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1. Auditing is based on the assumption that financial data and statements are
A. in conformity with appropriate criteria.
B. presented fairly.
C. consistently applied.
D. verifiable
3. In government auditing, what are the three (3) elements of expanded scope auditing?
A. Pre-audit, post-audit, internal audit.
B. Financial and compliance, economy and efficiency, program results.
C. National government audit, local government audit, corporation audit.
D. Goal analysis, audit of operations, audit of systems.
4. The person or persons who in a direct reporting engagement, is responsible for the subject
matter; or in an assertion-based engagement, is responsible for the subject matter
information (the assertion), and may be responsible for the subject matter.
A. Audit committee.
B. General public.
C. Responsible party.
D. Intended users.
5. Which of the following statements is not a distinction between independent auditing and
internal auditing?
A. Internal auditors are employees of the auditee, whereas external auditors are
independent contractors
B. Although independent auditors strive for both validity and relevance of evidence,
internal auditors are concerned almost exclusively with validity.
C. The internal auditors span of coverage goes beyond financial auditing to encompass
operational and performance auditing.
D. Independent auditors represent third party users external to the auditee entity, whereas
internal auditors report directly to management.
8. An external audit
A. Overlaps an internal audit.
B. Complements an internal audit.
C. Contradicts an internal audit.
D. Confirms an internal audit.
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9. Who appoints the members of the Commission on Audit?
A. The Chairman of the Auditing and Assurance Standards Council.
B. The Commissioner of the Professional Regulation Commission.
C. The Chairman of the Professional Regulatory Board of Accountancy.
D. The President, with the concurrence of the Commission on Appointments.
OTHER SERVICES
10. A CPA who is engaged to prepare an income tax return has a duty to prepare it
in such a manner that the tax is:
A. Not subject to change upon audit.
B. The legal minimum.
C. Supported by the clients audited financial statements.
D. Computed in conformity with generally accepted accounting principles.
11. Compilation services are intended to enable a CPA firm to compete with:
A. Bookkeeping firms
B. Tax preparation businesses
C. Computer service businesses
D. Management advisory service firms
12. Which of the following is NOT a currently acceptable form of association with
prospective financial statements?
A. Examination
B. Compilation
C. Review
D. Agreed-upon procedures
QUALITY CONTROL
14. Original paper documentation may be scanned and stored electronically for
practical reasons. After scanning, the original paper document:
A. None of the choices.
B. Shall be considered for retention or disposal depending on legal or regulatory
requirements and other factors.
C. Shall be discarded following established principles on waste disposal.
D. Shall be kept on file for future reference.
15. Which of the following names illustrates a firm name, as contrasted to the name
of an individual CPA and a partnership name?
A. Sanchez & Reyes
B. Sanchez & Reyes & Co.
C. Juan S. Sanchez and Associates.
D. Juan S. Sanchez.
16. The Chairpersons of the FRSC and the AASC shall be appointed by:
A. the President of the Republic of the Philippines.
B. the Professional Regulatory Board of Accountancy.
C. the Philippine Institute of Certified Public Accountants.
D. the Professional Regulation Commission.
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17. The CPA shall be required to indicate which of the following numbers on the documents
which he/she signs, uses or issues in connection with the practice of the profession?
A. Professional Identification Card.
B. Professional tax receipt.
C. All of the choices are required to be indicated.
D. CPA Certificate of Registration number.
18. The following are among the powers and functions of the Board of Accountancy, EXCEPT:
A. To conduct an oversight into the quality of audits of financial statements.
B. To ensure, in coordination with the Department of Education, that all higher
educational instruction and offering of accountancy may comply with prescribed
policies, standards and requirements of the course.
C. To prescribe and adopt the rules and regulations necessary for implementing RA 9298.
D. To prescribe and/or adopt a Code of Ethics for the practice of accountancy.
19. The following are grounds for suspension or removal of members of the Board of
Accountancy, EXCEPT:
A. Pending case on a crime involving moral turpitude.
B. Neglect of duty or incompetence.
C. Violation or tolerance of any violation of RA 9298 and its IRR or the Code of Ethics and
technical and professional standards of practice for CPAs.
D. Manipulation or rigging of the CPA licensure examination results.
20. The following are grounds for the refusal to issue a certificate of registration and
professional identification card (select the EXCEPTION):
A. Conviction for a criminal offense involving moral turpitude.
B. Guilty of immoral and dishonorable conduct.
C. Unsound mind.
D. Conviction for a political offense.
21. The Board of Accountancy, subject to the approval of the PRC, may revise or exclude
any of the subjects and their syllabi, and add new ones as the need arises, provided that
the change shall NOT be more than:
A. Every four years.
B. Every five years.
C. Every three years.
D. Every two years.
22. All of the following are requirements for accreditation of accounting teachers, EXCEPT:
A. Possession of relevant Masters Degree.
B. Proof that the CPA has undergone continuing professional education equivalent to 75
units.
C. Completion of 12 units of relevant education subjects from CHED recognized schools.
D. A total of three years meaningful experience in actual accounting work.
25. The policy for accreditation covers CPAs involved in teaching of accounting and
related subjects in the:
A. Primary level only.
B. Primary, secondary, tertiary and graduate level.
C. Secondary and tertiary levels only.
D. Primary and secondary levels only.
26. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff
members thereof shall register with the Board of Accountancy and Professional Regulation
Commission. If the application for registration of A & A, CPAs was approved on July 19,
2013, it shall file for renewal on or before:
A. September 30, 2016.
B. December 31, 2015.
C. September 30, 2015.
D. July 19, 2016.
27. Alex, CPA is the dean of the College of Accountancy in the University of St. Jones. Related
to this, which of the following statements is INCORRECT?
A. Alex is considered to be in the practice of his profession.
B. The position of the dean or the department chair or its equivalent that supervises the
BS Accountancy program of an educational institution must be a duly registered CPA.
C. Alex is not considered in the practice of his profession because he occupies an
administrative position.
D. Alex is practicing accountancy in the education sector (academe).
28. The following are the fundamental principles of professional ethics, EXCEPT:
A. Professional competence and due care.
B. Objectivity.
C. Integrity.
D. Independence.
30. 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. Professional behavior.
B. Confidentiality.
C. Integrity.
D. Professional competence and due care.
32. An inadvertent violation of the Code of Ethics, depending on the nature and significance of
the matter, may not compromise compliance with the fundamental principles provided,
once the violation is discovered:
A. The violation is corrected promptly and any necessary safeguards are applied.
B. The CPA withdraws from the specific professional service involved.
C. A disclaimer of opinion is issued to the client as a result of the violation.
D. The engagement is promptly transferred to another, non-violating professional.
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33. When a CPA in business is pressured to become associated with misleading information or
to become associated with misleading information through the action of others, what
kinds of threats might arise?
A. Self-interest and self-review threats.
B. Self-interest and intimidation threats.
C. Self-review and advocacy threats.
D. Familiarity and self-review threats.
34. Ultimately, the decision about whether or not an auditor is independent is made by:
A. the auditor.
B. the client.
C. the public.
D. the PRC.
35. According to IAASB Glossary of Terms, this refers to a professional accountant in public
practice.
A. Public accountant.
B. Practitioner.
C. Auditor.
D. Professional.
36. After beginning an audit of a new client, Syd, CPA, discovers that the professional
competence necessary for the engagement is lacking. Syd informs management of the
situation and recommends another CPA, and management engages the other CPA. Under
these circumstances:
A. Syds lack of competence should be considered to be a violation of generally accepted
auditing standards.
B. Syd may request compensation from the client for any professional services rendered
to it in connection with the audit.
C. Syds request for a commission from the other CPA is permitted because a more
competent audit can now be performed.
D. Syd 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 Syd.
AUDIT PLANNING
37. In which of the following situations would an expert be LEAST likely contracted by a CPA?
A. Legal opinions concerning interpretations of engagements, statutes and regulations.
B. Valuations of certain types of assets like land and buildings.
C. Application of accounting methods in computing inventory balances.
D. Determination of fair values using specialized statistical techniques.
39. Cost-benefit considerations are part of audit planning. In relation to this, which of the
following audit procedures is usually the LEAST costly to perform?
A. Tests of balances.
B. Substantive tests of transactions.
C. Analytical procedures.
D. Tests of controls.
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43. Inherent risk is reduced when the likelihood of defalcations is low. This would be true for
an account such as
A. Cash.
B. Accounts receivable.
C. Property, plant, and equipment.
D. Held for trading securities.
44. The acceptable level of detection risk (ADR) and the combined level of inherent risk (IR)
and control risk (CR) are _________ related.
A. Directly.
B. Proportionately.
C. Not.
D. Inversely.
45. If the auditor anticipates reliance on the clients internal controls, the auditor would
A. Perform tests of controls and increase the amount of substantive tests.
B. Eliminate the need for performance of substantive tests.
C. Test controls and use the results of testing as a basis for determining the nature,
extent and timing of substantive tests.
D. No longer perform tests of controls and proceed immediately to substantive tests.
46. If the auditor wants to perform more effective substantive tests, the auditor will perform
A. More test of details (transactions and balances) and less analytical procedures.
B. More analytical procedures and less test of details (transactions and balances).
C. Test of details and analytical procedures in equal proportion.
D. Neither test of details nor analytical procedures.
47. Auditors appear NOT to exhibit due audit care if there was a
A. High inherent risk.
B. High audit risk.
C. Low detection risk.
D. Low control risk.
48. When accounts receivable is considered uncollectible, the person who generally
authorizes the write-off is the
A. Treasurer
B. Accountant
C. Sales manager
D. Credit manager
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49. When no independent stock transfer agents are employed and the corporation issues its
own stocks and maintains stock records, cancelled stock certificates should
A. Be defaced and sent to the Corporate Secretary.
B. Be defaced to prevent reissuance and attached to their corresponding stubs.
C. Not be defaced but segregated from other certificates and retained in a cancelled
certificates file.
D. Be destroyed to prevent fraudulent reissuance.
51. What is the relationship between an entitys objectives and the controls it implements to
provide reasonable assurance about their achievement?
A. Cannot be determined
B. Direct
C. Inverse
D. Adverse
52. An auditor would most likely be concerned with internal control policies and procedures
that provide reasonable assurance about:
A. The entitys ability to process and summarize financial data.
B. The efficiency of managements decision-making process.
C. Appropriate prices the entity should charge for its products.
D. Methods of assigning production tasks to employees.
56. When the auditor identifies an area of the accounting system with missing controls (i.e.,
material weakness), this would lead to a modification of the audit program in that areas
that would
A. Eliminate the need for a test of controls.
B. Increase the amount of tests of controls.
C. Increase the reliance on tests of controls.
D. Cause the issuance of a qualified or adverse opinion.
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57. Which of the following conditions supports strong internal control?
A. Strict monitoring by the Bureau of Internal Revenue.
B. The existence of related parties and related party transactions.
C. Pressure by the financial community to improve earnings performance.
D. An economic downturn.
IT AUDIT
60. This refers to the computer programs designed to perform specific data processing tasks
such as payroll, billing, or inventory processing.
A. Application software
B. Dataware
C. Computer software
D. System software
61. It is a state implying data has certain attributes: completeness, soundness, purity, and
veracity.
A. Data verification.
B. Data integrity.
C. Data integration.
D. Data statement.
62. What are controls that are designed to assure that the information processed by the
computer is valid, complete, and accurate?
A. Processing controls
B. Input controls
C. General controls
D. Output controls
63. Which of the following is a computer test made to ascertain whether a given characteristic
belongs to a group?
A. Limit check.
B. Echo check.
C. Validity check.
D. Parity check.
66. The following are descriptions of assertions about classes of transactions and events for
the period under audit. Which of the following statements refers to cut-off?
A. Transactions and events have been recorded in the proper accounts.
B. Amounts and other data relating to recorded transactions and events have been
recorded appropriately.
C. Transactions and events have been recorded in the correct accounting period.
D. Transactions and events that have been recorded have occurred, and pertain to the
entity.
68. Management assertions drive the auditors quest for audit evidence. These assertions are
A. Indirectly related to generally accepted accounting principles.
B. Directly related to generally accepted accounting principles.
C. Directly related to generally accepted auditing standards.
D. Indirectly related to generally accepted auditing standards.
70. Tests of controls, for efficiency, are frequently done at the same time as:
A. Analytical procedures.
B. Substantive tests of transactions.
C. Substantive tests of balances.
D. Compliance tests.
71. To test the possibility of a shipment to a fictitious customer, the auditor traces from the:
A. Credit authorization to the bill of lading.
B. Accounts receivable ledger to the bill of lading.
C. Sales journal to the accounts receivable ledger.
D. Bill of lading to the credit authorization.
73. The two most important considerations the auditor should keep in mind in the verification
of the write-off of individual uncollectible accounts are:
A. Validity and completeness
B. Validity and authorization
C. Cut-off and completeness
D. Cut-off and authorization
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74. Which one of the following statements is true? In deciding on substantive tests of
transactions,
A. results obtained in the prior years audit will not affect the procedures used this year.
B. the materiality of the item will not influence the choice of procedures used.
C. some procedures are commonly employed on every audit regardless of the
circumstances.
D. all procedures are dependent on the adequacy of the controls and the results of the
tests of controls.
75. The strongest criticism on the reliability of audit evidence that the auditor physically
observes is that
A. the auditor may not be qualified to evaluate the items which he or she is observing.
B. the client may conceal items from the auditor.
C. such evidence is too costly in relation to its reliability.
D. the observation must occur at a specific time, which is often difficult to arrange.
76. The most reliable form of evidence, other than test of subsequent cash receipts,
concerning the validity of a note receivable balance is a(n)
A. Customer purchase order.
B. External confirmation reply.
C. Sales invoice.
D. Bill of lading.
77. Where no response is received to a positive confirmation request, the auditor should:
A. Issue a qualified opinion or a disclaimer of opinion on grounds of a scope limitation.
B. Contact the recipient to elicit a response; and perform alternative procedures as
necessary.
C. Contact the recipient/respondent in order to force a response from such recipient.
D. Issue a qualified opinion or an adverse opinion, depending on the materiality involved.
78. For which of the following account balances are substantive tests of details LEAST likely to
be performed unless analytical procedures indicate the need to extend detail testing?
A. Legal expense
B. Marketable securities
C. Payroll expense
D. Research and development costs
79. An auditor should be able to collect and evaluate documentary evidence. When
evaluating and interpreting evidence, the auditor must be on guard against the possibility
of drawing unwarranted conclusions. An example of a valid conclusion is
A. client ownership determined from third-party inquiries about consigned goods.
B. correct inventory valuation as determined from observation the physical count.
C. existence of a company travel vehicle determined from the examination of the paid
invoice for the said vehicle.
D. proper accounts payable cut-off at reporting date as determined by a review of raw
materials requisitions.
AUDIT SAMPLING
81. What is a sample whose characteristics are the same as those of the population?
A. A variable sample.
B. A random sample.
C. A representative sample.
D. An attribute sample.
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82. For purposes of audit sampling in tests of controls, error refers to:
A. Inconsistencies.
B. Irregularities.
C. Deviations.
D. Misstatements.
83. For purposes of audit sampling in substantive tests, error refers to:
A. Misstatements.
B. Inconsistencies.
C. Irregularities.
D. Deviations.
86. An auditor who finds that the client has committed an illegal act would be most likely to
withdraw from the engagement when the:
A. Illegal act affects the auditors ability to rely on management representations.
B. Auditor cannot reasonably estimate the effect of the illegal act on the financial
statements.
C. Illegal act has received widespread publicity.
D. Illegal act has material financial statement implications.
87. If the auditor suspects that members of senior management, including members of the
board of directors, are involved in noncompliance with and regulations, and he believes
his report may not be acted upon, he would:
A. Issue a disclaimer of opinion.
B. Make special investigation in order to fully determine the extent of clients
noncompliance.
C. Consider seeking legal advice.
D. Do nothing.
88. An auditor concludes that a client has committed an illegal act that has not been properly
accounted for or disclosed. The auditor should withdraw from the engagement if the:
A. Auditor cannot reasonably estimate the effect of the illegal act on the financial
statements.
B. Illegal act has an effect on the financial statements that is both material and direct.
C. Client refuses to accept the auditors report as modified for the illegal act.
D. Auditor is precluded from obtaining sufficient competent evidence about the illegal act.
89. The MOST LIKELY explanation why the auditors examination cannot reasonably be
expected to bring all illegal acts by the client to the auditors attention is that
A. Illegal acts are perpetrated by management override of internal accounting controls.
B. Illegal acts by clients often relate to operating aspects rather than accounting aspects.
C. Illegal acts may be perpetrated by the only person in the clients organization with
access to both assets and the accounting records.
D. The clients system of internal accounting control may be so strong that the auditor
performs only minimal substantive testing.
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FRAUD AND ERROR
90. The most difficult type of cash defalcation for the auditor to detect is that which occurs
A. after cash is recorded but before it goes to the bank.
B. in amounts under P100.
C. before the cash is recorded.
D. out of the balance kept in the cash register.
91. Which one of the following factors is NOT a good indicator of potential financial failure?
A. Clients retained earnings were reduced by half as a result of a large dividend payout.
B. Client is constantly short of cash and working capital.
C. Client relies heavily on debt financing, especially by financing permanent assets with
short-term loans.
D. Client has had increasing net losses for several years.
92. The audit inquiry letter to the clients legal counsel should be mailed only by the
A. Auditor after preparation by the client and review by the auditor.
B. Client after the auditor has reviewed it for appropriate content.
C. Auditors attorney after preparation by the client and review by the auditor.
D. Client after review by the auditors attorney.
93. Which of the following is NOT required by the Philippine Standards on Auditing?
A. Attorney letter
B. Management letter
C. Engagement letter
D. Management representation
94. Which of the following is ordinarily performed LAST in the audit examination?
A. Performing a review of subsequent events
B. Securing a signed engagement letter from the client
C. Obtaining signed management representation
D. Performing final test of control
REPORTS
95. This section of the auditors report is applicable when the auditor addresses other reporting
responsibilities that are in addition to the auditors responsibility under PSAs to report on
the financial statements.
A. Basis for modification
B. Other matter paragraph
C. Other reporting responsibilities
D. Opinion paragraph
96. The partner or other person in the firm who is responsible for the group audit
engagement and its performance, and for the auditors report on the group financial
statements that is issued on behalf of the firm
A. Lead partner
B. Group engagement partner
C. Joint engagement partner
D. Managing partner
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97. 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(n):
A. Unqualified opinion with explanatory paragraph
B. Disclaimer of opinion
C. Adverse opinion
D. Qualified opinion
98. If management fails to provide adequate justification for a change from one generally
accepted accounting principle to another, the auditor should:
A. Disclaim an opinion because of uncertainty.
B. Disclose the matter in a separate emphasis of matter paragraph(s) but not modify the
opinion paragraph.
C. Neither modify the opinion nor disclose the matter because both principles are
generally accepted.
D. Add a basis for modification paragraph and express a qualified or an adverse opinion
for lack of conformity with the applicable financial reporting framework.
99. When accountants are not independent, which of the following reports can nevertheless
be issued?
A. Compilation report
B. Standard unmodified audit report
C. Examination report on a forecast
D. Examination of internal control over financial reporting
101. The accountants compilation report should be dated as of the date of:
A. Completion of fieldwork
B. The latest subsequent event referred to in the notes to the financial statements
C. Transmittal of the compilation report
D. Completion of the compilation
102. If the special-purpose financial statements are not suitably titled or the basis of
accounting is NOT adequately disclosed, the auditor should:
A. Request for an additional representation in the management representation letter.
B. Issue an appropriately modified report.
C. Reword the title of the financial statements.
D. Withdraw from the engagement.
103. If the summary financial statements (FS) are not consistent, in all material respects, with
or are not a fair summary of the audited FS, in accordance with the applied criteria, and
management does not agree to make the necessary changes, the auditor shall:
A. Express an adverse opinion on the summary FS.
B. Express an unqualified opinion on the summary FS, with an emphasis of matter
paragraph describing the lack of consistency.
C. Express a qualified opinion on the summary FS, with a basis for modification
paragraph describing the lack of consistency.
D. Withdraw from the engagement since management refuses to make amendments to
the summary FS.
ANSWER