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AUDITING THEORY JPIA-CIT PSA CHALLENGE
INSTRUCTION: Select the letter corresponding to the best answer.
1. Which statement is incorrect regarding the pronouncements of ASPC?
a. The pronouncements of the ASPC on auditing standards, practices and
procedures shall be in the form of PSA, Interpretations and IAPS.
b. An auditor may judge it necessary to depart from a PSA in order to more
effectively achieve the objective of an audit.
c. The Interpretations will have the same authority as the PSAs.
d. PAPS are not intended to have the authority of the Interpretations.
2. The auditor who audited and reported on the prior period's financial statements and
continues as the auditor for the current period.
a. Existing auditor
c. Incoming auditor
b. Continuing auditor
d. Predecessor auditor
3. Which of the following best describes high level of assurance?
a. It refers to the professional accountant having obtained sufficient external and
internal appropriate evidence to be satisfied that the subject matter is plausible
in the circumstances.
b. It refers to the professional accountant having obtained sufficient appropriate
evidence to conclude that the subject matter conforms in all material respects
with identified suitable criteria.
c. It refers to the professional accountant having obtained sufficient evidence to
conclude that he has no knowledge of any required modifications to be made in
the financial statements in order for them to conform of prescribed criteria.
d. It refers to the professional accountant having obtained evidence based on
procedures agreed upon between the practitioner and the intended users to be
satisfied that findings be reported to the intended users.
4. Which statement is incorrect regarding assurance engagement risk?
a. Engagement risk is the risk that the practitioner will express an inappropriate
conclusion that the subject matter conforms in all material respects with suitable
criteria.
b. Not all components of the engagement risk model will be significant for all
assurance engagements.
c. The extent to which the practitioner considers the relevant components of
engagement risk will be affected by the engagement circumstances.
d. Business risk is a part of engagement risk and affects the application of
Philippine Standard on Assurance Engagements.
5. In which of the following situations can third parties assume responsibility of the
auditor regarding association with financial information?
a. When the auditor was engaged to report on that information.
b. When the auditor refuses to the use of the auditor's name in a professional
connection.
c. Either a or b.
d. Neither a nor b.
6. Which of the following is least likely an application of maintaining an attitude of
professional skepticism?
a. The auditor makes a critical assessment, with a questioning mind, of the validity
of audit evidence obtained.
b. The auditor is alert to audit evidence that contradicts or brings into question the
reliability of documents or management representations.
c. In planning and performing an audit, the auditor assumes that management is
dishonest.
d. The auditor does not consider representations from management as substitute
for obtaining sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the audit opinion.
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c. Non-dependent child
d. Spouse
76. The members of the assurance team are required to be independent of the client
a. For assurance engagements provided to an audit client.
b. For assurance engagements provided to clients that are not audit clients, when
the report is not expressly restricted for use by identified users.
c. For assurance engagements provided to clients that are not audit clients, when
the assurance report is expressly restricted for use by identified users.
d. All of the above.
77. Which of the following will least likely create a threat to independence?
a. Deposits made by, or brokerage accounts of, a firm or a member of the
assurance team with an assurance client that is a bank, broker or similar
institution, provided the deposit or account is held under normal commercial
terms.
b. Arrangements to combine one or more services or products of the firm with one
or more services or products of the assurance client and to market the package
with reference to both parties.
c. Family and personal relationships between a member of the assurance team and
a director, an officer or certain employees.
d. A member of the assurance team, partner or former partner of the firm has joined
the assurance client.
78. The provision of accounting and bookkeeping services of a routine or mechanical
nature to divisions or subsidiaries of listed audit clients would not be seen as
impairing independence with respect to the audit client provided that the following
conditions are met, except
a. The services involve the exercise of judgment.
b. The divisions or subsidiaries for which the service is provided are collectively
immaterial to the audit client.
c. The services provided are collectively immaterial to the division or subsidiary.
d. The fees to the firm, or network firm, from such services are collectively
insignificant.
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12
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94. Which of the following least likely requires an additional explanatory paragraph in a
standard unqualified report?
a. Substantial doubt about going-concern ability of the entity.
b. Emphasis of a matter.
c. Reports involving other auditors.
d. Auditor agrees with change in generally accepted accounting principles.
95. Subsequent to the date of the financial statements as part of his post-balance-sheet date
audit procedures, Eddie, CPA, learned that a recent fire caused heavy damage to one of
a clients two plants; the loss will not be reimbursed by insurance. The newspapers
described the event in detail. The client did not disclose the event in the notes to
financial statements. Eddie most likely would express
a. Either a qualified or disclaimer of opinion.
b. Either a qualified or adverse opinion.
c. A disclaimer of opinion.
d. An unqualified opinion because disclosure in the financial statements is no longer
necessary since the event was reported in detail in the newspapers.
96. The 1136 Tenants case was chiefly important because of its emphasis on the legal
liability of the CPA when
a. Performing a review of financial statements.
b. An audit results in a disclaimer of opinion.
c. Preparing letters for underwriters.
d. An engagement letter is not obtained.
97. In a common law action against an accountant, the lack of privity is a viable defense if
the plaintiff
a. Bases his action upon fraud.
b. Is the accountant's client.
c. Is a creditor of the client who sues the accountant for negligence.
d. Can prove the presence of gross negligence which amounts to a reckless disregard
for the truth.
98. Which of the following conditions suggests auditor negligence?
a. Failure to detect errors occurring outside the internal control structure.
b. Failure to detect material errors under conditions of weak internal control.
c. Failure to detect collusive fraud perpetrated by members of middle management.
d. Failure to detect collusive fraud perpetrated by members of top management.
99. Which of the following statements is not true regarding the competence of audit
evidence?
a. Relevance is enhanced by an effective information system.
b. To be competent, evidence must be both valid and relevant.
c. Validity is related to the quality of the clients information system.
d. Relevance must always relate to audit objectives.
100. An auditor's report that refers to a departure from generally accepted accounting
principles includes the language, In our opinion, with the foregoing explanation, the
financial statements referred to above present fairly ... This is a/an
a. Adverse opinion.
b. Qualified opinion.
c. Unqualified opinion with an explanatory paragraph.
d. Example of inappropriate reporting.
END
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21.A
22.C
23.D
24.A
25.A
26.B
27.C
28.C
29.C
30.D
31.D
32.A
33.B
34.B
35.B
36.A
37.C
38.D
39.C
40.C
41.D
42.D
43.A
44.A
45.B
46.A
47.D
48.D
49.B
50.A
51.B
52.B
53.A
54.D
55.A
56.B
57.D
58.C
59.D
60.A
61.A
62.B
63.A
64.D
65.D
66.C
67.B
68.D
69.A
70.A
71.B
72.D
73.A
74.A
75.D
76.D
77.A
78.A
79.C
80.C
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81.C
82.B
83.C
84.C
85.A
86.D
87.D
88.C
89.C
90.C
91.B
92.C
93.B
94.C
95.B
96.D
97.C
98.B
99.A
100.D