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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
5. Ivan Bagayao, CPA, has decided to use statistical sampling for the audit
of Gor Corporation. When using statistical sampling, which of the
following need not be known to Ivan to evaluate the results of an
attribute sample?
a. Sample size
b. Risk of assessing control risk too low.
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
6. Which of the following audit procedures would provide the least reliable
evidence that the client has legal title to inventories?
a. Confirmation of inventories at locations outside the client
facilities.
b. Analytical review of inventory balances compared to purchase and
sales activities.
c. Observation of physical inventory counts.
d. Examination of paid vendors invoices.
7. The working papers prepared during the engagement are the property of:
a. The auditor, but do not include the working papers prepared by
client for the auditor.
b. The auditor, even including those prepared by client for auditor.
c. The client.
d. The auditor and client jointly.
13. George 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 George Companys 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.
15. When auditing around the computer, the independent auditor focuses
solely upon the source documents and
a. Test data. c. IT output.
b. IT processing. d. Compliance techniques.
17. Gorgonio Macariola, CPA was considering the sample size needed for a
selection of sales invoices for the test of controls audit of the Four
Horsemen Companys internal controls. He presented the following
information for two alternative cases:
Case A Case B
Acceptable risk of underreliance on
controls ......................... High Low
Acceptable risk of overreliance on
controls ......................... High Low
Tolerable deviation rate ......... High Low
Expected population deviation rate Low High
19. Mr. Earl Jimson Garcia, CPA, has organized a gathering of tax experts and
CPAs which shall include among others, workshops, technical lectures or
subject matter meetings, non-degree training courses and scientific
meetings. Under the IRR to RA No. 9298, this shall qualify as:
a. Seminars. c. Meetings.
b. Conventions. d. Professional gathering.
20. You are Mr. Yannick, CPA, and your client consulted you regarding measures
to be taken to address the companys repeated incidence of lapping of
trade accounts receivable. Select which of among the following would be
considered as the best protection to deter lapping:
a. Segregate duties so that the bookkeeper in charge of the general
ledger has no access to incoming mail.
b. Segregate duties so that no employee has access to both checks from
customers and currency from daily cash receipts.
c. Have customers send payments directly to the companys depository bank.
d. Request that customers payment checks be made payable to the
company and addressed to the treasurer.
21. Which of the following is an internal control procedure that would prevent
a paid disbursement voucher from being processed for payment a second
time?
a. Vouchers should be prepared by individuals who are responsible for
signing disbursement checks.
b. Disbursement vouchers should be approved by at least two responsible
management officials.
c. The date on a disbursement voucher should be within a few days of
the date the voucher is presented for payment.
d. The official signing the check should compare the check with the
voucher and should stamp PAID on the voucher documents.
22. Jude Isaac James, CPA, has released a 3,500-page book on Auditing
Problems. Technically, his work falls under authorship for purposes of
CPE credits. Credits earned by Mr. James must be claimed:
a. Within 3 years from date of publication.
b. Within 1 year from date of publication.
c. Within six days from date of publication.
d. Within six months from date of publication.
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
23. The following are used by the auditor in assessing whether the accounting
for assets or liabilities requiring fair value measurements be
appropriate, except:
a. The auditors understanding of the requirements of the financial
reporting framework.
b. Knowledge of the business and industry.
c. Results of other audit procedures.
d. Number of personnel involved in the measurement process.
24. When a client auditor uses a report from the auditor of a service
organization, the client auditor:
a. Makes no reference in his audit report on the service organization.
b. Should refer the matter in a separate emphasis of matter paragraph
of his audit report.
c. Should refer the matter by modifying the scope, and opinion
paragraphs of the auditors report.
d. Should attach the copy of the service organizations auditors
report to his audit report.
25. When an auditor expresses an adverse opinion, the opinion paragraph should
include:
a. The principal effects of the departure from Philippine Financial
Reporting Standards.
b. A direct reference to a basis for adverse opinion paragraph
disclosing the basis for the opinion.
c. The substantive reasons for the financial statements being
misleading.
d. A description of the uncertainty or scope limitation that prevents
an unqualified opinion.
28. In which of the following situations would a public accounting firm have
violated the Code of Ethics in determining its fee?
a. A fee is based on whether or not the public accounting firms audit
report leads to the approval of the clients application for bank
financing.
b. A fee is to be established at a later date by the Bankruptcy Court.
c. A fee is based upon the nature of the engagement rather than upon
the actual time spent on the engagement.
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
30. One difference between auditors and other professionals is that most
professionals
a. Need not be concerned about remaining independent.
b. Dont have requirements for continuing education beyond college.
c. Dont have to pass a rigorous examination.
d. Arent expected to act in the public interest.
32. A client company has not paid its 2015 audit fee. Ethically speaking, for
the auditor to be considered independent with respect to the 2016 audit,
the 2015 audit fee must be paid:
a. Before the 2016 audit work is completed.
b. Before the 2016 report is issued.
c. Before the 2016 audit work is started.
d. On the date of the 2016 audit report.
CPA Gelai James performs the audit of the local symphony society. Because
of her good work, she was elected an honorary member of the board of
directors. Gelai will not be considered independent unless:
A B C D
The position is in fact purely honorary ... Yes Yes Yes Yes
Listings of directors show she is an
honorary director. ........................ No Yes Yes No
She restricts participation strictly to
the use of her name ....................... Yes No Yes No
She does not vote or participate in
management functions ....................... Yes Yes Yes Yes
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
Antonio Tony Jaramillo, a retired partner of your CPA firm, has just
been appointed to the board of directors of Honey Corporation, your firms
client. Tony is also an ex-officio member of your firms income tax
advisory committee which meets monthly to discuss income tax problems of
the partnerships clients, some of which are competitors of Honey
Corporation. The partnership pays Tony P1,500 for each committee meeting
attended and a monthly retirement benefit, fixed by a retirement plan
policy, of P10,000.
34. Based solely on the above information, would the above situation impair
the appearance of the firms independence?
a. Yes, because Tony is still active with the firm as an ex-officio
member of the income tax advisory committee.
b. Yes, because the intimidation threat created is so significant that
no safeguard could eliminate or reduce the threat to an acceptable
level.
c. No, because Tony is already a retired partner of the CPA firm.
d. No, because Tony is only an ex-officio member of the firms income
tax advisory committee.
35. What are the options available to Tony to remedy the situation described
above?
a. Tony should ask that the audit client be given, consistently, a
disclaimer of opinion.
b. Tony should either resign from the Board of Directors of Honey
Corporation or cease his association with the accounting firm.
c. Tony should request that Honey Corporation place him in the
companys audit committee.
d. Tony should request the accounting firm to cease giving him P1,500
for each committee meeting attended.
42. When planning an audit, the auditor must take steps to provide reasonable
assurance that any material frauds will be detected. This level of
assurance is less than that provided for the detection of nonfraudulent
material misstatements because:
a. auditors face less liability for failure to detect fraud
b. frauds are extremely rare and therefore a lower level of assurance
is appropriate
c. most frauds are detected by means other than the audit
d. those committing frauds usually take steps to prevent the detection
of the frauds
45. Which one of the following is not a valid purpose for performing
analytical procedures?
a. improve knowledge of the clients business
b. identify material misstatements
c. assess inherent risk
d. assess control risk
46. Which one of the following audit tests is not a valid analytical procedure
method?
a. scanning disbursements for unusual items
b. comparing account balances to budgeted amounts
c. examining documentation supporting disbursements
d. predicting account balances using regression analysis
48. Which of the following is the best audit procedure for determining the
existence of unrecorded liabilities?
a. Examine confirmation requests returned by creditors whose accounts
appear on a subsidiary trial balance of accounts payable.
b. Examine unusual relationships between monthly accounts payable balances
and recorded purchases.
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
49. The close relationship that can develop between an auditor and a small
business client has raised concerns among accounting critics. These
concerns are heightened when the auditor provides both auditing and
consulting services to the client. The main concern raised is:
a. auditors may not have the sufficient expertise to provide business
advice to clients
b. auditors may not be able to maintain client confidentiality with
respect to information learned during the course of the consulting
engagement
c. client information learned during the consulting engagement gives the
auditor an unfair advantage in a competitive bid for the audit
d. auditors may not be able to maintain their objectivity when auditing
systems they have provided to clients
50. Which of the following best describes an auditors review for subsequent
events?
a. it is generally performed after an audit report is issued
b. it need not be performed unless the auditor has reason to believe that
material unusual transactions occurred after the balance sheet date
c. it can result in a change in financial statement amounts or the
addition of a footnote to the financial statements
d. it is usually performed in conjunction with tests of internal control
51. This document contains the norms and principles governing the practice
of the accountancy profession in the highest standards of ethical conduct:
A. Code of Ethics for CPAs in the Philippines
B. Republic Act No. 9298
C. IRR to RA9298
D. PSA 220 on Quality Control
practitioners name.
C. Seek legal advice.
D. Keep silent about the matter.
56. The underlying conditions that create demand for users for reliable
financial information do not include (the):
A. Transactions that are numerous and complex.
B. Expression of an opinion on the fairness of the financial statements.
C. Users separated from accounting records by distance and time.
D. Financial decisions that are important to investors and users.
57. Who is responsible for leading debriefing and setting the direction for
improvement of both individual and team performance in the future?
A. Quality Review Committee
B. Board of Accountancy
C. The client and the audit team
D. The engagement partner
59. According to PSA 315, the scope of the audit engagement includes the
following, except:
A. The financial reporting framework on which the financial information
to be audited has been prepared, including any need for
reconciliations to another financial reporting framework.
B. The entitys timetable for reporting, such as interim and final
stages.
C. Industry-specific reporting requirements, such as reports mandated by
industry regulators.
D. The expected audit coverage, including the number and locations of
components to be included.
62. If the auditor uses the primarily substantive approach instead of the
lower control risk approach:
A. A higher level of understanding of internal control is required.
B. The auditor plans to assess control risk at a lower level.
C. The auditor plans heavier reliance on substantive tests.
D. The auditor plans to restrict substantive tests.
66. During audit planning, an auditor and his client agreed on a timetable
for the preparation and delivery of the audit schedules and reports needed
by the auditor in the conduct of his engagement. The deadline arrived and
still the client was not able to give the auditor the needed schedules and
reports. Accordingly, the auditor should:
A. Issue a qualified opinion or disclaimer of opinion due to a scope
limitation.
B. Prepare his/her own audit requirements, notwithstanding the self-
review threat created.
C. Withdraw from the audit and issue a memorandum stating the reasons
thereof.
D. Agree on a revised timetable within which the requirements are to be
prepared by the client.
68. Material errors which occur in the accounting process may not be
detected by the auditor in his examination of the firm is quite a big
risk. In order to minimize this risk, the auditor relies on:
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
70. Which of the following would most likely cause a CPA not to accept a
new audit engagement?
A. a high level of client business risk.
B. being approached by the client just before the fiscal year end.
C. concluding that there was a high inherent risk of management fraud.
D. lack of adequate knowledge of the clients business.
72. When performing analytical tests, a CPA is least likely to compare the
current years balances or ratios to expectations derived from:
A. informed judgment C. industry data
B. budgetary data D. unaudited data
75. The record of work performed, results obtained, and conclusions the
practitioner reached:
A. Engagement documentation C. Engagement letter
B. Assurance engagement report D. Quality control documentation
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
76. This refers to the gathering of professionals which shall include among
others, workshops, technical lectures or subject matter meetings, non-
degree training courses and scientific meetings.
A. Seminars. C. Meetings.
B. Conventions. D. Professional gathering.
77. Lorie, CPA, is planning the audit of ABC Manufacturing, Inc., a medium-
sized manufacturing concern with less than one hundred (100) shareholders,
which one of the following areas would require the least amount of audit
time?
A. Revenue. C. Liabilities.
B. Assets. D. Owners Equity.
80. Peter Etcetera, CPA, has performed analytical procedures during the
audit of the 2010 financial statements of SQUIZ COMPANY. Which of the
following would be a possible reason why Peter performed analytical
procedures?
A. Peter believes that their use can be less effective or efficient than
tests of details in reducing detection risk for specific financial
statement assertions.
B. Peter is trying to form a conclusion as to the effectiveness of the
internal control system of Squiz Company.
C. Peter is about to write his report on the fairness of the internal
control system of the company.
D. Peter is obtaining an understanding of the business and identifying
areas of potential risk.
81. The phrase the report shall state whether the financial statements are
presented in accordance with generally accepted accounting principles.
should be construed to require:
A. An implied measure of fairness.
B. A statement of fact by the CPA.
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
82. A CPA must earn at least 60 credit units for three years, with a
minimum of 15 credit units earned per year. Excess credit units, if any,
shall not be carried over to the next three-year period except:
A. Credit units earned for authoring an article of national significance.
B. Credit units earned for serving as professorial chair.
C. Credit units earned for an invention of significance to the
profession.
D. Credit units earned for doctoral or masteral degrees.
83. Tomahawk Corp. orally engaged Indian & Co., CPAs, to audit its
financial statements. Tomahawks management informed Indian that it
suspected that the accounts receivable were materially overstated.
Although the financial statements that Indian audited did, in fact,
include a materially overstated accounts receivable balance, Indian issued
a standard unqualified report. If Tomahawk sues Indian for negligence in
failing to discover the overstatement, Indians best defense would be
that:
A. Indian had signed no engagement letter.
B. Indian performed the audit in accordance with PSAs.
C. Indian was not in privity of contract with Tomahawk.
D. Indian did not perform the audit recklessly or with an intent to
deceive.
85. This term means to identify and analyze the relevant issues, including
performing further audit procedures as necessary, to come to a specific
conclusion on a matter.
A. Investigate C. Assess
B. Express D. Evaluate
86. The following statements relate to Republic Act No. 9298. Which
statement is correct?
A. The Board of Accountancy has the authority to remove, after due
process, any member of the Professional Regulation Commission for
negligence, incompetence or any other just cause.
B. The functions of the Board of Accountancy include the preparation of
the contents of the CPA licensure examination and the rating of
examination papers.
C. After two years, subject to certain conditions, the Board of
Accountancy must order the reinstatement of a CPA whose certificate of
registration has been revoked.
D. Insanity is a ground for issuing a certificate of registration to a
successful CPA candidate.
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
87. Jackson, CPA, has just concluded a meeting with Michael Company, a
prospective client. Unfortunately, Jackson believes that an understanding
with Michael has not been established. In this case, Jackson should
ordinarily:
A. Perform the engagement with increased professional skepticism.
B. Decline to accept or perform the engagement.
C. Assess control risk at a HIGH level and implement the primarily
substantive audit approach.
D. Modify the assessment of control risk due to fraud.
94. Describes the role of persons entrusted with the supervision, control
and direction of an entity.
A. Management C. Audit committee
B. Governance D. Steward of company resources
96. What threat to independence is created when the same senior personnel
are used for assurance engagements over a prolonged period?
A. Self-review threat C. Advocacy threat
B. Intimidation threat D. Familiarity threat
97. The following are examples of the type of information that may come to
the auditors attention which might indicate that noncompliance with laws
or regulations has occurred. One of them is not. Identify the exception:
A. Media comment.
B. Industry is regulated by various government agencies.
C. Unusual payments in cash, purchases in the form of cashiers checks
payable to bearer or transfers to numbered bank accounts.
D. Payments without proper exchange control documentation.
98. Audit risk has three components: inherent risk, control risk, and
detection risk. The following statements pertain to these components.
Which one is incorrect?
A. The acceptable level of detection risk is inversely related to the
combined assessed levels of inherent risk and control risk.
B. The higher the assessment of inherent and control risks, the lower the
detection risk that can be accepted by the auditor.
C. Detection risk cannot be changed at the auditors discretion.
D. The auditor considers the combined assessments of inherent risk and
control risk in order to determine the level of detection risk which
may be accepted.
102. A client company has not paid its 2009 audit fee. Ethically speaking,
for the auditor to be considered independent with respect to the 2010
audit, the 2009 audit fee must be paid:
A. Before the 2010 audit work is completed.
B. Before the 2010 audit work is started.
C. Before the 2010 report is issued.
D. On the date of the 2010 audit report.
105. A professional accountant who does not consider and apply the guidance
included in a relevant Practice Statement should be prepared to:
A. Explain to the Board of Accountancy tribunal why the practice
statement was not complied with
B. Bear the consequences of such non-compliance, such as suspension or
revocation of license, plus imprisonment of not more than two (2)
years.
C. Face the shareholders of the entity, and explain in the meeting why
such practice statement was not complied with, provided that the
explanation is also put in writing, and signed in the presence of the
Chairperson of the Auditing and Assurance Standards Council.
D. Explain how the basic principles and essential procedures in the
Engagement Standards addressed by the Practice Statements have been
complied with.
109. Asser Tamayo, CPA, has listed his practice in a directory. Which of
the following cannot be included in the listing?
A. Complete name
B. Address and contact number
C. Professional description and services offered
D. All of these may be included in the directory listing.
110. Antonio, CPA and partner of Dayag and Lee auditing firm, is being
interviewed by Chris Espenilla, CPA in his noontime business show, Chris
per Minute. During the course of the interview, which of the following
responses by Antonio would most likely be construed as a violation of the
Code of Ethics and the revised rules on advertising?
A. Derivatives require higher accounting knowledge, but they are
relatively easy with study and practice.
B. PFRS No. 3 covers business combinations. It has been the recent
subject of the IASB Improvements Project.
C. Alright, I would be more than willing to entertain accounting
questions from the audience.
D. Dayag and Lee offers audit and other assurance services, and also
management consulting services, including creation and installation of
accounting systems. Our clients account for 35% of the total audit
market. Our clients include top universities and manufacturing
companies in the Luzon area.
112. In using a general model for making ethical decisions, the CPA should
do all of the following except
A. Gather or identify all the relevant facts about situation that raises
the ethical issue.
B. Consider the alternative course of action.
C. Consider the possible consequences of some of the courses of action.
D. Select a course of action from among the alternatives.
113. Which of the following is not a potential benefit of having the auditor
provide both auditing and consulting services to the client?
A. as a consequence of the knowledge gained during the audit, the auditor
can provide the consulting services more efficiently than an outside
consultant
B. information acquired during the course of the consulting engagement
may help in the planning and performing of the audit
C. systems designed by the auditor as part of a consulting engagement do
not need to be audited as carefully as systems designed by an outside
consultant since the auditor has prior knowledge of their reliability
D. consulting practice increases the auditors understanding of the
client and the clients industry, This understanding reduces the
potential for an audit failure
114. The accounting firm of Dawson and Creek, CPAs, is negotiating a fee
with ABC Company, a new audit client. ABC is in a high-risk industry.
They agree as follows: Client will pay P75,000 if Dawson issues a clean,
unqualified opinion, P50,000 if a qualified opinion is issued, P40,000 if
an adverse opinion is issued and P10,000 if a disclaimer of opinion is
issued. Is there a violation of the Code of Ethics?
A. No. The fees have been set in accordance with the Code of
Professional Ethics.
B. Yes. It is a contingent fee arrangement.
C. Yes. The fees are not contingent, but they are inadequate in light of
the risk involved. There might be a risk of a perception that the
quality of work could be impaired.
D. No. The fees have been set in the proper manner, since an unqualified
opinion demands more audit work to detect and adjust misstatements,
while a disclaimer is not really an opinion, but a refusal to express
an opinion.
115. CPA Ela Santos performs the audit of the local symphony society.
Because of her good work, she was elected an honorary member of the board
of directors. Ela will not be considered independent unless:
A B C D
- The position is in fact purely honorary Yes Yes Yes Yes
- Listings of directors show she is an No Yes Yes No
honorary director.
- She restricts participation strictly to
the use of her name. Yes No Yes No
- She does not vote or participate in
management functions Yes Yes Yes Yes
(Numbers 116 and 117) Antonio Tony Jaramillo, a retired partner of your CPA
firm, has just been appointed to the board of directors of Honey Corporation,
your firms client. Tony is also an ex-officio member of your firms income
tax advisory committee which meets monthly to discuss income tax problems of
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
116. Based solely on the above information, would the above situation impair
the appearance of the firms independence?
A. Yes, because Tony is still active with the firm as an ex-officio
member of the income tax advisory committee.
B. Yes, because the intimidation threat created is so significant that no
safeguard could eliminate or reduce the threat to an acceptable level.
C. No, because Tony is already a retired partner of the CPA firm.
D. No, because Tony is only an ex-officio member of the firms income tax
advisory committee.
117. What are the options available to Tony to remedy the situation
described above?
A. Tony should ask that the audit client be given, consistently, a
disclaimer of opinion.
B. Tony should either resign from the Board of Directors of Honey
Corporation or cease his association with the accounting firm.
C. Tony should request that Honey Corporation place him in the companys
audit committee.
D. Tony should request the accounting firm to cease giving him P1,500 for
each committee meeting attended.
118. GELAI, CPA, was requested to perform a review engagement for Beauty,
Inc., a non-public entity. GELAI has an immaterial direct financial
interest. In this situation, GELAI is:
A. Not independent, and therefore, may not be associated with the
financial statements.
B. Not independent, and therefore, may not issue a review report.
C. Not independent, and therefore, may issue a review report, but may not
issue an auditors report.
D. Independent because the financial interest is immaterial, and
therefore, may issue a review report.
120. Rita, CPA is in charge of the audit of Mabuhay Resort, Inc. Seven
young members of the audit firms professional staff are working with Rita
on this engagement, all of which are avid divers. Mabuhay Resort owns two
condominiums in Boracay, which it uses primarily to entertain clients.
The controller of Mabuhay Resort has told Ms. Rita that her whole team is
welcome to use the condominiums at no charge any time that they are not
already in use. How should Rita, CPA, respond to this offer?
A. Rita should withdraw from the engagement due to a significant threat
to independence.
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COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
B. Rita alone may accept the offer, but her staff may not use the
condominiums.
C. Rita should decline the offer, both for herself and her staff.
D. Rita may accept the offer, but only in favor of her staff; she cannot
use the condominiums because as partner, Rita will sign the report.
121. PSQC No. 1 requires complaints and allegations against the firm to be
dealt with appropriately. Complaints and allegations may come from:
A B C D
Firm personnel Yes No Yes Yes
Clients Yes Yes No Yes
Other third parties No Yes No Yes
125. Select the proper reply as to the allowable form of the understanding
with a client when an audit is being performed
A. While preferably written, it may be oral: but in all cases it should
be documented in the working papers.
B. While preferably written, it may be oral, in which case it need not be
documented in the working papers.
C. The understanding must be obtained in written form and included in the
working papers.
D. No requirement exists that the auditor obtain an understanding with
the client.
128. The practice of auditing firms to spread work throughout the year by
carrying out as many auditing procedures as practicable before the balance
sheet date in order to minimized the load during the peak period.
A. test of recorded transactions. C. observation and test-check of
inventories.
B. confirmation of receivables and D. interim work.
payables.
129. For purposes of PAPS, a small entity is any entity where there is
concentration of ownership and management in a small number of individuals
(often a single individual) and one or more of the following are found:
A. Few sources of income.
B. Unsophisticated record-keeping.
C. Limited internal controls together with the potential for management
override of controls.
D. All of these.
130. Most audits of a company are done annually by the same CPA firm.
Except for initial engagements, the auditor begins the audit with a great
deal of information about the clients internal control structure
developed in prior years. Because systems and controls usually do not
change frequently,
A. The auditor can skip the evaluation of this area on repeat
engagements.
B. This information can be updated and carried forward to the current
years audit.
C. It eases the burden on the auditors requirement to do a complete
study of controls this year.
D. It is sufficient for the auditor just to inquire of client personnel
whether the controls have been changed since last year.
134. Which one of the following audit tests is not a valid analytical
procedure method?
A. scanning disbursements for unusual items
B. comparing account balances to budgeted amounts
C. examining documentation supporting disbursements
D. predicting account balances using regression analysis
138. The risk of material misstatement refers to the risk that the financial
statements are materially misstated:
A. After the audit engagement has been completed.
B. Prior to the audit engagement
C. And the misstatements are not detected by the external auditors
procedures
D. And the misstatements are not detected or corrected by the companys
internal control system
B. Controller.
C. Chief financial officer.
D. Director of information systems.
144. Which of the following audit procedures most likely would assist an
auditor in identifying conditions and events that may indicate substantial
doubt on an entitys ability to continue as a going concern?
A. Inspecting title documents to verify whether any assets are pledged as
collateral.
B. Confirming with third parties the details of arrangements to maintain
financial support.
C. Reconciling cash balance per books with the cut-off bank statement and
the bank confirmation.
D. Comparing the entitys depreciation and asset capitalization policies
to other entities in the industry.
146. Which of the following statements best describes why the CPA profession
has deemed it essential to promulgate a code of professional ethics and to
establish a mechanism for enforcing observation of the Code?
A. A distinguishing mark of a profession is its acceptance of
responsibility to the public.
B. A pre-requisite to success is the establishment of an ethical code
that primarily defines the professionals responsibility to clients
and colleagues.
C. A requirement of most state laws calls for the profession to establish
a code of ethics.
D. An essential means of self-protection for the profession is the
establishment of flexible ethical standards by the profession.
FEU Cavite
COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
149. In the few instances where the domestic laws are in conflict with the
IFAC Code,
A. Both are applied simultaneously.
B. The IFAC Code requirement prevails
C. The local law prevails
D. There will be no ruling for that particular requirement.
153. The following steps are part of the conceptual framework approach to
the Code of Ethics. Set the steps in proper order.
I. Address threats which are other than clearly insignificant through
the application of safeguards.
II. Evaluate the significance of threats to compliance with fundamental
principles.
III. Identify threats to compliance with the fundamental principles.
169. After beginning an audit of a new client, Sydney, CPA, discovers that
the professional competence necessary for the engagement is lacking.
Sydney informs management of the situation and recommends another CPA, and
management engages the other CPA. Under these circumstances:
A. Sydneys lack of competence should be considered to be a violation of
generally accepted auditing standards.
B. Sydney may request compensation from the client for any professional
services rendered to it in connection with the audit.
C. Sydneys request for a commission from the other CPA is permitted
because a more competent audit can now be performed.
D. Sydney may be indebted to the other CPA since the other CPA can
collect from the client only the amount the client originally agreed
to pay Sydney.
170. Samuel Commercial Inc. engages the services of Rita Ube, CPA, to make a
project study on the expanded food vending operations of the corporation
with the corresponding staffing and compensation package for its executive
staff. Rita, however, has primarily auditing expertise and only in
general merchandising operations. Ms. Ube may properly:
A. Accept the engagement and carry it out consistent with GAAS.
B. Accept the engagement but exercise due professional care.
C. Accept the engagement and acquire the necessary competence or consult
with established authorities.
D. Decline the engagement for lack of experience or competence in an
entirely new line of specialization.
172. A CPA shall not disclose any confidential information obtained in the
course of a professional engagement except with the consent of the client.
This rule should be understood to preclude a CPA from responding from an
inquiry made by:
A. The trial board of the Code of Professional Ethics.
B. An investigative body of a CPA society.
C. A CPA-shareholder of the client corporation.
FEU Cavite
COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
175. In marketing and promoting themselves and their work, CPAs should NOT
A. Bring the profession into disrepute.
B. Make exaggerated claims for the services they are able to offer, the
qualifications they possess, or experience they have gained.
C. Make disparaging references or unsubstantiated comparisons to the work
of others.
D. All of the above.
177. In which of the following types of clients would the Revised Code
provide the strictest set of requirements regarding independence?
A. A financial statement audit client.
B. A non-financial statement audit assurance client.
C. A non-assurance client.
D. A non-client.
178. Client issues that, if known, could threaten compliance with the
fundamental principles include the following, except:
A. Client involvement in illegal activities (such as money laundering)
B. Dishonesty
C. Questionable financial reporting practices
D. Conservative basis in determining accounting estimates
FEU Cavite
COMPREHENSIVE EXERCISES
Auditing Theory Portion of the AUD CPA Exam
183. Which fundamental principle may be threatened when the CPA in public
practice is asked to provide a second opinion on the application of
professional standards or principles to specific circumstances or
transactions by, or on behalf of a company or entity that is not an
existing client?
A. Integrity C. Confidentiality
B. Professional competence and due D. Professional behavior
care
184. A client seeking a second opinion does not permit the CPA to
communicate with the existing accountant. In such cases, the CPA should:
A. Issue a disclaimer of opinion due to a significant client-imposed
scope limitation.
B. Consider whether, taking all the circumstances into account, it is
appropriate to provide the opinion sought.
C. Consider whether to issue a qualified opinion or disclaimer of opinion
due to a significant client-imposed scope limitation.
D. Communicate the clients refusal directly to the existing accountant.
A. A fee based on appropriate rates per hour or per day for the time of
each person engaged in performing professional services.
B. A fee which is lower compared to the fee charged in the prior year for
similar services.
C. A fee based on appropriate rates per hour, where the appropriate rate
is based on the fundamental premise that the organization and conduct
of the CPA and the services provided to clients are well planned,
controlled and managed.
D. A fee that is based on 10% of the clients adjusted net income for the
current year.
187. Contingent fees are widely used for certain types of non-assurance
engagements. They may, however, give rise to threats to compliance with
the fundamental principles, especially the principle of:
A. Objectivity C. Confidentiality
B. Professional competence and due D. Professional behavior
care
188. The Code of Ethics would be violated if a CPA represents that specific
consulting services will be performed for a stated fee and it is apparent
at the time of the representation that the
A. Actual fee would be substantially higher.
B. Actual fee would be substantially lower than the fees charged by other
professional accountants for comparable services.
C. Fee was a competitive bid.
D. CPA would not be independent.
189. A CPA in public practice should not pay or receive a referral fee or
commission, unless the CPA in public practice has established:
A. Internal controls designed to scientifically compute the referral fee
or commission.
B. That explicit approval to pay or receive commissions has been obtained
from the Securities and Exchange Commission.
C. Safeguards to eliminate or reduce threats to fundamental principles to
an acceptable level.
D. Another company as recipient, whose name does not include the name of
the CPA in public practice.
191. The receipt of gifts and hospitality from a client may create threats
to fundamental principles. Which of the following is a correct
combination of threat and fundamental principle created by this situation?
A. Self-interest threat professional competence and due care.
B. Intimidation threat integrity
C. Self-interest threat objectivity
D. Advocacy threat objectivity
193. The state of mind that permits the provision of an opinion without
being affected by influences that compromise professional judgment,
allowing an individual to act with integrity, and exercise objectivity and
professional judgment.
A. Professional skepticism C. Objectivity
B. Integrity D. Independence of mind
-end-