INSTRUCTIONS: Select the best answer for each of the following questions. Mark only one answer for each item on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Erasures will render your examination answer sheet INVALID. GOODLUCK!

1.An initial audit requires more audit time to complete than a recurring audit. One of the reasons for this is that

a. new auditors are usually assigned to an initial audit.b. predecessor auditor need to be consumed.c. the client’s business, industry and internal control are unfamiliar to the auditor and

need to be carefully studied.d. a larger proportion of customer accounts receivable need to be confirmed on an initial audit.

2. The nature, extent of planning will vary according to the following, excepta. size of the entityb. complexity of the entityc. change in circumstancesd. all of the above will affect the nature and extent of planning

3. The following are the matters to be considered by the auditor in establishing the overall audit strategy, except

a. Determining the characteristics of the engagementb. Considering the important factors that will determine the focus of the engagementc. Computation of audit feesd. Ascertaining the reporting objectives of the engagement

4. The overall audit plan includes:a. a description of the nature, timing and extent of planned risk assessment procedures sufficient to assess the risk of material misstatement.b. a description of the nature, timing and extent of planned further audit procedures at

the assertion level for each material class of transactions, account balances and disclosuresc. both a and bd. neither a nor b

5. Determining for the materiality level for the financial statements as a whole requires the exercise of professional judgment. A percentage is often applied to a chosen benchmark as a starting point in that determination. Factors that may affect the identification of an appropriate benchmark include the following:

a. The elements of the financial statements (e.g., assets, liabilities, equity, income and expenses)

b. Whether there are items on which the attention of the users of the particular entity’s financial statements tends to be focused (e.g., for the purpose of evaluating financial performance users may tend to focus on profit, revenue or net assets);

c. The nature of the entity, where the entity is at in its life cycle, and the industry and economic environment in which the entity operates;

d. All of the above

6. The materiality level for the financial statements as a whole (or the materiality for a particular class of transactions, account balance or disclosure, if applicable) may need to be revised as a result of the following

a. a change in circumstances that occurred during the auditb. new information c. a change in the auditors understanding of the entity and its operations as a result of performing further audit procedures.d. all of the above

7. In which of the following situations would materiality be least likely considered critical?a. A decision of whether the auditor has to obtain a representation letter from the management.b. In determining the nature, timing, and extent of audit procedures.c. A decision of whether to modify the audit opinion.d. Evaluating the effect of misstatements.

8. Which of the following statements about internal control is correct?a. Properly maintained internal controls reasonably assures that collusion among employees cannot occur.b. Establishing and maintaining internal control is the internal auditor’s responsibilityc. Exceptionally strong control allows the auditor to eliminate substantive test of details.d. The cost-benefit relationship should be considered in designing internal controls.

9. The auditor should perform which of the following as risk assessment procedure?a. Inquiry and observation c. Recalculationb. Confirmation d. Reperformance

10. A potential business risk created by industry developments may most likely includea. Increased product liabilityb. Increased legal exposurec. The entity does not have the personnel or expertise to deal with the changes in industry.d. Loss of financing due to the entity’s inability to meet financing requirements.

11. Risk assessment processa. Consists of the policies and procedures that help ensure that management directives are carried out.b. Includes the governance and management functions and the attitudes, awareness,

and actions of those charged with governance and management concerning the entity’s internal control and its importance in the entity.

c. Is the entity’s process for identifying business risks relevant to financial reporting objectives and deciding about actions to address those risks, and the results thereof.

d. Consists of the procedures and records established to initiate, record, process, and report entity transactions (as well as events and conditions) and to maintain accountability for the related assets, liabilities, and equity.

12. Which of the following is appropriate about risk assessment?a. Detection risk is eliminated if an auditor were to examined 100 percent of the account balance or class of transactionsb. There is an inverse relationship between detection risk and the combined level of

inherent and control risk.c. The assessed level of inherent and control risk can be sufficiently low, thus resulting to eliminating the need for substantive tests.d. Audit risk may be more appropriately determined by assessing inherent and control

risk separately.

13. An identified and assessed risk of material misstatement that in the auditor’s judgment require special audit considerations

a. Business Risk c. Significant Riskc. Inherent Risk d. Sampling Risk

14. The auditor should determine overall responses to address the risk of material misstatements at the financial statement level. Such responses most likely include

a. Assigning less experienced staff.b. Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating audit evidence.

c. Performing predictable further audit proceduresd. Performing substantive procedures at an interim date instead of at period end.

15. Which of the following are considered further audit procedures that may be designed after assessing the risk of material misstatement?

Substantive Test of Details Risk assessment Proceduresa. Yes Yesb. Yes Noc. No Yesd. No No

16. An advantage of using statistical over non-statistical sampling methods in test of controls is that the statistical methods

a. Can more easily convert the sample into a dual-purpose test useful for substantive testing.

b. Eliminate the need to use judgment in determining appropriate sample sizes.c. Afford greater assurance than a non-statistical sample of equal size.d. Provide an objective basis for quantitatively evaluating sample risk.

17. The risk that the auditor does not recognize misstatements or deviations included in the sample for what they are

a. Sampling Risk c. Statistical Samplingb. Confidence Level d. Non-Sampling Risk

18. At times a sample may indicate in the case of a test of controls, that controls are less effective than they actually are. This situation illustrates the risk of

a. Over-reliance c. Incorrect precisionb. Under-reliance d. Incorrect rejection

19. At times a sample may indicate in the case of a test of details that a material misstatement does not exist when in fact it does. This situation illustrates the risk of

a. Incorrect rejection c. Over relianceb. Incorrect acceptance d. Under reliance

20. When sampling for attributes, which of the following would decrease sample size? a. b. c. d.

Operating Effectivenessof Controls Increase Decrease Increase Decrease

Tolerable rate of deviation Decrease Increase Increase Increase

Expected Control Deviation Increase Decrease Decrease Decrease

Required level ofAssurance Decrease Increase Increase Decrease

21. The expected population deviation rate of client billing errors is 3%. The auditor has established a tolerable rate of 5%. In the review of the client invoices, the auditor should use

a. Stratified Sampling c. Discovery samplingb. Variable sampling d. Attribute Sampling

22. In examining cash disbursements, an auditor plans to choose a sample using systematic selection with a random start. The primary advantage of such a systematic selection is that population items

a. That includes irregularities will not be overlooked when the auditor exercises compatible reciprocal options.b. May occur in a systematic pattern, thus making the sample more representative.c. May occur more than once in a sample.

d. Do not have to be prenumbered in order for the auditor to use the technique.

23. Which of the following statements that relates to subsequent events is not appropriately described?

a. The auditor is expected to conduct a continuing review of all matters to which previously applied procedures have provided satisfactory conclusions.b. The auditor should consider the effect of subsequent events on the financial statements and on the auditor’s report.c. The procedures to identify events that may require adjustments of, or disclosure in, the financial statements would be performed as near as practicable to the date of the

auditor’s report.d. The procedures that are designed to obtain sufficiently appropriate audit evidence that all events up to the date of the auditor’s report that may require adjustments of, or disclosure in, the financial statements are in addition to routine procedures which may be applied to specific transactions.

24. Which of the following is least likely a procedure that would be performed by the auditor near the auditor’s report date?

a. Reading the minutes of the meetings of shareholders, the board of directors and audit executive committees held throughout the audit year.

b. Reading the entity’s latest available interim financial statements.c. Inquiring of management as to whether any subsequent events have occurred which

might affect the financial statements.d. Reviewing the procedures that management has established to ensure that subsequent events are identified.

25. The auditor has no obligation to perform any audit procedures regarding the financial statements after the date of the auditor’s report. However, when, after the date of tha auditor’s report but before the date the financial statements are issued, the auditor becomes aware of a fact which may materially affect the financial statements, the auditor shall:I. Determine whether management will amend the financial statements.II. Discuss the matter with managementIII. Determine whether the financial statements need amendment

a. I, II, and III c. II, III, and Ib. II, I, and III d. III, I, and II

26. In evaluating the management’s assessments of the entity’s ability to continue as going concern, he should consider the following, except

a. The Independence of the managementb. The process that management has followed to make its assessmentc. The assumptions on which the assessment is based and management’s plan for future

action.d. Whether the assessment has taken into account all relevant information of which

the auditor is aware of as a result of the audit procedures.

27. Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity’s ability to continue as going concern?

a. Significant related party transactions are pervasiveb. Usual trade credit from suppliers is deniedc. Arrearages in preferred stock dividends are paidd. Restrictions on the disposal of principal assets are present

28. When events or conditions have been identified to cast significant doubt on the entity’s ability to continue as going concern, the auditor should

a. Consider reassessing control risk at maximumb. Consider the issuance of disclaimer of opinion due to scope limitation

c. Review management plans for future actions based on its going concern assessmentsd. Report the matter to the board of directors and stockholders

29. Which of the following statements is true with respect to management representations?a. Management representations are dated as of the balance sheet date.b. Management representations may serve as a substitute for various types of substantive proceduresc. Management representation are signed by the auditor and delivered to the client’s

officersd. Management representations are used to corroborate information obtained during

the audit.

30. An auditor accepted an engagement to audit the 2008 financial statements of RMV Corporation and began fieldwork on September 30, 2008. RMV gave the auditor the 2008 financial statements on January 7,2009. The auditor completed the fieldwork and simultaneously obtains approval of the financial statements by the management on February 10,2009. The auditor delivered the report on February 16, 2009. The management representation letter should normally be dated on

a. December 31,2008 c. February 10, 2009b. January 17, 2009 d. February 16, 2009

31. When relevant parties do not provide the general or specific written representations requested by the auditor, the auditor shallI. Reconsider the assessment of the integrity of the management and, where appropriate, those charged with governance II. Take appropriate actions, including determining the possible effects on the opinion in the auditor’s report III. Ask for the reasons

a. I, II, and III c. III, II, and Ib. II, III, and I d. III, I, and II

32. The standard audit report includes all of the following except a (an)a. Opinion paragraphb. Auditor’s responsibilityc. Basis for qualified opinion paragraphd. Introductory paragraph

33. The element of the auditor’s report that distinguishes it from reports that might be issued by others is

a. Title c. Addresseeb Auditor’s Signature d. Opinion paragraph

34. The Introductory paragraph in the auditor’s report should identify the entity whose financial statements have been audited. The Introductory paragraph should include the following, except

a. Identify the title of each of the financial statements that comprise the complete set of financial statements

b. Refer to the summary of significant accounting policies and other explanatory notes. c. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statementsd. Specify the date and period covered by the financial statements

35. Which of the following circumstances requires the modification of both the auditor’s responsibility and the auditor’s opinion paragraphs of the auditor’s report as indicated in PSA 705?

a. Limitation on the scope of audit that results to qualified opinion

b. Auditor’s disagreement with the client management accounting policies that requires qualified opinion. c. Inadequate disclosures that requires qualified opinion d. All of the above

36. In qualified, adverse, or disclaimer report, the auditora. has not performed a satisfactory auditb. is not satisfied that the financial statements are presented fairlyc. Either of the two responses d. None of the two responses

37. Identify the appropriate type of opinion to issue when the auditor is satisfied that there is remote likelihood of a loss resulting from the resolution of an uncertainty.

a. Unqualified opinionb. Unqualified opinion with a separate explanatory paragraph.c. Qualified opinion or disclaimer of opinion, depending on whether the uncertainty is

adequately disclosed.d. Qualified opinion or disclaimer of opinion, depending upon the materiality of the

loss.

38. The following statements relates to modifications of the standard audit report:I. When an auditor is unable to reach conclusion as to the propriety of management’s

representations, he should consider issuing either a qualifying opinion or a disclaimer of opinion.

II. When restrictions that significantly limit the scope of the audit are imposed by the client, the auditor generally should issue an adverse opinion.

III. Qualifying language may be added to the opinion paragraph of the auditor’s report, but is never added to the auditor’s responsibility paragraph.

IV. A change in accounting principle from one generally accepted accounting principle to another would not prevent the issuance of an unqualified audit report provided the auditor approved the changed in advance and the effects of the change

were set forth in a note to the financial statements.

State whether the foregoing statements are true or false.a. All of the following statements are true.b. Only one of the statements are true.c. Only two of the statements are true.d. Three of the statements are true.

39. Assume that Mr. Swabe, a principal auditor, decided to refer in his report the examination of another auditor, he is required to disclose the

a. Portion of the financial statements examined by the other auditor.b. Name of the other auditor.c. Nature of his inquiry into the other auditor’s professional standing and extent of his review of the auditor’s work.d. Reasons why he is unwilling to assume responsibility for the other auditor’s work.

40. A CPA engaged to examine financial statements observes that the accounting for a certain material item is not in conformity with PFRS, and that this fact is prominently disclosed in a note to the financial statements. The CPA does not agree with this departure from PFRS and should

a. Not allow the accounting treatment for this item to affect the type of opinion because the deviation from PFRS was disclosed.b. Express an unqualified opinion and add an explanatory paragraph emphasizing the

matter by reference to the footnote.

c. Qualify the opinion because of the deviation from PFRS.d. Disclaim an opinion.

41. An auditor who qualifies an opinion because of an insufficiency of evidence should describe the limitation in the basis for qualified opinion paragraph. The auditor should also modify in the

Introductory Opinion Managements responsibilityparagraph paragraph paragraph

a. Yes No Yesb. No Yes Noc. Yes Yes Nod. No Yes Yes

42. Due to material inadequacies in an clients accounting records, the auditor was not able to satisfy himself as to the cash balance. In case, the auditor may issue:

a. A disclaimer of opinionb. A disclaimer of opinion with piecemeal opinion on cash.c. An adverse opiniond. An adverse opinion with a piecemeal opinion on cash.

43. Under which of the following circumstances would a disclaimer of opinion not be appropriate?

a. The chief executive officer is unwilling to sign the management representation letter.b. The auditor is unable to determine the amounts associated with an employee fraud

scheme.c. Management does not provide reasonable justification for a change in accounting

principles.d. The client refuses to permit the auditor to confirm certain accounts receivable or

apply alternative procedures to verify their balances.

44. The documentation an auditor prepares in a financial statements audit is:a. Owned by governmentb. Owned by audit clientc. The principal support for audit conclusionsd. Retained in the auditor’s office until a change in auditors

45. Which of the following is not a purpose of audit working papers?a. To coordinate the examination.b. To assist in the preparation of the audit report.c. To support the financial statements d. To provide evidence of the audit worked performed.

46. Which of the following procedures would an accountant least likely perform during an engagement to review the financial statements of a nonpublic entity?

a. Observing the safeguards over access to and use of assets and records.b. Comparing the financial statements with anticipated results in budgets and forecasts.c. Inquiring of management about actions taken at the board of directors’ meetings.d. Studying the relationships of financial statement elements expected to conform to

predictable patterns.

47. Which of the following procedures is not included in a review engagement on non-public 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. A study and evaluation of internal control structure.

48. A CPA has been engaged to compile financial statements for a nonpublic client. Which of the following statements best describes this engagements?

a. The CPA must perform the PSA’s necessary to determine that the statements are in conformity with PFRS’s.

b. The CPA is performing an accounting service rather than an examination of financial statements.c. The financial statements are representations of both management and the CPA.d. The CPA may prepare the statements from the books but may not assist in adjusting and closing the books.

49. Which of the following engagements do not require independence?I. Agreed upon proceduresII. CompilationIII. AuditIV. Reviewa. I and IV c. I, II and IVb. I and II d. I, II, III and IV

50. A summary of findings rather than assurance is most likely to be included in a. Agreed upon procedures report.b. Compilation report.c. Examination reportd. Review report

51. Given one or more hypothetical assumptions, a responsible party may prepare, to the best of its knowledge and belief, an entity’s expected financial position, results of operations, and cash flows. Such prospective financial statements are known as

a. Pro forma financial statements b. Financial projectionsc. Partial presentationsd. Financial forecasts

52. When a client’s company does not maintain its own stock records, the auditor should obtain written confirmation from the transfer agent and the registrar concerning:

a. Restrictions on the payments of dividendsb. The number of shares issued and outstandingc. Guarantees of preferred stock liquidation valued. The number of shares subject to agreements to repurchase

53. To establish the existence and ownership of a long term investments in common stock of a publicly traded company an auditor ordinarily performs a security count or

a. Relies on the client’s internal accounting controls, if the auditor’s procedures are being applied as prescribed.

b. Confirms the number of shares owned that are held by an independent custodian.c. Determine the market price per share at the balance sheet date from published quotation.d. Confirms the number of shares owned with the issuing company.

54. Negative confirmation requests may be used in the following cases, except a. The assessed level of inherent and control risk is lowb. A large number of small balances is involved c. A substantial numbers of errors is not expectedd. The auditor has reason to believe that respondents will disregard this requests.

55. When goods are received, the receiving clerk should match the goods with the a. Purchase orders and requisition

b. Vendor’s invoice and receiving report c. Vendor’s shipping document and purchase orderd. Receiving report and the vendor’s shipping documents.

56. In order to achieve the objectives of the accountancy profession, professional accountants have to observe a number of prerequisites or fundamental principles.The fundamental principles include the following, except

a. Objectivityb. Credibilityc. Integrityd. Professional competence and due care

57. If the firm is involved in the preparation of accounting records or financial statements and those financial statements are subsequently the subject matter of an audit engagement of the firm, this will most likely create

a. Self-interest threat c. Intimidation threatb. Self-review threat d. Familiarity threat

58. Which of the following least likely create a “self-interest” threat?a. Undue dependence on total fees from assurance clientb. Concern about the possibility of losing the engagementc. Having a close business relationship with an assurance clientd. Pressure to reduce inappropriately the extent of work performed in order to reduce

fees

59. Using the same lead engagement partner on an audit over prolonged period may most likely create

a. Self-interest threat c. Advocacy threatb. Self-review threat d. Familiarity threat

60. Safeguards in the work environment, include the followingI. A corporate governance structure, such as an audit committee, that provides appropriate oversight and communications regarding a firm’s services.II. Continuing education requirementsIII. Legislation governing the independence requirements of the firm.IV. Policies and procedures that emphasize the assurance client’s commitment to fair

financial reporting.V. The assurance client has competent employees to make managerial decision.

a. III, IV, and V only c. I, II, and III onlyb. IV and V only d. I and III only

61. A CIS environment least likely affects a. The overall objective and scope of the auditb. The procedures followed by the auditor in obtaining a sufficient understanding of the

accounting and internal control systems.c. The consideration of inherent risk and control risk through which the auditor arrives

at the risk assessment.d. The auditor’s design and performance of tests of controls and substantive procedures appropriate to meet the audit objective.

62. An auditor anticipates assessing control risk at a low level in a computerized environment. Under these circumstances, on which of the following procedures would the auditor initially focus?

a. Programmed control proceduresb. Output control proceduresc. Application control procedures

d. General control procedures

63. Occurs when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised

a. Self-interest threat c. Advocacy threatb. Self-review threat d. Familiarity threat

64. If an auditor is using test data in a client’s computer system to test the integrity of the systems output, which of the following types of controls is the auditor testing?

a. General Controls c. User Controlsb. Quantitative test Controls d. Application Controls

65. Systems analyst are the personnel within an organization who are responsible for the development of the company’s information system. Which one of the following functions are least likely to be performed by a system analyst?

a. Design of computer applicationsb. Preparations of specifications for computer programmingc. Developing, coding, and testing computer programsd. Examining user information requirements.

66. A company’s labor distribution report requires extensive corrections each month because of labor hours charged to inactive jobs. Which of the following data processing input controls appears to be missing?

a. Completeness test c. Limit testb. Validity test d. Control total

67. The following are the functions of the Board of AccountancyI. Determination of the minimum requirements leading to the admission of candidates to the CPA examinations.II. Issuance, suspension, revocation or reinstatement of the Certificate of registration for

the practice of accountancy.III. Regulation of the practice of accountancyIV. Supervision over the accredited professional organization of CPA’sV. Preparations of the contents of the CPA licensure examinations and rating of the

examination papers.VI. Appointment of the members of AASC and FRSCVII. Preparation, adoption, issuance or amendment of the syllabi of the subjects for

examinations.

a. I, II, III, V, VI, and VII onlyb. I, II, III, V, and VII only c. I, II, III, IV, V, and VII onlyd. I, II, III, IV, V, VI, and VII

68. The following statements relate to RA 9298 and its IRRs. Which of the statements is (are) true?

I. Those who failed to renew professional licenses for a period of five (5) continuous years from initial registration, or from last renewal shall be declared delinquent.

II. The seal of a CPA shall be in circular form with a smaller circle within and in the upper portion of the space between the circles shall be engraved the name of the individual CPA, firm or partnership as the case may be, the lower portion thereof shall be engraved the letters “CPA” and in the middle of the smaller circle shall be engraved the CPA registration number of the individual CPA, proprietor of the firm and the signing partner of the partnership.

III. A member of the Board of Accountancy should not be connected to any CPA review school or University offering courses leading to admission for the CPA Board Examinations, whether directly or indirectly.

IV. Any candidate who fails in two (2) complete Certified Public Accountant Board Examination shall be disqualified from taking another set of examinations unless he/she submits evidence to the satisfaction of the Board that he/she enrolled in and completed at least twenty-four (24) units of subject given in the licensure examination.

V. Within ninety (90) days after the affectivity of RA 9298, the Board subject to the approval of the PRC and in coordination with APO, shall adopt and promulgate such rules and regulations to carry out the provisions of RA 9298 and which shall take effect fifteen (15) days following its publication in the Official Gazette or in any major daily newspapers of general circulation.

a. I, II, and V only c. I, III, IV and V onlyb. I, III, and V only d. I, II, III, IV and V only

69. Which statements is (are) correct regarding CPE requirements for renewal of Professional License?

I. The total CPE credit units required for CPA’s shall be sixty (60) units for three (3) years, provided that a minimum of fifteen (15) credit units shall be earned in each year.

II. Any excess credit units in one year may be carried over to the succeeding years within the three year period.III. Excess credit units earned shall not be carried over to the next three year period

without exception.IV. A registered professional who is working abroad shall be permanently exempted

from compliance with the CPE requirements during his/her stay abroad, provided that he/she is has been out of the country for at least two years immediately prior to the date of renewal.

a. I, II, and III only c. I, II, and IV onlyb. I and IV only d. I and II only

70. Under the IRR of RA 9298, if a partner in a two-member partnership dies, the surviving partner may continue to practice as an individual under the existing firm title which includes the deceased partner’s name

a. For a period of time not to exceed five yearsb. For a period of time not to exceed two years c. Indefinitelyd. Until the partnership payout to the deceased partner’s estate is terminated.

71. The standards of Auditing and Assurance Standards Council include Philippine standards on:I. Quality Control II. Tax EngagementsIII. Review EngagementsIV. Assurance EngagementsV. Consulting Engagements

a. I, II, and III only c. I, III, and IV onlyb. I , II, and IV only d. I, II, III and IV and V

72. Which statements is (are) correct regarding the pronouncements of AASC?I. The exposure period allowed for each exposure draft of standards and statements to

be considered by the organizations and persons to whom it is sent for comment is generally ninety (90)days.

II. Each final standard and statements shall be submitted to the PRC through the BOA for approval after which the pronouncements become operative from the effective date stated therein.

III. Practice Statements will have the same authority as the engagements.a. I and II only c. I and III onlyb. II and III only d. I, II and III

73. Which statement is correct regarding assurance engagements?

a. It is an engagement in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party

about the outcome of the evaluation or measurement of a subject matter against criteria.b. Not all engagements performed by professional accountants are assurance engagements.c. Whether a particular engagement is an assurance engagement will depend upon whether it exhibits all the following elements- a three party relationship, a subject matter,

suitable criteria, sufficient appropriate evidence and a written assurance report.d. All the above statements are correct

74. The characteristics for determining whether criteria are suitable include: a. b. c. d.

Relevance Yes Yes Yes YesReliability Yes Yes Yes YesCompleteness Yes Yes No YesNeutrality Yes No No YesComparability Yes Yes No NoUnderstandability Yes No No Yes

75. The framework for auditing and related services as addressed by PSA excludesa. Review c. MASb. Compilation d. Agreed Upon Procedures

76. An audit of financial statements is a non assurance engagement. The auditor is engaged for purposes of expressing an opinion designed to enhance the degree of confidence of intended users in the financial statements.

In conducting the Audit so as to achieve its objective, the overall objective of the independent auditor is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatements, whether due to fraud or error, and to report on the financial statements in accordance with the auditor’s findings.

a.True, True c. False, Trueb. False, False d. True, False

77. The auditor shall plan and perform an audit with an attitude of professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated.

The auditor shall not represent compliance with PSAs unless the auditor has complied with majority of the PSAs relevant to the audit.

a. True, True c. False, Trueb. False, False d. True, False

78. Management is not responsible for:a. The audited financial statementsb. Preparing spreadsheets for the auditorc. The auditor’s reportd. Compliance with laws and regulations

79. Which of the following is (are) elements of a CPA firm’s quality control that should be considered in establishing its quality control policies and procedures?

Supervision Monitoring Directiona. YES NO YESb. NO YES NOc. NO NO NOd. YES YES YES

80. The engagement partner should take responsibility for the direction, supervision, and performance of the audit engagement in compliance with professional standards and regulatory and legal requirements, and for the auditors report that is issued to be appropriate in the circumstances. Supervision includes the following, except.

a. Tracking the progress of an audit engagementb. Addressing significant issues arising during the audit engagement, considering their

significant, and modifying the planned approach appropriately.c. Informing the members of the engagements team of their responsibilitiesd. Identifying matters for consultation or consideration by more experienced engagements team members during the audit engagements.

81. Which of the following will an auditor least likely discuss with the former auditors of a potential client prior to acceptance?

a. Integrity of managementb. Fees charged for servicesc. Disagreements with management regarding accounting principlesd. Reasons for changing audit firms

82. Assuming a recurring audit, in which of the following situations would the auditor be unlikely to send a new engagement letter to the client?

a. A recent change in partner and/or staff involved in the audit engagement.b. A change in the terms of engagementc. A recent change in the clients managementd. A significant change in the nature or size of the clients business

83. Which of the following is not included in an engagement letter?a. Limitation in the scope of examination as imposed by clientb. Limitation in the scope of examination as imposed by circumstancesc. Restrictions on auditor’s liability, when such possibility existsd. Satisfactory title to assets, liens on assets and assets pledged

84. Which of the following is not a likely response when an auditor has determined that a misstatements is, or may be, the result of fraud, and has determined that the effect on the financial statements may be material?

a. Consider the implications for other aspects of the auditb. Discuss the matter and approach to further investigation with an appropriate level

of managementc. Attempt to obtain additional evidence to determine whether material fraud has occurred or is likely to have occurredd. Suggest that the client contact a law enforcement authority to report the possible fraud.

85. Which of the following is not typically a characteristics of fraud?a. Collusion c. Falsified documentationb. Concealment d. Unintentional

86. When is the auditor responsible for detecting fraud?a. When the fraud did not result from collusionb. When the third parties are likely to rely on the client’s financial statementsc. When the clients system of internal control is judged by the auditor to be inadequate.d. When the application of PSA’s would have uncovered the fraud.

87. When the auditor believes a misstatements is or may be the result of fraud but that the effect of the misstatements is not material to the financial statements, which of the following steps is required?

a. Consider the implications for other aspects of the auditb. Resign from the audit

c. Commence a fraud examinationd. Contact regulatory authorities

88. The following are examples of circumstances that may indicate the possibility that the financial statements may contain a material misstatements resulting from fraud, except,

a. Unwillingness by management to permit the auditor to meet privately with those charged with governance

b. Accounting policies that appear to be inconsistent with industry normsc. Frequent changes in accounting estimates that do not appear to result from change

circumstancesd. Tolerance of violations of the entity’s Code of Conduct

89. Which statement is incorrect regarding the auditors consideration of laws and regulations in an audit of financial statements?

a. It is the responsibility of management, with the oversight of those charged with governance, to ensure that the entity’s operations are conducted in accordance with

laws and regulations, including compliance with laws and regulations that determine the form or content of the entity’s financial statements. This includes responsibility for the prevention and detection of non-compliance with laws and regulations.

b. In order to plan the audit, the auditor should obtain a specific understanding of the legal and regulatory framework applicable tom the entity and the industry and how the entity is complying with that framework

c. Non-compliance includes transactions entered into by, or in the name of the entity, or on its behalf, by those charged with governance, management or employees.

d. The auditor shall document identified or suspected noncompliance with laws and regulations and the results of discussion with management, and where applicable, those charged with governance and other parties outside the entity.

90. When planning the audit, if the auditor has no reason to believe that non-compliance with laws and regulations exist, he should

a. Make inquiries of management regarding their policies and their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities.b. Still include some audit procedures designed specifically to uncover illegal acts.c. Ignore the possibility of illegal acts to occurd. Include audit procedures which have a strong probability of detecting illegal acts.

91. According to PSA 250 Redrafted (Consideration of Laws and Regulations in an Audit of Financial Statements), the following are indications that non-compliance may have occurred, except

a. Investigation by government departments or payments of fines or penaltiesb. Adverse media commentc. Unauthorized transactions or improperly recorded transactions d. Purchasing at prices equal to its market price

92. Which of the following is correct?a. The evidence that the auditor accumulates remains the same from audit to audit, but the general objectives vary, depending on the circumstances.b. The general audit objectives remain the same from audit to audit, but evidence varies,

depending on the circumstances.c. The circumstances may vary from audit to audit, but the evidence accumulated remains the samed. The general audit objectives may vary from audit to audit, but the circumstances

remain the same.

93. Which of the following is a general principles relating to the reliability of audit evidence?

a. Audit evidence obtained from indirect sources rather than directly is more reliable than evidence obtained directly by the auditor.

b. Audit evidence provided by photocopies is more reliable than that provided by facsimilesc. Audit evidence obtained from knowledgeable independent sources outside the client

company is more reliable than audit evidence obtained from non- independent sourcesd. Audit evidence provided by original documents is more reliable than audit evidence generated through a system of effective controls.

94. Which of the following is not a basic procedure used in an audit?a. Risk assessment proceduresb. Substantive proceduresc. Test of Controlsd. Test of direct evidence

95. Each of the following might by itself, form a valid basis for an auditor to decide to omit a test, except for the,

a. Relative risk involvedb. Degree of reliance on the relevant internal controlsc. Difficulty and expense involved in testing a particular itemd. Relationship between the cost of obtaining evidence and its usefulness

96. Reperformancea. Consists of looking at process or procedures being performed by othersb. Consist of seeking information of knowledgeable persons, both financial and non-

financial, throughout the entity or outside the party.c. Is the process of obtaining a representation of information or of an existing condition directly from a third party.d. Is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control.

97. Assertions are representations of management that are embodied in financial statements components. They can be either explicit or implicit. Which of these assertions is not about valuation or allocation?

a. Property is recorded at historical cost b. Trade accounts receivable in the balance sheet are stated at net realizable valuesc. Notes payable in the balance sheet include all such obligations of the entity.d. Property cost is systematically allocated to appropriate accounting period.

98. Analytical procedures which means the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or which deviate from predicted amounts are not required to be applied

a. At the planning stage of the auditb. As substantive proceduresc. Overall review stage of the auditd. All of the above

99. Analytical procedures are a. Substantive test designed to evaluate a system of internal controlb. Test of controls designed to evaluate the validity of management’s representation

letter.c. Substantive test designed to evaluate the reasonableness of financial informationd. Test of controls designed to evaluate the reasonableness of financial information

100. The auditor notices significant fluctuations in key elements of the company’s financial statements. If management is unable to provide an acceptable explanation, the auditor should

a. Withdraw from the engagement

b. Consider the matter a scope limitationc. Perform additional audit procedures to investigate the matter furtherd. Intensify the examination with the expectation of detecting management fraud

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