in a
separate explanatory paragraph
 Other Services & Reports
1. An auditor is associated with the financial information when he:
A B C D
Attaches report to the financial information Yes Yes No No
Consents to the use of his name in a No Yes Yes No
professional connection

2. A CPA firm is “associated with the financial statements”

A. Only when it does a financial audit
B. If it performs any services at all for the client
C. Only when it does attestation services, such as a review or an audit
D. Even if a CPA firm only assists a client in preparing financial statements, but does not
perform an audit compilation

3. According to AASC pronouncement, audit related services include:

A. Agreed-upon procedures C. Examinations
B. Consultancy D. Review

4. According to PSRS, audit related services include:

A. Review and compilation
B. Agreed-upon procedures and review
C. Compilation and assurance engagements
D. Compilation and agreed- upon procedures

Agreed-upon procedures

5. A report on factual findings is the end product of the auditor when performing
A. Agreed-upon procedures C. Examination
B. Audit D. Review

6. A CPA may accept an engagement to apply agreed-upon procedures on specified element of

financial statements provided
A. The CPA will issue an opinion on the specified element
B. An examination of the specified element is also conducted
C. The client takes full responsibility for the procedures to be performed
D. An audit of the financial statements taken as a whole is also performed

7. Engagement to apply agreed-upon procedures on certain amounts within a financial statement

may be accepted provided
A. The CPA has expressed opinion on the financial statements taken as a whole
B. The CPA takes full responsibility for the adequacy of the procedures to be performed
C. The CPA provides only a limited assurance about the reliability of the financial statements
D. The distribution of the report is limited only to specified parties involved because other
readers of the report might misinterpret the result

8. Engagement to apply agreed-upon procedures on certain accounts within a financial statement

may be accepted provided
A. The distribution of the report is limited only to specified parties involved
B. The CPA has expressed opinion on the financial statements taken as a whole
C. The CPA takes full responsibility for the adequacy of the procedures to be performed
D. The CPA provides only a limited assurance about the reliability of the financial statements

9. Which of the following ethical principles does not apply to an agreed-upon procedure
engagement?
A. Confidentiality
B. Independence
C. Professional behavior
D. Professional competence and due care

10. A CPA who is not independent of the client may issue a/an
A. Special report
B. Review report
C. Agreed-upon procedure report
D. Report expressing a qualified opinion

11. The report on an agreed-upon procedures engagement should contain

A. A general description of the procedure performed
B. A statement that the auditor is independent of the entity
C. An expression of positive assurance based on the specific procedures performed
D. Identification of the purpose for which the agreed-upon procedures were performed

Compilation

12. The term “accountant” has been used by PSA to refer to a CPA in public practice who is
engaged to
A. Apply agreed-upon procedures
B. Audit financial statements
C. Compile financial statement
D. Review financial statements

13. Ethical principles governing compilation of financial statements include

A B C D
Independence Yes Yes Yes No
Competence Yes Yes No Yes
Professional behaviors Yes No No Yes
14. Which of the following procedures would an accountant most likely perform in a compilation
engagement?
A. Assess risk components
B. Apply analytical procedures
C. Read financial information
D. Test the accounting records

15. Which of the following procedures would an accountant most likely perform in a compilation
engagement?
A. Assess risk components
B. Apply analytical procedures
C. Test the accounting records
D. Collect, classify and summarize financial statements

16. According to Philippine Standard on Auditing, the procedures employed in doing

compilation are:
A. Designed to enable the accountant to express a limited assurance
B. Designed to enable the accountant to express a negative assurance
C. Not designed to enable the accountant to express any form of assurance
D. Less extensive than review procedures but more extensive than agreed-upon procedures

17. In the report accompanying compiled financial statements, which of the following statements
should not be included?
A. “Management is responsible for these financial statements”
B. “We have not audited or reviewed these financial statements and accordingly express no
assurance thereon.”
C. “A compilation is substantially less extensive in scope than an examination in accordance
with generally accepted auditing standards.”
D. “On the basis of information provided by management, we have compiled, in accordance with
the Philippine Standard on Related Services 4410….”

18. Which of the following is incorrect about a compilation engagement?

A. The CPA should exercise due care
B. The procedures performed do not enable the accountants to express any form at assurance
C. The CPA uses his auditing expertise to collect, classify and summarize financial statements
D. The engagement ordinarily entails reducing detailed data to a manageable and understandable
form

Special Reports
Special purpose audit engagement
19. Financial statements prepared in accordance with a financial reporting framework designed
to meet the financial information needs of specific users are referred to as
A. General purpose financial statements
B. Special purpose financial statements
C. Special purpose frameworks
D. Specific purpose financial statements

20. All of the following are special reports excepts reports on financial statements
A. In which the client has limited the scope of the audit
B. Prepare in accordance with a tax basis of accounting
C. Prepared in accordance with a cash basis of accounting
D. Prepared for limited purposes, such as reports that relate only to certain aspects of financial
statements

21. The following examples of special purpose frameworks, except

A. The financial reporting provisions of a contract (for example, a financing agreement)
B. A tax basis of accounting for a set of financial statements that accompany an entity’s tax
return
C. Philippine Financial Reporting Standards (PFRS) promulgated by the Financial Reporting
Standards Council (FRSC)
D. The cash receipts and disbursements basis of accounting for cash flow information that an
entity may be requested to prepare the creditors

22. Auditor’s reports issued in connection with which of the following is not considered to be
special report
A. Compliance with aspects of contractual agreements
B. Special elements, accounts or items of a financial statements
C. Financial statements prepared in conformity with the price level of basis of accounting
D. Compiled financial statements prepared in accordance with appraised liquidating values

23. Other comprehensive basis of accounting may include all of the following except
A. The accrual basis of accounting
B. That used by entity to prepare its income tax return
C. The cash receipts and disbursement basis of accounting
D. The financial reporting provision of a government regulatory agency

24. A report issued in connection with the independent audit of financial information other than
an auditor’s report on financial statements
A. Annual repot
B. Compilation report
C. Modified auditor’s report
D. Special purpose auditor’s report
25. Reports are considered special report when issued in accordance with
A. Feasibility studies presented to illustrate an entity’s results of operations
B. Compliance with aspects of regulatory requirements related to audited financial statements
C. Pro-form financial presentations designed to demonstrate the effect the hypothetical
transactions
D. Interim financial information reviewed to determine whether material modifications should be
made to the financial statements to conform to GAAP

26. Which of the following is not a special purpose audit engagement?

A. Reports on prospective financial statements
B. Reports on summarized financial statements
C. Reports on components of financial statements
D. Reports on financial statements prepared using other comprehensive basis of accounting

27. The auditor’s report on special purpose audit engagements does not apply to a(n)
A. Audit of financial statements prepared in accordance with PFRS
B. Reports on summarized financial statements derived from annual audited financial statements
C. Audit engagement that involves expression of an opinion on one or more components of the
financial statements
D. Audit financial statements prepared in accordance with the cash receipts and cash
disbursement basis of accounting

28. CPA’s issue several types of “special audit reports”. Which of the following circumstances
would not require the issuance of a special audit report?
A. The CPA has been retained to audit only the current assets
B. The client’s financial statements are prepared using the cash basis
C. The client’s financial statements are prepared using the accrual basis
D. The CPA has been retained to audit the financial statements of an entity that are prepared in
accordance with a reporting framework required by a regulatory agency

29. Engagements to express an opinion on the entity’s compliance with contractual agreements
should be undertaken only when
A. The CPA’s report will be in the form of negative assurance
B. The overall aspects of compliance relate to accounting and financial matters
C. The contracts specifically require the auditor to express an opinion as to entity’s compliance
D. The financial statements are prepared in conformity with other comprehensive basis of
accounting

30. In the auditor’s opinion on a financial statements prepared in accordance with a special-
purpose framework, we note the following: “Without modifying our opinion, we draw attention
to Note X to the financial statements, which describes the basis of accounting. The financial
statements are prepared to assist the partners of ABC Partnership in preparing their individual
income tax returns. As a result, the financial statements may not be suitable for another purpose.
Our report is intended solely for ABC Partnership and its partners and should not be distributed
to parties other than ABC Partnership or its partners.”
A. The opinion paragraph
B. Basis for adverse opinion paragraph
C. “Without modifying our opinion” paragraph
D. Basis of Accounting and Restriction of Use paragraph

Summary financial statements

31. An auditor may report on summary financial statements that are derived from complete
audited financial statements if the
A. Summary financial statements that are distributed only to management and the board of
directors
B. Auditor describes the additional review procedures performed on the summary financial
statements
C. Summary financial statements are presented in comparative form with the prior year’s
summarized financial statements
D. Auditor indicates whether the information in the summary financial statements is consistent
with the audited financial statements from which it was derived

32. An auditor may report on summary financial statements that are derived from complete
audited financial statements if the
A. Summary financial statements are distributed only to management and the board of directs
B. Audit describes the additional review procedures performed on the summary financial
statements
C. Summary financial statements are presented in comparative form with the prior year’s
summarized financial statements
D. Auditor indicates whether the information in the summary financial statements is consistent
with the audited financial statements from which it was derived

Specific element

33. An auditor may express an opinion on an entity’s accounts receivable balance even if the
auditor has disclaimed an opinion on the financial statements taken as a whole provided the
A. Use of the report on the accounts receivable is restricted
B. Auditor also reports on the current asset portion of the entity’s balance sheet
C. Report on the accounts receivable discloses the reason for the disclaimer of opinion on the
financial statements
D. Report on the accounts receivable separately from the disclaimer of opinion on the financial
statements
34. Which of the following statements is correct with respect to an auditor’s report expressing an
opinion on a specific element on a financial statement?
A. Such a report can only be issued if the auditor is also engaged to audit the entire set of
financial statements
B. The attention devoted to the specific element is usually less than it would be if the financial
statements as a whole were audited
C. The materiality determined for a specific element of a financial statement may be lower than
the materiality determined for the entity’s complete set of financial statements
D. The auditor who has expressed an adverse opinion on the financial statements as a whole can
never express an unmodified opinion on a specific element in these financial statements

35. An auditor may express an opinion on an entity’s accounts receivable balance even if the
auditor has disclaimed an opinion on the financial statements taken as a whole provided the
A. Use of the report on the accounts receivable is restricted
B. Auditor also rep orts on the current asset portion of the entity’s balance sheet
C. Report on the accounts receivable discloses the reason for the disclaimer of opinion on the
financial statements
D. Report on the accounts receivable is presented separately from the disclaimer of opinion on
the financial statements

36. Which of the following statements is with respect correct to an auditor’s report expressing an
opinion on a specific element on a financial statement?
A. Such a report can only be issued if the auditor is also engaged to audit the entire set of
financial statements
B. The attention devoted to the specific element is usually less than it would be if the financial
statements as a whole were audited
C. The materiality determined for a specific element of a financial statement may be lower than
the materiality determined for the entity’s complete set of financial statements
D. The auditor who has expresses an adverse opinion on the financial statements as a whole can
never express an unmodified opinion on a specific element in these financial statements

37. Which of the following statements is correct with respect to an auditor’s report expressing an
opinion on a specific item on a financial statement?
A. Materiality must be related to the specified item rather than to the financial statements taken
as a whole
B. Such a report can only be issued if the auditor is also engaged to audit the entire set of
financial statements
C. The attention devoted to the specified item is usually less than it would be if the financial
statements as a whole were being audited
D. The auditor who has expressed an adverse opinion on the financial statements as a whole can
never express an opinion on a specified item in the financial statements

Prospective financial statements

38. The party responsible for assumptions identified in the preparation of prospective financial
statements is usually
A. A third-party lending institution C. The client’s management
B. The client’s independent auditor D. The reporting accountant

39. Prospective financial information can include financial statements or one or more elements of
financial statements and may be prepared
A B C D
For distribution to third parties Yes Yes Yes No
As an internal management tool Yes Yes No Yes
As attachment to entity’s income tax return Yes No Yes No

40. Given one or more hypothetical assumptions, a responsible party may prepare to the best of
its knowledge and belief, an entity’s expected financial position, results of operations, and
changes in cash flows. Such prospective financial statements are known as
A. Financial forecasts
B. Financial projections
C. Partial presentation
D. Pro-forma financial statement

41. Financial projection is a prospective financial information prepared on the basis of:
A B C D
Assumptions Hypothetical Yes Yes Yes No
Best estimate Yes No No Yes
A mixture of best estimate and Yes Yes No No
hypothetical assumptions

42. Firms sometimes provide future-oriented financial information as part of their regular
disclosures. Such information may take the form of either a forecast or a projection. The
distinction between a forecast and a projection is:
A. Projections are frequently non-quantitative in nature
B. Forecasts are predictions with a shorter time horizon than projections
C. Only forecasts are based on management’s planned course of action
D. A projection is based on assumptions that include hypothesis which may be different from
management’s opinion of the most likely set of events
\
43. Which of the following phrases refer to forecast?
A. Statements prepared in considerably less detail as compared to unabridged financial
statements
B. Prospective financial information prepared on the basis of hypothetical assumptions about
future events and management actions which are not necessarily expected to take place; and a
mixture of best-estimate and hypothetical assumptions
C. Prospective financial information prepared on the basis of assumptions as to future events
which management expects to take place and the actions management expect to take as of the
date the information is prepared (best estimate assumptions)
D. None of these statements describe forecast

Environmental performance report

44. A report, separate from the financial statements, in which any entity provides third parties
with qualitative information on the entity’s commitments towards the environmental aspects of
the business, its policies and targets in that field, its achievement in managing the relationship
between its business processes and environmental risk, and quantitative information on its
environmental performance
A. Annual report
B. Environmental performance report
C. Environmental risk
D. Special purpose audit report

Statement of cash receipts & disbursements

45. An auditor is reporting a statement of cash receipts and disbursements. This statement is best
referred to in the opinion paragraph by which of the following descriptions?
A. “statement of cash flows”
B. “Cash receipts and disbursements”
C. “Income statement resulting from cash transactions”
D. Results of operations arising from cash transactions”

Report on internal control

46. Hershey, CPA, is preparing a report on internal control. She has already discussed the
internal control weaknesses with the appropriate client officials. During these discussions, the
client stated that, given its circumstances, there was no practicable corrective action which could
be taken for one of the major weaknesses and therefore asked that it not be included in Hershey’s
report. In the final analysis, Hershey concurred that no corrective action by the management is
practicable. Which of the following is the MOST appropriate course of action for Hershey to
take?
A. She may omit the weakness from the report without further mention
B. She must include this weakness in her report; otherwise, she will be in violation of GAAS
C. She may omit this weakness from the report but should send a confidential memo to the Board
of Directors pointing out the nature of the weakness and why it was omitted from her report
D. She may omit the weakness from her report but should clearly state that the report is restricted
to material weaknesses for which corrective action by the management may be practicable in the
circumstances

Service Organizations
47. Which of the following phrases best describes a service organization?
A. An entity that uses a service organization and whose financial statements are being audited
B. The policies and procedures designed, implemented and maintained by the service
organization to provide user entities with the services covered by the service auditor’s report
C. A third-party organization (or segment of a third-party organization) that provides service to
the user entities that are part of those entities’ information systems relevant to financial reporting
D. A service organization used by another service organization to perform some of the service
provided to user entities that are part of those user entities’ information systems relevant to
financial reporting

48. Controls that the service organization which assumes, in the design of its service, will be
implemented by the user entities, and if necessary, to achieve control objectives, are identified in
the description of its system
A. Service auditor controls
B. Complementary user entity controls
C. End-user license agreement controls
D. General IT controls over the service organization

49. A Type II report is a report that comprises the following:

A. A description of the service auditor’s tests of the controls and the results thereof
B. A report by the service auditor with the objective of conveying reasonable assurance that
includes the service auditor’s opinion on the description of the controls to achieve the specified
control objectives, and the operating effectiveness of the controls
C. A description prepared by the management of the service organization, of the service
organization’s system, control objectives and related controls, their design and implementation
as at a specified date or throughout a specified period and, in some cases, their operating
effectiveness throughout a specified period
D. All of these

50. The auditor who, at the request of the service organization, provides an assurance report on
the controls of a service organization
A. Practitioner C. Service auditor
B. Requested auditor D. Subservice auditor

51. An auditor who audits and reports on the financial statements of a user entity
A. Practitioner C. Service auditor
B. Requested auditor D. User auditor

52. Many clients now have their data processed at an independent computer service center rather
than have their own computer. The difficulty the independent auditor faces when a computer
service is used is:
A. Gaining the permission of the service center to review their work
B. In determining the adequacy of the service center’s internal controls
C. Finding compatible programs that will analyze the service center programs
D. In trying to abide by the Code of Ethics to maintain the s ecurity and confidentiality of
client’s data

Audit of Banks
53. This is a type of financial institution whose principal activity is the taking of the deposits and
borrowing for the purpose of lending and investing and that is recognized as a bank of the
regulatory authorities in any country which it operates
A. Bank C. Investment house
B. Depositorium D. Stock broker

54. Security given by a borrower to a lender as a pledge for repayment of a loan, rarely given in
the case of interbank business
A. Collateral C. Line of credit
B. Encumbrance D. Options

55. Which document published in 1997 serves as a basic reference for an effective supervisory
system internationally all in all countries?
A. Enhancing Corporate Governance for Banking Organizations
B. PAPS 1004 The Relation – ship Between BSP and the Bank’s External Auditors
C. Core Principles for Effective Banking Supervision, a.k.a. Basel Core Principles
D. Statements on Auditing Standards applicable to Banks and Quasi-Banking Institutions

56. Which of the following statements is incorrect?

A. Control over the content and dispatch of confirmation request is the responsibility of the
confirming bank
B. Confirmation of asset repurchase and resale agreements and options outstanding at the
relevant date should also be sought
C. The most commonly requested information is in respect of balances due to from the
requesting bank on current, deposit, loan and other accounts
D. Whenever possible, the confirmation request should be prepared in the language of the
confirming bank or in the language normally used for business purposes

57. Which statement is incorrect regarding inter-bank confirmations?

A. It is usual practice to request a response only if the information submitted is incorrect or
incomplete
B. The requirements for bank confirmation arise from the need of the bank’s management and its
auditors to confirm financial and business relationships
C. While interbank relationships are similar in nature to those between the bank and a non-bank
customer, there may be special significance in some inter-bank relationships
D. The auditor should decide from which bank or banks to request confirmation, having regard
to such matters as the size of the balances, volume of activity, degree of reliance on internal
controls, and materiality within the context of the financial statements

58. IAPS 1004, on which PAPS 1004 is based, was prepared in association with which of the
following?
A. Professional Regulation Commission
B. International Accounting Standards Board
C. Professional Regulatory Board of Accountancy
D. Basel Committee on Banking Supervision (the Basel Committee)

Comprehensive

59. Analytical procedures should be performed whenever a CPA is engaged to

I. Audit III. Compile
II. Review ` IV. Apply agreed-upon procedures

A. Yes, Yes, Yes, No C. No, Yes, No, No

B. Yes, Yes, No, No D. Yes, No, No, Yes

60. Which of the following is not true about the report provided by a CPA?
A. In a review engagement, the CPA moderate assurance is expressed in the form of negative
assurance
B. For agreed-upon procedures, the CPA provides a report on factual findings and no assurance
is expressed
C. In the audit engagement, the auditor provides high level of assurance that the financial
information is free of material misstatement
D. In a compilation engagement, the auditor is expressed, and the users of financial information
do not derive any benefit from the CPA’s involvement

61. Which of the following terms best describes component management?

A. Management responsible for preparing the financial information of a component
B. The materiality level for a component determined by the group engagement team
C. An auditor who, at the request of the group engagement team, performs works on financial
information related to a component for the group audit
D. An entity or business activity for which group or component management prepares financial
information that should be included in the group financial statements

62. All the components whose financial information is included in the group financial
statements, are collectively known as:
A. Business combination C. Group
B. Consolidation D. Pooling
63. Principal auditor is
A. A current period’s auditor who did not audit the prior period’s financial statements
B. The auditor who was previously the auditor of an entity and who has been replaced by an
incoming auditor
C. The auditor who audited and reported on the prior period’s financial statements and continues
as the auditor for the current period
D. The auditor with responsibility for reporting on the financial statements of an entity whose
financial statements include financial information of one or more components audited by another
auditor

64. A generic term used to categorize a wide variety of financial instruments whose value
depends on an underlying rate or price, such as interest rates, exchange rates, equity prices, or
commodity prices
A. Asset / liability management C. Derivatives
B. Commodity D. Hedge

PSA QUESTIONS

1. According to the PSA glossary of Terms, this means to inquire into matters arising from other
procedures to resolve them
A. Confirm C. Validate
B. Investigate D. Verify

2. A requirement of the application of the application of PSAs is for the auditor:

A. Not to obtain clients by solicitation
B. To inspect all fixed assets acquired during the year
C. To charge fees fairly and in relation to time and cost of the engagement
D. To undertake a proper study and evaluation of the existing internal control

3. According to PSA 200, the specific procedures deemed necessary in the circumstances to
achieve the objective of the audit are referred to as the
A. Audit objectives C. Scope of the audit
B. Audit technique D. Substantive tests

4. This refers to the audit procedures that, in the auditor’s judgment and based on the PSAs are
deemed appropriate in the circumstances to achieve the objective of an audit
A. Analytical procedures C. Documentation
B. Audit sampling D. Scope of an audit

5. According to PSA 210, the auditor and the client should agree on the terms of engagement.
The agreed would need to be recorded in a (n)
A. Comfort letter
B. Engagement letter
C. Client representation letter
D. Memorandum to be placed in the permanent section of the auditing working papers

6. According to PSA 220, who should take responsibility for the overall quality on each audit
engagement?
A. The whole audit team
B. The managing partner of the firm
C. The senior auditor assigned to engagement
D. Engagement partner assigned to the engagement

7. The following statements relate to quality control for audit work. Which statement is false?
A. According to PSA 220, audit firms should adopt standardized quality control policies and
procedures
B. On individual audits, the auditor should also implement those quality control procedures
which are appropriate to individual audit
C. The firm’s general quality control polices, and procedures should be communicated to its
personnel in a manner that provides reasonable assurance that the polices and procedures are
understood and implemented
D. The audit firm should implement quality control policies and procedures designed to ensure
that all audits are conducted in accordance with PSA’s

8. PSA 230 provides general guidelines about the ownership, custody and confidentiality of
working papers. Accordingly,
A. Working papers should not be made available to the client
B. Working papers may be considered a substitute for the client’s accounting records
C. The working papers should be retained by the auditor for a sufficient period of time but to
exceed five years
D. Working papers are the personal property of the auditor and the client has no rights to the
working papers prepared by the auditor

9. Based on PSA 250, non-compliance refers to

A. Unintentional mistakes in the financial statements
B. Personal misconduct by the entity’s management or employees
C. Intentional acts of one or more individuals which result in misstatement in financial
statements
D. Acts of omission by the client which are contrary to prevailing laws and regulations

10. Based on PSA 250, procedures help identify instances of non-compliance with laws and
regulations would include:

A B C D
Inquiry of management as to compliance Yes Yes No No
with laws and regulations
Inspecting correspondence with government agencies Yes Yes Yes No
Obtaining written representations from management Yes No No No

11. According to PSA 259, the risk of not detecting material misstatement due to non-
compliance is high. This can be attributed to all of the following factors, except:
A. Non-compliance may involve conduct designed to conceal it
B. Non-effectiveness of audit procedures may be affected by the limitations of the audit
C. The detection prevention and detection of non- compliance rests with management’s audit
D. There are many laws and regulations, relating primarily to the operating aspects of the entity
that typically do not have a material effect on the financial statements

12. According to PSA 315, “Risk assessment procedures” means

A. Obtaining understanding of entity and its environment, including its internal control
B. Performing substantive tests and testing the operating effectiveness of the entity’s internal
control
C. Identifying business risk relevant to financial reporting objectives and deciding about actions
to address those risks
D. Discussing with the members of the audit team the susceptibility of the entity’s financial
statements to material misstatements

13. PSA 315 requires the auditor to obtain an understanding of the internal control relevant to the
audit. The auditor uses the understanding of internal control to
A B C D

Identify the types of potential misstatements Yes Yes No No

Consider factors that affect the risk of Yes No Yes No
material misstatements
Design the nature, timing and extent of Yes Yes Yes No
further audit procedures
Obtain knowledge about the operating effectiveness No Yes Yes No

14. As defined in PSA 500, __________ is an individual or organization possessing the expertise
in a field other than accounting or auditing, whose work in that field is used by the entity to assist
the entity in preparing the financial statements.
A. Auditor’s expert
B. Auditor’s external expert
C. Auditor’s internal expert
D. Management expert

15. PSA 501 states that inventory is material to the financial statements; the auditor should
obtain sufficient appropriate audit evidence regarding its existence and condition by attendance
at physical inventory counting unless impracticable. Which of the following statements
concerning this audit procedures is incorrect?
A. Regardless of the inventory system operated by the client, an annual physical count must be
made of each item in the inventory, and test counts must be made by the auditor
B. Inventories located in public warehouses may be verified by direct confirmation on writing
from the custodians, provided that, depending on the materiality of these inventories, additional
procedures are applied as deemed necessary
C. When the well-kept perpetual inventory records are checked by the client periodically by
comparisons with physical counts, the auditor’s observation procedures usually can be performed
either during or after the end of the period under audit
D. The independent auditor, when asked to audit financial statements covering the current period
and one or more periods for which he/she had not observed or made some physical counts, may
be able to become satisfied as to such prior activities through appropriate alternative procedures
16. For initial engagements, PSA 510 does not require the auditor to obtain sufficient audit
evidence:
A. That the prior period financial statements were audited by an independent CPA
B. That the opening balances do not contain material misstatements that materially affect the
current period’s financial statements
C. That the prior periods ending balances have been correctly brought forward to the current
period or, when appropriate, have been restated
D. That appropriate accounting policies are consistently applied or changes in accounting
policies have been properly accounted for and adequately disclosed

17. To comply with the requirement of PSA 520, analytical procedures should be applied in
A. Planning and testing phases of the audit
B. The testing and overall review stages of the audit
C. The planning and overall review stages of the audit
D. The planning testing and overall review stages of the audit

18. PSA 520 states that analytical procedures can be used in the:

A B C D
Planning stage Yes Yes Yes No
Testing phase Yes No No Yes
Overall review stage Yes Yes No No

19. PSA 520 requires auditors to use analytical procedures in the:

A B C D
Planning stage Yes Yes Yes No
Testing phase Yes No No Yes
Overall review stage Yes Yes No No
20. According to PSA 520, the process of dividing the population into sub-population is called
A. Division C. Random selection
B. Projection D. Stratification

21. In the context of PSA 600, (Revised and Redrafted), a group:

A. May have more than one component
B. May consist entirely of one component
C. Always has more than one component
D. Cannot be determined without additional information

22. According to PSA 700 Revised, the following are the Elements of the Standard Audit Report
except
A. Addressee C. Explanatory paragraph
B. Auditor’s address D. Introductory paragraph

23. Reference to “financial statements” in PSA 700 (Redrafted), Forming an Opinion and
Reporting on Financial Statements, means
A. A complete set of general-purpose financial statements, including the related notes
B. A complete set of financial statements prepared in accordance with a special purpose
framework
C. A complete set of financial statements prepared to meet the financial information needs of
specific users
D. A complete set of financial statements prepared in accordance with either a general or special
purpose framework

24. PSA 800 “the auditor’s report on special purpose audit engagements” does not apply to a
A. Audit of financial statements prepared in accordance with GAAP in the Philippines
B. Reports on summarized financial statements derived from annual audited financial statements
C. Audit engagement that involves expression of an opinion on one or more components of the
financial statements
D. Audit of financial statements prepared in accordance with the cash receipts and cash
disbursement basis of accounting

25. Which of the following is not a special purpose audit engagement as provided by PSA 800?
A. Reports on prospective financial statements
B. Reports on summarized financial statements
C. Reports on components of financial statements
D. Reports on financial statements prepared using other comprehensive basis of accounting

26. PAPS 1000PH focuses on the instances when:

A. The scope limitation is improved by the client or by circumstances
B. The documents or information exist but are not made available to the auditor
C. A particular audit procedure is beyond the competence or area or expertise of the auditor
D. Scope limitations occur due to the inability of the client to prepare schedules, reports or
computations or the failure to reconcile differences noted in the audit due to the poor condition
of the accounting record