1.

Which of the following is not among the characteristics of the

procedures performed in completing the audit?
*
1 point
They are optional since they have only an indirect impact on the opinion to be expressed.
They involve many subjective judgments by the auditor.
They are performed after the reporting date.
They are usually performed by audit managers or other senior members of the audit team who have
extensive audit experience.
2. Statement 1: Related party transactions refers to a person or
entity that has the ability to control the other party or exercise
significant influence over the other party in making financial and
operating decisions.

Statement 2: Related party disclosure is a transfer of resources or

obligations between related parties, regardless of whether a price is
charged.
*
1 point
True, true
False, false
True, false
False, true
3. PSAs require analytical procedures to be performed during
*
1 point
Planning and overall review stages of the audit
Planning and testing phases
Testing and overall review stages
Planning, testing and overall review stages of the audit
4. Under PSA 560, “Subsequent events” are defined as events which
occur subsequent to the
*
1 point
Reporting date but prior to the date the financial statement was authorized for issue.
Date of the auditor’s report.
Reporting date but prior to the date of the auditor’s report.
Date of the auditor’s report and concern contingencies which are not reflected in the financial statements.
5. Which of the following material event occurring subsequent to
the reporting date would require an adjustment to the financial
statements before they are issued?
*
1 point
Sale of long-term debt or capital stock
Loss of a plant as a result of a flood
Major purchase of a business which is expected to double sales volume
Settlement of litigation, in excess of the recorded liability
6. A purpose of management representation letter is to reduce
*
1 point
Audit risk to an aggregate level of misstatement that could be considered material.
An auditor’s responsibility to detect material misstatements only to the extent that the letter is relied on.
The possibility of misunderstanding concerning management’s responsibility for the financial statements.
The scope of an auditor’s procedures concerning related party transactions and subsequent events.
7. The probability of an auditor's procedures leading to the
conclusion that a material error does not exist in an account balance
when, in fact, such error does exist is referred to as
*
1 point
Prevention risk.
Inherent risk.
Control risk.
Detection risk.
8. Which of the following concepts is most useful in assessing the
scope of an auditor's program relating to various accounts?
*
1 point
Attribute sampling.
Materiality.
The reliability of information.
Management fraud.
9. Which statement is incorrect regarding significant risks that require
special audit consideration?
*
1 point
The auditor should determine which of the risks identified are, in the auditor’s judgment, risks that
require special audit consideration.
The auditor excludes the effect of identified controls related to the risk to determine whether the nature of
the risk, the likely magnitude of the potential misstatement, including the possibility that the risk may
give rise to multiple misstatements, and the likelihood of the risk occurring are such that they require
special audit consideration.
Routine, non-complex transactions that are subject to systematic processing are more likely to give rise to
significant risks because they have higher inherent risks.
Significant risks are often derived from business risks that may result in a material misstatement.
10. Why should the auditor plan more work on individual accounts as
lower acceptable levels of both audit risk and materiality are
established? *
1 point
find smaller errors.
To find larger errors.
To increase the tolerable error in the accounts.
To decrease the risk of overreliance.
11. The element of the audit planning process most likely to be
agreed upon with the client before implementation of the audit
strategy is the determination of the *
1 point
Timing of inventory observation procedures to be performed.
Procedures to be undertaken to discover litigation, claims, and assessments.
Pending legal matters to be included in the inquiry of the client's attorney.
Evidence to be gathered to provide a sufficient basis for the auditor's opinion.
12. Which of the following would not necessarily a related-party
transaction?
*
1 point
Sales to another corporation with a similar name.
Purchases from another corporation that is controlled by the corporation’s chief stockholder.
Loan from the corporation to a major stockholder.
Sale of land to the corporation by the spouse of a director.
13. PSA 570 (Going Concern) states that the responsibility to make
an assessment of an entity’s ability to continue as a going concern
rests with the
*
1 point
Auditor
SEC
Entity’s management
Entity’s creditors
14. When completing the audit, the auditor performs procedures
designed to identify subsequent events may require adjustment of, or
disclosure in the financial statements. Accordingly
*
1 point
Will require adjustment Will require adjustment
Will require adjustment Will require disclosure
Will require disclosure Will require disclosure
Will require disclosure Will require adjustment
15. Which of the following best describes the primary purpose of audit
procedures?
*
1 point
To detect errors or irregularities.
To comply with financial reporting standards.
To gather corroborative evidence.
To verify the accuracy of account balances.
16. As a result of analytical procedures, the independent auditor
determines that the gross profit has declined from 30% in the
preceding year to 20% in the current year. The auditor should
*
1 point
document management’s intention with respect to plans for reversing this trend.
evaluate management’s performance in causing this decline.
require footnote disclosure.
consider the possibility of an error in the financial statements.
17. The auditor will most likely perform extensive tests for possible
understatement of
*
1 point
revenues
assets
liabilities
capital
18. Which of the following elements ultimately determines the
specific auditing procedures necessary under the circumstances to
afford a reasonable basis for an opinion?
*
1 point
Auditor judgment
Materiality
Relative risk
Reasonable assurance
19. In testing the existence assertion for an asset, an auditor
ordinarily works from the
*
1 point
financial unrecorded items to the financial statements.
potentially unrecorded items to the financial statements.
accounting records to the supporting evidence.
supporting evidence to the accounting records.
20. A basic premise underlying the application of analytical procedures
is that*
1 point
the study of financial ratios is an acceptable alternative to the investigation of unusual fluctuations.
statistical tests of financial information may lead to the discovery of material errors in the financial
statements.
plausible relationships among data may reasonably be expected to exist and continue in the absence of
known conditions to the contrary.
these procedures cannot replace tests of balances and transactions.
21. Which of the following circumstances is most likely to cause an
auditor to consider whether a material misstatement exists?
*
1 point
Transactions selected for testing are not supported by proper documentation.
The turnover of senior accounting personnel is exceptionally low.
Management places little emphasis on meeting earnings projections.
Operating and financing decisions are dominated by several persons.
22. The management responsibility to detect and prevent fraud and
error is accomplished by*
1 point
Having an annual audit of financial statements.
Establishing a control environment and implementing adequate internal control policies and procedures.
Signing the management representation letter.
Implementing adequate quality control system.
23. How should materiality be defined in the context of an external
audit?
*
1 point
An amount is material if it leads the auditor to obtain additional evidence
An amount is material if it leads the financial statement users to change their resource allocation decisions
An amount is material if it is clearly not presented according to financial reporting standards
An amount is material if it is incorrect
24. How can sampling risk be reduced?
*
1 point
By decreasing sample size
By increasing the randomness of a non-statistical sample
By reducing materiality
By selecting the sample at year-end instead of after year-end
25. Which of the following dates is best for obtaining the client’s
written representations?
*
1 point
As soon as the audit firm has decided to accept the audit engagement
At the interim date
At the balance sheet date
At the audit report date
26. Which of the following is the best definition? Appropriate evidence
is evidence that
*
1 point
is reasonably free of error and bias and faithfully represents what it purports to represent.
is obtained by observing people, property and events.
is supplementary to other evidence already given and tends to strengthen or confirm it.
proves an intermediate fact, or group of facts, from which one can infer the existence of some other fact
that is significant to the issue under consideration.
27. *
1 point

a.
b.
c.
d.
28. Given that an audit in accordance with generally accepted
auditing standards is influenced by the possibility of material errors
and fraud, the auditor should conduct the audit with an attitude of *
1 point
Professional responsiveness.
Conservative advocacy.
Objective judgment.
Professional skepticism.
29. How can the audit program best be described at the beginning of
the audit process? *
1 point
Tentative.
Conclusive.
Comprehensive.
Optional.
30. The decision of whether the criteria are suitable involves
considering whether the subject matter of the assurance engagement
is capable of reasonably consistent evaluation or measurement using
such criteria. Which of the following characteristics is not considered
necessary in determining whether the criteria are suitable?
*
1 point
Relevance
Neutrality
Reliability
Sufficiency
31. Which of the following statements is true? Generally,
*
1 point
Evidence from external sources is less reliable than that generated internally.
Evidence generated internally is less reliable when subject to appropriate control with the entity.
Evidence obtained directly by the practitioner is more likely to be reliable than that obtained from the
entity.
Evidence in the form of documents and representations is less likely to be reliable than oral
representations.
32. In planning an audit, the auditor’s knowledge about the design of
relevant controls should be used to*
1 point
Identify the types of potential misstatements that could occur.
Assess the operational efficiency of internal control.
Determine whether controls have been circumvented by collusion.
Document the assessed level of control risk.
33. The main purpose of risk assessment procedures is to:*
1 point
Obtain an understanding of the entity and its environment, including its internal control, to assess the
risks of material misstatement at the financial statement and assertion levels.
Test the operating effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
Detect material misstatements at the assertion level.
All of the given choices are main purposes of risk assessment procedures.
34. Which of the following statements is incorrect regarding obtaining
an understanding of the entity and its environment?
*
1 point
Obtaining an understanding of the entity and its environment is an essential aspect of performing an audit
in accordance with PSAs.
Understanding of the entity and its environment establishes a frame of reference within which the auditor
plans the audit and exercises professional judgment about assessing risks of material misstatement of the
financial statements and responding to those risks throughout the audit.
The auditor’s primary consideration is whether the understanding that has been obtained is sufficient to
assess the risks of material misstatement of the financial statements and to design and perform further
audit procedures.
The depth of the overall understanding that is required by the auditor in performing the audit is at least
equal to that possessed by management in managing the entity.
35. An auditor has assessed entity’s business risk and the risk to
material misstatement of its financial statements. These are done in
order to:
*
1 point
Apply the audit risk model in determining the appropriate audit procedures.
Determine reliance on company’s internal control for financial reporting.
Determine the test of balances to be performed by the audit team.
Assure the CPA firm that they can do the audit effectively and efficiently
36. After obtaining an understanding of the entity and its environment
and assessing the risk of material misstatement, an auditor decided to
perform tests of controls. The auditor most likely decided that
*
1 point
An increase in the assessed level of control risk is justified for certain financial statement assertions.
There were many internal control weaknesses that could allow errors to enter the accounting system.
It would be efficient to perform tests of controls that would result in a reduction in planned substantive
tests.
Additional evidence to support a further reduction in control risk is not available.
37. Risk in auditing means that the auditor accepts some level of
uncertainty in performing the audit function. An effective audit
*
1 point
Design audit procedures to achieve the desired level of audit risk.
Take any means available to reduce the risk to the lowest possible level.
Set the risk level between 5% to 10%.
Perform audit procedures first and quantitatively set the risk level before forming an opinion and writing
the report.
38. Which of the following is correct about the appropriateness of
evidence?
*
1 point
Audit evidence from external sources is more relevant than evidence generated internally.
Audit evidence is more persuasive when items of evidence from different sources or of different nature
are not consistent.
Audit evidence generated internally is more reliable when the related accounting and internal control
systems are effective.
Sufficiency refers to the amount of evidence needed.
39. Which of the following statements is most correct regarding the
primary purpose of audit procedures?*
1 point
To detect all errors or fraudulent activities as well as illegal activities.
To comply with the SEC.
To gather corroborative audit evidence about management’s assertion regarding the client’s financial
statements.
To determine the amounts of errors in the balance sheet accounts in order to adjust the accounts to
accrual.
40. Which of the following is true?
*
1 point
Tests of details of balances focus on the ending balances of accounts in the client’s trial balance.
Tests of details of balances focus on the transactions during the period.
Tests of details of balances focus on the auditor’s understanding of internal controls.
Tests of details of balances focus on compliance of recorded amounts to expectations developed by the
auditor.
41. The fundamental purpose of an internal control is to
*
1 point
Safeguard the resources of the organization
Provide reasonable assurance that the objectives of the organization are achieved
Encourage compliance with organization objectives
Ensure the accuracy, reliability, and timeliness of information.
42. The auditor’s consideration of a company’s internal control is:
*
1 point
required under the Philippine Accountancy Act.
required by PSA.
required by the Code of Ethics.
recommended by the SEC.
43. The auditor’s primary purpose in auditing the client’s system of
internal control over financial reporting is:
*
1 point
to prevent fraudulent financial statements from being issued to the public.
to evaluate the effectiveness of the company’s internal controls over all relevant assertions in the financial
statements.
to report to management that the internal controls are effective in preventing misstatements from
appearing on the financial statements.
to efficiently conduct the audit of financial statements.
44. Which of the following statements is correct concerning the use of
negative confirmation requests?
*
1 point
Unreturned negative confirmation requests rarely provide significant explicit evidence.
Negative confirmation requests are effective when detection risk is low.
Unreturned negative confirmation requests indicate that alternative procedures are necessary.
Negative confirmation requests are effective when understatements of account balances are suspended.
45. Which of the following is not considered among the benefits of
audit planning?
*
1 point
Audit planning helps coordinate the work to be done by auditors of components and other parties such as
experts, specialists, etc.
Audit planning helps ensure that the audit is properly organized, managed and performed in an effective
and efficient manner.
Audit planning aids in ensuring the examination of financial statements can be performed without
problems and difficulties.
Audit planning helps ensure that appropriate attention is devoted to important areas of the audit.
46. When auditing a private company, the auditor should obtain an
understanding of internal control sufficient to:
*
1 point
provide reasonable protection against client fraud and defalcations by client employees.
assess control risk.
provide a basis for suggestions to the client for improving the accounting system.
provide a method for safeguarding assets, checking the accuracy and reliability of accounting data,
promoting operational efficiency and encouraging adherence to prescribed managerial policies.
47. A CPA firm is auditing the 2022 financial statements of Apollo
Services, Inc. The partner of the audit firm finished her review of the
audit results on March 3, 2023, and the financial statements were
issued \one week later. The evidence included only one subsequent
event, which was the audited details of the issuance of ordinary
shares, on February 15, 2023. When should the audit report be dated?
*
1 point
December 31, 2022
February 15, 2023
March 3, 2023
March 10, 2023
48. Which of the following risks can the auditor control?*
1 point
Control risk and audit risk
Inherent risk and control risk
Audit risk and detection risk
Control risk and detection risk
49. Which of the following procedures would provide the most reliable
audit evidence?
*
1 point
Inquiries, held in private, of the client’s internal audit staff.
Inspection of prenumbered client purchase orders filed in the vouchers payable department.
Analytical procedures performed by the auditor on the entity’s trial balance.
Inspection of bank statements obtained directly from the client’s financial institution.
50. Which of the following presumption does not relate to the
competence of audit evidence?
*
1 point
The more effective internal control is, the more assurance it provides about the accounting data and
financial statements.
An auditor’s opinion, to be economically useful, is formed within a reasonable time and based on
evidence obtained at a reasonable cost.
Evidence obtained from independent sources outside the entity is more reliable than evidence secured
solely from within the entity
The independent auditor’s direct personal knowledge, obtained through observation and inspection, is
more persuasive than information obtained directly.
51. Which of the following presumptions is correct about the reliability
of evidential matter?
*
1 point
Information obtained indirectly from outside sources is the most reliable evidential matter.
To be reliable, evidential matter should be convincing rather than persuasive.
Reliability of evidential matter refers to the amount of corroborative evidence obtained.
Effective internal control provides more assurance about the reliability of evidential matter.
52. Preplanning the audit involves several key activities. Which of
the following would not be included in preplanning an audit?*
1 point
Investigating the client’s background
Determining the likelihood of issuing an unqualified audit opinion on the client’s financial statements
Communicating with the prospective client’s prior auditor to inquire about any disagreements with the
client
Understanding the client’s reason for obtaining an audit
53. Which of the following conditions most likely would post the
greatest risk in accepting a new audit engagement?*
1 point
Staff will need to be rescheduled to cover this new client
There will be a client-imposed scope limitation
The firm will have to hire a specialist in one audit area
The client’s financial reporting system has been in place for 10 years
54. An auditor is planning an audit engagement for a new client in a
business unfamiliar to the auditor. Which is the least useful source of
information for the auditor during the preliminary planning stage when
the auditor is trying to obtain an understanding of the entity and its
environment?
*
1 point
Inquiries of internal auditing personnel
Observation of the entity’s activities
Inspections of documented business plans
Results of performing substantive procedures
55. Internal control is a function of management, and effective control
is based upon the concept of charge and discharge of responsibility
and duty. Which of the following is one of the overriding principles of
internal control?
*
1 point
Responsibility for accounting and financial duties should be assigned to one responsible officer.
Responsibility for the accounting duties must be borne by the audit committee.
Responsibility for the performance of each duty must be fixed.
Responsibility for accounting must be assigned only to bonded employees.
56. Directors, management, external auditors, and internal auditors all
play important roles in creating proper processes. Senior
management is primarily responsible for
*
1 point
Establishing risk management and control processes.
Implementing and monitoring controls designed by the board of directors.
Ensuring that external and internal auditors oversee the administration of risk management and control
processes.
Reviewing the reliability and integrity of financial and operational information.
57. The auditor observes client employees during the review of the
system of internal control in order to
*
1 point
Prepare a flowchart
Update information contained in the organization and procedure manuals
Corroborate the information obtained during the initial review of the system
Determine the extent of compliance with quality control standards
58. Before accepting an audit engagement, you as the successor
auditor would least likely make specific inquiries of the previous
auditor regarding*
1 point
Facts that might bear on the integrity of management
The degree of cooperation that previous auditor received from the client’s lawyer
An inquiry regarding disagreements with management as to auditing procedures
The predecessor auditor’s understanding as to the reasons for the change
59. In determining whether transactions have been recorded, the
direction of the audit testing should be from the
*
1 point
General ledger balances
Adjusted trial balance
Original source documents
General journal entries
60. Preplanning the audit involves several key activities. Which of
the following would not be included in preplanning an audit?
*
1 point
Investigating the client’s background
Determining the likelihood of issuing an unqualified audit opinion on the client’s financial statements
Communicating with the prospective client’s prior auditor to inquire about any disagreements with the
client
Understanding the client’s reason for obtaining an audit
61. Which of the following conditions most likely would post the
greatest risk in accepting a new audit engagement?*
1 point
Staff will need to be rescheduled to cover this new client
There will be a client-imposed scope limitation
The firm will have to hire a specialist in one audit area
The client’s financial reporting system has been in place for 10 years
62. In testing for cutoff, the objective is to determine
*
1 point
Whether all of the current period’s transactions are recorded
That no transactions for the prior period are included in the current period’s balances
That no transactions of the current period have been delayed and recorded in a future period
Whether transactions are recorded in the proper period
63. Which of the following is correct about the appropriateness of
evidence?
*
1 point
Audit evidence from external sources is more relevant than evidence generated internally.
Audit evidence is more persuasive when items of evidence from different sources or of different nature
are not consistent.
Audit evidence generated internally is more reliable when the related accounting and internal control
systems are effective.
Sufficiency refers to the amount of evidence needed.
64. The primary reason an auditor requests letters of inquiry be sent
to a client’s attorneys is to provide the auditor with*
1 point
The probable outcome of asserted claims and pending or threatened litigation.
Corroboration of the information furnished by management about litigation, claims, and assessments.
The attorney’s opinions of the client’s historical experiences in recent similar litigation.
A description and evaluation of litigation, claims and assessments that existed at the balance sheet date.
65. Which of the following is true?*
1 point
Tests of details of balances focus on the ending balances of accounts in the client’s trial balance.
Tests of details of balances focus on the transactions during the period.
Tests of details of balances focus on the auditor’s understanding of internal controls.
Tests of details of balances focus on compliance of recorded amounts to expectations developed by the
auditor.
66. Which of the following statements concerning the auditor’s
attendance at the physical inventory count is incorrect?
*
1 point
A financial statement audit should always include attendance at the physical inventory count
If the auditor is unable to attend the physical inventory count on the date planned due to unforeseen
circumstances, he/she should take or observe some physical counts on an alternative date and, when
necessary, perform audit procedures on intervening transactions
Where attendance is impracticable, due to factors such as the nature and location of the inventory, the
auditor should consider whether alternative procedures provide sufficient appropriate audit evidence of
existence and condition to conclude that reference to a scope limitation need not be made
Inventories that are under the custody and control of third parties (for example, inventories located in
public warehouses) may be verified by obtaining direct confirmation from the custodians, provided that,
depending on materiality of the amount involved, additional procedures should be applied as deemed
necessary
67. Which of the following means available to the auditor for selecting
items for testing is required under PSA 500?
*
1 point
All items or 100% examination
Specific items
Audit sampling
No particular means is required as appropriateness depends on the particular circumstances, for example,
the risks of material misstatement, and the practicality and efficiency of the different means.
68. The likelihood of assessing control risk too high is the risk that
the sample selected to test controls*
1 point
Does not support the auditor’s planned assessed level of control risk when true operating effectiveness of
control structure justifies such an assessment
Contains misstatements that could be material to the financial statements when aggregated with
misstatements in other account balances or transaction classes
Contains proportionately fewer monetary errors or deviations from prescribed controls than exist in the
balance or class as a whole
Does not support the tolerable error for some or all of management’s assertions
69. Examples of events or conditions, which individually or
collectively, may cast significant doubt about the going concern
assumption include the following, except:
*
1 point
Net liability or net current liability position.
Change from credit to cash-on-delivery transactions with suppliers.
Labor difficulties or shortages of important supplies.
Compliance with capital or other statutory requirements.
70. When an auditor concludes that there is substantial doubt about a
continuing audit client’s ability to continue as a going concern for a
reasonable period of time, the auditor’s responsibility is to
*
1 point
Consider the adequacy of disclosure about the client’s possible inability to continue as a going concern.
Issue a qualified or adverse opinion, depending upon materiality, die to the possible effects on the
financial statements.
Report to the client’s audit committee that management’s accounting estimates may need to be adjusted.
Reissue the prior year’s auditor’s report and add an emphasis of matter paragraph that specifically refers
to “substantial doubt” and “going concern”.