PRTC Final Pre-board Exam in Auditing Theory

1. The independent auditor lends credibility to client financial statements by

a. Stating in the auditors management letter that the examination was made in accordance with
generally accepted auditing standards
b. Maintaining a clear-cut distinction between managements representation and the auditors
representations
c. Attaching an auditors opinion to the clients financial statements
d. Testifying under oath about client financial information
2. The independent auditors opinion helps establish the credibility of the financial statements.
The independent auditors opinion is an assurance as to the efficiency or effectiveness with which
management has conducted the affairs of the entity.
a. The first statement is false, the second statement is true
b. The first statement is true, the second statement is true
c. The first statement is false, the second statement is false
d. The first statement is true, the second statement is false
3. Fraudulent financial reporting involves intentional misstatements or omissions of amounts or
disclosure in the financial statements to deceive financial statement users. Fraudulent financial
reporting most likely involve
a. A mistake in gathering or processing data from which financial statements are prepared
b. An incorrect accounting estimate arising from oversight or misinterpretation of facts
c. Intentional misapplication of accounting principles relating to measurement, recognition,
classification, presentation or disclosure
d. Embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for
goods and services not received
4. Certain management characteristics may heighten the auditors concern about the risk of material
misstatements. The characteristic that is least likely to cause concern is that management
a. Operating and financing decisions are made by numerous individuals
b. Commits to unduly aggressive forecasts
c. Has an excessive interest in increasing the entitys stock price through use of unduly
aggressive accounting practices
d. Is interested in inappropriate methods of minimizing earnings for tax purposes
5. Which of the following inquiries are auditors required to make of management regarding fraud?
a. Whether management has ever intentionally violated the securities law
b. Whether management has any knowledge of fraud that has been perpetrated on or within the
entity
c. Managements attitudes toward its employees
d. Auditors are not required to make inquiries of management relating to fraud
6. The regular examination of financial statements is not primarily designed to disclose fraud and other
irregularities although their discovery may result. Normal audit procedures are more likely to detect a
fraud arising from
a. Forgeries on company checks
b. Failure to record cash receipts for services rendered
c. Theft of inventories
d. Collusion on the part of several employees
7. Example of the type of information that may come to the auditors attention that may indicate that
noncompliance with laws or regulations has occurred least likely include
a. Payments for unspecified services or loans to consultants, related parties, employees or
government employees
b. Payments for goods or services made to the country from which the goods or services
originated
c. Purchasing at prices significantly above or below market price
d. Sales commissions or agents fees that appear excessive in relation to those ordinarily paid by
the entity or in its industry or to the services actually received
8. Detection of noncompliance, regardless of materiality, requires considerations of the following:
a. b. c. d.
Integrity of management Yes Yes Yes No
Possible effect on other aspects of the audit Yes Yes No Yes
Legal determination of the act of noncompliance Yes No Yes No
9. In pursuing a CPA firms quality control objectives, a CPA firm may maintain records indicating
which partners or employees of the CPA firm were previously employed by the CPA firms clients.
Which quality control objective would this be most likely to satisfy?
a. Professional relationship c. Independence
b. Supervision d. Advancement
10. Who should take responsibility for the overall quality on each audit engagement?
a. Engagement quality control review c. Engagement team
b. Engagement partner d. CPA firm
11. Which of the following is least likely a source of information about a potential new audit client?
a. The predecessor auditor c. Industry journal
b. Management d. The new auditors permanent file
12. It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably
before
a. The performance of substantive testing c. The completion of audit
b. The commencement of the engagement d. Before the issuance of audit report
13. On recurring audits, the auditor may decide not to send a new engagement letter each year. However,
he might decide to send a new letter when
a. There is a change in the auditors who will assist in the conduct of the audit.
b. There is a change in the financial reporting framework.
c. There is a change in the clients accounting policy for inventories.
d. There is a change in the estimated life of the clients property and equipment.
14. Which of the following is not included in an engagement letter?
a. Limitation in the scope of examination as imposed by client
b. Limitation in the scope of examination as imposed by circumstances
c. Restrictions on auditors liability, when such possibility exists
d. Satisfactory title to assets, liens on assets and assets pledged
15. Which of the following statements relating to the appropriateness of evidence is always true?
a. Evidence gathered by an auditor from outside an enterprise is reliable.
b. Accounting data developed under satisfactory conditions of internal control are more relevant
than data developed under unsatisfactory internal control conditions.
c. Oral representations made by management are not valid evidence.
d. Evidence gathered by auditors must be both reliable and relevant to be considered
appropriate.
16. Reperformance
a. Consists of looking at a process or procedure being performed by others
b. Consists of seeking information of knowledgeable person, 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 auditors independent execution of procedures or controls that were originally
performed as part of the entitys internal control
17. Assertions are representations of management that are embodied in financial statement components.
They can either be 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 value.
c. Notes payable in the balance sheet include all such obligations of the entity.
d. Property cost is systematically allocated to appropriate accounting period.
18. Several types of documentary evidence were received by the auditor, but of these only one is
considered most reliable.
 a. Working papers prepared by the chief accountant and reviewed personally by the VP for
finance.
b. A check issued by the treasurer with the payees endorsement, included with the statement
mailed by the bank directly to the auditor.
c. A delivery receipt issued by the shipping department, signed by the customer, with an
accompanying copy of the sale invoice.
d. Confirmation of the balance of accounts payable mailed by and returned directly to the
auditor.
19. 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 the evidence varies,
depending on the circumstances.
c. The circumstances may vary from audit to audit, but the evidence accumulated remains the
same.
d. The general audit objectives may vary from audit to audit, but the circumstances remain the
same.
20. Which of the following relates to rights and obligations assertion?
a. The entity holds or controls the rights to assets, and liabilities are the obligations of the entity.
b. All assets, liabilities and equity interests that should have been recorded have been recorded.
c. Transactions and events that have been recorded have occurred and pertain to the entity.
d. Assets, liabilities and equity interests are included in the financial statements at appropriate
amounts.
21. Analytical procedures used in planning an audit focus on
a. Understanding the business and in identifying areas of potential risk
b. Detecting material misstatements in the financial statements
c. Obtaining audit evidence about the suitability of design and effective operation of the
accounting and internal control systems
d. Whether the financial statements as a whole are consistent with the auditors knowledge of
the business
22. The auditor notices significant fluctuations in key elements of the companys 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 limitation
c. Perform additional audit procedures to investigate the matter further
d. Intensify the examination with the expectation of detecting management fraud
23. Which of the following is not a typical analytical review procedure?
a. Study of relationships of financial information with relevant nonfinancial information
b. Comparison of financial information with similar information regarding the industry in which
the entity operates
c. Comparison of recorded amounts of major disbursements with appropriate invoices
d. Comparison of recorded amounts of major disbursements with budgeted amounts
24. An auditor obtains knowledge about a new clients business and its industry to
a. Make constructive suggestions concerning improvements to the clients internal control
b. Develop an attitude of professional skepticism concerning managements financial statement
assertions
c. Evaluate whether the aggregation of known misstatements causes the financial statements
takes as a whole to be materially misstated
d. Understand the events and transactions that may have an effect on the clients financial
statements
25. The nature and extent of planning will vary according to the following, except
a. Size of the entity
b. Complexity of the entity
c. Auditors experience with the entity
d. All of the above will affect the nature and extent of planning
26. 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 disclosures
c. Both a and b
d. Neither a nor b
27. The concepts of audit risk and materiality are interrelated and must be considered together by the
auditor. Which of the following is true?
a. Audit risk is the risk that the auditor may unknowingly express a modified opinion when in
fact the financial statements are fairly stated.
b. The phrase in the auditors standard report present fairly, in all material respects, in
conformity with generally accepted accounting principles indicates the auditors belief that
the financial statements taken as a whole are not materially misstated.
c. If misstatements are not important individually but are important in the aggregate, the
concept of materiality does not apply.
d. Material fraud but not material errors cause financial statements to be materially misstated.
28. In a financial statement audit, inherent risk represents the
a. Susceptibility of an account balance to error that could be material
b. Risk that error could occur and not be prevented or detected by the internal control structure
c. Risk that error could occur and not to be detected by the auditors procedures
d. Risk that the auditor fails to modify materially misstated financial statements
29. Which of the following statements about internal control is correct?
a. Properly maintained internal controls reasonably assure that collusion among employees
cannot occur.
b. Establishing and maintaining internal control is the internal auditors responsibility.
c. Exceptionally strong control allows the auditor to eliminate substantive tests of details.
d. The cost-benefit relationship should be considered in designing internal controls.
30. Which of the following situations will normally result to decrease in the extent of audit procedures?
a. Increase in the risk of material misstatement
b. Increase in the degree of assurance the auditor plans to obtain
c. Increase in materiality level
d. All of the above
31. Which of the following is appropriate about risk assessment?
a. Detection risk is eliminated if an auditor were to examine 100 percent of the account balance
or class of transactions.
b. 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.
32. When an organization has strong internal control, management can expect various benefits. The
benefit least likely to occur is
a. Reduced cost of an external audit
b. Elimination of employee fraud
c. Improvement in the reliability and integrity of information for decision-making purposes
d. Some assurance of compliance with governmental regulations
33. The auditor should determine overall responses to address the risks of material misstatement 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 procedures
d. Performing substantive procedures at an interim date instead of at period end
34. Materiality should be considered by the auditor when
a. Determining the nature, timing and extent of auditors procedures
 b. Evaluating the effect of misstatements
c. Both a and b
d. Neither a nor b
35. The relationship between materiality and the level of audit risk is
a. Inverse b. Direct c. Parallel d. Unrelated
36. The likelihood of assessing control risk too high is the risk that the sample selected to test controls
a. Does not support the auditors planned assessed level of control risk when the true operating
effectiveness of the control structure justifies such an assessment
b. Contains misstatements that could be material to the financial statements when aggregated
with misstatements in other account balances or transactions classes
c. Contains proportionately fewer monetary errors or deviations from prescribed internal control
structure policies or procedures than exist in the balance or class as a whole
d. Does not support the tolerable error for some or all of managements assertion
37. Which of the following factors does an auditor generally need to consider in planning a particular
audit sample for a test of control?
a. Number of items in the population
b. Total peso amount of the items to be sampled
c. Acceptable level of risk of assessing control risk too low
d. Tolerable misstatement
38. 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 include 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
39. If all other factors specified in a sampling plan remain constant, changing the expected population
deviation rate from 1 percent to 2 percent would cause the required sample size to
a. Increase c. Decrease
b. Remain the same d. Become indeterminate
40. In substantive testing, which of the following would increase sample size?
a. b. c. d.
Assessment of inherent risk Increase Increase Increase Decrease
Reliance on internal control Increase Decrease Decrease Increase
Tolerable error Decrease Increase Decrease Increase
Expected error Increase Decrease Increase Decrease
Risk of incorrect acceptance Decrease Increase Decrease Increase
41. In measuring the total or average value of a population expressed in peso terms, auditors may use
statistical sampling as a tool to solve problems. A measure of the assurance that the true peso value of
the population neither exceeds the upper precision limit nor falls below the lower precision limit is
known as:
a. Standard deviation c. Statistical margin
b. Population curve d. Confidence level
42. The risk of assessing control risk too low (risk of overreliance) relates to
a. The efficiency of the audit c. The preliminary estimate of materiality
b. The effectiveness of the audit d. Tolerable error
43. Which of the following is not a subsequent events procedure?
a. Review available interim financial information.
b. Read available minutes of meetings of stockholders and directors.
c. Make inquiries with respect to the financial statements covered by the auditors previously
issued report if new information has become available during the current examination that
might affect that report
d. Discuss with officers the current status of items in the financial statements that were
accounted for on the basis of tentative, preliminary or inconclusive data
44. Which of the following may an auditor least likely consider a symptom of an entitys significant
going concern problems?
a. Significant recurring working capital deficiencies
b. Legal proceedings that might jeopardize the entitys ability to operate
c. A new government regulation imposes a change in accounting principle
d. A recurring default in meeting the entitys financial obligation
45. In evaluating the managements assessment of the entitys ability to continue as a going concern, he
should consider the following, except
a. The independence of the management
b. The process that management has followed to make its assessment
c. The assumptions on which the assessment is based and managements 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
46. An auditor accepted an engagement to audit the 2008 financial statement of RMV Corporation and
began fieldwork on September 30, 2008. RMV gave the auditor the 2008 financial statements on
January 17, 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, 2009
b. January 17, 2009 d. February 16, 2009
47. Which of the following matters would an auditor most likely include in a management representation
letter?
a. Communications with the audit committee concerning weaknesses in internal control
b. The completeness and availability of minutes of stockholders and directors meetings
c. Plans to acquire or merge with other entities in the subsequent year
d. Managements acknowledgement of its responsibility for the detection of employee fraud
48. The standard audit report includes all of the following except a (an)
a. Opinion paragraph c. Explanatory paragraph
b. Managements responsibility paragraph d. Opening paragraph
49. Which paragraph of an auditors standard report on financial statements should refer to Philippine
Financial Reporting Standards (PFRSs) and Philippine Standards on Auditing (PSAs)?
PFRSs PSAs
a. Opinion Auditors Responsibility
b. Opening Auditors Responsibility
c. Managements Responsibility Opinion
d. Opening Opinion
50. The following statements relate to modifications of the standard audit report:
I. When an auditor is unable to reach a conclusion as to the proprietary of managements
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 auditors report, but it is never
added to the auditors responsibility paragraph.
IV. A change in accounting policy from one generally accepted accounting principle to another would
not prevent the issuance of an unqualified audit report provided the auditor approved the change
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 statements are true c. Only two of the statements are true.
b. Only one of the statements is true. d. Three of the statements are true.
51. The introductory paragraph in the auditors report should identify the entity whose financial
statements have been audited and should state that the financial statements have been audited. The
introductory paragraph should also 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 notese
c. An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements
 d. Specify the date and period covered by the financial statements
52. When 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 and opinion
paragraph.
When 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 auditors responsibility
paragraph and opinion paragraph.
When 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.
a. First statement is correct, the second and third statements are not correct.
b. First and third statements are not correct; the second statement is correct
c. All of the above statements are not correct.
d. First and second statements are not correct; the third statement is correct.
53. During the course of his audit, a CPA determined that the companys inventories are stated at labor
cost, material cost and that portion of manufacturing overhead which varies directly with the volume
of output. The company has consistently followed the procedure of considering those elements of
manufacturing overhead which are fixed in amount regardless of the level of output as period cost,
and has charged them to expense in the period they are incurred. Inventory cost includes only the
variable portion of inventory is fully disclosed in the statements. Except for the inventory valuation
method described above, the companys financial statements are found to be acceptable in all
respects. The audit report in the above situation:
a. Will contain a disclaimer of opinion because of the lack of conformity with PFRSs
b. Will contain an unqualified opinion because the reporting standard of full disclosure was
fulfilled
c. Will contain a qualified opinion or an adverse opinion because of the lack of conformity with
PFRSs, depending upon materiality of the amount involved
d. Will contain a disclaimer of opinion because there is insufficient competent evidential matter
available to form an opinion on the fairness of the presentation of the financial statements as
a whole
54. The principal auditor may decide to make reference to the examination of the other auditor when he
expresses an opinion on the financial statements based on this suggestion:
a. The report need not disclose the magnitude of the portion of the financial statement examined
by the other auditor in as much as the total assets, total revenues and other appropriate criteria
included in the report reveals clearly the portion done by the auditor
b. It is enough that the report discloses the peso amounts of the total assets or percentage of total
revenues to indicate portion of the financial statements examined by the other auditor.
c. The other auditor may be named but only after obtaining his permission in writing in which
case there is no need for the principal auditor to present the other report together with his.
d. Opinion based in part on the report of the other auditor may be presented as a qualification of
the principal auditors opinion
55. When an auditor concludes there is substantial doubt about a continuing audit clients ability to
continue as a going concern for a reasonable period of time, the auditors responsibility is to
a. Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects
on the financial statements
b. Consider the adequacy of disclosure about the clients possible inability to continue as a
going concern
c. Report to the clients audit committee that managements accounting estimates may need to
be adjusted
d. Reissue the prior years auditors report and add an explanatory paragraph that specifically
refers to substantial doubt and going concern
56. Which of the following is usually included or shown in the auditors working papers?
a. The procedures used by the auditor to verify the personal financial status of members of the
clients management team.
b. Analyses that are designed to be a part of, or a substitute for, the clients accounting records.
c. Excerpt from authoritative pronouncements that support the underlying PFRS used in
preparing the financial statements
 d. The manner in which exceptions and unusual matters disclosed by the auditors procedures
were resolved or treated
57. An auditor may reasonably issue an adverse opinion for
Inadequate Disclosure Scope Limitation
a. Yes Yes
b. Yes No
c. No Yes
d. No No
58. A client is presenting comparative (two-year) financial statements. Which of the following is correct
concerning reporting responsibilities of a continuing auditor?
a. The auditor should issue one audit report that is on both presented years.
b. The auditor should issue two audit reports, one on each year.
c. The auditor should issue one audit report, but only on the most recent year.
d. The auditor may issue one audit report on both presented years, or two audit reports, one on
each year.
59. When audited financial statements are presented in a clients document containing other information,
the auditor should
a. Perform inquiry and analytical procedures to ascertain whether the other information is
reasonable
b. Add an explanatory paragraph to the auditors report without changing the opinion on the
financial statements
c. Perform the appropriate substantive auditing procedures to corroborate the other information
d. Read the other information to determine that it is consistent with the audited financial
statements
60. An auditors working papers serve mainly to
a. Provide the principal support for the auditors report
b. Satisfy the auditors responsibilities concerning the Code of Professional Conduct
c. Monitor the effectiveness of the CPA firms quality control procedures
d. Document the level of independence maintained by the auditor
61. Ignoring any particular legal or regulatory requirement, audit documentation should be retained
a. A minimum of five years
b. As long as lead schedules have relevance to forthcoming audits
c. Until 3 years after the client selects another auditor
d. Working papers must be maintained indefinitely.

62. Schedules that support the current years adjusting entries are working papers that would most likely
be included in an auditors permanent file.
Prior years accounts receivable confirmations that were classified as exceptions are working papers
that would most likely be included in an auditors permanent file.
Documentation indicating that the audit work was adequately planned and supervised are working
papers that would most likely be included in an auditors permanent file.
a. All above statements are not correct
b. First and second statements are correct; but third statement is not correct
c. All above statements are correct
d. Third statement is correct; but first and second statements are not correct
63. The objective of a review of interim financial information is to provide the accountant with a basis for
reporting whether material modification should be made to conform with PFRSs.
The objective of a review of interim financial information is to provide the accountant with a basis for
reporting whether the financial statements are presented fairly in accordance with PFRSs.
The objective of a review of interim financial information is to provide the accountant with a basis for
reporting whether the financial statements are presented fairly in accordance with standards of interim
reporting.
a. First and second statements are correct; third statement is not correct.
b. First statement is correct; second and third statements are not correct.
c. All above statements are not correct.
 d. First and second statements are correct; second statement is not correct.
64. 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. A study and evaluation of internal control structure
65. A CPA has been engaged to compile financial statements for a nonpublic client. Which of the
following statements best describes this engagement?
a. The CPA must perform the PSAs necessary to determine that the statements are in conformity
with PFRSs.
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.
66. Which of the following engagements do not require independence?
I. Agreed-upon procedures III. Audit
II. Compilation IV. Review
a. I and IV b. I and II c. I, II and IV d. I, II, III and IV
67. A report issued in connection with the independent audit of financial information other than an
auditors report on financial statements
a. Special purpose auditors report c. Annual report
b. Compilation report d. Modified auditors report
68. Which of the following is incorrect about agreed-upon procedures engagement?
a. An engagement to perform agreed-upon procedures may involve the auditor in performing
certain procedures concerning individual items of financial data
b. Users of the agreed-upon procedures report assess for themselves the procedures and findings
reported by the auditor and draw their conclusion from the auditors work
c. The auditor should be independent of the financial data or financial statements where agreed
procedures have to be applied
d. The report is restricted to those parties that have agreed to the procedures to be performed.
69. 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 known as
a. Pro forma financial projections c. Partial presentations
b. Financial projections d. Financial forecasts
70. Which of the following is a prospective financial statement for general use upon which an accountant
may appropriately report?
a. Financial projection c. Pro forma financial statements
b. Partial presentation d. Financial forecasts
71. Negative assurance may be expressed when an accountant is requested to report on the
a. Compilation of prospective financial statements
b. Review of a non-publicly held companys financial statements
c. Results of applying agreed-upon procedures to an account within unaudited financial
statements
d. Audit of historical financial statements
72. Matters to be agreed in an agreed-upon procedures engagement include the following, except
a. Stated purpose of the engagement
b. Limitations on distribution of the report of factual findings
c. Anticipated form of the report and the level of assurance to be provided
d. Nature, timing and extent of the specific procedures to be applied
73. When a clients 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 payment of dividends
b. The number of shares issued and outstanding
 c. Guarantees of preferred stock liquidation value
d. The number of shares subject to agreements to repurchase
74. Auditor confirmation of accounts payable balances at the balance sheet date may be unnecessary
because
a. This is a duplication of cut-off tests.
b. Accounts payable balances at the balance sheet date may not be paid before the audit is
completed.
c. Correspondence with the audit clients attorney will reveal all legal action by vendors for
nonpayment.
d. There is likely to be other reliable external evidence to support the balances.
75. To establish the existence and ownership of a long-term investment in the common stock of a
publicly-traded company, an auditor ordinarily performs a security count or
a. Relies on the clients internal accounting controls, if the auditors 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
76. Negative confirmation requests may be used in the following cases, except
a. The assessed level of inherent and control risk is low
b. A large number of small balances is involved
c. A substantial number of errors is not expected
d. The auditor has reason to believe that respondents will disregard these requests
77. The most effective means for the auditor to determine whether a recorded intangible asset possesses
the characteristics of an asset is to
a. Inquire as to the status of patent applications
b. Analyze research and development expenditures to determine that only those expenditures
possessing future economic benefit have been capitalized
c. Evaluate the future revenue-producing capacity of the intangible asset
d. Vouch the purchase by reference to underlying documentation
78. When goods are received, the receiving clerk should match the goods with the
a. Purchase order and requisition
b. Vendors invoice and the receiving report
c. Vendors shipping document and the purchase order
d. Receiving report and the vendors shipping documents
79. Which of the following procedures would enhance the control structure of a computer operations
department?
I. Periodic rotation of operators
II. Mandatory vacations
III. Controlled access to the facility
IV. Segregation of personnel who are responsible for controlling input and output
a. I, II b. III, IV c. I, II, III d. I, II, III, IV
80. Which of the following best describes the primary reason that organizations develop contingency
plans for their EDP operations?
a. To ensure that they will be able to process vital transactions in the event of any type of
disaster
b. To ensure the safety of important records
c. To help hold down the cost of insurance
d. To plan for sources of capital for recovery from any type of disaster
81. A critical aspect of a disaster recovery plan is to be able to regain operational capability as soon as
possible. In order to accomplish this, an organization can have an arrangement with its computer
hardware vendor to have a fully operational facility available that is configured to the users specific
needs. This is best known as a(n)
a. Uninterruptible power system c. Cold site
b. Parallel system d. Hot site
82. Which of the following is a general control that would most likely assist an entity whose systems
analyst left the entity in the middle of a major project?
a. Grandfather-father-son record retention c. Systems documentation
b. Input and output validation routines d. Check digit verification
83. Program documentation is a control designed primarily to ensure that
a. Programmers have access to the tape library or information on disk files
b. Programs do not make mathematical errors
c. Programs that are kept up to date and perform as intended
d. Data have been entered and processed
84. Which of the following statements is incorrect according to Section 7 of the Philippine Accountancy
Act of 2004 (RA 9298)?
a. The Chairman and the members of the Professional Regulatory Board of Accountancy
(PRBOA) shall hold office for a term of three (3) years.
b. No person who has served two (2) successive terms shall be eligible for reappointment until
the lapse of one (1) year.
c. Any vacancy occurring within the term of a member shall be filled up for the unexpired
portion of the term only.
d. Appointment to fill up an unexpired term is considered a complete term.
85. According to Section 20 of the Philippine Accountancy Act of 2004 (RA 9298), a Professional
Identification Card bearing the registration number, date of issuance, expiry date, duly signed by the
chairperson of the PRC, shall likewise be issued to every registrant renewable every
a. One (1) year c. Three (3) years
b. Two (2) years d. Five (5) years
86. Which statement is correct regarding CPE requirements for renewal of professional license?
a. The total CPE credit units required for CPAs shall be ninety (90) units for three (3) years,
provided that a minimum of fifteen (15) credit units shall be earned in each year.
b. A registered professional shall be permanently exempted from CPE requirements upon
reaching the age of 65 years old.
c. A registered professional who is working abroad shall be temporarily exempted from
compliance with CPE requirement during his/her stay abroad, provided that he/she has been
out of the country for at least one year immediately prior to the date of renewal.
d. Those who failed to renew professional licenses for a period of four (4) continuous years
from initial registration, or from last renewal shall be declared delinquent.
87. According to the Philippine Accountancy Act of 2004 (RA 9298), any person who shall violate RA
9298 or any of its implementing rules and regulations as promulgated by the Board of Accountancy
subject to the approval of the PRC, shall, upon conviction, be punished by a fine
a. Not less than fifty thousand pesos (P50,000), or by imprisonment for a period not exceeding
three (3) years, or both
b. Not less than one hundred thousand pesos (P100,000) or by imprisonment for a period not
exceeding two (2) years, or both
c. Not less than fifty thousand pesos (P50,000), or by imprisonment for a period not exceeding
two (2) years, or both
d. Not less than one hundred fifty thousand pesos (P150,000), or by imprisonment for a period
not exceeding three (3) years or both
88. Which of the following is not represented in the Auditing and Assurance Standards Council?
a. Board of Accountancy c. FINEX
b. Bangko Sentral ng Pilipinas d. Securities and Exchange Commission
89. Adequate time allowed for exposure of the drafts made by AASC generally is
a. 30 days b. 60 days c. 90 days d. 120 days
90. The lead engagement partner should be rotated after a pre-defined period, normally no more than
a. 2 years b. 3 years c. 5 years d. 7 years
91. The CPA in public practice violates the Code of Professional Ethics for CPAs if he accepts a fee
which was
a. Fixed by a public authority
b. Based on a price quotation submitted in competitive bidding
c. Determined based on the results of judicial proceedings
 d. Payable after a specified finding was obtained
92. Which statement is incorrect regarding the Revised Code of Ethics for Professional Accountants in
the Philippines?
a. Professional accountants refer to persons who are Certified Public Accountants (CPA) and
who hold a valid certificate issued by the Board of Accountancy.
b. Where a local law is in conflict with a provision of the IFAC Code, the IFAC Code
requirement prevails.
c. The Revised Code of Ethics for Professional Accountants in the Philippines is mandatory for
all CPAs and is applicable to professional services performed in the Philippines on or after
June 30, 2008.
d. Professional accountants should consider the ethical requirements as the basic principles
which they should follow in performing their work.
93. 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. Objectivity c. Confidentiality
b. Professional Competence and Due Care d. Confidence
94. Occurs when, by virtue of a close relationship, a professional accountant becomes too sympathetic to
the clients interests.
a. Self-interest threat c. Advocacy threat
b. Self-review threat d. Familiarity threat

95. Examples of circumstances that may create self-review threat least likely include
a. A member of the assurance team being or having recently been a director or officer of that
client
b. The discovery of significant error during a re-evaluation of the work of the professional
accountant in public practice
c. Reporting on the operation of financial systems after being involved in their design and
implementation
d. Accepting gifts or preferential treatment from a client, unless the value is clearly insignificant
96. Safeguards created by the profession, legislation or regulation, include the following, except
a. Educational, training and experience requirements for entry into the profession
b. Continuing education requirements
c. Legislation governing the independence requirements of the firm
d. Policies and procedures that emphasize the assurance clients commitment to fair financial
reporting
97. Which of the following is broadest in scope?
a. Audits of financial statements c. Internal control audit
b. Assurance services d. Attestation services
98. 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. 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 and suitable
criteria.
d. All of the above statements are correct.
99. The Framework (PSA 120) applies to
a. Compilation c. Agreed upon procedures
b. Review d. All of the above
100. Management is not responsible for:
a. The audited financial statements c. The auditors report
b. Preparing spreadsheets for the auditor d. Compliance with laws and regulations
Answer Key:
1. C 21. A 41. D 61. A 81. D
2. D 22. C 42. B 62. A 82. C
3. C 23. C 43. C 63. B 83. C
4. A 24. D 44. C 64. D 84. D
5. B 25. D 45. A 65. B 85. C
6. C 26. C 46. C 66. B 86. B
7. B 27. B 47. B 67. A 87. C
8. B 28. A 48. C 68. C 88. C
9. C 29. D 49. A 69. B 89. C
10. B 30. C 50. C 70. D 90. C
11. D 31. B 51. C 71. B 91. D
12. B 32. B 52. C 72. C 92. B
13. B 33. B 53. C 73. B 93. D
14. D 34. C 54. B 74. D 94. D
15. D 35. A 55. B 75. B 95. D
16. D 36. A 56. D 76. D 96. D
17. C 37. C 57. B 77. C 97. A
18. D 38. D 58. A 78. C 98. A
19. B 39. A 59. D 79. D 99. D
20. A 40. C 60. A 80. A 100. C