1.

The need for assurance services arises because:

A. there is closeness between a user and the organization or trading partner.

B. there is a potential bias in providing information.
C. economic transactions are less complex than they were a decade ago.
D. most financial statement users today have direct knowledge of a company's operations.

2. Assurance services depict:

A. a wider spectrum of services.

B. a more diverse group of users.
C. greater potential users.
D. all of the given choices.

3. A review of any part of an organizations procedures and methods for the purpose of evaluating efficiency and
effectiveness is classified as a(n)

A. audit of financial statements.

B. Compliance audit.
C. Operational audit.
D. Production audit.

4. The primary purpose of an independent audit of financial statements is to

A. provide a basis for assessing managements performance.

B. comply with laws and regulations.
C. assure management that the financial statements are unbiased and free from material misstatements.
D. provide users with an unbiased opinion about the fairness of information presented in the financial statements.

5. Which of the following control procedures may prevent the failure to bill customers for some shipments?

A. Each shipment should be supported by a pre-numbered sales invoice that is accounted for.
B. Each sales order should be approved by authorized personnel.
C. Sales journal entries should be reconciled to daily sales summaries.
D. Each sales invoice should be supported by a shipping document.

6. An objective of an operational audit is to determine whether an entity's:

A. internal control is adequate.

B. operations are in accordance with laws and regulations.
C. financial statements are presented fairly.
D. operations are functioning effectively and efficiently.

7. Which of the following is a part of the attest process?

A. Communicating the conclusions reached

B. Proving the accuracy of the books and records
C. Compiling the financial information needed for presentation as financial statements
D. Providing guidance in management decisions
8. Auditing services may include which of the following?

A. Attesting to financial statements

B. Examination of the economy and efficiency of governmental operations
C. Evaluation of a division's performance for management
D. All the responses are correct

9. Which of the following is responsible for an entity's financial statements?

A. management
B. audit committee
C. internal auditors
D. board of directors
10. The objective of a review of financial statements is:

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

11. Which of the following standards requires a critical review of the work done and the judgment exercised by those assisting
in an audit at every level of supervision?

A. Proficiency
B. Audit risk
C. Inspection
D. Due care

12. In conducting a fraud investigation the auditor should first:

A. Identify the perpetrators

B. Obtain the facts
C. Obtain a confession
D. Notify a law enforcement agency

13. Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its
quality control policies and procedures?

A. Complying with laws and regulations

B. Using statistical sampling techniques
C. Assigning personnel to engagements
D. Considering audit risk and materiality
14. The nature and extent of a CPA firm's quality control policies and procedures depend on:

A. The CPA firm's size = Yes; The Nature of the CPA firm's practice = Yes; Cost-benefit Considerations = Yes
B. The CPA firm's size = Yes; The Nature of the CPA firm's practice = Yes; Cost-benefit Considerations = No
C. The CPA firm's size = Yes; The Nature of the CPA firm's practice = No; Cost-benefit Considerations = Yes
D. The CPA firm's size = No; The Nature of the CPA firm's practice = Yes; Cost-benefit Considerations = Yes

15. The primary purpose of establishing quality control policies and procedures in deciding whether to accept a new client is to

A. enable the CPA firm to attest to the reliability of the client.

B. satisfy the CPA firm's duty to the public.
C. minimize the likelihood of association with clients whose management lacks integrity.
D. anticipate before performing any fieldwork whether an unqualified opinion can be expressed.

16. Which of the following will least likely create a threat to independence?

A. A member of the assurance team, partner or former partner of the firm has joined the assurance client.
B. Deposits made by, or brokerage accounts of, a firm or a member of the assurance team with an assurance client that is
a bank, broker or similar institution, provided the deposit or account is held under normal commercial terms.
C. Arrangements to combine one or more services or products of the firm with one or more services or products of the
assurance client and to market the package with reference to both parties.
D. Family and personal relationships between a member of the assurance team and a director, an officer or certain
employees.

17. Before accepting an engagement to audit a new client, a CPA is required to obtain

A. an understanding of the prospective client's industry and business.

B. the prospective client's signature to the engagement letter.
C. a preliminary understanding of the prospective client's control environment.
D. the prospective client's consent to make inquiries of the predecessor auditor, if any.

18. Which of the following factors most likely would cause a CPA not to accept a new audit engagement?

A. The prospective client's unwillingness to permit inquiry of its legal council

B. The inability to review the predecessor auditor's working papers
C. The CPA's lack of understanding of the prospective client's operations and industry
D. The indications that management has not investigated employees in key positions before hiring them

19. Which of the following characteristics would most likely heighten an auditor's concern about the risk of material
misstatements in an entity's financial statements?

A. The entity's industry is experiencing declining customer demand.

B. Employees who handle cash receipts are not bonded.
C. Bank reconciliations usually include in-transit deposits.
D. Equipment is often sold at a loss before being fully depreciated.

20. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided
that:
 A. distribution of the report is limited to the specified parties involved.
B. the prospective financial statements are also examined.
C. the responsibility for the adequacy of the procedures performed is taken by the accountant.
D. negative assurance is expressed on the prospective financial statements taken as a whole.

21. An auditor obtains knowledge about a new client's business and its industry to

A. make constructive suggestions concerning improvements to the client's internal control.

B. develop an attitude of professional skepticism concerning management's financial statement assertions.
C. evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be
materially misstated.
D. understand the events and transactions that may have an effect on the client's financial statements.

22. Which of the following factors would least influence an auditors consideration of the reliability of data for purposes of
analytical procedures?

A. Whether the data were processed in a computer system or in a manual accounting system
B. Whether sources within the entity were independent of those who are responsible for the amount being audited
C. Whether the data were subjected to audit testing in the current or prior year
D. Whether the data were obtained from independent sources outside the entity or from sources within the entity

23. In evaluating the reasonableness of an entity's accounting estimates, an auditor normally would be concerned about
assumptions that are:

A. susceptible to bias.
B. consistent with prior periods.
C. insensitive to variations.
D. similar to industry guidelines.

24. The primary objective of the procedures performed to obtain an understanding of internal control is to provide an auditor
with:

A. knowledge necessary for audit planning.

B. evidential matter to use in assessing inherent risk
C. a basis for modifying tests of controls.
D. an evaluation of the consistency in the application of management's policies.

25. Management philosophy and operating style most likely would have a significant influence on an entity's control
environment when:

A. the internal auditor reports directly to management.

B. management is dominated by one individual.
C. accurate management job descriptions delineate specific duties.
D. the audit committee actively oversees the financial reporting process.

1. The subject matter of auditing consists of:

A. Assertions.
 B. Established criteria.
C. Evidence.
D. Written reports.

2. A typical objective of an operational audit is for the auditors to

A. determine whether the financial statements fairly present the entitys operations.
B. evaluate the feasibility of attaining the entitys operational objectives.
C. make recommendations for improving performance.
D. report on the entitys relative success in attaining its profit maximization.

3. Which one of the following best describes the assurance process?

A. Proving the accuracy of the books and records

B. Gathering evidence about specific and known assertions
C. Assisting management in the successful operations of the company
D. Assembling and filing tax returns and related supplemental information

4. Which one of the following is an example of management expectations for independent auditors?

A. An expert providing a written communication as the product of the engagement

B. Individuals who perform day-to-day accounting functions on behalf of the company
C. An active participant in management decision making
D. An internal source of expertise on financial and other matters

5. Public accountants are not prohibited from providing which of the following services for public audit clients:

A. audits of the effectiveness of internal controls

B. the function of the internal auditors
C. selection and implementation of an accounting information system
D. quarterly financial statement bookkeeping

6. Assurance services involve all of the following except:

A. Improving the quality of information for decision purposes.

B. Improving the quality of the decision model used.
C. Improving the relevance of information.
D. Implementing a system that improves the processing of information.

7. In forming an opinion on the financial statements,

A. the auditor should evaluate the conclusions drawn from the audit evidence obtained during the course of the audit
B. the auditor evaluates whether there is a reasonable assurance about whether the financial statements are free from any
misstatements
C. the auditor evaluates whether sufficiently appropriate audit evidence has been obtained to eliminate the risk of material
misstatements
D. the auditor verifies that all errors that misstate the financial statements have been corrected by the client
8. If the auditor encounters circumstances that lead him to conclude that compliance with a specific requirement results to
financial statements that are misleading, the auditor:

A. considers the need to appropriately modify the auditors report

B. does not need to modify the report
C. needs to issue qualified opinion
D. needs to disclaim his opinion

9. An expectation of the public is that the auditor will recognize that the primary users of audit services are:

A. the employees
B. the Securities and Exchange Commission
C. the investors and creditors
D. the board of directors

10. Which of the following represents a situation in which an auditor is reasonably independent of the client?

A. The auditor is paid by the client organization rather than the users of the financial statements..
B. The auditor takes a personal loan from the president of the company.
C. The auditor's dependent son holds 25 shares of the client's common stock.
D. The auditor has not received payment for the previous audit services.

11. A CPA firm is considered independent when it performs which of the following services for a publicly traded audit client?

A. Serving as a member of the client's board of directors.

B. Determining which accounting policies will be adopted by the client.
C. Accounting information system design and implementation.
D. Tax return preparation as approved by the board of directors.

12. The following are factors that a professional accountant should use as the basis of his acceptance of an assurance
engagement, except:

A. The auditor believes that a conclusion based on suitable criteria can be expressed.
B. The subject matter is identifiable.
C. The conclusion can be meaningful to the intended user of the report of the practitioner.
D. The likelihood that the conclusion to be expressed always supports the assertion of the responsible party.

13. Which of the following represents a procedure the auditor may use because plausible relationships among financial
statement balances are expected to exist?

A. Attributes testing
B. Enterprise risk assessment
C. Inherent tests of control
D. Analytical review

14. An auditor compares expenses as a percent of sales to expectations. This is an example of:

A. ratio analysis
B. trend analysis
 C. internal control analysis
D. vertical analysis

15. Management's responsibility for the financial statements is

A. Implicitly represented in the auditor's standard report.

B. Explicitly represented in the opening paragraph of the auditor's standard report.
C. Explicitly represented in the responsibility of the management paragraph of the auditor's standard report.
D. Explicitly represented in the opinion paragraph of the auditor's standard report.

16. What is the primary purpose of effective internal control in an organization?

A. Achievement of certain organizational goals.

B. Completion of a successful audit for the entity.
C. Shareholder involvement in the company's success.
D. Obtaining profitability and financial strength.

17. Which of the following is not a major emphasis in the design of effective internal control?

A. Assets are properly protected.

B. Duties are segregated.
C. Transactions are authorized.
D. Processes are efficient.
18. Which one of the following is the most relevant factor in assessing the control risk of a computerized environment?

A. Computerized environments provide management with effective replacement controls

B. Computerized accounting systems enhance efficiency for users
C. An auditor's method of testing the effectiveness of the system controls is the same in a computerized system as in a
manual system
D. The control risk over computerized accounting systems must be assessed during planning

19. What is the overriding objective of the International Auditing Standards that are issued by the International Auditing
Practices Committee of the International Federation of Accountants?

A. To improve the uniformity of auditing practices and related services throughout the world.
B. To override a countrys regulations governing the audit of financial statements.
C. To replace the generally accepted auditing standards.
D. To provide a uniform application of specific audit procedures that are acceptable worldwide.

20. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register with the BOA
and the PRC. If the application for registration of Ocampo and Co., CPAs was approved on July 31, 2006, the registrant
should apply for the renewal on or before:

A. Sept. 30, 2008

B. Dec. 31, 2009
C. Dec. 31, 2008
D. July 31, 2008
21. Management's assertions in the financial statements are of relevant to the audit process because:

A. they embody the procedures that will be performed by the audit team
B. they include representations of financial statements in accordance with the applicable reporting criteria
C. they provide evidence that auditors have prepared financial statements in accordance with GAAP
D. they relate to regulator's expectations about audit results

22. To establish the validity of account balances and transactions relating to recorded amounts, auditors may resort to:

A. vouching
B. tracing
C. representing
D. footing

23. The assertion of existence can be audited directionally by considering balances and transactions from:

A. recorded amounts to evidence regarding the source

B. evidence regarding the source to recorded amounts
C. general ledgers to trial balances
D. all of these choices

24. Which of the following types of audits are most similar?

A. Operational audits and compliance audits

B. Independent financial statement audits and operational audits
C. Compliance audits and independent financial statement audits
D. Internal audits and independent financial statement audits

25. Which of the following best represents an auditor's responsibility for fraud?

A. Auditors are only required to find securities fraud

B. Auditors defer to management to discover the extent of fraud
C. Auditors are required to discover misstatements resulting from material fraud
D. Auditors are required to seek out and find all fraud, regardless of its magnitude

A. Prepare qualified opinion due to material misstatement but not pervasive. 25 points
B. As the independent auditor for Jansin Company, you completed the audit engagement for the year ended August 31, 2005 on
October 1, 2005. Jansin Companys audit revealed no irregularities in the accounting system and you have concluded that
managements financial statements are presented fairly in all material respects in conformity with GAAP.

Required:
Produce an audit report for this client addressed to the Board of Directors and company shareholders.