1. On January 2, 2011, the TANYA CO.

received a notice from its primary suppliers that effective

immediately all wholesale prices would be increased 10%. On the basis of the notice, TANYA revalued
its December 31, 2010 inventory to reflect the 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 material
to current assets but not to total assets of net income. In reporting on the companys financial
statements for the year ended December 31, 2010, in which inventory is valued at the adjusted
amount, the auditor would most likely
a. Express an unmodified opinion provided the nature of the adjustment and the amounts involved
are disclosed in notes to the financial statements.
b. Express a qualified opinion.
c. Disclaim an opinion.
d. Express an adverse opinion.

2. SAMATHA APARTMENTS CO. completed construction and began to lease a 100-unit apartment on
May 28, 2009. During June, 50 units were leased, and an additional 30 units were leased in July 2010.
During the month of May 2009, the company charged to expense P46,000 for the cost of advertising,
a grand opening party, and the advertising agency fee for planning the campaign. At December 31,
2010, the statement of financial position reflected P175,000 of deferred costs representing the initial
direct costs incurred by the company including commissions and legal fees paid in negotiating the
lease, and a note disclosed that the costs were being amortized over the term of the related lease.
During your audit of the companys financial statements for the year ended December 31, 2010
(conducted in accordance with PSAs), no facts other than those described above came to your
knowledge that would cause your opinion to be other than that the financial statements were
presented fairly in accordance with Philippine Financial Reporting Standards.
What type of opinion should your report contain?
a. An adverse opinion
b. An unmodified opinion
c. A disclaimer of opinion
d. A qualified opinion.

3. When an auditor modifies an opinion because of inadequate disclosure, the auditor should describe
the nature of the omission in a separate Basis for Modification paragraph and modify the
Auditors
Introductory Responsibility Opinion
Paragraph Paragraph Paragraph
a. Yes No No
b. Yes Yes No
c. No Yes Yes
d. No No Yes

4. Jervs, CPA, concludes that there is significant doubt about GARAY CO.s ability to continue as a going
concern. If Garays financial statements adequately disclose its financial difficulties, Jervs report
should
 Include an Emphasis of Matter
Paragraph Following the Opinion Specifically Use the Specifically Use the
Paragraph Words Going Concern Words Significant Doubt
a. Yes Yes Yes
b. Yes Yes No
c. Yes No Yes
d. No Yes Yes

5. Which sections of an auditors unmodified report on financial statements should refer to Philippine
Standards on Auditing (PSA) and Philippine Financial Reporting Standards (PFRS)?

PSA PFRS
a. Managements Responsibility Opinion Paragraph
Auditors Responsibility
b. Auditors Responsibility Managements Responsibility
Opinion Paragraph
c. Opinion Paragraph Managements Responsibility
d. Auditors Responsibility Opinion Paragraph

6. Which of the following should be considered when forming an opinion on the audited financial
statements?
I. Whether sufficient appropriate audit evidence has been obtained.
II. Whether uncorrected misstatements are material, individually or in aggregate.
III. The qualitative aspects of the entitys accounting practices, including indicators of possible bias in
managements judgments.

a. I only b. I and III only c. I and II only d. I, II, and III

7. In which of the following circumstances would an auditor most likely add an Emphasis of Matter
paragraph to the auditors report while expressing an unmodified opinion?
a. The auditor is asked to report on a single financial statement (e.g., a balance sheet).
b. There is significant doubt about the entitys ability to continue as a going concern.
c. Managements estimates of the effects of future events are unreasonable.
d. Certain transactions cannot be tested because of managements records retention policy.

8. When the financial statements contain material but not pervasive misstatements because the
accounting policies selected are not consistent with the applicable financial reporting framework, the
auditor should
a. Express a qualified opinion and describe the matter giving rise to the modification in a separate
paragraph.
b. Express a qualified opinion and describe the matter giving rise to the modification within the
opinion paragraph.
c. Disclaim an opinion and describe the matter giving rise to the modification in a separate
paragraph.
d. Disclaim an opinion and describe the matter giving rise to the modification within the opinion
paragraph.
9. Which of the following statements is correct with respect to an auditors report expressing an opinion
on a specific element on a financial statement?
a. 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
b. The materiality determined for a specific element of a financial statements may be lower than the
materiality determined for the entitys complete set of financial statements
c. Such a report can only be issued if the auditor is also engaged to audit the entire set of financial
statements
d. The attention devoted to the specific element is usually less than it would be if the financial
statements as a whole were audited

10. An auditor may express an opinion on an entitys accounts receivable balance even if the auditor has
disclaimed an opinion on the financial statements taken as a whole provided the
a. Report on the accounts receivable is presented separately from the disclaimer of opinion on the
financial statements
b. Auditor also reports on the current asset portion of the entitys balance sheet
c. Use of the report on the accounts receivable is restricted
d. Report on the accounts receivable discloses the reason for the disclaimer of opinion on the
financial statements

11. In which of the following circumstances would an auditor most likely add and emphasis of matter
paragraph to the auditors report while expressing an unqualified opinion?
a. There is a substantial doubt about the entitys ability to continue as a going concern
b. Managements estimates of the effects of future events are unreasonable
c. No depreciation has been provided in the financial statements
d. Certain transactions cannot be tested because of managements records retention policy

12. An emphasis of matter paragraph of an auditors report describes an uncertainty as follows:

Without qualifying our opinion, we draw attention to Note X to the financial statements. The
Company is the defendant in 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 proceeding on both actions are in progress. The ultimate outcome of the matter cannot
presently be determined and non provision for any liability that may result has been made in the
financial statements.

What type of opinion should the auditor express under these circumstances?
a. Unqualified c. Subject to qualified
b. Except for qualified d. Disclaimer

13. Which of the following statements is a basic element of the auditors report?
a. The auditor is responsible for the preparation and fair presentation of the financial statements
b. The financial statements are consistent with those of the prior period
c. An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements
 d. The disclosures provide reasonable assurance that the financial statements are free of material
misstatement

14. A client makes test counts on the basis of a statistical plan. The auditor observes such counts as are
deemed necessary and is able to become satisfied as to the reliability of the clients procedures. In
reporting on the results of the audit, the auditor
a. Must qualify the opinion if the inventories were material
b. Can express an unqualified opinion
c. Must comment in an emphasis of matter paragraph as to the inability to observe year-end
inventories
d. Is required to disclaim an opinion if the inventories were material

15. Which of the following terms is used in the standard to describe the effects on the financial
statements of misstatements or the possible effects on the financial statements, if any, that are
undetected due to an inability to obtain sufficient appropriate audit evidence?
a. Persuasive b. Pervasive c. Material d. Extensive

16. A limitation on the scope of the audit may arise from

I. Circumstances beyond the control of the entity
II. Circumstances relating to the nature and timing of the auditors work
III. Limitations imposed by management
a. I and II only c. I and III only
b. II and III only d. I, II and III

17. What are the concerns of an auditor when assessing whether comparative financial statements meet
the requirements of the relevant financial reporting framework?
I. That prior period figures presented agree with the amounts and other disclosures presented in
the prior or if necessary, appropriate adjustments and / or disclosures have been made
II. That accounting policies of the prior period are consistent with those of the current period
a. Yes, Yes b. Yes, No c. No, Yes d. No, No

18. When the comparatives are presented as comparative financial statements:

a. The auditor should issue a report in which the comparatives are referred to when the
comparatives are materially misstated
b. The auditor is not required to identify the comparative in his report because his opinion applies
only to the current years financial statements
c. The auditor should issue a report in which the comparatives are specifically identified because the
auditors opinion is expressed individually on the financial statements of each period presented
d. The auditor is only required to specifically identified the comparatives when his opinion on the
prior years financial statements is other than unqualified.

19. Which of the following is an incorrect statement about comparatives?

a. The auditor may express a qualified, adverse of disclaimer of opinion with respect to one or more
financial statements for one or more periods, while issuing a different report on other financial
statements
b. When reporting on the prior period financial statements in connection with the current years
audit, if the opinion on such prior period financial statements is different from the opinion
 previously expressed, the auditor should disclose the substantive reasons for the different opinion
in the opening paragraph.
c. The auditor may consider expressing an opening on prior period financial statement which is
different from the opinion that he had previously expressed on such financial statements
d. When the prior period financial statements are not audited, the incoming auditor should carry on
appropriate procedures of verifying the opening balances

20. When the prior years financial statements, that are used as comparatives, were audited by other
auditor, the incoming auditor should modify:
a. The opening paragraph of the audit report c. The scope paragraph of the audit report
b. The opinion paragraph of the audit report d. All the three paragraphs of the audit report

21. When an incoming auditor becomes aware of certain material misstatement in the prior periods
comparative financial statements on which the predecessor auditor previously issued unmodified
report, the incoming auditor should
a. Modify the opening paragraph by referring to the predecessor auditor, the type of opinion issued
and the date of the report
b. Restate the financial statements of the prior period
c. Discuss the matter with the management and, after having obtained managements
authorization, contract the predecessor auditor and propose that the prior period financial
statements be restated
d. Obtain managements authorization for the revision of the prior years financial statements and
include an emphasis of matter paragraph to describe such a revision made

22. Which of the following action by the incoming auditor on unaudited comparative financial statements
is inappropriate to do?
a. In situation where the incoming auditor identifies that the prior years unaudited financial
statements are materially misstated, the auditor should revised them.
b. The incoming auditor should state in the auditors report that the comparative financial
statements are unaudited.
c. The incoming auditor should carry out appropriate procedures regarding opening balances of the
current period.
d. Modify the audit report if such materially misstated prior years financial statements are not
revised by the management.

23. A continuing auditor has just completed the audit of the entity. The audit report for the past tree
years included an emphasis of matter paragraph that referred to a substantial doubt about the ability
o0f the entity to continue as a going concern. At the middle of the current audit year, the major
stockholder infused substantial capital that made the company stable. The continuing auditor should
report on the comparative financial statements by:
a. Updating the audit report by using a standard financial paragraph audit report
b. Including an emphasis of matter paragraph that refers to prior years going concern problem
c. Issue an unqualified opinion with an emphasis of matter paragraph that describes the steps the
management did in solving its going concern problem
d. Qualify the audit report due to questionable strategy of strengthening the entitys financial
stability.
24. An auditors report on comparative financial statements should be dated as of the date of the
a. Issuance of the report c. Completion of the auditors recent field work
b. Latest financial statements d. Last subsequent event disclosed in the statements

25. The following explanatory paragraph accompanies the auditors report financial statements as of and
for period ending December 31, 2005:

Because we were appointed auditors of the Company during 2004, we were not able to observe the
counting of the physical inventories at the beginning of 2004 or satisfy ourselves concerning those
inventory quantities by alternative procedures. Since opening inventories.Our audit report on
the financial statements for the year ended December 31, 2004 was modified accordingly.

The foregoing paragraph is included in connection with a report in which the auditor.
a. Expresses an unmodified opinion regarding the current financial statements but a modified
report regarding comparatives
b. Expresses unmodified opinion regarding the current period figures but a modified report
regarding the corresponding figures
c. Expresses modified report on both the current financial statements and comparatives
d. Expresses modified report regarding the current period and corresponding figures

26. For what purpose does the following explanatory paragraph in an audit report that companies the
financial statements of Grey Company as of and for the year ended December 31, 2005 serve?

As discussed in Note No. 9 to the financial statements no depreciation has been provided in the
financial statements which practice, in our opinion, is not in accordance with generally accepted
accounting principles in the Philippines. This is a result of a decision taken by management at the start
of 2004 and caused us to qualify our audit opinion on the financial statements relating to the year.
Based on the straight-line depreciationThe loss of the year should be increased by 1.2 million in
2005 and P800,000 in 2004.
a. An explanatory paragraph for a modification of the auditors report regarding the current
period and the corresponding figures.
b. An explanatory paragraph for a modification of the corresponding figures not for modification
of current period figures.
c. An explanatory paragraph for a modification of the auditors report regarding both the current
financial statements and prior years financial statements
d. An explanatory paragraph regarding the modification of the auditors report regarding prior
years financial statements only

27. The following modification is made in the opening paragraph of the audit profit that accompanies the
financial statement Gold, Inc.

We have audited the accompany balance sheet as of December 31, 2005, and the related.for the
year the ended. These financial statements.The financial statements of the company as of and for
the year ended December 31, 2004, where audited by and the auditor whose report dated April 5,
2005, expressed an unqualified opinion this statements. The modified is made in connection to:
 a. Prior period financial statements were audited by other auditor and the incoming auditor
decided to share responsibilities with the predecessor auditor.
b. Prior period financial statements were audited by another auditor and such financial
statements of prior year are used as comparatives.
c. Reference to the predecessor auditors report on the corresponding figures in the incoming
auditors report for the current period
d. A modified report regarding the current period figures but unmodified report regarding the
corresponding figures

28. When an independent auditor expresses an unqualified opinion he asserts that:

(1) He performed the audit in accordance with generally accepted auditing standards.
(2) The company is a profitable and viable entity.
(3) The financial statements examined are in conformity with GAAP.
(4) The financial statements are accurate and free of errors.
a. All of the above statements are true. c. Only statements (1) and (3) are true.
b. Only statements (2) and (4) are true. d. All of the above statements are false.

29. An audit report should be dated as of the

a. date the report is delivered to the entity audited.
b. date the financial statements were approved by the client management.
c. balance sheet date of the latest period reported on.
d. date a letter of audit inquiry is received from the entitys attorney of record.

30. If a companys external auditor expresses an unqualified opinion as a result of the audit of the
companys financial statements, readers of the audit report can assume that
a. The external auditor found no fraud.
b. The company is financial sound and the financial statements are accurate.
c. Internal control is effective.
d. All material disagreements between the company and external auditor about the application of
accounting principles were resolved in the satisfaction of the external auditor.

31. A statement that the auditors responsibility is to express an opinion on the financial statements is
contained in the:
a. Opening paragraph c. Opening and scope paragraph
b. Scope paragraph d. Opinion paragraph

32. The description of an audit in the scope paragraph of the standard audit report includes all of the
following except:
a. Evaluating the overall financial statement presentation.
b. Assessing control risk.
c. Examining, on a test basis, evidence supporting the amount and disclosures in the financial
statements.
d. Assessing the accounting principles used and significant estimates made by management.

33. If comparative financial statements are presented and the present auditor has audited both years,
the auditor should:
 a. Reissue the report c. Redate the report
b. Dual date the report d. Update the report

34. In which of the following situations would the auditor appropriately issue a standard unqualified
report with no explanatory paragraph concerning consistency?
a. A change in the method of accounting for specific subsidiaries that comprise the group of
companies for which consolidated statements are presented.
b. A change from an accounting principle that is not generally accepted to one that is generally
accepted.
c. A change in the percentage used to calculate the provision for warranty expense.
d. Correction of a mistake in the application of a generally accepted accounting principle.

35. An auditors report contains the following sentences:

We did not audit the financial statements of B Company, a consolidated subsidiary, whose statements
reflect total assets and revenues constituting 20 percent and 22 percent, respectively, of the related
consolidated totals. These statements were audited by other auditors, whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for B Company, is based solely upon the
report of the other auditors.
These sentences
a. disclaim an opinion c. divide responsibility
b. qualify the opinion d. should not be part of the audit report

36. The management of a client company believes that the statement of cash flow is not a useful
document and refuses to include one in the annual report to stockholders. As a result, the auditors
opinion should be
a. qualified due to inadequate disclosure c. adverse
b. qualified due to a scope limitation d. unqualified

37. An auditors opinion reads as follows: In our opinion, except for the above-mentioned limitation on
the scope of our audit This is an example of a(n)
a. review opinion c. qualified opinion
b. emphasis on a matter d. unacceptable reporting practice

38. Eagle Companys financial statements contain a departure from generally accepted accounting
principles because, due to unusual circumstances, the statements would otherwise be misleading.
The auditor should express an opinion that is
a. Qualified and describe the departure in a separate paragraph.
b. Unqualified but not mention the departure in the auditors report.
c. Qualified or adverse, depending on materiality, and describe the departure in a separate
paragraph.
d. Unqualified and describe the departure in a separate paragraph.

39. An auditor is unable to determine the amounts associated with illegal acts committed by a client. The
auditor would most likely issue
a. Either a qualified opinion or a disclaimer of opinion.
b. An adverse opinion.
 c. Either a qualified opinion or an adverse opinion.
d. A disclaimer of opinion.

40. The objective of the consistency standard is to provide assurance that

a. There are no variations in the format and presentation of financial statements.
b. Substantially different transactions and events are not accounted for on an identical basis.
c. The auditor is consulted before material changes are made in the application of accounting
principles.
d. The comparability of financial statements between periods is not materially affected by changes
in accounting principles without disclosure.

41. If management fails to provide adequate justification for a change from one generally accepted
accounting principle to another, the auditor should
a. Add an explanatory paragraph and express a qualified or an adverse opinion for lack of conformity
with generally accepted accounting principles.
b. Disclaim an opinion because of uncertainty.
c. Disclose the matter in a separate explanatory paragraph(s) but not modify the opinion paragraph.
d. Neither modify the opinion nor disclose the matter because both principles are generally
accepted.

42. When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe
the nature of the omission in a separate explanatory paragraph and modify the
Introductory paragraph Scope paragraph Opinion paragraph
a. Yes No No
b. Yes Yes No
c. No Yes Yes
d. No No Yes

43. An auditor may not express a qualified opinion when

a. A scope limitation prevents the auditor from completing an important audit procedure.
b. The auditors report refers to the work of a specialist.
c. An accounting principles at variance with generally accepted accounting principles is used.
d. The auditor lacks independence with respect to the audited entity.

44. An auditor decides to express a qualified opinion on an entitys financial statements because a major
inadequacy in its computerized accounting records prevents the auditor from applying necessary
procedures. The opinion paragraph of the auditors report should state that the qualification pertains
to
a. A client-imposed scope limitation.
b. A departure from generally accepted auditing standards.
c. The possible effects on the financial statements.
d. Inadequate disclosure of necessary information.

45. 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. qualified opinion
b. unqualified opinion with an explanatory paragraph
 c. disclaimer of opinion
d. adverse opinion

46. A dual dated report contains the dates of a subsequent event and the date the:
a. Auditor completed work in the clients office c. Subsequent event was resolved
b. Financial statements were prepared d. Audit report was delivered

47. If the principal auditor decides to take responsibility for the work of other auditors, the principal
auditor should:
a. Modify the opening paragraph c. Modify all three paragraphs
b. Modify the opening and opinion paragraphs d. Issue a standard report

48. An auditor who concludes that an uncertainty is not adequately disclosed in the financial statements
should issue a:
a. Disclaimer of opinion. c. Special report.
b. Unqualified report with an explanatory paragraph. d. Qualified report.

49. An auditor may wish to emphasize a matter included in the financial statements by adding an
explanatory paragraph to the audit report. In this case the following paragraphs of the audit report
should be modified:
a. Introductory paragraph c. Opinion paragraph
b. Scope paragraph d. None

50. In the case of a client imposed scope limitation, the auditor must consider issuing a:
a. Qualified opinion or disclaimer of opinion c. Disclaimer of opinion or adverse opinion
b. Qualified opinion or adverse opinion d. Disclaimer of opinion

51. Which of the following modifications of the standard auditors report does not require an explanatory
paragraph.
a. Reference to other auditors c. Scope limitation
b. Inconsistency d. Adverse opinion

52. Pamela, CPA, was engaged to audit the financial statements of One Co. after its fiscal year had ended.
The timing of Pamelas appointment as auditor and the start of field work made confirmation of
accounts receivable by direct communication with the debtors ineffective. However, Pamela applied
other procedures and was satisfied as to the reasonableness of the account balances. Pamelas
auditors report most likely contained a(n)
a. Unqualified opinion.
b. Unqualified opinion with an explanatory paragraph.
c. Qualified opinion because of a scope limitation.
d. Qualified opinion because of a departure from GAAS.

53. A limitation on the scope of an audit sufficient to preclude an unqualified opinion will always result
when management
a. Engages the auditor after the year-end physical inventory count is completed.
 b. Fails to correct a material internal control weakness that had been identified during the prior
years audit.
c. Refuses to furnish a management representation letter to the auditor.
d. Prevents the auditor from reviewing the working papers of the predecessor auditor.

54. When an auditor expresses an opinion other than unqualified opinion, a clear description of all
substantive reasons for the modification of the opinion should be included in the report. This
explanation should be presented:
a. As a separate paragraph that precedes the opinion paragraph of the audit report.
b. As a separate paragraph, preferably after the opinion paragraph, of the audit report.
c. In the opinion paragraph
d. As a separate paragraph in the notes to financial statements.

55. Where a limitation on the scope of the auditors work requires modification of an unqualified opinion,
the auditors report should describe the limitation and:
a. Indicate that the auditor is no longer responsible to his opinion.
b. Indicate the possible adjustments to the financial statements that might have been determined
to be necessary had the limitation not existed.
c. Refer the users to the particular note to financial statements that adequately discusses the
limitation
d. Indicate that the auditor is not satisfied of the results of the alternative procedures that he had
performed.

56. What is the purpose of the following paragraph in a particular audit report:
We draw attention to note X in the financial statements which discusses that the company incurred
a net loss of P6.4 million during the year ended December 31, 2013 and as of that date, the Companys
liabilities exceeded its total assets by P2,500,000...
a. A standard reporting requirement.
b. Emphasis of matter about the going concern problems of the entity.
c. Inadequate disclosure qualification.
d. An inappropriate reporting.

57. An explanatory paragraph following an opinion paragraph that describes an uncertainty follows:
As discussed in Note X to the financial statements, the company is a defendant in a lawsuit alleging
infringement of certain patent rights and claiming damages. Discovery proceedings are in progress.
The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for
any liability that may result upon adjudication has been made in the accompanying financial
statements.

What type of opinion should the auditor express in this circumstance?

a. unqualified b. qualified c. disclaimer d. adverse

58. 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. Qualified or adverse opinion c. Unqualified opinion with explanatory paragraph
b. Qualified or disclaimer of opinion d. Unqualified opinion.
59. When management does not amend the financial statements in circumstances where the auditor
believes they need to be amended and the auditors report has not been released to the entity, the
auditor should express
a. Qualified or adverse opinion c. Unqualified opinion with explanatory paragraph
b. Qualified or disclaimer of opinion d. Unqualified opinion.

60. If subsequent to the issuance of the audited financial statements, the auditor becomes aware of
material misstatements in the financial statements that exist prior to the date of the audit report, the
auditor should
a. Notify the parties who currently relying on the financial statements.
b. Discuss the matter with management, and should take the action appropriate in the
circumstances.
c. Document such information in the audit plan for succeeding audit.
d. Submit revised copies of the financial statements and audit report to the stockholders.

1. Financial statements of an entity that have been reviewed by an accountant should be accompanied
by a report stating that a review
A. Provides only limited assurance that the financial statements are fairly presented.
B. Includes examining, on a test basis, information that is the representation of management.
C. Consists principally of inquiries of company personnel and analytical procedures applied to
financial data.
D. Does not contemplate obtaining corroborating evidential matter or applying certain other
procedures ordinarily performed during an audit.

2. An accountants report on a review of the financial statements of an entity should state that the
accountant
A. Does not express an opinion or any form of limited assurance on the financial statements.
B. Conducted the review in accordance with the Philippine Standard on Review Engagements.
C. Obtained reasonable assurance about whether the financial statements are free of material
misstatements.
D. Examined evidence, on a test basis, supporting the amounts and disclosures in the financial
statements.

3. Financial statements of an entity that have been reviewed by an accountant should be accompanied
by a report stating that
A. The scope of the inquiry and analytical procedures performed by an accountant has not been
restricted.
B. The financial statements are the responsibility of the companys management.
C. A review includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.
D. A review is greater in scope than a compilation, the objective of which is to present financial
statements that are free of material misstatements.

4. An accountant who reviews the financial statements of an entity should issue a report stating that a
review
A. Provides less assurance that an audit.
 B. Provides negative assurance that internal control is functioning as designed.
C. Provides only limited assurance that the financial statements are fairly presented.
D. Is substantially more in scope than a compilation.

5. When compiling the financial statements of an entity, an accountant should

A. Review agreements with financial institutions for restrictions on cash balances.
B. Understand the accounting principles and practices of the entitys industry.
C. Inquire of key personnel concerning related parties and subsequent events.
D. Perform ration analyses of the financial data of comparable prior periods.

6. When compiling an entitys financial statements, an accountant would be least likely to

A. Perform analytical procedures designed to identify relationships that appear to be unusual.
B. Read the compiled financial statements and consider whether they appear to include adequate
disclosure.
C. Obtain an acknowledgment from management of its responsibility for the financial statements.
D. Plan the work so that an effective engagement will be performed.

7. Which of the following should not be included in an accountants report based upon the compilation
of an entitys financial statements?
A. A statement that a compilation of the companys financial statements was made in accordance
with the Philippine Standard on Related Services applicable to compilation engagements.
B. A statement that management is responsible for the financial statements.
C. A statement that the accountant has not audited or reviewed the statements.
D. A statement that the accountant does not express an opinion but provides only negative
assurance on the statements.

8. Negative assurance may be expressed when an accountant is requested to report agreed-upon

procedures to specified
Elements of a Accounts of a
Financial Statement Financial Statement
A. Yes Yes
B. Yes No
C. No No
D. No Yes

9. An accountant may accept an engagement to apply agreed-upon procedures that are not sufficient to
express an opinion on one or more specified accounts or items of a financial statement provided that
A. The accountants report does not enumerate the procedures performed.
B. The financial statements are prepared in accordance with a comprehensive basis of accounting
other than generally accepted accounting principles.
C. Distribution of the accountants report is restricted.
D. The accountant is also the entitys continuing auditor.

10. Given one or more hypothetical assumptions, a responsible party may prepare, to the best of its
knowledge and belief, an entitys expected financial position, results of operations, and cash flows.
Such prospective financial statements are known as
A. Pro forma financial statements
 B. Financial projections
C. Partial presentations
D. Financial forecasts

11. A financial forecast consists of prospective financial statements that present an entitys expected
financial position, results of operations, and cash flows. A forecast
A. Is based on the most conservative estimates.
B. Present estimates given one or more hypothetical assumptions.
C. Unlike a projection, may contain a range.
D. Is based on assumptions reflecting conditions expected to exist and courses of action expected to
be taken.

12. When an accountant examines prospective financial statements, the accountants report should
include a separate paragraph that
A. Contains an opinion as to whether the prospective financial statements are properly prepared on
the basis of the assumptions and are presented in accordance with generally accepted accounting
principles in the Philippines.
B. Provides an explanation of the differences between an examination and an audit.
C. States that the accountant is responsible for events and circumstances up to 1 year after the
reports date.
D. Disclaims an opinion on whether the assumptions provide a reasonable basis for the prospective
financial statements.

13. A prospective financial information prepared on the basis of assumptions as to future events which
management expects to take place and the actions management expects to take as of the date the
information is prepared (best-estimate assumptions) is known as
A. Forecast
B. Hypothetical financial information
C. Projection
D. Best-estimate projection

14. The following statements relate to the examination of prospective financial information. Which is
false?
A. The auditor should express an opinion as to whether the results shown in the prospective financial
information will be achieved.
B. Before accepting an engagement to examine prospective financial information, the auditor should
consider the intended use of the information.
C. The auditor should not accept, or should withdraw from, an engagement to examine prospective
financial information when the assumptions are clearly unrealistic.
D. When in the auditors judgment an appropriate level of satisfaction has been obtained, the
auditor is not precluded from expressing positive assurance regarding the assumptions.

15. Which of the following is a prospective financial information for general use upon which an
accountant may appropriately report?
A. Financial projection
B. Partial presentation
C. Pro forma financial statement
 D. Financial forecast

16. A CPA in public practice must be independent in fact and appearance when providing which of the
following services?
Compilation Compilation
Preparation of a of personal
of a financial financial
tax return forecast statements
a. Yes No No
b. No Yes No
c. No No Yes
d. No No No

17. An accountant should not submit unaudited financial statements to the management of a non-public
company unless, at a minimum, the accountant
a. Assists in adjusting the books of account and prepares the trial balance.
b. Types or reproduces the financial statements on plain paper.
c. Complies with the standards applicable to compilation engagements.
d. Applies analytical procedures to the financial statements.

18. Which of the following procedures would most likely be included in a review engagement of a non-
public entity?
a. Preparing a bank transfer schedule.
b. Inquiring about related party transactions.
c. Assessing the internal control structure.
d. Performing cutoff tests on sales and purchases transactions.

19. When an independent accountant issues a comfort letter to an underwriter containing comments on
data that have not been audited, the underwriter most likely will receive
a. A disclaimer on prospective financial statements.
b. A limited opinion on "pro forma" financial statements.
c. Positive assurance on supplementary disclosures.
d. Negative assurance on capsule information.

20. Accepting an engagement to compile a financial projection for a publicly held company most likely
would be inappropriate if the projection were to be distributed to
a. A bank with which the entity is negotiating for a loan.
b. A labor union with which the entity is negotiating a contract.
c. The principal stockholder, to the exclusion of the other stockholders.
d. All stockholders of record as of the report date.

21. Engagements for the purpose of expressing an opinion on internal control differ from the CPA's
evaluation of internal control as part of a financial audit in that
a. In an engagement to express an opinion, the CPA is examining and reporting on controls as of a
specified date, whereas in conducting a financial audit, the CPA frequently tests controls for
effectiveness over the period covered by the financial statements.
 b. In conducting a financial statement audit, the CPA expresses an opinion as to the operating
effectiveness of the client's internal control system, whereas in an engagement to express an
opinion on internal control, the CPA addresses design and implementation of control structure.
c. In conducting a financial statement audit, the CPA is concerned with general controls only,
whereas in an engagement to express an opinion on internal control, the CPA tests both general
and application controls.
d. Scope limitations that affect a financial audit are irrelevant in an engagement to express an
opinion on internal control.

22. Which of the following should be included in an accountant's standard report based upon the review
of a non-public entity's financial statements?
a. A statement that the review was performed in accordance with generally accepted review
standards.
b. A statement that a review consists principally of inquiries and analytical procedures.
c. A statement that the accountant is independent with respect to the entity.
d. A statement that a review is substantially greater in scope than a compilation.

23. Which of the following procedures is not necessary in conducting a review of interim financial
information?
a. Inquiry concerning the accounting system and any changes in internal control.
b. Application of analytical procedures to the interim information.
c. Inquiry of and obtaining written representations from management concerning its responsibility
for the financial information and other matters.
d. Confirmation of significant customer accounts receivable as of the interim balance sheet date.

24. The objective of a review of interim financial information is to provide the accountant with a basis for
reporting whether
a. A reasonable basis exists for expressing an updated opinion regarding the financial statements
that were previously audited.
b. Material modifications should be made to conform with generally accepted accounting principles.
c. The financial statements are presented fairly in accordance with standards of interim reporting.
d. The financial statements are presented fairly in accordance with generally accepted accounting
principles.

25. Before performing a review of a non-public entity's financial statements, an accountant should
a. Complete a series of inquiries concerning the entity's procedures for recording, classifying, and
summarizing transactions.
b. Apply analytical procedures to provide limited assurance that no material modifications should
be made to the financial statements.
c. Obtain a sufficient level of knowledge of the accounting principles and practices of the industry
in which the entity operates.
d. Inquire whether management has omitted substantially all of the disclosures required by
generally accepted accounting principles.

26. Which of the following should not be included in an accountant's standard report based upon the
compilation of an entity's financial statements?
 a. A statement that a compilation is limited to presenting in the form of financial statements
information that is the representation of management.
b. A statement that the compilation was performed in accordance with standards established by the
American Institute of CPAs.
c. A statement that the accountant has not audited or reviewed the financial statements.
d. A statement that the accountant does not express an opinion but expresses only limited assurance
on the financial statements.

27. If an accountant concludes that unaudited financial statements on which the accountant is disclaiming
an opinion also lack adequate disclosure, the accountant should suggest appropriate revision. If
the client does not accept the accountant's suggestion, the accountant should
a. Issue an adverse opinion and describe the appropriate revision in the report.
b. Make reference to the appropriate revision and issue a modified report expressing limited
assurance.
c. Describe the appropriate revision to the financial statements in the accountant's disclaimer of
opinion.
d. Accept the client's inaction because the statements are unaudited and the accountant has
disclaimed an opinion.

28. Which of the following statements best distinguishes a forecast from a projection?
a. A forecast contains one or more hypothetical
assumptions, whereas a projection reflects conditions expected to exist.
b. A projection is appropriate for general distribution to third parties, whereas a forecast is more
tentative and should be restricted to those parties with whom the client is negotiating directly.
c. The CPA may review a financial forecast, but may only compile a projection.
d. A forecast reflects conditions expected to exist, whereas a projection presents financial position,
results of operations, and cash flows given one or more hypothetical assumptions.

29. Which of the following is not a distinction between a compilation and a review?
a. The CPA must be independent as a prerequisite to performing a review engagement, but need
not be independent to perform a compilation.
b. In conducting a review, the CPA must obtain an understanding of the client's internal control
system; but this is not necessary for a compilation engagement.
c. Analytical procedures are applied in a review engagement, but are not required in a compilation.
d. A compilation offers no assurance, whereas a review provides limited assurance.

30. The statement that "nothing came to our attention which would indicate that these statements are
not fairly presented" expresses which of the following?
a. Disclaimer of an opinion.
b. Negative assurance.
c. Negative confirmation.
d. Piecemeal opinion.

31. A CPA may accept an engagement to apply agreed-upon procedures to prospective financial
statements provided
a. All parties have agreed on the procedures to be applied.
 b. The CPA has previously audited the entity for which the agreed-upon procedures are to be
applied.
c. Users have participated in establishing the nature and scope of the engagement, distribution of
the report is limited to the users involved, and the prospective statements include a summary of
significant assumptions.
d. The set of agreed-upon procedures include, at a minimum, a study and evaluation of the existing
internal control.

32. Of the following statements, which one does not describe a distinction between the auditing
standards and the attestation standards?
a. Unlike the auditing standards, the attestation standards do not require the auditor to obtain an
understanding of the client's internal control system
b. The attestation standards are broader in coverage than the auditing standards.
c. In performing an attest engagement, the CPA need not be independent.
d. In an attest engagement, unlike an audit, generally accepted accounting principles are not the
standard used to measure the reasonableness of assertions.

33. Which of the following is least likely to be included in an agreed-upon procedures attestation
engagement report?
a. The specified party takes responsibility for the sufficiency of procedures.
b. Use of the report is restricted.
c. Limited assurance on the information presented.
d. A summary of procedures performed.

34. Which of the following engagements is most likely to consider availability, security, integrity, and
maintainability of a company's computer systems?
a. Internal control over financial reporting.
b. WebTrust Services.
c. Website Asssociate.
d. Financial statement audit.

35. Which of the following is not necessarily an attest engagement?

a. An elder care engagement.
b. A WebTrust engagement.
c. An examination of internal control over financial reporting for a nonpublic company.
d. A review of management's discussion and analysis.

36. When a practitioner examines projected financial statements, the practitioner's report should
include a separate paragraph that:
a. Describes the limitations on the usefulness of the presentation.
b. Provides an explanation of the differences between an examination and a review.
c. States that the accountant is responsible for events and circumstances for a period not
exceeding one
year after the report's date.
d. Disclaims an opinion on whether the assumptions provide a reasonable basis for the projection.
37. Which of the following is correct relating to an engagement to apply agreed-upon procedures to
prospective financial statements?
a. Use of the report is restricted to the specified users.
b. Such engagements are permissible for forecasts but not for projections.
c. Responsibility for the adequacy of the procedures performed is taken by the practitioner.
d. Such engagements are not permissible under the professional standards.

38. Accepting an engagement to examine an entity's financial projection most likely would be appropriate
if the projection were to be distributed to:
a. All employees who work for the entity.
b. Potential stockholders who request a prospectus or a registration statement.
c. A bank with which the entity is negotiating for a loan.
d. All stockholders of record as of the report date.

39. In which type of report would you read the following statement: We believe that our examination
provides a reasonable basis for our opinion.?
a. Review
b. Audit
c. Examination
d. Agreed-upon procedures

40. Reports on debt compliance and similar engagements may be issued as a separate report or as part
of a report that expresses the auditors opinion on the financial statements. When they are issued as
a part of the report on the financial statements, it is done by:
a. adding a middle paragraph before the opinion paragraph.
b. adding a paragraph after the opinion paragraph.
c. adding an additional phrase or sentence within the opinion paragraph.
d. adding a paragraph between the introductory and scope paragraphs.

41. When an accountant performs more than one level of service (for example, a compilation and a
review, or a compilation and an audit) concerning the financial statements of a nonpublic entity, the
accountant generally should issue the report that is appropriate for:
a. a review engagement.
b. a compilation engagement.
c. the lowest level of service rendered.
d. the highest level of service rendered.

42. You are a CPA retained by the manager of a cooperative retirement village to do write-up work. You
are expected to prepare unaudited financial statements with each page marked unaudited and
accompanied by a disclaimer of opinion stating no audit was performed. In performing the work, you
discover that there are no invoices to support a claim for a $25,000 disbursement. The manager
informs you that all the disbursements are proper. What should you do?
a. Submit the expected statements but omit $25,000 of unsupported disbursements.
b. Include the unsupported disbursements in the statements since you are not expected to make an
audit.
 c. Obtain from the manager a written statement that you informed him of the missing invoices and
include his assurance that the disbursements are proper.
d. Notify the owners that some of the claimed disbursements are unsupported and withdraw if the
situation is not satisfactorily resolved.

43. Which of the following is not an element of examining a forecast?

a. Evaluating the preparation of the prospective financial statements.
b. Understanding internal controls.
c . Evaluating the support underlying the assumptions.
d. Issuing an examination report.
44. A CPA who has been engaged to audit financial statements that were prepared on a cash basis:
a. must ascertain that there is proper disclosure of the fact that the cash basis has been used, the
general nature of material items omitted, and the net effect of such omissions.
b. may not be associated with such statements which are not in accordance with generally accepted
accounting principles.
c. must render a qualified report explaining the departure from generally accepted accounting
principles in the opinion paragraph.
d. must restate the financial statements on an accrual basis and then render the standard (short-
form) report.

45. One example of a special report, as defined by Statements on Auditing Standards, is a report issued
in connection with:
a. a feasibility study.
b. price-level basis financial statements.
c. a limited review of interim financial information.
d. compliance with a contractual agreement not related to the financial statements.

46. Prospective financial statements are for general use or for limited use. General use refers to use by
any third party, whereas limited use refers to use by third parties with which the responsible party is
negotiating directly. Which of the following statements is not correct?
a. Forecasts can be provided for general use.
b. Forecasts can be provided for limited use.
c. Projections can be provided for general use.
d. Projections can be provided for limited use.

47. Negative assurance is not permissible in:

a. reports based upon a review engagement.
b. letters required by security underwriters for data pertinent to SEC registration statements.
c. reports based on an audit of interim financial statements of a closely held business entity.
d. reports relating to the results of agreed-upon procedures to one or more specified elements,
accounts, or items of financial statement.

48. The auditors best course of action with respect to other financial information included in an annual
report containing the auditors report is to:
a. read and consider the manner of presentation of the other financial information.
b. indicate in the auditors report that the other financial information is unaudited.
c. consider whether the other financial information is accurate by performing a limited review.
 d. obtain written representations from management as to the accuracy of the other financial
information.

49. The objective of a review of financial statements is

a. To enable the auditor to express an opinion whether the financial statements are prepared, in
all material respects, in accordance with generally accepted accounting principles in the
Philippines.
b. For the auditor to carry out procedures of an audit nature to which the auditor and the entity
and any appropriate third parties have agreed and to report on factual findings.
c. For the accountant to use accounting expertise, as opposed to auditing expertise, to collect,
classify and summarize financial information.
d. To enable an auditor to state whether, on the basis of procedures which do not provide all the
evidence that would be required in an audit, anything has come to the auditor's attention that
causes the auditor to believe that the financial statements are not prepared, in all material
respects, in accordance with generally accepted accounting principles in the Philippines (negative
assurance).

50. Which statement is incorrect regarding the general principles of a review engagement?
a. The auditor is not required to comply with the Code of Professional Ethics for Certified Public
Accountants promulgated by the Board of Accountancy.
b. The auditor should conduct a review in accordance with PSRE 2400.
c. The auditor should plan and perform the review with an attitude of professional skepticism
recognizing that circumstances may exist which cause the financial statements to be materially
misstated.
d. For the purpose of expressing negative assurance in the review report, the auditor should obtain
sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to
draw conclusions.

51. Which of the following is required to be performed in an audit but not in review engagement?
a. Complying with the Code of Professional Ethics for Certified Public Accountants promulgated
by the Board of Accountancy.
b. Planning the engagement.
c. Agreeing on the terms of engagement.
d. Studying and evaluating internal control structure.

52. Engagement letter for a review of financial statements least likely includes
a. The objective of the service being performed.
b. The fact that the engagement cannot be relied upon to disclose errors, illegal acts or other
irregularities, for example, fraud or defalcations that may exist.
c. A statement that an audit is not being performed and that an audit opinion will not be expressed.
 d. The fact that because of the test nature and other inherent limitations of an audit, together with
the inherent limitations of any accounting and internal control system, there is an unavoidable
risk that even some material misstatement may remain undiscovered.

53. Which statement is incorrect regarding procedures and evidence obtained in a review engagement?
a. The auditor should apply judgment in determining the specific nature, timing and extent of review
procedures.
b. The auditor should apply the same materiality considerations as would be applied if an audit
opinion on the financial statements were being given.
c. There is a greater risk that misstatements will not be detected in an audit than in a review.
d. The judgment as to what is material is made by reference to the information on which the auditor
is reporting and the needs of those relying on that information, not to the level of assurance
provided.

54. Which of the following procedures is not included in a review engagement on a nonpublic entity?
a. Inquiries of management.
b. Inquiries regarding events subsequent to the balance sheet date.
c. Any procedures designed to identify relationships among data that appear to be unusual.
d. Communicating any material weaknesses discovered during the study and evaluation of internal
accounting control.

55. In a review engagement, the independent accountants procedures include:

a. Examining bank reconciliation.
b. Confirming accounts receivable with debtors.
c. Reading the financial statements to consider whether they appear to conform with GAAP.
d. Obtaining a letter of audit inquiry from all attorneys of record.

56. An auditors standard report on a review of the financial statements of a nonpublic entity should state
that
a. The auditor does not express an opinion or any form of limited assurance on the financial
statements
b. Nothing has come to the auditor's attention based on the review that causes the auditor to
believe the financial statements are not presented fairly, in all material respects in accordance
with generally accepted accounting principles in the Philippines.
c. The auditor obtained reasonable assurance about whether the financial statements are free of
material misstatement
d. The auditor examined evidence, on a test basis, supporting the amounts and disclosures in the
financial statements

57. Which of the following is not a basic element of a review report?

a. Title of the report c. Introductory paragraph
b. Clients address d. Auditors address
58. The scope paragraph of the review report least likely includes
a. A reference to Philippine Standard on Auditing applicable to review engagements.
b. A statement that a review is limited primarily to inquiries and analytical procedures.
c. A statement that an audit has not been performed, that the procedures undertaken provide less
assurance than an audit and that an audit opinion is not expressed.
d. A statement of the responsibility of the entity's management and the responsibility of the auditor.

59. If matters have come to the auditor's attention, the auditor should describe those matters that impair
a fair presentation, in all material respects in accordance with GAAP in the Philippines, including,
unless impracticable, a quantification of the possible effect(s) on the financial statements, and
a. Express a qualification of the negative assurance provided.
b. When the effect of the matter is so material and pervasive to the financial statements that the
auditor concludes that a qualification is not adequate to disclose the misleading or incomplete
nature of the financial statements, give an adverse statement.
c. Not provide any assurance.
d. Either a or b.

60. A review report should be dated as of the

a. Date the report is delivered to the entity reviewed.
b. Date the review is completed.
c. Balance sheet date of the latest period reported on.
d. Date a letter of audit inquiry is received from the entitys attorney of record.

61. Which statement is incorrect regarding agreed-upon procedures?

a. Users of the report assess for themselves the procedures and findings reported by the auditor
and draw their own conclusions from the auditors work.
b. The report is restricted to those parties that have agreed to the procedures to be performed since
others, unaware of the reasons for the procedures, may misinterpret the results.
c. The auditor should conduct an agreed-upon procedures engagement in accordance with PSRS
4400 and the terms of the engagement.
d. Where the auditor is not independent, a statement to that effect need not be made in the report
of factual findings.

62. Which of the following would not be appropriate to a report on an engagement to apply agreed-upon
procedures to specified financial statement items?
a. Indicate the intended distribution of the report.
b. Provide an opinion on the specified elements, accounts, or items.
c. Enumerate the procedures performed.
d. State that the report relates only to the elements, accounts, or items specified.
63. The report on an agreed-upon procedures engagement needs to describe the purpose and the agreed-
upon procedures of the engagement in sufficient detail to enable the reader to understand the nature
and the extent of the work performed. The report of factual findings should not contain:
a. Addressee (ordinarily the client who engaged the auditor to perform the agreed-upon
procedures).
b. Identification of the purpose for which the agreed-upon procedures were performed.
c. A description of the auditors factual findings including sufficient details of errors and exceptions
found.
d. Statement that the procedures performed constitute an audit and, as such, an opinion is
expressed.

64. Which statement is incorrect regarding examination of prospective financial information?

a. The auditor should not accept, or should withdraw from, an engagement when the assumptions
are clearly unrealistic or when the auditor believes that the prospective financial information will
be inappropriate for its intended use.
b. The auditor and the client should agree on the terms of the engagement.
c. The auditor should obtain a sufficient level of knowledge of the business to be able to evaluate
whether all significant assumptions required for the preparation of the prospective financial
information have been identified.
d. The auditor need not obtain written representations from management regarding the intended
use of the prospective financial information, the completeness of significant management
assumptions and managements acceptance of its responsibility for the prospective financial
information.

65. When the auditor believes that the presentation and disclosure of the prospective financial
information is not adequate, the auditor should
a. Express a qualified or adverse opinion in the report on the prospective financial information.
b. Withdraw from the engagement.
c. Disclaim the opinion in the report on the prospective financial information.
d. Either a or b.

1. According to the professions ethical standards, an auditor would be considered independent in which
of the following instances?
a. The auditor is the officially appointed stock transfer agent of a client.
b. The auditors checking account that is fully insured by the PDIC is held at a client financial
institution.
c. The client owes the auditor fees for more than two years prior to the issuance of the audit
report.
d. The client is the only tenant in a commercial building owned by the auditor.

2. Which of the following characteristics most likely would heighten an auditors concern about the risk
of material misstatements in an entitys financial statements?
a. The entitys industry is experiencing declining customer demand.
b. Employees who handle cash receipts are not bonded.
 c. Bank reconciliations usually include in-transit deposits.
d. Equipment is often sold at a loss before being fully depreciated.

3. Which of the following fraudulent activities most likely could be perpetrated due to the lack of
effective internal controls in the revenue cycle?
a. Fictitious transactions may be recorded that cause an understatement of revenues and an
overstatement of receivables.
b. Claims received from customers for goods returned may be intentionally recorded in other
customers accounts.
c. Authorization of credit memos by personnel who receive cash may permit the
misappropriation of cash.
d. The failure to prepare shipping documents may cause an overstatement of inventory
balances.

4. In planning an audit, the auditors knowledge about the design of relevant controls should be used to
a. Identify the types of potential misstatements that could occur.
b. Assess the operational efficiency of internal control.
c. Determine whether controls have been circumvented by collusion.
d. Document the assessed level of control risk.

5. Which of the following information discovered during an audit most likely would raise a question
concerning possible illegal acts?
a. Related-party transactions, although properly disclosed, were pervasive during the year.
b. The entity prepared several large checks payable to cash during the year.
c. Material internal control weaknesses previously reported to management were not
corrected.
d. The entity was a campaign contributor to several local political candidates during the year.

6. During an engagement to review the financial statements of an audit client, an accountant becomes
aware that several leases that should be capitalized are not capitalized. The accountant considers
these leases to be material to the financial statements. The accountant decides to modify the standard
review report because management will not capitalize the leases. Under these circumstances, the
accountant should
a. Issue an adverse opinion because of the departure from GAAP.
b. Express no assurance of any kind on the entitys financial statements.
c. Emphasize that the financial statements are for limited use only.
d. Disclose the departure from GAAP in a separate paragraph of the accountants report.

7. A primary objective of analytical procedures used in the final review stage of an audit is to
a. Identify account balances that represent specific risks relevant to the audit.
b. Gather evidence from tests of details to corroborate financial statement assertions.
c. Detect fraud that may cause the financial statements to be misstated.
d. Assist the auditor in evaluating the overall financial statement presentation.

8. Which of the following conditions or events most likely would cause an auditor to have substantial
doubt about an entitys ability to continue as a going concern?
a. Significant related-party transactions are pervasive.
b. Usual trade credit from suppliers is denied.
 c. Arrearages in preferred stock dividends are paid.
d. Restrictions on the disposal of principal assets are present.

9. Accepting an engagement to compile a financial projection most likely would be inappropriate if the
projection is to be distributed to
a. The entitys principal stockholder, to the exclusion of the other stockholders.
b. Potential stockholders in an offering statement.
c. A financial institution in a loan application.
d. A state or federal regulatory agency.

10. Which of the following statements extracted from a clients lawyers letter concerning litigation,
claims, and assessments most likely would cause the auditor to request clarification?
a. We believe that the possible liability to the company is nominal in amount.
b. We believe that the action can be settled for less than the damages claimed.
c. We believe that the plaintiffs case against the company is without merit.
d. We believe that the company will be able to defend this action successfully.

11. After considering managements plans, an auditor concludes that there is substantial doubt about a
clients ability to continue as a going concern for a reasonable period of time. The auditors
responsibility includes
a. Disclaiming an opinion on the financial statements due to the indications of possible financial
difficulties.
b. Indicating to the clients audit committee whether managements plans for dealing with the
adverse effects of the financial difficulties can be effectively implemented.
c. Considering the adequacy of disclosure about the clients possible inability to continue as a
going concern.
d. Issuing a qualified or adverse opinion, depending upon materiality, due to the possible effects
on the financial statements.

12. Which of the following procedures would an auditor most likely perform to obtain evidence about the
occurrence of subsequent events?
a. Determine whether inventory ordered before the year-end was included in the physical
count.
b. Inquire about payroll checks that were recorded before year-end but cashed after year-end.
c. Investigate changes in capital stock recorded after year-end.
d. Review tax returns prepared by management after year-end.

13. When an auditor decides to confirm accounts receivable balances rather than individual invoices, it
most likely would be beneficial to include with the confirmations
a. Copies of the clients shipping documents that support the account balances.
b. Lists of the customers recent payments that the client has already recorded.
c. Client-prepared statements of account that show the details of the account balances.
d. Copies of the customers purchase orders that support the account balances.

14. A CPA started to audit the financial statements of an audit client. After completing certain audit
procedures, the client requested the CPA to change the engagement to a review because of a scope
limitation. The CPA concludes that there is reasonable justification for the change. Under these
circumstances, the CPAs review report should include a
 a. Statement that a review is substantially less in scope than an audit.
b. Reference to the scope limitation that caused the changed engagement.
c. Description of the auditing procedures that were completed before the engagement was
changed.
d. Reference to the CPAs justification for agreeing to change the engagement.

15. Before accepting an engagement to audit a new client, a CPA is required to obtain
a. An assessment of fraud risk factors likely to cause material misstatements.
b. An understanding of the prospective clients industry and business.
c. The prospective clients signature to a written engagement letter.
d. The prospective clients consent to make inquiries of the predecessor, if any.

16. The purpose of tracing a sample of inventory tags to a clients computerized listing of inventory items
is to determine whether the inventory items
a. Represented by tags were included on the listing.
b. Included on the listing were properly counted.
c. Represented by tags were reduced to the lower of cost or market.
d. Included in the listing were properly valued.

17. Which of the following actions should a CPA firm take to comply with the quality control standards?
a. Establish procedures that comply with the standards of the Sarbanes-Oxley Act.
b. Use attributes sampling techniques in testing internal controls.
c. Consider inherent risk and control risk before determining detection risk.
d. Establish policies to ensure that the audit work meets applicable professional standards.

18. After an audit report is issued, an auditor discovers that an important audit procedure was not
performed. Which of the following procedures is acceptable in this situation?
a. No further action is necessary if the audit report can still be supported.
b. Let the current report stand and correct material errors on the next audit report.
c. Immediately notify known users of the omitted audit procedure.
d. Require that the client notify financial statement users of the omitted procedures.

19. An auditor has identified the controllers review of the bank reconciliation as a control to test. In
connection with this test, the auditor interviews the controller to understand the specific data
reviewed on the reconciliation. In addition, the auditor verifies that the bank reconciliation is properly
prepared by the accountant and reviewed by the controller as evidenced by their respective sign-offs.
Which of the following types of audit procedures do these actions illustrate?
a. Observation and inspection of records. c. Confirmation and reperformance.
b. Inquiry and inspection of records. d. Analytical procedures and reperformance.

20. Which of the following is a definition of control risk?

a. The risk that a material misstatement will not be prevented or detected on a timely basis by
the clients internal controls.
b. The risk that the auditor will not detect a material misstatement.
c. The risk that the auditors assessment of internal controls will be at less than the maximum
level.
d. The susceptibility of material misstatement assuming there are no related internal control
policies or procedures.
21. Each of the following types of controls is considered to be an entity-level control, except those
a. Relating to the control environment.
b. Pertaining to the companys risk assessment process.
c. Regarding the companys annual stockholder meeting.
d. Addressing policies over significant risk management practices.

22. Which of the following statements would not normally be included in a representation letter for a
review of interim financial information?
a. To the best of our knowledge and belief, no events have occurred subsequent to the balance
sheet and through the date of this letter that would require adjustment to or disclosure in the
interim financial information.
b. We acknowledge our responsibility for the design and implementation of programs and
controls to prevent and detect fraud.
c. We understand that a review consists principally of performing analytical procedures and
making inquiries about the interim financial information.
d. We have made available to you all financial records and data.

23. When performing a review of interim financial information, an accountant would typically do each of
the following, except
a. Consider the results from the latest audit.
b. Test controls related to the preparation of annual financial information.
c. Perform analytical procedures.
d. Make inquiries of management.

24. Which of the following is a correct statement regarding the nature and timing of communications
between an accounting firm performing an initial audit of an issuer and the issuers audit committee?
a. Prior to accepting the engagement, the firm must orally affirm its independence to the audit
committee with all members present.
b. The firm must address all independence impairment issues on the date of the audit opinion.
c. Communications related to independence may occur in any form prior to issuance for the
financial statements.
d. Prior to accepting the engagement, the firm should describe in writing all relationships that,
as of the date of the communication, may reasonably be thought to bear on independence.

25. A person identified as an audit committee financial expert of an issuer generally must have acquired
the attributes of a financial expert through any of the following experiences, except
a. As a principal financial officer, principal accounting officer, controller, public accountant, or
auditor.
b. Serving on at least one other issuers audit committee or disclosure committee of the board
of directors.
c. Actively supervising a principal financial officer or principal accounting officer.
d. Assessing the performance of public accountants with respect to preparation, auditing, or
evaluation of financial statements.

26. An entitys comparative financial statements include the financial statements of the prior year that
were audited by a predecessor auditor whose report is not presented. If the predecessors report was
qualified, the successor should
 a. Issue an updated comparative audit report indicating the division of responsibility.
b. Explain to the client that comparative financial statements may not be presented under these
circumstances.
c. Express an opinion only on the current years financial statements and make no reference to
the prior years statements.
d. Indicate the substantive reasons for the qualification in the predecessor auditors opinion.

27. How does an auditor make the following representations when issuing the standard auditors report
on comparative financial statements?
Consistent application of accounting principles Examination of evidence on a test basis
a. Implicitly Explicitly
b. Explicitly Implicitly
c. Implicitly Implicitly
d. Explicitly Explicitly

28. Which of the following statement is correct concerning analytical procedures used in planning an audit
engagement?
a. They often replace the test of controls that are performed to assess control risk.
b. They usually use financial and nonfinancial data aggregated at a high level.
c. They usually involve the comparison of assertions developed by management to ratios
calculated by an auditor.
d. They are often used to develop an auditors preliminary judgment about materiality.

29. When assessing internal auditors objectivity, an independent auditor should

a. Consider the policies that prohibit the internal auditors from auditing areas where they were
recently assigned.
b. Review the internal auditors reports to determine that their conclusions are consistent with
the work performed.
c. Verify that the internal auditors assessment of control risk is comparable to the independent
auditors assessment.
d. Evaluate the quality of the internal auditors working paper documentation and their recent
audit recommendations.

30. During a financial statement audit an internal auditor may provide direct assistance to the
independent CPA in performing
Tests of controls Substantive tests
a. Yes Yes
b. Yes No
c. No Yes
d. No No

31. In auditing contingent liabilities, which of the following procedures would an auditor most likely
perform?
a. Confirm the details of outstanding purchase orders.
b. Apply analytical procedures to accounts payable.
c. Read the minutes of the board of directors meetings.
d. Perform tests of controls on the cash disbursement activities.
32. An auditor believes there is substantial doubt about an entitys ability to continue as a going concern
for a reasonable period of time. In evaluating the entitys plans for dealing with the adverse effects of
future conditions and events, the auditor most likely would consider, as a mitigating factor, the
entitys plans to
a. Purchase production facilities currently being leased from a third party.
b. Postpone expenditures to upgrade its information technology system.
c. Pay cash dividends that are in arrears to the preferred stockholders.
d. Increase the useful lives of plant assets for depreciation purposes.

33. An auditor concludes that there is substantial doubt about an entitys ability to continue as a going
concern for a reasonable period of time. The entitys financial statements adequately disclose its
financial difficulties. Under these circumstances, the auditors report is required to include an
explanatory paragraph that specifically uses the phrase(s)
Except for the effects of such adjustments Possible discontinuance of the entitys operations
a. Yes Yes
b. Yes No
c. No Yes
d. No No

34. After issuing an auditors report, an auditor becomes aware of facts that existed at the report date
that would have affected the report had the auditor known of the facts at the time. What is the first
thing the auditor should do?
a. Notify each member of the board of directors that the auditors report may not be associated
with the financial statements from this point forward.
b. Issue revised financial statements and auditors report describing the reason for the revision
in a note to the financial statements.
c. Determine whether there are persons currently relying on, or likely to rely on, the financial
statements and whether those persons would attach importance to the information.
d. Notify regulatory agencies having jurisdiction over the client that the auditors report should
not be relied upon from this point forward.

35. A portion of a clients inventory is in public warehouses. Evidence of the existence of this merchandise
can most efficiently be acquired through which of the following methods?
a. Observation. c. Confirmation.
b. Calculation. d. Inspection.

36. A company hires one of its board members, a CPA, to issue accounting reports for the company.
Assuming any required disclosures are made, which of the following reports may the CPA issue
without violating independence rules?
a. Compilations. c. Reviews.
b. Audits. d. Agreed-upon procedures.

37. A CPA purchased stock in a client corporation and placed it in a trust as an educational fund for the
CPAs minor child. The trust securities are not material to the CPAs wealth but are material to the
childs personal net worth. According to the Philippine Code of Ethics for CPAs, would this action
impair the CPAs independence with the client?
a. No, because the CPA would not have a direct financial interest in the client.
b. Yes, because the stock would be a direct financial interest and materiality is a factor.
 c. Yes, because the stock would be an indirect financial interest and materiality is not a factor.
d. Yes, because the stock would be a direct financial interest and materiality is not a factor.

38. Which of the following analytical procedures most likely would be used during the planning stage of
an audit?
a. Comparing current year to prior year sales volumes.
b. Reading the financial statements and notes and considering the adequacy of evidence.
c. Comparing the current year ratio of aggregate salaries paid to the number of employees to
the prior years ratio.
d. Reading the letter from the clients attorney and considering the threat of litigation.

39. Which of the following should an auditor do when control risk is assessed at the maximum level?
a. Perform fewer substantive tests of details.
b. Perform more tests of controls.
c. Document the assessment.
d. Document the control structure more extensively.

40. The company being audited has an internal auditor that is both competent and objective. The
independent auditor wants to assign tasks for the internal auditor to perform. Under these
circumstances, the independent auditor may
a. Allow the internal auditor to perform tests of internal controls.
b. Allow the internal auditor to audit a major subsidiary of the company.
c. Not assign any task to the internal auditor because of the internal auditors lack of
independence.
d. Allow the internal auditor to perform analytical procedures, but not be involved with any test
of details.

41. An auditor discovers that an account balance believed not to be materially misstated based on an
audit sample was materially misstated based on the total population of the account balance. This is
an example of which of the following sampling types of risks?
a. Incorrect rejection. c. Incorrect acceptance.
b. Assessing control risk too low. d. Assessing control risk too high.

42. According to the Philippine Code of Ethics for CPAs, which of the following actions by a CPA most likely
involves an act discreditable to the profession?
a. Refusing to provide the client with copies of the CPAs workpapers.
b. Auditing financial statements according to governmental standards despite the clients
preferences.
c. Accepting a commission from a nonattest function client.
d. Retaining client records after the client demands their return.

43. When planning a review of an audit clients interim financial statements, which of the following
procedures should the accountant perform to update the accountants knowledge about the entitys
business and its internal control?
a. Perform analytical procedures on selected accounts by comparing the interim amounts to the
amounts for the previous audited fiscal year-end.
b. Inquire of the entitys outside legal counsel about the status of an previous pending litigation
and any new litigation involving the entity.
 c. Select a sample of material revenue transactions occurring during the interim period and
examine supporting documentation.
d. Consider the results of audit procedures performed with respect to the current years
financial statements.

44. An accountant has been engaged to compile pro forma financial statements. During the accountants
acceptance procedures, it is discovered that the accountant is not independent with respect to the
company. What action should the accountant take with regard to compilation?
a. The accountant should discuss the lack of independence with legal counsel to determine
whether it is appropriate to accept the engagement.
b. The accountant should disclose the lack of independence in the accountants compilation
report.
c. The accountant should withdraw from the engagement.
d. The accountant should compile the pro forma statements but should not provide a
compilation report.

45. In an accountants review of interim financial information, the accountant typically performs each of
the following, except
a. Reading the available minutes of the latest stockholders meeting.
b. Applying financial ratios to the interim financial information.
c. Inquiring of the accounting departments management.
d. Obtaining corroborating external evidence.

46. According to the SEC, an auditor is not independent of its issuer audit client in which of the following
situations?
a. The auditors cousin has an insurance policy obtained from the issuer before it became an
audit client.
b. The auditor has an automobile loan at standard terms from the audit client that is
collateralized by the automobile.
c. The auditor has an investment in an entity that has the ability to exercise significant influence
over the audit client.
d. The auditors grandparent was in an accounting role at the audit client and ended
employment before the period under audit began.

47. A listing of all the things which the auditor will do to gather sufficient, competent evidence is the:
a. Audit strategy. c. Audit program.
b. Audit procedure. d. Audit risk model.

48. Collectively, procedures performed to obtain an understanding of the entity and its environment,
including internal controls, represent the auditors:
a. Audit strategy. c. Tests of controls.
b. Risk assessment procedures. d. Tests of transactions.

49. When the auditor finds that there are missing controls in an area of the accounting system, the
audit program in that area would be modified in such a way as to:
a. Increase the amount of tests of controls.
b. Increase the reliance on tests of controls.
c. Cause the issuance of a qualified or adverse opinion.
 d. Eliminate the need for a test of controls.

50. Which of the following is not appropriate for purposes of testing the effectiveness of controls?
a. Make inquiries of client personnel. c. Evaluate prior experience with the client.
b. Observe control-related activities. d. Reperform client procedures.

51. Which of the following is not a direct result of performing analytical procedures?
a. Identify areas of potential misstatements. c. Reduce detailed audit tests.
b. Understand the clients business. d. Identify specific errors in the accounts.

52. What type of test is used to obtain more types of evidence than any other?
a. Substantive tests of transactions. c. Tests of controls.
b. Analytical procedures. d. Tests of details.

53. Only _______ involve physical examination and confirmation.

a. tests of controls c. tests of transactions
b. tests of balances d. analytical procedures

54. Documentation is used in every type of test except ________.

a. tests of controls c. tests of transactions
b. analytical procedures d. tests of details

55. Which of the following types of evidence is not available when using substantive tests of
transactions?
a. Documentation. c. Confirmation.
b. Inquiries of the client. d. Reperformance.

56. An exception in a test of control indicates the _______ of misstatements.

a. the amount c. the likelihood
b. the amount, likelihood, and classification d. the amount and the classification

57. Which of the following is not a valid basis for omitting an audit test?
a. the difficulty and expense involved in testing a particular item.
b. the relative risk involved.
c. the degree of reliance on the relevant internal controls.
d. the relationship between the cost of obtaining evidence and its usefulness.

58. Which of the following ultimately determines the specific audit procedures necessary to provide
an independent auditor with a reasonable basis for the expression of an opinion?
a. The audit program. c. The auditors judgment.
b. Generally accepted auditing standards. d. The auditors working papers.

59. The reliance placed on substantive tests in relation to the reliance placed on internal control varies
in a relationship that is ordinarily:
a. parallel. b. inverse. c. direct. d. equal.

60. When controls are deemed ineffective and assessed control risk is at the maximum for a private
company, there will be ______ emphasis placed on tests of controls.
 a. No b. relatively little c. moderate d. heavy

61. Tests of controls address each of the following questions except:

a. How were the procedures performed?
b. Why were the procedures performed?
c. Were the necessary procedures performed?
d. Who performed the procedures?

62. Which of the following audit tests would be regarded as a test of controls?
a. Comparison of the inventory pricing to vendors invoices.
b. Tests of the signatures on canceled checks to board of directors authorizations.
c. Tests of the additions to property, plant, and equipment by physical inspections.
d. Review of the specific items making up the balance in a given general ledger account.

63. After finishing the review phase of the study and evaluation of internal control in an audit, the
auditor should perform tests of controls on:
a. those controls that the auditor wants and plans to rely upon.
b. those controls in which material weaknesses were identified.
c. those controls that have a material effect upon the financial statement balances.
d. a random sample of the controls that were reviewed.

64. At what point in the audit are tests of details most appropriately designed?
a. Engagement evaluation.
b. Planning.
c. Testing.
d. Communication of material weaknesses.

65. In valuing inventory, the auditor must consider all but which of the following factors?
a. The valuation method must be in accordance with GAAP.
b. The valuation method must be applied on a consistent basis.
c. The inventory must be valued at the lower of cost or market.
d. All inventory must be valued using the same valuation method under GAAP.

66. Controls which provide a means of ensuring that the physical counts are properly summarized,
priced at the same amount as the unit records, correctly extended and totaled, and included in
the general ledger at the proper amount are known as:
a. standard cost controls.
b. pricing internal controls.
c. compilation internal controls.
d. count quantity internal controls.
67. When an outside specialist has assumed full responsibility for taking the clients physical
inventory, reliance on the specialists report is acceptable if:
a. The auditors report contains a reference to the assumption of full responsibility.
b. The auditor is satisfied through application of appropriate procedures as to the reputation
and competence of the specialist.
c. The auditor conducted the same audit tests and procedures as would have been applicable if
the clients employees took the physical inventory.
 d. Circumstances made it impracticable or impossible for the auditor either to do the work
personally or observe the work done by the inventory firm.

68. To best ascertain that a company has properly included merchandise that it owns in its ending
inventory, the auditor should review and test the:
a. Terms of the open purchase orders.
b. Purchase cutoff procedures.
c. Contractual commitments made by the purchasing department.
d. Purchase invoices received on or around year-end.

69. Hardy Company mass-produces eight different products. The controller who is interested in
strengthening internal controls over the accounting for materials used in production would be
most likely to implement a(n):
a. Perpetual inventory system.
b. Job order cost accounting system.
c. Economic order quantity system.
d. Separation of duties among production personnel.

70. Which of the following is an internal control weakness for a company whose inventory of supplies
consists of a large number of individual items?
a. The cycle basis is used for physical counts.
b. Supplies of relatively little value are expensed when purchased.
c. Perpetual inventory records are maintained only for items of significant value.
d. The storekeeper is responsible for maintenance of perpetual inventory records.

71. When auditing a public warehouse, which of the following is the most important audit procedure
with respect to disclosing unrecorded liabilities?
a. Observation of inventory.
b. Review of outstanding receipts.
c. Inspection of receiving and issuing procedures.
d. Confirmation of negotiable receipts with holders

72. Which of the following statements is not correct?

a. Analytical procedures used in the planning phase of the audit are primarily directed at
understanding the clients business and directing the auditors attention to areas that may
contain possible misstatements.
b. Analytical procedures used in the completion phase are primarily aimed at assessing going
concern and secondarily aimed at directing the auditors attention to areas that may
contain possible misstatements.
c. Analytical procedures must be used in the planning and completion phases of the audit, and
are optional in the testing phase.
d. Analytical procedures used in the completion phase are primarily aimed at directing the
auditors attention to areas that may contain possible misstatements and secondarily aimed
at assessing going concern

73. When are auditors likely to encounter judgment problems in the use of analytical procedures?
 a. Whenever the auditor places reliance on managements explanations for unusual
fluctuations in account balances without first developing independent expectations.
b. Whenever the auditor allows unaudited balances to unduly influence his/her expectations of
current balances.
c. Whenever the auditor fails to consider the pattern reflected by several unusual fluctuations
when trying to explain what caused them.
d. The auditor is likely to encounter judgment problems in each of the above instances.

74. Which of the following is not a primary consideration when assessing inherent risk?
a. Nature of clients business.
b. Existence of related parties.
c. Frequency and intensity of managements review of accounting transactions and records.
d. Susceptibility to defalcation.

75. Which of the following is an example of the concept of inherent risk?

a. Humans make more errors than computers; therefore, a manual accounting system is
riskier than a computerized system.
b. Accounting systems with vouchers have many more controls built in, so the risk that there
will be errors on the financial statements is reduced.
c. Loans receivable for a finance company are less likely to be collectible than those of a bank.
d. Audits with larger sample sizes are less risky than those with smaller sample sizes

76. Inherent risk is often low for an account such as:

a. inventory.
b. marketable securities.
c. cash.
d. accounts receivable.

77. Which of the following is not one of the levels of an absence of internal controls?
a. Major deficiency.
b. Material weakness.
c. Significant deficiency.
d. Control deficiency.

78. Which of the following is the correct definition of control deficiency?

a. A control deficiency exists if the design or operation of controls does not permit company
personnel to prevent or detect misstatements on a timely basis.
b. A control deficiency exists if one or more deficiencies exist that adversely affect a
companys ability to prepare external financial statements reliably.
c. A control deficiency exists if the design or operation of controls results in a more than remote
likelihood that controls will not prevent or detect misstatements.
d. A control deficiency exists if the design or operation of controls results in a more than
probable likelihood that controls will prevent or detect misstatements.

79. A(n) _______ deficiency exists if a necessary control is missing or not properly formulated.
a. control
b. significant
c. design
 d. operating

80. The primary emphasis by auditors is on controls over:

a. classes of transactions.
b. account balances.
c. both a and b, because they are equally important.
d. both a and b, because they vary from client to client.

81. An auditor should consider two key issues when obtaining an understanding of a clients
internal controls. These issues are:
a. the effectiveness and efficiency of the controls.
b. the frequency and effectiveness of the controls.
c. the design and utilization of the controls.
d. The implementation and efficiency of the controls.

82. The independent auditor should acquire an understanding of the internal audit function as it
relates to the independent auditors study and evaluation of internal control because the:
a. audit programs, working papers, and reports of internal auditors can often be used as a
substitute for the work of the independent auditors staff.
b. procedures performed by the internal audit staff may eliminate the independent auditors
need for an extensive study and evaluation of internal control.
c. work performed by internal auditors may be a factor in determining the nature, timing, and
extent of the independent auditors procedures.
d. understanding of the internal audit function is an important substantive test to
be performed by the independent auditor.

83. Hanlon Corp. maintains a large internal audit staff that reports directly to the chief financial
officer. Audit reports prepared by the internal auditors indicate that the system is functioning as
it should and that the accounting records are reliable. An independent auditor will probably:
a. eliminate tests of controls.
b. increase the depth of the study and evaluation of administrative controls.
c. avoid duplicating the work performed by the internal audit staff.
d. place limited reliance on the work performed by the internal audit staff.

84. Which of the following is not a likely source of information to assess fraud risks?
a. Communications among audit team members.
b. Inquiries of management.
c. Analytical procedures.
d. Consideration of fraud risks discovered during recent audits of other clients.

85. Auditors usually evaluate the effectiveness of:

a. hardware controls before general controls.
 b. sales-cycle controls before application controls.
c. general controls before applications controls.
d. applications controls before the control environment.

86. Controls which are designed to assure that the information processed by the computer
is authorized, complete, and accurate are called:
a. input controls.
b. processing controls.
c. output controls.
d. general controls.

87. Programmers should be allowed access to:

a. user controls.
b. general controls.
c. systems controls.
d. applications controls.

88. Programmers should do all but which of the following?

a. Test programs for proper performance.
b. Evaluate legitimacy of transaction data input.
c. Develop flowcharts for new applications.
d. Programmers should perform each of the above.

89. ______ tests determines that every field in a record has been completed.
a. Validation
b. Sequence
c. Completeness
d. Programming

90. In an IT-intensive environment, most processing controls are:

a. input controls.
b. operator controls.
c. programmed controls.
d. documentation controls.

91. Which of the following is not a processing control?

a. Control totals.
b. Logic tests.
c. Check digits.
d. Computations tests.
92. Which of the following computer-assisted auditing techniques allows fictitious and real
transactions to be processed together without client operating personnel being aware of the
testing process?
a. Parallel simulation.
b. Generalized audit software programming.
c. Integrated test facility.
d. Test data approach.

93. Firewalls are used to protect:

a. erroneous internal handling of data.
b. against insufficient documentation of transactions.
c. illogical programming commands.
d. unauthorized use of system resources.

94. In an IT system, automated equipment controls or hardware controls are designed to:
a. correct errors in the computer programs.
b. monitor and detect errors in source documents.
c. detect and control errors arising from the use of equipment.
d. arrange data in a logical sequential manner for processing purposes.

95. If a control total were to be computed on each of the following data items, which would best be
identified as a hash total for a payroll IT application?
a. Gross wages earned.
b. Employee numbers.
c. Total hours worked.
d. Total debit amounts and total credit amounts.

96. While performing a substantive test of details during an audit, the auditor determined that the
sample results supported the conclusion that the recorded account balance was materially
misstated. Which of the following is not likely to be an acceptable reaction to this discovery?
a. Perform expanded audit tests in the relevant areas
b. Increase detection risk in the relevant areas
c. Increase the sample size
d. Take no action until tests of other audit areas are completed

97. When selecting a stratified sample, the sample size is:

a. determined for the unstratified population and then apportioned to each stratum.
b. determined for each stratum and selected from that stratum.
c. determined for each stratum and selected randomly from the entire unstratified
population.
d. always larger than if unstratified sampling had been used.
98. In monetary-unit sampling, the values of the estimated likely maximum misstatements are
referred to as the:
a. point estimates.
b. precision intervals.
c. confidence intervals.
d. misstatement bounds.

99. When using monetary-unit sampling, evaluating the likelihood of unrecorded items in the
population is:
a. unnecessary.
b. impossible.
c. possible but difficult.
d. an automatic outcome of the process.

100. Acceptable risk of incorrect rejection affects auditors action only when
they conclude that a population is:
a. fairly stated.
b. acceptable.
c. not fairly stated.
d. acceptable after certain adjustments