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1. In considering internal within the revenue/receipt cycle, what is the purpose 8.

8. Which department should match shipping documents with sales orders and
of a transaction walk-though? prepare daily summaries?
A. To assure that employees are performing assigned accurately A. Billing
B. To confirm the auditor’s understanding of the internal control structure B. Shipping
C. To select documents for detailed test of control C. Credit
D. To verify the results of the auditor’s sampling plan D. Sales order
2. Good internal control activities call for the segregation of which duties? 9. Billing department is part of which department?
A. Custody, authorization, recording A. Sales
B. Custody, execution, treasureship B. Credit
C. Accounting, bookkeeping, recording C. Shipping
D. Execution, recording, bookkeeping D. Accounting
3. Which among the following is a transaction document not found in the 10. The document used as the basis for recording sales and updating the
“revenue” cycle? accounts receivables master files is the
A. Sales order A. Sales order
B. Bill of lading B. Bill of lading
C. Requisition form C. Sales invoice
D. Sales invoice D. Sales journal
4. Which department executes the sales transactions? 11. It is a file for recording individual sales, cash receipts, and sales returns and
A. Sales department under the sales manager allowances for each
B. Credit department under the credit manager Customer
C. Billing department under the billing clerk A. Sales journal
D. Treasury department under the treasurer B. Cash receipts journal
5. For most firms, the function of indicating credit approval is recorded on the C. General journal
A. Bill of lading D. Accounts receivable subsidiary ledger
B. Sales order 12. In retail cash sales set-up, a control which is normally absent is
C. Sales invoices A. Segregation of duties
D. Customer order B. Competent personnel
6. Before goods are shipped on account, a properly authorized person must C. Monitoring
A. Prepare the sales invoice D. Access to assets limited to authorized personals
B. Approved the entry 13. A compensating control for small entities consists of
C. Approve credit A. Appointment of the external auditor by the audit committee
D. Verify that the unit price is appropriate B. Active participation of the owner-manager in the business operations
7. Controls over approving credit relate which assertion? C. Strict segregation of the authorization, recording and custodianship
A. Completeness functions
B. Valuation/allocation D. Monthly financial statement audit
C. Rights and obligation 14. Test of existence/validity/occurrence normally requires
D. Occurrence A. Recalculation
B. Tracing
C. Vouching B. Sales journal to the bill of lading
D. Inquiry C. Sales journal to the accounts receivable subsidiary ledger
15. To test for existence/validity/occurrence, direction of test should be from D. Bill of lading to the supporting customer order and sales order
A. Accounting records to source documents 22. To test for the possibility of a shipment to a fictitious customer, the auditor
B. Source documents to accounting records traces from the
C. Accounting records to financial statements A. Bill of lading to the credit authorization
D. Subsidiary ledger to general ledger B. Credit authorization to the bill of lading
16. The purpose of test of control over shipping is to determine whether C. Accounts receivable ledger to the bill of lading
A. Credit is approved before goods are shipped D. Sales journal to the accounts receivable ledger
B. Shipments are billed 23. An effective procedure to test for unbilled shipments is to trace from the
C. Shipping department personnel are competent A. Sales journal to the shipping documents
D. Billed goods have been shipped B. Shipping documents to the sales journal
17. Tracing shipping documents to pre- numbered sales invoice provides C. Sales journal to the accounts receivable ledger
evidence that D. Sales journal to the general ledger sales account
A. No duplicate shipments or billings occurred 24. To gather audit evidence about the proper credit approval of sales, the
B. Shipments to customers are properly invoiced auditor would select a sample of documents form the population
C. All goods ordered by customers were shipped represented by the
D. All pre-numbered sales invoices were accounted for A. Customer order file
18. Tracing sales orders to shipped documents provide evidence that B. Bill of lading file
A. No duplicate shipments or billing occurred C. Subsidiary customers’ accounts ledger
B. Shipments to customers were properly invoiced D. Sales invoice file
C. All good ordered by customers were shipped 25. To test controls for the completeness assertion, an auditor would most likely
D. All pre-numbered sales invoices were accounted for A. Verify that extensions and footing on the entity’s sales invoice and
19. To test whether customers were only invoiced/ billed for goods that have monthly customer statements have been recomputed
been shipped, the auditor selects a sample from B. Compare the invoice prices on pre-numbered sales invoice to the
A. Shipping document entity’s authorized price list
B. Sales invoice C. Inspect the entity’s reports of pre-numbered shipping documents that
C. Sales order have not been recorded in the sales journal.
D. Receiving report D. Inquire about the entity’s credit granting policies and the consistent
20. To test whether goods shipped to customers were invoiced/billed, the auditor application of credit checks
selects a sample from 26. Which activity most likely would help ensure that all credit sales transactions of
A. Shipping document an entity are recorded
B. Sales invoice A. The billing department supervisor sends copies of approved sales
C. Sales order orders to the credit department for comparison to authorized credit
D. Receiving report limits are current customer account balances
21. To test for recorded sales for which there were no actual shipments, the B. The accounting department supervisor independently reconciles the
auditor traces from the account receivable subsidiary ledger to the accounts receivable
A. Bill of lading to the sales journal control account monthly
C. The accounting department supervisor control the mailing of monthly 32. Whenever footing and comparisons are restricted to journals, master file
statements to the customers and investigates any differences reported records, and ledgers, the process is
by customers A. Valuation
D. The billing department supervisor matches pre-numbered shipping B. Summarization
documents with entries in the sales journal C. Cutoff
27. Which of the following audit procedures is most effective in testing credit sales D. Completeness
understatement? 33. It is a document enclosed by the paying customer in the mailed check to
A. Age accounts receivable describe the invoice the check is paying.
B. Confirm accounts receivable A. Bill lading
C. Trace sample of initial sales slips through summaries to recorded B. Remittance advice
general ledger sales C. Deposit slip
D. Trace sample of recorded sales, from general ledger to initial sales slip D. Check list
28. As opposed to tracing, vouching is used to test for what possible 34. When a customer fails to include a remittance advice with a payment, it is
misstatement? common practice for the person opening the mail to prepare one.
A. Overstatement Consequently, mail should be opened by which of the following four
B. Understatement company employees?
C. Fraud A. Credit manager
D. Anomaly B. Receptionist
29. To determine whether internal control effectively minimized errors of failure to C. Sales manager
bill a customer for a shipment, the auditor would select a sample of D. Receivable clerk
transactions from the population represented by the 35. When opening a mailed check, as a preventive control, at least how many
A. Customer order file individual/s should open it?
B. Shipping records file A. One
C. Subsidiary customer accounts ledger B. Two
D. Sales invoice C. Three
30. For most firms, sales are recorded when D. Four
A. A sales order is pre[pared for an order received 36. Immediately upon receiving check from customer by mail, a responsible
B. The credit manager approves credit employee should
C. Goods are shipped by the shipping department A. Record the checks in the receipts journal
D. Cash is collected from the sale B. Add the checks to the daily cash summary
31. To verify that all sales transactions have been recorded, a test of transactions C. Prepare a duplicate listing of checks received
should be completed on a representative sample from drawn from D. Verify that each check is supported by a pre-numbered sales invoice
A. Entries in the sales journal 37. A remittance listing of checks received is accomplished in two copies. One
B. The billing clerk’s file of sales orders copy is forwarded to the cashier (together with the check). A copy of the
C. A file of duplicate copies of sales invoices for which all pre-numbered listing should be sent to the
forms in the series have been accounted A. Internal auditor to investigate the listing for unusual transactions
D. The shipping clerk’s file of duplicates copies of shipping documents B. Treasurer to compare the listing with the monthly bank statement
C. Accounts receivable bookkeeper to update subsidiary accounts C. Monthly bank reconciliations
receivable records D. Daily deposit of cash receipts
D. Entity’s bank to compare the listing with the cashier’s deposit slip 44. Internal control over cash receipts is weakened when an employee who
38. Standard control procedures over customer remittances received through receives customers mail receipts also
the mail include the policy of having the mailroom personnel A. Prepares initial cash receipts records
A. Forwards the remittances, unopened, directly to the cashier B. Records credits to individual accounts receivable
B. Forwards the remittances, unopened, directly to the accounts C. Prepares bank deposit slips for all mail receipts
receivable records D. Maintain a petty cash fund
C. Opens the mail, restrictively endorse the checks, and then prelists 45. Which one of the following would the auditor consider to be an incompatible
each remittance in triplicate copies operation? If the cash receives
D. Opens the mail, restrictively endorses the checks, then, forward the A. The cashier prepares the daily deposit
remittances directly to the account receivable clerk B. The cashier makes the daily deposit at a bank
39. Which document which supports reduction in accounts receivable of an C. The cashier posts the receipts to the accounts receivable subsidiary
individual customer? ledger cards
A. Remittance advice D. The cashier endorses the checks
B. Credit memo 46. Which of the following is not a universal rule for achieving control over cash?
C. Sales invoice A. Separate the cash-handling and record-keeping functions
D. Monthly statement B. Deposit each day’s cash receipts by the end of the day
40. This document supports daily entries in the cash receipts journal. C. Have a bank reconciliation’s performed by employees who do not
A. Remittance advices handle cash
B. Shipping documents D. Decentralize the receiving of cash as much as possible
C. Sales invoice 47. Proper authorization of the write-offs of the uncollectible accounts should be
D. Credit memos approved in which of the following departments?
41. The document which is used to permit the immediate deposit of cash and to A. Credit
improve the control over the custody of assets is the B. Accounts payable
A. Remittance advice C. Treasurer
B. Credit memo D. Accounts receivable
C. Sales invoice 48. Which of the following is an effective internal control over accounts
D. Cash receipts journal receivable?
42. Who deposits the checks received? A. Only persons who handle cash receipts should be responsible for the
A. Sales personnel preparation of documents that reduce account receivable balances
B. Cashier B. Responsibility for approval of the write-off of uncollectible accounts
C. Controller receivable should be assigned to the cashier
D. Receptionist C. Balances in the subsidiary accounts receivable ledger should be
43. To reduce the risk of diversion of customer receipts by an entity’s employees, reconciled to the general ledger control account once a year,
which of these is most useful? preferably at the year-end
A. A bank lockbox system D. The billing function should be assigned to persons other than those
B. Pre-numbered remittance advices responsible for maintaining accounts receivable subsidiary records
49. Which of the following is at least likely an activity in the revenue and receipt
cycle?
A. Authorization of sales transactions AUDIT EVIDENCE-MULTIPLE CHOICE PART I
B. Receipt of goods and inspection of such goods
1. All the information used by the auditor in arriving at the conclusion on which
C. Delivery of merchandise to customers the audit opinion is based. It includes the information contained in the
D. Billing of customers accounting records underlying the financial statements (underlying
50. Which of the following is (are) not directly involved in the revenue/receipt accounting data) and other information (corroborating information).
cycle? A. Audit evidence C. Audit opinion
A. Treasurer and controller B. Audit risk D. Audit program
B. Receiving clerk
2. Which of the following statements is/are correct?
C. Billing clerk
Statement 1: Audit evidence comprises source documents and accounting
D. Sales and credit manager records, underlying the financial statements and corroborating information
51. Which of the following is not a common activity of the revenue/receipt from other sources.
cycle?
A. Order entry Statement 2: Audit evidence is obtained to form an appropriate mix of tests of
B. Inventory control control and substantive procedures.
C. Receiving
Statement 3: The auditor should obtain sufficient appropriate audit evidence
D. Cash collection
to be able to draw reasonable conclusions on which to base the audit
52. During the consideration of a small business client’s internal control, the opinion.
auditor discovered that the accounts receivable clerk approves credit A. Statements 1 and 2 only C. Statement 2 and 3
memos and has access to cash. Which of the following controls would be only
most effective in offsetting this weakness? B. Statements 1 and 3 only D. All statements are
A. The owner reviews errors on billings to customers and postings to the correct
subsidiary ledger
3. All of the following are underlying accounting data, except:
B. The controller receives the monthly bank statement directly and A. Records of initial entries and supporting documents
reconciles the checking accounts B. General and subsidiary ledgers
C. The owner reviews credit memos after they are recorded C. Worksheets and spreadsheets for cost allocations
D. The controller reconciles the total of the detail accounts receivable D. Minutes of meetings
accounts to the amount shown in the ledger
53. The least crucial element of control over cash is 4. The measure of the quantity of audit evidence is:
A. Sufficiency C. Appropriateness
A. Separation of cash record keeping from custody of cash
B. Competence D. Relevance
B. Preparation of monthly bank reconciliation
C. Batch processing of checks 5. The measure of the quality of audit evidence is:
D. Separation of cash receipts from cash disbursements A. Sufficiency C. Appropriateness
B. Competence D. Relevance

AT.M-1415 6. An evidence to be considered appropriate must be:


AUDIT EVIDENCE AND DOCUMENTATION A. Relevant C. Reliable
B. Relevant and reliable D. Relevant or reliable
12. The auditor’s judgment as to what is sufficient appropriate audit evidence is
influenced by such factors as:
A. The auditor’s assessment of the nature and level of inherent risk at both
7. The following statements are correct, except: the financial statement level and the account balance or class of
A. The greater the risk of misstatement, the more audit evidence is likely to transaction level.
be required. B. The nature of the internal control structure and the assessment of control
B. The higher the quality of audit evidence, the less may be required. risk.
C. Obtaining more audit evidence will compensate for its poor quality. C. The materiality of the item being examined.
D. The sufficiency and appropriateness of audit evidence are interrelated. D. The experience gained during previous audits.
E. The results of the audit procedures, including fraud or error which may
8. The appropriateness of audit evidence available to an auditor is least likely to have been found.
be affected by: F. The source and reliability of information available.
A. The relationship of the source or prepare of the evidence to the entity
being audited. A. A, B, D, F, G C. A, B, F
B. The relevance of the evidence to the financial statement assertion being B. A, B, D, E, F D. A, B, C, D, E, F
investigated.
C. The timeliness of the audit evidence. 13. Which of the following statements regarding reliability of evidence is
D. The sampling method employed by the auditor to obtain a sample of the incorrect?
evidence. A. Audit evidence is more reliable when it is obtained from independent
sources outside the entity.
9. The most reliable form of documentary evidence are those documents that B. The condition of internal control of the entity does not contribute to the
are: reliability of audit evidence.
A. Internally generated C. Authorized by a responsible C. Audit evidence that is generated internally is more reliable when the
official related controls are effective.
B. Pre-numbered D. Easily duplicated D. Audit evidence obtained directly by the auditor is more reliable than
audit evidence obtained indirectly.
10. Which of the following procedures would provide the most reliable audit
evidence? 14. Which of the following is the least reliable evidence?
A. Inquiries of the client’s internal audit staff held in private A. Confirmation from third parties C. Documentary form
B. Inspection of prenumbered client purchase orders filed in the vouchers evidence
payable department B. Observation of the inventory count D. Photocopies and
C. Analytical procedures performed by the auditor on the entity’s trial facsimiles
balance
D. Inspection of bank statements obtained directly from the client’s financial 15. Which of the following statement is/are correct?
institution Statement 1: The auditor considers the relationship between the cost of
obtaining audit evidence and the usefulness of the information obtained.
11. Ultimately, what is sufficient appropriate audit evidence depends on:
A. The users of the financial statements under audit. Statement 2: The difficulty and the expense involved are valid basis of
B. The professional judgment of the client’s management and those omitting an audit procedure for which there is no alternative.
charged with governance.
C. The professional judgment of the auditor. Statement 3: The auditor relies on audit evidence that is persuasive rather
D. A combination of the professional judgment of the auditor and the than conclusive.
client’s management.
Statement 4: The auditor uses professional judgment and exercise professional 21. The assertion of occurrence means that:
scepticism to determine the sufficiency and appropriateness of evidence. A. All transactions and events that should have been recorded are recorded
A. Only one statement is correct C. Only three statements B. Amounts and other data relating to recorded transactions and events
are correct have been recorded appropriately
B. Only two statements are correct D. All statements are C. Transactions and events that have been recorded have occurred, and
correct pertain to the entity
D. Transactions and events have been recorded in the proper accounts
16. Assertions used by the auditor fall into the following categories, except:
A. Assertions about the faithful representations 22. Which description refers to the completeness assertion?
B. Assertions about account balances A. All disclosures that should have been included in the financial statements
C. Assertions about classes of transactions and events have been included.
D. Assertions about presentation and disclosure B. Disclosed events, transactions and other matters have occurred and
pertain to the entity,
17. Management assertions are: C. Financial information is appropriately presented and described, and
A. Stated in the footnotes to the financial statements disclosures are clearly expressed.
B. Implied or express representations about the accounts in the financial D. Financial and other information are disclosed fairly and at appropriate
statements. amounts.
C. Explicitly expressed representations about the financial statements.
D. Provided to the auditor in the assertions letter, but are not disclosed in the
financial statements.
23. Confirming proper title to equipment supports which of the following
18. Management assertions are: assertions?
A. Directly related to PSAs C. Directly related to GAAP A. Existence or occurrence C. Presentation and
B. Indirectly related to PSAs D. Indirectly related to GAAP disclosure
B. Insurance or coverage D. Rights and obligations
19. Assertions about account balances at the period-end include valuation and
allocation, which means that 24. Which of the following ultimately determines the auditing procedures
A. Assets, liabilities and equity interest exist. necessary in an audit engagement?
B. All assets, liabilities and equity interests that should have been recorded A. Auditor judgment C. Relative risk
have been recorded. B. Materiality D. Reasonable assurance
C. Assets, liabilities and equity interests are included in the financial
statements at appropriate amounts and any resulting valuation or 25. The completeness assertion addresses whether
allocation adjustments are appropriately recorded. A. All of the assets on the balance sheet exist.
D. The entity holds or controls the rights to assets, liabilities are the obligations B. All recorded transactions occurred.
of the entity. C. The entity has property rights to all assets on the balance sheet.
D. All of the transactions, which occurred during the period, were recorded.
20. The assertion of cut-off means that:
A. All transactions and events that should have been recorded 26. The auditor notices that a client’s cash basis financial statements are
B. Amounts and other data relating to recorded transactions and events prepared with accrual basis financial titles. This situation bears on which
have been recorded appropriately financial statement assertion?
C. Transactions and events have been recorded in the correct accounting A. Valuation or allocation C. Rights and obligations
period B. Presentation and disclosure D. Completeness
D. Transactions and events have been recorded in the proper accounts.
27. When vouching,
A. The direction of the test is from recorded item back to the underlying 34. Audit procedures to detect material misstatements at the assertion level.
support. A. Risk assessment procedures C. Substantive
B. A complete examination of the transactions in the account is performed. procedures
C. Recomputations are performed. C. Tests of control D. Analytical procedures
D. The auditor selects a transaction and follows it forward to recording in the
accounting records. 35. Which of the following procedures is not required to be performed by the
auditor?
28. Which of the following statements relating to the competence of evidential A. Risk assessment procedures C. Substantive
matter is always true? procedures
A. Evidence gathered by auditors must be both valid and relevant to be B. Tests of control D. Analytical procedures
considered competent.
B. Properly designed analytical procedures will detect material 36. It includes test of details of classes of transactions, account balances, and
misstatements. disclosures and analytical procedures.
C. Evidential matter gathered by an auditor from outside a client is reliable. A. Risk assessment procedures C. Substantive
D. Oral representations made by management are not valid. procedures
B. Tests of control D. Analytical procedures
29. The process of vouching helps establish that all recorded transactions
A. Have been completed C. Are valid 37. Test of controls are necessary to be performed:
B. Are complete D. Are presented properly A. When auditor’s risk assessment includes an expectation of the operating
effectiveness of controls.
30. Acts to be performed in order to obtain audit evidence B. When substantive procedures alone do not provide sufficient appropriate
A. Audit standards C. Audit program audit evidence.
B. Audit procedures D. Audit strategy C. Both a and b
D. No circumstance will require tests of controls.

31. Which of the following best describes the primary purpose of audit 38. Examining records or documents, whether internal or external, in paper form,
procedures? electronic form, or other media.
A. To detect fraud A. Inspection of records or documents C. Observation
B. To comply with generally accepted accounting principles B. Inspection of tangible assets D. Inquiry
C. To gather corroborative evidence to support the audit opinion
D. To verify the accuracy of account balances

32. Audit procedures performed to obtain an understanding of the entity and its 39. Physical examination of the assets.
environment, including its internal control. A. Inspection of records or documents C. Observation
A. Risk assessment procedures C. Substantive B. Inspection of tangible assets D. Inquiry
procedures
B. Tests of control D. Analytical procedures 40. Consists of looking at a process or procedures being performed by others.
A. Inspection of records or documents C. Observation
33. Audit procedures to test the operating effectiveness in preventing or B. Inspection of tangible assets D. Inquiry
detecting and correcting material misstatements at the assertion level.
A. Risk assessment procedures C. Substantive 41. Consists of seeking information from knowledgeable persons, both financial
procedures and nonfinancial, within the entity or outside the entity.
B. Tests of control D. Analytical procedures A. Inspection of records or documents C. Observation
B. Inspection of tangible assets D. Inquiry
B. Are designed to discover significant subsequent events.
42. The process of obtaining a representation of information or of an existing C. May be either tests of transactions, direct tests of financial balances, or
condition directly from third party. It is a specific type of inquiry. analytical tests.
A. Reperformance C. Reconciliation D. Will increase proportionately with the auditor’s reliance on internal control.
B. Confirmation D. Recomputation
49. Which of the following methods is considered the best combination in
43. Consists of checking the mathematical accuracy of documents or records. obtaining audit evidence assuming documentary evidence is available to
A. Reperformance C. Reconciliation the auditor?
B. Recalculation D. Recomputation A. Inspection and reperformance C. Inquiry and inspection
B. Observation and inquiry D. Inquiry and analytical
44. Auditor’s independent execution of procedures or controls that were procedures
originally performed as part of the entity’s internal control.
A. Reperformance C. Reconciliation 50. As required by PSA 500, the auditor’s substantive procedures should include
B. Confirmation D. Recomputation the following:
A. Agreeing the financial statements to the underlying accounting records.
45. Evaluation of financial information made by study of plausible relationships B. Examining material journal entries and other adjustments made during the
among both financial and non-financial data. course of preparing the financial statements.
A. Reperformance C. Reconciliation C. Both a and b.
B. Confirmation D. Analytical procedures D. Neither a nor b.

46. Which statement is incorrect regarding the nature of further audit 51. “Physical examination” is the inspection or count by the auditor of assets such
procedures? as:
A. The nature of further audit procedures refers to their purpose and type. A. Cash or inventory only
B. Certain audit procedures may be more appropriate for some assertions B. Cash, inventory, cancelled checks, and sales documents
than others. C. Cash, inventory, securities, notes receivable, and tangible assets
C. The auditor is required to obtain audit evidence about the accuracy and D. Cash, inventory, cancelled checks, and tangible fixed assets
completeness of information produced by the entity’s information system
when that information is used in performing audit procedures. 52. Physical examination of tangible assets is not a sufficient form of evidence
D. The higher the auditor’s assessment of inherent and control risks, the less when the auditor wants to determine the:
reliable and relevant is the audit evidence sought by the auditor from A. Existence of the asset C. Condition or quality of
substantive procedures. the asset
B. Quantity and description of the asset D. Ownership of the asset

47. The more the planned reliance of the auditor on the operating effectiveness 53. Which of the following audit procedures is used extensively throughout the
of internal controls, audit but does not, by itself, provide sufficient appropriate evidence?
A. The more the extent of the auditor’s tests of controls. A. Inspection of records or documents C. Inquiry
B. The less the extent of the auditor’s tests of controls. B. Observation D. Inspection of tangible
C. The more the reliance of the auditor on information generated by the assets
entity.
D. The less the reliance of the auditor on information generated by the entity. 54. Evidence obtained directly by the auditor is more reliable than information
obtained indirectly. Which of the following is not an example of the auditor’s
48. In the context of an audit of financial statements, substantive tests are audit direct knowledge?
procedures that A. Inspection C. Computation
A. May be eliminated under certain conditions. B. Observation D. Inquiry
B. Issue a qualified opinion or an adverse opinion, depending on the
55. Confirmation is most likely to be the relevant form of evidence with regard to materiality involved
assertions about accounts receivable when the auditor has concerns about C. Issue a qualified opinion or a disclaimer of opinion on grounds of a scope
the receivables’ limitation
A. Valuation C. Existence D. Contact the recipient/respondent in order to force a response from such
B. Classification D. Completeness recipient

56. Confirmation is the process of obtaining a representation of information or of 62. The primary source for evidence to corroborate the existence of pending
an existing condition directly from a third party. Traditionally, confirmation is litigation is:
used to verify: A. Vendor confirmations C. management representation
A. Individual transactions between organizations, such as sales transactions. letters
B. Fixed asset additions. B. Disclosures in financial statements D. attorney confirmations
C. Bank balances and accounts receivables.
D. All three of the above. 63. The following are purposes of analytical procedures, except:
A. Assist the auditor in planning the nature, timing and extent of other audit
57. Who signs the confirmation requests: procedures
A. The appropriate level of management C. The CEO/CFO of the client B. As a test to obtain audit evidence about the suitability of design and
B. The audit partner D. Both management and the effective operation of internal controls.
auditor C. As a substantive procedure when their use can be more effective or
efficient that tests of details in reducing detection risk for specific financial
58. A confirmation requests letter should always be sent under the control of: statement assertions
A. The client C. The recipient D. As an overall review of the financial statements in the final review stage of
B. The auditor D. Both a and b the audit.

59. Negative confirmation requests may be used when: 64. Where there are unusual fluctuations and relationships ordinarily begins with
A. The assessed levels of inherent and control risks are high inquiries of management, followed by
B. A large number of large balances is involved A B C
C. A substantial number of errors is expected D
D. The auditor has no reason to believe that the respondents will disregard  Corroboration of management’s responses Yes No Yes
these requests No
 Consideration of the need to apply other audit
60. When the recipient has accomplished the confirmation request, replies should procedures based on the results of management Yes Yes
be: No No
A. Sent directly to the auditor inquiries
B. Sent directly to the client, after which the client gives the replies to the
auditor 65. Evidential matter consists of both underlying accounting data and
C. Sent directly to the auditor, with another copy of the reply going to the corroborating information, which support the accounting data. Which of the
client following is considered corroborating information?
D. Not sent back since a confirmation request does not necessitate replies A. Data files C. Subsidiary ledgers
B. Records of electronic fund transfers D. General ledger
61. Where no response is received to a positive confirmation request, the auditor
should 66. As the acceptable level of detection risk decreases, an auditor may change
A. Contact the recipient to elicit a response and perform alternative the
procedures as necessary
A. Timing of substantive tests by performing them at an interim date rather Statement 1: The quantity of audit evidence is affected by the risk of
than at year-end misstatement and also by the quality of such audit evidence.
B. Nature of substantive tests from a less effective to a more effective
procedure Statement 2: The reliability of audit evidence is influenced by its source and
C. Timing of tests of controls by performing them at several dates rather than by its nature and is dependent on the individual circumstances under which it
one time is obtained.
D. Assessed level of inherent risk to a higher amount A. Both statements are true C. True;
False
67. Analytical procedures are
A. Substantive tests designed to evaluate a system of internal control B. Both statements are false D. False;
B. Tests of controls designed to evaluate the validity of management’s True
representation letter
C. Substantive tests designed to evaluate the reasonableness of financial
information.
3. Management makes certain assertions that are embodied in financial
D. Tests of controls to evaluate the reasonableness of financial information.
statement components; for example, two such categories of assertions are
68. Which of the following is designed to detect possible material peso
completeness and valuation and allocation. Which of the following is not a
misstatements in the financial statements?
broad category of management assertions?
A. Tests of controls C. Computer controls
B. Analytical procedures D. Post audit working paper A. Rights and obligations C. Existence
review
B. Completeness D. Error or fraud
69. In testing for lower-of-cost-or-net realizable value, the auditor is gathering
evidence to support which of the following assertions?
A. Pricing C. Valuation 4. The objective of tests of details of transactions performed as substantive
B. Accuracy D. Rights and obligations tests is to

70. When performing trend analysis, A. Comply with generally accepted auditing standards
A. Profitability ratios are required C. Comparison to budget may
be performed B. Attain assurance about the reliability of the accounting s system
B. Expected values are calculated D. Solvency ratios are computed C. Detect material misstatements in the financial statements

D. Evaluate whether management's policies and procedures operated


AUDIT EVIDENCE-MULTIPLE CHOICE PART II effectively
1. Which of the following statements concerning audit evidence is correct?
A. To be appropriate, audit evidence should be either reliable or relevant, but
it need not be both. 5. In testing the existence assertion for an asset, an auditor ordinarily works
B. The measure of validity of audit evidence lies in the auditor's judgment. from the
C. The difficulty and expense of obtaining audit evidence concerning an
account balance is a valid basis for omitting the test. A. Financial statements to the potentially unrecorded items
D. A client's accounting records can be sufficient audit evidence to support B. Potentially unrecorded items to the financial statements
the financial statements.
C. Accounting records to the supporting evidence
2. Which of the following statements concerning audit evidence is correct?
D. Supporting evidence to the accounting records D. Correspondence from the client's attorney about litigation

6. In determining whether transactions have been recorded, the direction of 10. Which of the following statements concerning audit evidence is correct?
the audit testing should be from the
A. An audit usually involves the authentication of documentation
A. General ledger balance C. Original source
documents B. A given set of procedures may provide audit evidence that is relevant to
certain assertions, but not others
B. Adjusted trial balance D. General journal entries
C. Audit evidence obtained from an independent external source is always
reliable

7. Which of the following statements concerning evidential matter is true? D. An entity's accounting records can be sufficient audit evidence to support
the financial statements
A. Appropriate evidence supporting management's assertions should be
convincing rather than merely persuasive.

B. Effective internal control contributes little to the reliability of the evidence


created within the entity

C. The cost of obtaining evidence is not an important consideration to an 11. In which of the following circumstances would be the use of the negative form of
auditor in deciding what evidence should be obtained accounts receivable confirmation most likely be justified?
A. A substantial number of accounts may be in dispute and the accounts receivable
D. A client's accounting records cannot be considered sufficient evidence to balance arises from sales to a few major customers
support the financial statements B. A substantial number of accounts may be in dispute and the accounts receivable
balance arises from sales to many customers with small balances
C. A small number of accounts may be in dispute and the accounts receivable
8. Which of the following is an example of "other information” that could be balance arises from sales to a few major customers
used by an auditor as evidential matter supporting financial statements D. A small number of accounts may be in dispute and the accounts receivable
balance arises from sales to many customers with small balances
A. Worksheet supporting cost allocations C. Special journals

B. Confirmation of accounts receivable D. Accounting 12. Which of the following might be detected by an auditor's review of the client's
manuals sale cut-off?

A. Excessive goods returned for credit


9. Audit evidence can come in different forms with different degrees of B. Unrecorded sales discounts
persuasiveness. Which of the following is the least persuasive type of
evidence? C. Lapping of year-end accounts receivable

A. Bank statement obtained from the client D. Inflated sales for the year

B. Test counts of inventory made by the auditor


13. Which of the following most likely would give the most assurance concerning the
C. Prenumbered purchase order forms valuation and allocation assertion of accounts receivable?
A. Vouching amounts of accounts subsidiary ledger to details on shipping documents A. Inventories typically represent a large component of an entity's current tasks.
B. Comparing receivable turnover ratios with industry statistics for reasonableness
C. Inquiring about receivables pledged under loan agreements B. Inventories are the most liquid asset.
D. Assessing the allowance for uncollectible accounts for reasonableness C. Inventories directly affect the financial directly affect the financial performance of
an entity.
14. Confirmation is "the process of obtaining and evaluating a direct communication D. Inventories typically represent a large portion of an entity's total assets.
from a third party in response to a request about a particular item affecting financial
statement assertions." Two assertions for which confirmation of accounts receivable
balances provides primary evidence are
18. Your client, a merchandise concern, has annual sales of P30,000,000 and a 40%
A. Completeness and valuation C. Rights and obligations and gross profit rate. Test reveals that 2% of the peso amount of purchases does not get
existence into inventory because of breakage and inventory pilferage by employees. The
company estimates that these losses could be reduced to 0.5% of purchases by
B. Valuation and rights and obligations D. Existence and completeness designing and implementing certain controls costing approximately P350,000. Should
the controls be designed and implemented?

15. Which of the following procedures would an auditor most likely perform for year- A. Yes, regardless of cost-benefit considerations, because the situation involves
end accounts receivable confirmations when the auditor did not receive replies to employee theft.
second requests B. Yes, because the ideal system of internal control is the most extensive one.
A. Review the cash receipts journal for the month prior to year-end C. No, because the cost of designing and implementing the added controls exceeds
B. Intensity the study of internal control concerning the revenue cycle the projected savings.

C. Increase the assessed level of detection risk for the existence assertion D. Yes, because the expected benefits to be derived exceed the cost of the added
controls.
D. Inspect the shipping records documenting the merchandise sold to the debtors

19. The primary source of information to be reported about litigation, claims, and
16. Which of the following is an essential control procedure to ensure the accuracy of assessments is the
the recorded inventory quantities?
A. Client's lawyer C. Client's management
A. Calculating unit costs and valuing obsolete or damaged inventory items in
accordance with inventory policy. B. Courts records D. Independent auditor

B. Testing inventory extensions.

C. Performing a gross profit test 20. Which of the following is an audit procedure that an auditor most likely would
perform concerning litigation, claims and assessments?
D. Established a cutoff for goods received and shipped.
A. Request the clients lawyer to evaluate whether the client's pending litigations,
claims and assessment indicate a going concern problem

17. Effective internal controls over inventories are designed and implemented for the B. Examine the legal documents in the client's lawyer's possession concerning
following reasons, except litigations, claims and assessment to which the lawyer has devoted substantive
attention
C. Discuss with management its policies and procedures adopted for evaluating and D. Supporting evidence to the accounting records
accounting for litigations, claims and assessments

D. Confirm directly with the client's lawyer that all litigations, claims and assessment
have been recorded or disclosed in the financial statements 24. An auditor audits an accounting estimate by any of the following means except

A. Testing the process used by management to develop the estimate.


21. Which of the following statements is generally correct about the competence of B. Obtaining a confirmation from an independent source.
evidential matter?
A. Competence of evidential matter refers to the amount corroborative evidence C. Developing an independent expectation.
obtained. B. The more effective the internal control, the more assurance it provides
about the reliability of the accounting data and financial statements. D. Reviewing subsequent events or transactions.
C. Information obtained indirectly from independent sources is more persuasive than
the auditor's direct personal knowledge obtained through observation and 25. When analytical procedures are used as substantive tests, some account
inspection. relationships are more predictable than others. For which of the following accounts is
D. Competence of evidential matter refers to the audit evidence obtained from the prior-year balance likely to be the best predictor of the current year-end
outside the entity. balance?
22. Although the validity of evidential matter is dependent on the circumstances A. Accounts payable C. Revenues
under which it is obtained, there are three general presumptions that have some B. Cash D. Inventory
usefulness. The situations given below indicate the relative reliability a CPA has
placed on two types of evidence obtained in different situations. Which of these is an 26. Which of the following best describes the most important stage of an auditor's
exception to one of the general presumptions? statistical analysis of significant ratios and trends?
A. The CPA places more reliance on the balance in the scrap sales account at Plant A. Computation of significant ratios and trends.
A, where the CPA has made limited tests of transactions because of effective
controls, than at Plant B, where the CPA has made extensive tests of transactions B. Reconciliation of statistical data to the client's accounting ratios.
because of ineffective controls.
C. Interpretation of significant variations and unusual relationships.
B. The CPA places more reliance on the CPAs computation of interest payable on
outstanding bonds than on the amount confirmed by the trustee. D. Comparison of statistical data to prior-year statistics and to similar data published
C. The CPA places more reliance on the report of an expert on an inventory of by government and private sources.
precious gems than on the CPA's physical observation of the gems.
D. The CPA places more reliance on a schedule of insurance coverage obtained
from the company's insurance agent than on one prepared by the internal audit 27. In the audit of accounts receivable an auditor sends confirmations to all
staff. customers with balances of P50,000 or more and to a sample of 25% of the customers
with balances of less than P50,000. Overstatement errors of P12,000 were found in the
accounts of P50,000 or more, and understatement errors of P3,000 were found in the
23. In testing the existence assertion for an asset, an auditor ordinarily works from the
sample. Likely misstatements for accounts receivable is
A. Financial statements to the potentially unrecorded items
A. P0 B. P15,000 C. P9,000 D. P24,000
B. Potentially unrecorded items to the financial statements

C. Accounting records to the supporting evidence


28. An auditor would least likely initiate a discussion with a client's audit committee D. Obtain an understanding of how management developed its estimates
concerning

A. The methods used to account for significant unusual transactions. 4. Which of the following would an auditor generally perform to obtain assurance
that accounting estimates are properly accounted for and disclosed?
B. The maximum peso amount of misstatements that could exist without causing the
financial statements to be materially misstated. A. Inquiry of management

C. Indications of fraud and illegal acts committed by a corporate officer that were B. Make an independent estimate for comparison with client's estimate
discovered by the auditor. C. Review subsequent events
D. Disagreements with management as to accounting principles that were resolved D. Obtain knowledge about the applicable financial reporting standards related to
during the current year's audit. the accounting estimate
ACCOUNTING ESTIMATES
5. Which of the following procedures would an auditor least likely perform when
1. Which of the following statements is incorrect about accounting estimates? evaluating the reasonableness of management's estimates?
A. Management is responsible for making accounting estimates included in the A. Make independent estimates for comparison with management estimates
financial statements. B. Read minutes of board of director’s meetings
B. When evaluating accounting estimates, the auditor should pay particular attention C. Review and test the process used by management
to assumptions that are objective and are consistent with industry patterns. D. Review subsequent events and confirm the estimate made
C. The risk of material misstatement is greater when accounting estimates are
involved.
D. The evidence available to support an accounting estimate will often be more
6. In evaluating an entity's accounting estimates, one of an auditor's objectives is to
difficult to obtain and less conclusive than evidence available to support other items
determine whether the estimates are
in the financial statements.
A. Not subject to bias
2. In evaluating the reasonableness of an entity's accounting estimates, an auditor B. Consistent with industry guidelines
normally would be concerned about assumptions that are
C. Based on objective assumptions
A. Susceptible to bias
D. Reasonable in the circumstances
B. Consistent with prior periods

C. Insensitive to variations
7. In evaluating the reasonableness of an accounting estimate, an auditor most likely
D. Similar to industry guidelines would concentrate on key factors and assumption that are

A. Consistent with prior periods


3. Which of the following would an auditor ordinarily perform first in evaluating
management's accounting estimates for reasonableness? B. Similar to industry guidelines
A. Develop independent expectations of management's estimates.
C. Objective and not susceptible to bias
B. Consider the appropriateness of the key factors or assumptions used in preparing
the estimates. D. Deviations from historical patterns
C. Test the calculations used by management in developing the estimates.
8. When auditing the fair value of an asset or liability, valuation issues ordinarily arise
at the point of

Initial recording Subsequent to initial recording 13. Statement 1: The auditor should prepare working papers which are sufficiently
complete and detailed to provide an overall understanding of the audit.
A. Yes Yes
B. Yes No Statement 2: The auditor should record in the working papers information on
C. No Yes planning the audit work, the nature, timing and extent of the audit
D. No No procedures performed, the results thereof, and the conclusions drawn from
the audit evidence obtained.
9. Which of the following is least likely to be an approach followed when auditing the
fair values of assets and liabilities? A. Only statement one is correct
A. Review and test management's process of valuation.
B. Only statement two is correct
B. Confirm valuation with audit committee members.
C. Independently develop an estimate of the value of the account. C. Both statements are correct
D. Review subsequent events relating to the account.
D. Both statements are incorrect

14. The form and content of working papers are affected by matters such as the
10. Which of the following is not a specialist upon whose an auditor may rely? following except:
A. Actuary C. Appraiser A. Nature of the engagement
B. Internal auditor D. Engineer B. Type of opinion to be rendered by the auditor

C. Nature and complexity of the business


AUDIT DOCUMENTATION
D. Needs in the particular circumstances for the direction, supervision and review of
11. According to PSA 230 ''Documentation'', working papers do not work performed by assistants.
A. Assist in the planning and performance of the audit.
B. Assist in the supervision and review of the audit work.
C. Record the audit evidence resulting from the audit work performed to support an 15. Audit working papers are used to record the results of the auditor's evidence
auditor's opinion. gathering work. When preparing working papers, the auditor should remember that
D. Prove the independence of the auditor.
A. Working papers should be designed to meet the circumstances and the auditor's
need for each engagement
12. Statement 1: Working papers are the property of the auditor.
B. Working papers should be kept on the client's premises so as to provide ready
Statement 2: Although portions of or extracts from the working papers maybe made access to them by the client.
available to the entity at the discretion of the auditor, they may be substitute for the
entity's accounting records. C. Working papers should be at the primary support for the financial statements
being examined.
A. Only statement one is correct C. Both statements are correct
D. Working papers should be considered as a substitute for the client's accounting
B. Only statement two is correct D. Both statements are incorrect records.
19. Audit working papers should not

16. The primary purpose of audit working papers is to A. Include any client-prepared papers or documents other than those prepared by
the CPA or his assistant.
A. Provide evidence of compliance with auditing standards
B. Be kept by the CPA after review and completion of the audit except for items
B. Provide management with an independent copy of financial records. required for the income tax return or the permanent file.

C. Provide protection against litigation C. Be submitted to the client to support the financial statements and to provide
evidence of the audit work performed.
D. Document deficiencies in client policies and procedures
D. Be themselves be expected to provide sufficiency support for the auditor’s
opinion.
17. Which of the following is incorrect?

A. Documentation prepared at the time the work is performed is likely to be more 20. An auditor’s working papers will generally be least likely to include
accurate than documentation prepared subsequently. documentation showing how the
B. The auditor ordinarily includes from audit documentation superseded drafts of A. Client’s schedules were prepared
working papers and financial statements, notes that reflect incomplete or preliminary
thinking, previous copies of documents corrected for typographical or other errors, B. Engagement had been planned
and duplicates of documents.
C. Client’s system of internal control had been reviewed and evaluated
C. It is neither necessary nor practicable to document every matter the auditor
considers during the audit. D. Unusual matters were resolved

D. Oral explanations by the auditor, on their own, do not represent adequate support
for the work the auditor performed or conclusions the auditor reached, but may be
used to explain or clarify information contained in the audit documentation. 21. Which of the following is not a factor affecting the independent auditor’s
judgement about the quantity, type and content of audit working papers?

A. The needs for supervision and review of the work performed by


18. During an audit engagement, pertinent data are compiled and included in the
audit working papers. The working papers primarily are considered to be assistants.

A. A client-owned record of conclusions reached by the auditors who performed the B. The nature and condition of the client’s records and internal control.
engagement
C. The expertise of the client personnel and their participation in
B. Evidence supporting financial statements preparing schedules.

C. Support for the auditor’s representations as to compliance with generally D. The type of financial statements, schedules, or other information on
accepted auditing standards. which the auditor is reporting.
D. A record to be used as a basis for the following year’s engagement.
22. Although the quantity, type and content of working paper will vary with the
circumstance, the working papers generally include the
A. Copies of those client records examined by the auditor during the 25. Using laptop computers in auditing may affect the methods used to review
course of the engagement. the work of staff assistants because.

B. Evaluation of the efficiency and competence of the audit staff A. Supervisory personnel may not have an understanding of the
assistants by the partner responsible for the audit. capabilities and limitations of computers.

C. Auditor’s comments concerning the efficiency and competence of B. Working paper documentation many not contain observable details
client management personnel. of calculations.

D. Auditing procedures followed, and the testing performed in obtaining C. The audit fieldwork standards for supervision may differ.
evidential matter.
D. Documenting the supervisory review may require assistance of
23. Which of the following is generally included or shown in the auditor’s working management services personnel.
papers?
26. Documentation is a form of evidence
A. The procedures used by the auditor to verify the personal financial
status of members of the client’s management’s team A. Used in every financial statement audit

B. Analysis that are designed to be a part of, or a substitute for, the B. Used in most financial statement audit
client’s accounting records.
C. Used on the rare occasions when it is both readily available and less
C. Excerpts from the authoritative pronouncements that supports the costly than other procedures.
underlying generally accepted accounting principles used in
D. Used when nothing is available that is more competent
preparing financial statements.
27. An audit working paper that shows the detailed evidence and procedures
D. The manner in which exceptions and unusual matters disclosed by the
regarding the balance in the accumulated depreciation account in the year
auditor’s procedures were resolved or treated.
under audit will be found in the
24. An auditor’s working papers should
A. Current file of working papers
A. Not be permitted to serve as a reference source for the client.
B. Permanent file of working papers
B. Not contain comments critical of management.
C. Other information working papers in the current file
C. Show that the accounting records agree or reconcile with the
D. Planning memorandum in the current file.
financial statements.
28. In the case of recurring audits, some working papers files may be classified as
D. Be considered the primary support for the financial statements being
audit files which are updated with new information of continuing importance.
audited.
This type of audit file is known as:

A. Current audit file C. Electronic audit


file
B. Permanent audit file D. Planning B. Organization charts D. Copies of bond and
memorandum file note indentures

33. The permanent file portion of the auditor’s working papers generally should
include

A. A copy of the engagement letter.


29. The audit working paper that reflects the major components of an amount
reported in the financial statements is the B. A copy of key customer confirmation

A. Inter-bank transfer schedule C. Supporting C. Names and addresses of audit staff personnel on the engagements.
schedule
D. Time and expense reports.
B. Carry-forward schedule D. Lead
schedule 34. The permanent (continuing) file of an auditor’s working paper most likely
would include copies of the

A. Lead schedules C. Banks


30. A schedule listing account balances for the current and previous years, and statements
columns for adjusting and reclassifying entries proposed by the auditors to
arrive at the final amount that will appear in the financial statements, is B. Attorney’s letter D. Debt agreements
referred to as a

A. Working trial balance C. Summarizing


35. The current file of an auditor’s working paper most likely would include copy
schedule
of the
B. Lead schedule D. Supporting
A. Bank reconciliation C. Articles of incorporation
schedule
B. Pension plan contract D. Flowchart of the internal
31. What do you call the type of working paper where matters of importance are
control activities
noted down for further verification?
36. The permanent file section of the working papers that is kept for each audit
A. Summary sheet C. Agenda
client most likely contains
Sheet
A. Review notes pertaining to questions and comments regarding the
B. Audit program D. Supporting
audit work performed.
schedules.
B. A schedule of time spent on the engagement by each individual
32. The current file of the auditor’s working papers generally should include.
auditor.
A. A flowchart of the internal controls C. A copy of the
C. Correspondence with the client’s legal counsel concerning pending
financial statements
litigation.
D. Narrative descriptions of the client’s accounting procedures and 40. The auditor should complete the assembly of the financial audit file on a
internal controls. timely basis after the date of the auditor’s report. As PSQC 1 indicates, ___
days after the date of the auditor’s report is ordinarily an appropriate time
37. In general, which of the following statements is correct with respect to limit within which to complete the assembly of the financial audit file.
ownership, possession, or access to working papers prepared by a CPA firm in
connection with an audit? A. 30 B. 60 C. 90 D. 120

A. The working papers may be obtained by third parties where they 41. After the assembly of the final audit file has been completed, the auditor not
appear to be relevant to issues raised in litigation. delete or discard audit documentation before the end of its retention period.
As PSQC 1 indicates, the retention period for audit engagement ordinarily is
B. The working papers are subject to the privileged communication rule no shorter than ___ years from the date of the auditor’s report.
which, in a majority of jurisdictions, prevents third-party access to the
working papers. A. 5 B. 3 C. 7 D. 10

C. The working papers are the property of the client after the client pays 42. In documenting the nature, timing and extent of audit procedures performed,
the fees. the auditor should record

D. The working papers must be retained by the CPA firm for a period of I. Who performed the audit work and the date such work papers was
ten years. completed

38. For what minimum period should audit working papers be retained by the II. Who reviewed the audit work and the date and extent of such review
independent CPA?
A. I only C. Both I and II
A. For the period during which the entity remains a client of the B. II Only D. Neither I nor II
independent CPA.

B. For the period during which an auditor-client relationship exists but not 43. Which of the following statements concerning working papers is incorrect?
more than six (6) years
A. An auditor may support an opinion by other means in addition to
C. For the statutory period within which legal action may be brought working papers.
against the independent CPA.
B. The form of working papers should be designed to meet the
D. For as long as the CPA is in public practice. circumstances.

39. Which of the following documentation is required for an audit in accordance C. An auditor’s working papers may not serve as reference source for the
with PSA? client

A. An internal control questionnaire C. A planning memorandum D. Working papers should show that the internal accounting control
or checklist system has been studied and evaluated to the degree necessary.

B. A client engagement letter D. A client representation 44. The main advantage of properly indexed working papers is to
letter
A. Reduce the size of the file C. Better organize the working 2. The risk that the auditor’s conclusion based on a sample may be different
papers from the conclusion if the entire population were subjected to the same audit
procedure is
B. Allow division of labor within the audit team D. Facilitate the A. Sampling risk
efficient use of audit staff B. Non-sampling risk
C. Risk of incorrect rejection
D. Risk of incorrect acceptance
45. During the working paper review, an audit supervisor finds that the auditor’s
reported findings are not adequately cross-referenced to supporting
documentation. The supervisor will most likely instruct the auditor to 3. Sampling risk that leads the auditor to conclude that controls are more
effective than they actually are is
A. Prepare working paper to indicate that the full scope of the audit was
A. Risk of assessing control risk too low
carried out.
B. Risk of assessing control risk too high
B. Familiarize him/herself with the sequence of working papers so that C. Risk of incorrect rejection
he/she will be able to answer questions about the conclusions stated D. Risk of incorrect acceptance
in the report.

C. Eliminate any cross-references to other working papers since the


4. Sampling risk that leads the auditor to conclude that a material misstatement
system is unclear.
exists when in fact it does not is
D. Provide a working paper indexing system that shows the relationship A. Risk of assessing control risk too low
between findings, conclusions and the related facts. B. Risk of assessing control risk too high
C. Risk of incorrect rejection
AT.M-1406 D. Risk of incorrect acceptance

AUDIT SAMPLING
5. Of the four erroneous conclusions from a sampling risk, the auditor is primarily
concerned with
A. Risk of assessing control risk too low
1. The entire set of data from which a sample is selected and about which the B. Risk of assessing control risk too high
auditor wishes to draw conclusions is C. Risk of incorrect rejection
A. Population D. Risk of incorrect acceptance
B. Sample
C. Sampling unit 6. Which is not true of an “Alpha risk” in sampling?
D. Database I. It is the risk of assessing control risk too high or the risk of incorrect
rejection.
II. It relates to the effectiveness of the audit.
III. It usually leads the auditor to additional work to establish that initial
conclusions were incorrect.
A. I and II only D. Detection risk
B. I and III only
C. II and III only 11. Which of the following does not constitute non-sampling risk?
D. I, II, and III A. Use of inappropriate audit procedures
B. Misinterpretation of audit evidence
7. The likelihood of assessing control risk too high is the risk that the sample C. Failure to recognize a misstatement or deviation
selected to test controls D. Failure of a sample to represent the population
A. Does not support the auditor’s planned assessed level of control risk when
the true operating effectiveness of the control structure justifies such an 12. If the audit procedure is not applicable to the selected item, as when for
assessment example, a voided check is selected while testing for evidence of payment
B. Contains misstatements that could be material to the financial statements authorization, which of the following is incorrect?
when aggregated with misstatements in other account balances or A. The auditor shall treat the item as a deviation.
transactions classes B. The auditor shall perform the audit procedure on a replacement item.
C. Contains proportionately fewer monetary errors or deviations from C. If the auditor is satisfied that the voiding of the check is proper, such an
prescribed controls than exist in the balance or class as a whole item does not constitute deviation.
D. Does not support the tolerable error for some or all of management’s D. The replacement item, as the case may be, must be chosen by the
assertions auditor.

8. A misstatement or deviation that is demonstrably not representative of 13. If the auditor is unable to apply the designed audit procedures, or suitable
misstatements or deviations in a population alternative procedures, to a selected item
A. Sampling risk I. The auditor shall treat that item as a deviation from the prescribed
B. Anomaly control in the case of tests of controls,
C. Error II. The auditor shall treat that item as a misstatement, in the case of tests
D. Corruption of details
A. I only
9. The process of dividing a population into subpopulations, each of which is a B. II only
group of sampling units which have similar characteristics (often monetary C. Both I and II
value) is D. Neither I nor II
A. Division
B. Stratification 14. The decision whether to use statistical or non0statistical sampling depends
C. Grouping upon the
D. Characterization A. Philippine Standards on Auditing
B. Auditor’s judgment
10. The risk that the auditor reaches an erroneous conclusion for any reason not C. Size of the population
related to sampling risk is D. Generally Accepted Auditing Standards
A. Sampling risk
B. Non-sampling risk 15. An advantage of using statistical over non-statistical sampling methods in
C. Audit risk tests of controls is that the statistical methods
A. Can more easily convert the sample into a dual-purpose test useful for C. Haphazard selection is a statistical sampling technique in which the
substantive testing auditor selects the sample without following a structured technique.
B. Eliminate the need to use judgment in determining appropriate sample D. Block selection involved selection of a block(s) of contiguous items from
sizes within the population.
C. Afford greater assurance than a non-statistical sample of equal size
D. Provide an objective basis for quantitatively evaluating sample risk 20. In a systematic selection, the number of sampling units in the population is
divided by the sample size to give a sampling interval, for example 50, and
16. Which of the following is a characteristic of the statistical sampling approach? having determined a starting point within the first 50, each 50 th sampling unit
I. Random selection of the sample items thereafter is selected. Which of the following is incorrect about the systematic
II. The use of probability theory to evaluate sample results, including selection technique?
measurement of sampling risk A. The starting point in this technique may be determined haphazardly.
A. I only B. The sample is more likely to be truly random if it is determined by use of a
B. II only computerized random number generator or random number tables.
C. Both I and II C. The auditor would need to determine that sampling units within the
D. Neither I nor II population are not structured in such a way that the sampling interval
corresponds with a particular pattern in the population.
17. S1. With statistical sampling, items are selected in a way that each sampling D. If an audit procedure is not applicable on a unit in the sample selected,
unit has a known probability of being selected. the auditor treats it as an error.
S2. With non-statistical sampling, judgment is used to select sample items.
A. True True 21. Which is incorrect regarding stratification?
B. True False A. Audit efficiency is improved because its objective is to reduce the
C. False False variability of items within each stratum and therefore allow sample size to
D. False True be reduced without increasing sampling risk.
B. In performing test of details, it allows greater audit effort to be directed to
18. Per PSA 530, the principal methods of selecting samples are (choose the the larger value items, as these items may contain the greatest potential
exception) misstatement in terms of overstatement.
A. Random selection C. If, say, 20% of the items in a population makes up 905 of value of an
B. Systematic selection account balance, the auditor may decide to examine a sample of these
C. Haphazard selection items, evaluates the results of this sample and reaches a conclusion on
D. Block selection the 905 of value separately from the remaining 105 (on which a further
sample or other means of gathering audit evidence will be used, or which
19. Which of the following contains incorrect description of methods of sampling/ may be considered immaterial).
selection described? D. The results of audit procedures applied to a sample of items within a
A. Random selection is applied through random number generators, for stratum can be projected to the entire population.
example, random number tables.
B. Monetary unit sampling is a type of value-weighted selection in which 22. Per PSA 530, one benefit of this approach to defining the sampling unit is that
sample size, selection and evaluation results in a conclusion in monetary audit effort directed to the larger value items because they have a greater
amounts. chance of selection, and can result I smaller sample sizes.
A. Stratification C. Parallel
B. Value-weighted selection D. Indeterminate
C. Random selection
D. Haphazard selection 28. A monetary amount set by the auditor in respect of which the auditor seeks to
obtain an appropriate level of assurance that the monetary amount set by
23. The expected population deviation rate of client billing errors is 3%. The the auditor is not exceeded by the actual misstatement in the population is
auditor has established a tolerable rate of 5%. In the review of client invoices A. Tolerable misstatement
the auditor should use B. Tolerable rate of deviation
A. Stratified sampling C. Anomaly
B. Variable sampling D. Expected misstatement
C. Discovery sampling
D. Attribute sampling 29. A rate of deviation from prescribed internal control procedures set by the
24. Which of the following statistical sampling plans does not use a fixed sample auditor in respect of which the auditor seeks to obtain an appropriate level of
size for tests of controls? assurance that the rate of deviation set by the auditor is not exceeded by the
A. Peso-unit sampling actual rate of deviation in the population is
B. Sequential sampling A. Tolerable misstatement
C. PPS sampling B. Tolerable rate of deviation
D. Variables sampling C. Anomaly
D. Expected misstatement
25. Which of the following sampling methods would be used to estimate a
numerical measurement of a population, such as a peso value? 30. In attributes sampling, to support the initial assessment of control risk, the
A. Attribute sampling expected deviation rate must be ______ than the deviation rate
B. Stop-or-go sampling A. Lower
C. Variables sampling B. Higher
D. Random-number sampling C. Equal
D. Indeterminate
26. If the auditor is concerned that a population may contain exceptions, the
determination of a sample size sufficient to include at least one such 31. As a result of tests of controls, an auditor assessed control risk too low and
exception is a characteristic of decreased substantive testing. This assessment occurred because the true
A. Discovery sampling deviation rate in the population was
B. Variables sampling A. Less than the risk of assessing control risk too low, based on the auditor’s
C. Random sampling sample
D. Peso-unit sampling B. Less than the deviation rate in the auditor’s sample
C. More than the risk of assessing control risk too low, based on the auditor’s
27. The relationship between the sampling risk that the auditor is willing to accept sample
and the sample size is selected is D. More than the deviation rate in the auditor’s sample
A. Inverse
B. Direct
32. Which of the following combinations results in a decrease in sample size in a D. Neither A nor B
sample for attributes?
Risk of assessing Tolerable rate Expected 36. When assessing the tolerable rate, the auditor should consider that, while
population deviations from control procedures increase the risk of material
control risk too low deviation misstatements, such deviations do not necessarily result in errors. This explains
rate why
A. Increase Decrease Increase A. A recorded disbursement that does not show evidence of required
B. Decrease Increase Decrease approval may nevertheless be a transaction that is properly authorized
C. Increase Increase Decrease and recorded.
D. Increase Increase Increase B. Deviations would result in errors in the accounting records only if the
deviations and the errors occurred on different transactions.
33. How would increases in tolerable misstatement and assessed level of control C. Deviations from pertinent control procedures at a given rate ordinarily
risk affect the sample size in a substantive test of details? would be expected to result in errors at a higher rate.
D. A recorded disbursement that is properly authorized may nevertheless be
Increase in tolerable misstatement Increase in assessed level of a transaction that contains s material error.
control risk
37. If the expected deviation rate is 6% and the tolerable deviation rate is 9%, the
A. Increase sample size Increase sample size
allowance for sampling risk is
B. Increase sample size Decrease sample size
A. 6% B.9% C. 3% D.
C. Decrease sample size Increase sample size
15%
D. Decrease sample size Decrease sample size

38. What is an auditor’s evaluation of a statistical sample for attributes when a


test of fifty documents results in three deviations if tolerable rate is 7%, the
34. Which of the following statements is correct concerning statistical sampling in
expected population deviation rate is 5%, and the allowance for sampling risk
tests of controls?
is 2%?
A. As the population size increases, the sample size should increase
A. Modify the planned assessed level of control risk because the tolerable
proportionately.
rate plus the allowance for sampling risk exceeds the expected
B. There is an inverse relationship between the expected population
population deviation rate.
deviation rate and the sample size.
B. Accept the sample results as support for the planned assessed level of
C. In determining tolerable rate, an auditor considers detection risk and the
control risk because the sample deviation rate plus the allowance for
sample size.
sampling risk exceeds the tolerable rate.
D. Deviations from specific internal control procedures at a given rate
C. Accept the sample results as support for the planned assessed level of
ordinarily result in misstatements at a lower rate.
control risk because the tolerable rate less the allowance for sampling risk
equals the expected population deviation rate.
35. Per PSA 530, projection of sample results to the population, is only necessary in
D. Modify the planned assessed level of control risk because the sample
the case of
deviation rate plus the allowance for sampling risk exceeds the tolerable
A. Deviations (test of controls)
rate.
B. Misstatement (test of details)
C. A or B
d. Generally-accepted framework

5. A financial reporting framework that requires compliance with the


requirements of the framework
AT.M-1407
a. Fair presentation framework
AUDIT REPORT
b. Compliance framework
c. Conceptual framework
1. In the auditing profession, there is a need for uniformity in reporting in order to d. Generally-accepted framework
I. Avoid confusion
II. Promote credibility in the global marketplace 6. Not an acceptable of a general-purpose framework
a. I only a. PFRSs
b. II only b. PFRSs for SMEs
c. Both I and II c. IFRSs
d. Neither I nor II d. Cash-basis acctg.

2. The auditor’s judgment as to whether the financial statements give a “true 7. Not an example of a special-purpose framework
and fair view” or “are presented fairly” in all material respects, is made in the a. Cash-basis acctg.
context of b. Tax-basis acctg.
a. Generally accepted auditing standards c. PFRSs
b. Philippine Standards on Auditing d. None of the above
c. Applicable financial reporting framework
d. Professional ethical requirements 8. A professional accountant or a CPA firm “is associated with the financial
statements of its client
3. Not an applicable financial reporting framework I. It consents to the use of its name in a professional connection
a. Philippine Financial Reporting Framework (PFRS) II. It attaches a report to the financial statements
b. PFRS for Small-and-Medium-sized Entities a. I only
c. International Financial Reporting Framework b. II only
d. Philippine Standards on Auditing c. Both I and II
d. Neither I nor II
4. A financial reporting framework that requires compliance with the
requirements of the framework and acknowledges that, to achieve fair 9. A CPA firm is “associated with the financial statements” of its client
presentation, it may be necessary for management to: a. Only when it does a financial audit
 Provide disclosures beyond those specifically required, b. Only when it does assurance services, such as review or an audit
or c. Even if a CPA firm only assists a client in preparing financial statements
 Depart from a requirement of the framework but does not do an audit
a. Fair presentation framework d. If it performs any services at all for the client
b. Compliance framework
c. Conceptual framework 10. Number of paragraphs in the old standard unqualified audit report
a. 3 a. The client company
b. 4 b. The BOD of client company
c. 5 c. The President and/or CEO of client company
d. 6 d. The stockholders of client company

11. Purpose of the title of the auditor’s report is to 16. March, CPA, is engaged by Monday Corp., a client, to audit the financial
I. Emphasize that the auditor is independent statements of Wall Corp., a company that is not March’s client. Monday
II. Distinguish the report from those issued by others expects to present Wall’s audited financial statements with March’s auditor’s
III. Identify the entity for whom the report is prepared report to Philippine Bank to obtain financing in Monday’s attempt to
a. I and II purchase Wall. In these circumstances, March’s auditor’s report would usually
b. I and III addressed to
c. II and III a. Monday Corp.
d. I, II and III b. Wall Corp.
c. Philippine Corp.
12. Not an appropriate addressee of an independent auditor’s report d. A and C
a. Shareholders of the client company
b. Company engaging the auditor 17. The introductory paragraph of the auditor’s report should
c. Board of directors of the client company a. Identify the name of the entity for whom the report is prepared
d. President of the client company b. State the auditor’s responsibility to express an opinion on the financial
statements
13. Cannot be an addressee in an audit report c. State that the management is responsible for the fair presentation of
a. Partners of an audit of a partnership the financial statements
b. Taxpayers in audit of a government agency d. Refer to the summary of significant accounting policies and
c. Management in audit of public company explanatory notes
d. Those charged with governance of an entity
18. Not found in the introductory paragraph of a standard unmodified audit
14. Per PSA 700, the auditor’s report should be addressed report
a. Only to the shareholders of the entity whose financial statements are a. A statement that the financial statements have been audited
being audited b. The name of the entity being audited
b. Only to the board of directors of the entity whose financial statements c. The date of the auditor’s report on the financial statements
are being audited d. The title of each of the financial statements being audited
c. To the CEO or the CFO of the entity whose financial statements are
being audited 19. Standards mentioned in the Management’s Responsibility Paragraph of the
d. Either to the shareholders or the board of directors of the entity whose audit report
financial statements are being audited a. PFRSs
b. PSAs
15. As a further attempt to indicate that the auditor is independent, the c. Both A and B
addressee of the audit report is usually d. Neither A nor B
b. PSAs
20. Not referred to in the management’s responsibility paragraph c. Both A and B
a. Design, implementation and maintenance of internal control relevant d. Neither A nor B
to the preparation and fair presentation of the financial statements
b. Effectiveness and efficiency of operating decisions 25. An auditor’s responsibility in a financial statement audit engagement is
c. Selection and application of appropriate accounting policies confined to the
d. Making of reasonable accounting estimates I. Expression of opinion on the financial statements
II. Fairness of presentation of financial statements
21. In the old three-paragraph standard audit report, which of the following is a. I only
included in the Opening paragraph b. II only
I. Name of entity being audited c. Both I and II
II. Management’s responsibility d. Neither I nor II
III. Auditor’s responsibility
a. I and II 26. A basic element of the standard audit report
b. I and III a. The disclosures provide reasonable assurance that the financial
c. II and III statements are free of material statements
d. I, II and III b. The auditor tested compliance to internal control by the client
c. An audit includes assessing significant estimates made by
22. Purpose of introductory (opening) paragraph in the old standard unqualified management
report d. The financial statements are consistent with those of prior periods
a. To distinguish the audit report from a compilation or review report
b. To identify the financial statements which were audited, and the 27. Not included in the Auditor’s Responsibility Paragraph of the standard
dates and time periods covered by the report modified report
c. To communicate the responsibilities of management in preparing the a. Auditor’s compliance with ethical requirements
financial statements, and to clarify the respective roles of b. Assessment whether sufficient appropriate evidence has been
management and the auditor gathered to support an opinion
d. All of the above c. General description of an audit
d. Compliance of financial statements with applicable financial
23. As defined by the PSAs, these are the procedures deemed necessary to reporting framework
achieve the objective of the audit
a. Scope of an audit 28. Not included in the general description of audit in the Auditor’s Responsibility
b. Risk of assessment procedures Paragraph
c. Substantive procedures a. An audit involves performing procedures to obtain audit evidence
d. Analytical procedures about the amounts and disclosures in the financial statements
b. The procedures selected depend on the auditor’s judgment, including
24. Standard’s mentioned in the Auditor’s Responsibility Paragraph of the audit the assessment of the risks of material misstatement of the financial
report statements
a. PFRSs
c. The auditor considers internal control relevant to the entity’s d. Transmittal letter
preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances 33. Per PSA 700, audit report should not be dated earlier than
for the purpose of expressing an opinion on the effectiveness of an a. The date on which the auditor has obtained sufficient appropriate
entity’s internal control evidence
d. An audit also includes evaluating the appropriateness of accounting b. The date that all the statements that comprise the financial
policies used and the reasonableness of accounting estimates made statements have been prepared
by management, as well as evaluating the overall presentation of the c. The date that those with the recognized authority have asserted that
financial statements they have taken responsibility for those financial statements
d. All of the above
29. The term “reasonable assurance” in the auditor’s responsibility paragraph
indicate that 34. The date of the auditor’s report (choose the exception)
a. No misstatements exist in financial statements a. Indicates that the auditor has performed procedures for subsequent
b. No material misstatements exists in the financial statements events that would materially affect the financial statements through
c. There is a possibility that material misstatements still exist in the financial the date of the report
statements b. Should not be earlier that the date management approves the
d. There is a possibility that immaterial misstatements still exist in the financial statements and furnishes a written representation
financial statements c. Should be later than the date of the statement of financial position
d. Must not coincide with the date of the Management Representation
30. The guidelines which enable auditor’s to decide whether something is Letter
material or highly material are provided by
a. PSA 35. An auditor complrtrd firldwork on February 10, 2013 for a December 31, 2012
b. PFRS year-end client. A significant subsequent event occurred on February 22,
c. SEC 2013. In this case, which of the following report dates would not be
d. Auditor’s judgment appropriate?
a. February 10, 2013
31. Per PSA 580, it is a written statement by management provided to the auditor b. February 10, except for Note 1, February 22, 2013
to confirm certain matters or to support other audit evidence c. February 22, 2013
a. Written representation d. December 31, 2012
b. Engagement letter
c. Financial statements 36. An auditor issued an audit report that is dual dated for a subsequent event
d. Written confirmation occurring after the completion of fieldwork but before the issuance of the
auditor’s report. Auditor’s responsibility for events occurring subsequent to the
32. Management’s written representations to confirm certain matters or to completion of fieldwork was
support evidence are embodied in the a. Extended to subsequent events occurring through the date of
a. Management representation letter issuance of report
b. Engagement letter b. Extended to include all events occurring since the date of issuance of
c. Financial statements the report
c. Limited to the specific event referenced b. Address of the auditor
d. Limited to include only events occurring after the date of the last c. Date of the auditor’s report
subsequent event referenced d. Address of the client company
37. Standards mentioned in the Opinion Paragraph of the audit report 43. Signature in the audit report
a. PFRSs a. Personal name of the auditor
b. PSAs b. Name of the audit firm
c. Both A and B c. Either A or B or both
d. Neither A nor B d. Either A or B or cannot be both
38. If the auditor’s report contain a separate section on other reporting 44. For large audit firms, who normally signs the audit report?
responsibilities, the introductory, responsibilities and opinion paragraphs shall a. Lead partner
be under the sub-title b. All partners
a. Independent Auditor’s Report c. Audit team members
b. Report on the Financial Statements d. Junior auditors
c. Report on other Legal and Regulatory Requirements 45. As a minimum, who is required to have comprehensive knowledge about the
d. Main Reporting Responsibility audited entity
39. The opinion paragraph of a standard unmodified report does not a. The partner signing the audit report
a. State that the financial statements are presented fairly in material b. All partners of the audit report
respects c. All members of the audit team
b. State that the auditor obtained sufficient appropriate evidence to d. Staff doing the actual fieldwork
support the opinion 46. Auditor’s report on financial statements required to be filed with the Philippine
c. Provide an unmodified opinion about the fairness of the financial Securities and Exchange Commission shall contain the following: (choose the
statements exception)
d. A conclusion whether the company followed Philippine Financial a. Manual signature of the certifying partner
Reporting Standards b. Partner’s TIN and PRC registration numbers
40. An auditor expresses an unmodified opinion, it means that c. Accreditation with SEC
a. No material error or fraud was found d. Partner’s birth date and contact number
b. The company is financially sound and the financial statements are 47. Which of the following is not specifically stated in the standard auditor’s report
accurate a. The auditor believes that sufficient appropriate evidence was
c. The auditor is responsible for the fairness of the financial statements obtained to provide a basis for an auditor’s opinion.
d. Material disagreements were resolved to the auditor’s satisfaction b. In making risk assessments, the auditor considers internal control
41. An unmodified opinion expressed on an audit means that system relevant to the entity’s preparation and presentation of the
a. The financial statements, including the notes, are accurate financial statements.
b. The entity is not incurring losses and is an attractive entity for c. The auditor is responsible for the preparation and the fair presentation
investment purposes of the financial statements in accordance with the applicable
c. The auditor guarantees that the entity is clear of error and fraud financial reporting framework
d. In all material respects, the financial statements are fairly presented d. An audit includes evaluating the overall presentation of the financial
42. The elements of a standard unmodified report does not include statements
a. Signature of the auditor
MODIFIED AUDIT REPORT I. May give an inappropriate opinion when the financial
48. Per Glossary of Terms, it is a difference between the amount, classification, statements are materially misstated
presentation or disclosure of a reported financial statement item and amount, II. Unknowingly fails to modify an opinion when the financial
classification, presentation or disclosure that is required for the item to be in statements are materially misstated
accordance with the applicable financial reporting framework. a. I only
a. Fraud b. II only
b. Error c. Both I and II
c. Departure d. Neither I nor II
d. Misstatement 55. The complement of audit risk
49. Misstatements can be caused by a. Assurance
a. Fraud b. Materiality
b. Error c. Detection risk
c. Both A and B d. Judgment
d. Neither A nor B 56. Based on audit risk model, if assessments of: inherent risk 10%, control risk 5%,
50. Unresolved immaterial misstatements will normally lead to the expression of detection risk 40% AR is
which opinion? a. 35%
a. Unmodified b. 2%
b. Qualified c. 0.20 %
c. Adverse d. Indeterminate
d. Disclaimer 57. If audit risk is 10%, confidence level is
51. An discovered a P50,000 misappropriation by the payroll supervisor. The a. 10%
company’s total assets and pre-tax income are P 70 million and P 15 million, b. 90%
respectively. Considering materiality, the most likely opinion would be c. 1%
a. Unmodified d. 0%
b. Qualified 58. Describe detection risk.
c. Adverse a. It is the risk that the auditor expresses an appropriate opinion when the
d. Disclaimer financial statements are materially misleading
52. Per PSA 200, the risk of material misstatement is a function of b. It is the susceptibility of an account balance or class of transactions to
a. Inherent risk and control risk misstatement assuming there were no related controls
b. Inherent risk and detection risk c. It is the risk that misstatement could occur and such risk will not be
c. Control risk and detection risk prevented, detected or corrected on a timely basis by the internal
d. Inherent risk, control risk and detection risk controls
53. Audit risk component that can be controlled by the auditor d. It is the risk that the auditor’s substantive procedures will not detect a
a. Inherent risk misstatement
b. Control risk 59. Relationship between audit risk and materiality
c. Detection risk a. Direct
d. All of the foregoing b. Inverse
54. Audit risk can be defined as the risk that the auditor c. Parallel
d. None a. Qualified or adverse
60. An auditor considers materiality for planning purposes in terms of the ________ b. Qualified or disclaimer
aggregate level of misstatements that could be material to any one of the c. Adverse or disclaimer
financial statements. d. Unmodified with emphasis of matter paragraph
a. Largest 66. “The financial statements do not present fairly the financial position, result of
b. Smallest operations, or cash flows in conformity with generally accepted accounting
c. Best principles.”
d. Maximum
61. A choice between qualified or adverse opinion is made when the cause of The above opinion was most likely issued with financial statements that are
misstatement is
a. Inconsistent
I. Material disagreement with management on PFRS application
b. Misleading
(PFRS departure)
c. Surrounded by multiple uncertainties
II. Inability to gather sufficient appropriate evidence because of
d. Based on prospective information
restriction on procedures (scope limitation)
67. When the client refuses to include the statement of cash flows in its financial
a. I only
statements because it believes that it is not a useful document, the auditor’s
b. II only
opinion should be
c. Either I or II
a. Qualified due to inadequate disclosure
d. Neither I nor II
b. Qualified due to scope limitation
62. A qualified opinion is expressed when a misstatement is
c. Adverse
a. Material
d. Unmodified
b. Pervasive
68. When the auditor expresses a qualified opinion, the financial statements, in all
c. Both material and pervasive
material respects, are
d. Highly material
a. Fairly stated
63. An adverse opinion would be issued when a misstatement’s impact is
b. Misleading
a. Immaterial
c. Materially misstated
b. Material
d. Unreliable
c. Highly material
69. When the financial statements contain material departures from PFRS and the
d. Shocking
auditor modifies the opinion, the auditor describes the effects in
64. It is appropriate to issue an adverse opinion when the auditor
a. The opinion paragraph
a. Was not able to gather sufficient appropriate evidence regarding the
b. In a separate explanatory paragraph
fairness of the financial statements
c. The introductory paragraph
b. Management refuses to furnish written representations
d. The notes to the financial statements
c. Has knowledge that the Philippine Standards on Auditing were not
70. When the auditor expresses an adverse opinion, the opinion paragraph
followed
should include
d. Has gathered sufficient appropriate evidence that the financial
a. The principal effects of the departure from the identified financial
statements are not fairly stated
reporting framework
65. Unresolved disagreement with management normally leads to what type of
b. The substantive reasons for the financial statements being misleading
opinion
c. A direct reference to a separate paragraph disclosing the basis for the b. II only
opinion c. Both I and II
d. All of the above d. Neither I nor II
71. A description of the material misstatement and, if practicable, a 76. Disclaimer of opinion, when the effect of misstatements is highly material, is
quantification of its effects are included in the Basis for modification usually issued when
paragraph if the modification is due to I. It becomes impossible to gather sufficient appropriate
I. Material misstatements evidence due to circumstance
II. Inability to obtain sufficient appropriate evidence II. No evidence can be gathered because the auditor is
a. I only prevented by management from performing such procedures
b. II only and the auditor cannot also perform alternative procedures
c. Both I and II a. I only
d. Neither I nor II b. II only
72. The use of words like “except for the above-mentioned limitation” or “subject c. Both I and II
to the foregoing” is d. Neither I nor II
a. A violation of the standards of reporting 77. Events that limits the auditor’s evidence gathering procedures may be
b. Allowed in some cases I. Circumstances-based
c. Found in the opinion paragraph II. Client-imposed
d. An acceptable reporting practice a. I only
73. Select the opinion provided. b. II only
c. Both I and II
“Except for the effects…” “Because of the significance” d. Neither I nor II
78. It is appropriate to issue a disclaimer of opinion in the following instance,
a. Qualified Qualified
except
b. Qualified Adverse
a. The auditor lacks independence
c. Disclaimer Qualified
b. There are multiple circumstances that could significantly impact the
d. Disclaimer Adverse
financial statements
74. The Basis for Modification Paragraph (separate explanatory paragraph) is
c. The auditor is asked to report only on an entity’s balance sheet but the
found
auditor is provided unlimited access to all information underlying the
a. Preceding the Opinion paragraph
basic financial statements
b. Following the Opinion paragraph
d. The auditor was not able to perform alternative procedures on matters
c. Within the Opinion paragraph
for which there were initial management-imposed restrictions and the
d. In the Opening paragraph
impossible effects on the financial statements were pervasive
75. A choice between qualified or disclaimer of opinion is made when the cause
79. An auditor was unable to conduct physical count of inventories. Alternative
of misstatement is
procedures performed, however, provide satisfactory evidence as to the
I. Material disagreement with management on PFRS application
fairness of the assertions on inventories. The auditor will most likely issue
(PFRS departure)
a. Unmodified opinion
II. Inability to gather sufficient appropriate evidence because of
b. Qualified opinion
restriction on procedures (scope limitation)
c. Adverse opinion
a. I only
d. Disclaimer of opinion d. The stage of completion at the time the management imposed the
80. Which of the following may properly constitute a scope limitation? scope limitation
I. The client’s accounting records are inadequate 85. After accepting the engagement, the auditor becomes aware that
II. The client refuses to disclose essential information in the notes management has imposed a limitation on the scope of the audit that are
to financial statements likely to result in a modification of opinion on the financial statements, the
III. The auditor determines that performing substantive procedures auditor shall (select by step)
alone is not sufficient, but the entity’s controls are not effective 1. Communicate the matter to those charged with governance
a. I and II only 2. Request the management to remove the limitation
b. I and III only 3. Determine whether alternative procedures are possible
c. II and III only a. 1, 2 and 3
d. I, II and III b. 3, 2 and 1
81. Always required in a financial statement audit c. 2, 1 and 3
a. Substantive procedures d. 3, 1 and 2
b. Test of controls 86. The auditor was prevented from applying necessary audit procedures due to
c. Engagement letter the inadequacy of the client’s accounting records. Accordingly, the auditor
d. All of the foregoing decides to qualify his opinion. The opinion paragraph should state that the
82. The auditor’s inability to obtain sufficient appropriate audit evidence may not qualification pertains to
arise from which condition? a. A client-imposed limitation
a. Restrictions imposed by management on the scope of the audit b. A departure from GAAS
b. Limitations beyond the control of the entity c. The possible effects on the financial statements
c. Limitations relating to the nature or timing of the auditor’s work d. Inadequate disclosure of information
d. Restrictions on the disclosures in the financial statements 87. Will not change in an audit report with disclaimer of opinion
83. If a scope limitation is by the circumstances, which course of are available to a. Introductory paragraph
the auditor? b. Auditor’s Responsibility paragraph
I. Issue a qualified opinion if effects are material c. Management’s Responsibility paragraph
II. Disclaim an opinion if effects are pervasive d. Opinion paragraph
III. Resign or withdraw from the engagement 88. A report with a disclaimer of opinion will have the following change in the
a. I and II only Introductory paragraph
b. I and III only a. “We have audited…”
c. II and III only b. “We cannot audit…”
d. I, II and III c. “We were engaged to…”
84. In making a decision whether to disclaim an opinion or withdraw from d. “We have audited…”
engagement due to management-imposed scope limitation, the auditor 89. In a report with a disclaimer of opinion, this is not found
should consider a. A statement that the auditor’s responsibility is to express an opinion on
a. The materiality of the item in consideration the financial statements
b. The pervasiveness of effect on financial statements b. Reference to the Basis or Disclaimer of Opinion paragraph
c. Both the materiality and pervasiveness should be considered c. General description of the audit
d. Statement that the auditor was not able to obtain sufficient b. Qualified
appropriate audit evidence c. Adverse
90. If the auditor is not independent, a disclaimer of opinion is issued d. Disclaimer
a. In all cases 96. Which of the following statements is incorrect about the auditor’s responsibility
b. If the effect is material when the auditor expresses an opinion that is other than unmodified?
c. If the effect is both material and pervasive a. A clear description of all the substantive reasons should be included in
d. If the effect is highly material the report
91. Under the old reporting rules, the number of paragraph/s in a report where b. Unless impracticable, a quantification of the possible effects on the
the auditor is not independent is financial statements should be indicated in the report.
a. 0 c. The information would be ordinarily set out in a separate explanatory
b. 1 paragraph following the opinion paragraph.
c. 2 d. The information may include a reference to a more extensive
d. 3 discussion, if any, in the notes to the financial statements
92. Engagement where the auditor is asked to express an opinion on a single 97. The distinction between an adverse opinion and a disclaimer of opinion is
financial statement only (e.g. Statement of financial position or balance a. Lack of PFRS versus lack of GAAS
sheet) but not on the other statements b. Knowledge versus lack of knowledge
a. Engagement with limited reporting objective c. The CPA’s report versus the CIA’s report
b. Engagement with a piecemeal opinion d. FRSC Statements versus AASC Standards
c. Non-assurance engagement 98. When there are multiple uncertainties (extreme uncertainties) faced by the
d. Not allowed under current GAAS company and may impact the financial statements, the appropriate opinion
93. Limited reporting objective is allowed if the auditor is is
a. Not independent a. Qualified or adverse
b. Also required a separate report on the other financial statements b. Qualified or disclaimer
c. Also granted unrestricted access to other financial statements and c. Unmodified
underlying records d. Disclaimer
d. Expected to issue a disclaimer of opinion
94. Not allowed EMPHASIS OF MATTER PARAGRAPH
a. Auditor is not independent but issues a report on agreed-upon 99. Emphasis of Matter paragraph is added when an item in question is a matter
procedures I. Presented or disclosed in the financial statements
b. Performance of engagements with limited reporting objectives and II. Other than those that are presented or disclosed in the
the auditor is granted unlimited access to records and financial financial statements that, in the auditor’s judgment, is
statements important to the reader’s understanding of the report.
c. Issuance of reports with piecemeal opinions a. Both I and II
d. All of the above b. I only
95. When a publicly held company refuses to include in its audited financial c. II only
statements any of the segment information that the auditor believes is d. Neither I nor II
required, the auditor should express what type of opinion?
a. Unmodified 100. Report issued when an Emphasis of Matter paragraph is added
a. Modified report d. Disclaimer of opinion
b. Unmodified report 107. Not normally an expression of an Emphasis of Matter in a report with
c. Special report unmodified opinion
d. None of the choices a. “We draw attention to Note 1…”
101. Normally, the opinion issued when an emphasis of matter paragraph is b. “As discussed in Note 55 to the financial statements…”
added is c. “Without qualifying our opinion…”
a. Modified opinion d. “Except for the possible effects of the matter described in…”
b. Unmodified opinion
c. Qualified opinion GOING CONCERN
d. Adverse opinion
102. Choose the incorrect statement. The Emphasis of Matter paragraph 108. Primarily required to assess the entity’s ability to continue as a going
a. Does not affect the auditor’s opinion concern
b. Follows the opinion paragraph but precedes the Other Matter a. Auditor
paragraph, if any b. Management
c. Is not considered a modification to the auditor’s report c. BOD
d. Modified opinion with Emphasis of Matter d. Shareholders
103. Placement of the Emphasis of Matter paragaraph 109. Standards explicitly requiring management to make an assessment of
a. Preceding the opinion paragraph the entity’s ability to continue as going concern
b. Following the opinion paragraph a. Framework
c. Within the opinion paragraph b. PAS 1
d. Following the scope paragraph c. PAS 10
104. Significant uncertainty that is appropriately disclosed in the financial d. PFRS 1
statements leads to 110. An entity shall prepare the financial statements on a going concern
a. Unmodified opinion with Emphasis of Matter basis unless
b. Unmodified opinion without additional paragraph a. Management intends to liquidate the entity
c. Modified opinion without additional paragraph b. Management intends to cease trading
d. Modified opinion with Emphasis of Matter c. Management has no realistic alternative but to liquidate or cease
105. Significant uncertainty that is not appropriately disclosed in the trading
financial statements normally leads to d. All of the above
a. Unmodified opinion with Emphasis of Matter 111. An incorrect requirement of PAS 1 on the going concern assumption
b. Qualified opinion a. When preparing financial statements, management shall make an
c. Adverse opinion assessment of an entity’s ability to continue as a going concern
d. Disclaimer of opinion b. When management is aware, in making its assessment, of material
106. Multiple uncertainties that are appropriately disclosed in the financial uncertainties related to events or conditions that may cast significant
statements lead to doubt upon the entity’s ability to continue as a going concern, the
a. Unmodified opinion with Emphasis of Matter entity shall disclose those uncertainties
b. Qualified opinion c. When an entity does not prepare financial statements on a going
c. Adverse opinion concern basis, it shall disclose that fact, together with the basis on
which it prepared the financial statements and the reason why the d. Include an Emphasis of Matter paragraph to disclose the doubt
entity is not regarded as a going concern Consider the situations that follow and choose the appropriate opinion for
d. In assessing whether the going concern assumption is appropriate, such situations
management takes into account all available information about the 116. Management is properly presenting financial statements on a going
future, which is at least, but is not limited to, six months from the end of concern basis. A significant going concern uncertainty is properly disclosed in
the reporting period a financial statements
112. Choose the correct statement. a. Unmodified opinion with Emphasis of Matter
1. Auditor’s responsibility on going concern is to obtain sufficient appropriate b. Qualified opinion or adverse opinion
evidence about the appropriateness of management’s use of the going c. Adverse opinion
concern assumption to conclude whether there is a material uncertainty d. Disclaimer of opinion
about the entity’s continuance as a going concern. 117. The use of the going concern assumption is still appropriate. A
2. When a financial reporting framework does not require management to significant going concern uncertainty, however, is not disclosed in the
make an assessment on its ability to continue as a going concern, the financial statements
auditor has no responsibility to perform 1 above. a. Unmodified opinion with Emphasis of Matter
a. 1 only b. Qualified opinion or adverse opinion
b. 2 only c. Adverse opinion
c. Both 1 and 2 d. Disclaimer of opinion
d. Neither I nor II 118. The financial statements are prepared on a going concern basis. The
113. Minimum period to assess going concern assumption is _______from notes to the financial statements disclosed the going concern uncertainty.
the date of financial statements The auditor, however, believes that the going concern basis is no longer
a. 3 months appropriate
b. 6 months a. Unmodified opinion with Emphasis of Matter
c. 12 months b. Qualified opinion or adverse opinion
d. 18 months c. Adverse opinion
114. If management makes going concern assessment for less than twelve months, d. Disclaimer of opinion
and does not extend the assessment to twelve months even after request by the 119. The financial statements are prepared on a basis other than going
auditor, the auditor considers expressing concern. The reason is properly disclosed in the notes. The auditor believes
a. Unmodified opinion with Emphasis of Matter such basis is appropriate.
b. Qualified or adverse opinion a. Unmodified opinion with Emphasis of Matter
c. Qualified or disclaimer of opinion b. Qualified opinion or adverse opinion
d. Disclaimer of opinion c. Adverse opinion
115. The auditor’s responsibility when there is substantial doubt on the d. Disclaimer of opinion
continuance of an entity as a going concern is to 120. An auditor concludes that there is substantial doubt about an entity’s
a. Based on materiality, appropriately modify the opinion ability to continue as a going concern for a reasonable period of time. If the
b. Assess whether the uncertainty was disclosed, and whether the entity’s financial statements adequately disclose its financial difficulties, the
disclosure is adequate auditor’s report is required to include an explanatory paragraph that
c. Report to the audit committee that accounting estimates need to be specifically uses the phrase
revised I. “Reasonable period of time, not t exceed 1 year”
II. “Going concern” b. Strengthening of controls over cash disbursements
III. “Substantial doubt” c. Purchase of production facilities currently being leased from a related
a. I and II only party
b. II and III only d. Postponement of an expenditures for research and development
c. I and III only projects
d. I, II and III 126. A procedure that most likely would assist an auditor in identifying
conditions and events that may indicate substantial doubt about an entity’s
Of the conditions that follow (121-123), choose the least likely item that may cast ability to continue as a going concern
significant doubt about the going concern assumption. a. Inspecting title documents to verify whether any assets are pledged as
collateral
121.
b. Confirming with third parties the details of arrangements to maintain
a. Net liability or net current liability position
financial support
b. Fixed term borrowings approaching maturity without realistic
c. Reconciling the cash balance per books with the cut-off bank
prospects of renewal or repayment
statement and the bank confirmation
c. Excessive reliance on long-term borrowings to finance long-term assets
d. Comparing the entity’s depreciation and asset capitalization policies
d. Indications of withdrawal of financial support by creditors
to other entities in the industry
122.
a. Net operating cash flows indicated by historical or prospective OTHER MATTER PARAGRAPH
financial statements
127. Other Matter paragraph is added when an item in question is a matter
b. Adverse key financial ratios
I. Presented or disclosed in the financial statements
c. Substantial operating losses or significant deterioration in the value of
II. Other than those that are presented or disclosed in the
assets used to generate cash flows
financial statements that, in the auditor’s judgment, is
d. Payment of dividends
important to the reader’s understanding of the report.
123.
a. Both I and II
a. Change from credit to cash-on-delivery transactions with suppliers
b. I only
b. Emergence of a highly successful competitor
c. II only
c. Loss of key management without replacement
d. Neither I nor II
d. Compliance with capital or other statutory requirements
128. Placement of Other Matter paragraph
124. There exists substantial doubt on the entity’s going concern
a. Preceding the opinion paragraph
assumption. The auditor’s considerations relating to management’s plans for
b. Following the opinion paragraph
dealing with the adverse effects of these conditions most likely would include
c. Within the opinion paragraph
management’s plans to
d. Following the scope paragraph
a. Increase current dividend distributions
129. Choose the incorrect statement. The other matter paragraph
b. Reduce existing lines of credit
a. Does not affect the auditor’s opinion
c. Increase ownership equity
b. Follows the Emphasis of Matter paragraph , if any
d. Purchased assets formerly leased
c. Is included to alert readers on the framework used when reporting on
125. Most likely be a mitigating factor on the adverse effects of going
financial statement prepared in accordance with a special purpose
concern uncertainty
framework
a. Discussion with lenders the terms of all debt and loan agreements
d. Highlights an item which is not otherwise disclosed in the financial 135. To identify material inconsistencies, what is the auditor’s responsibility
statements regarding other information?
OTHER INFORMATION a. Read the other information
b. Evaluate its accuracy
130. S1. The auditor’s opinion on financial statements normally covers the c. Perform substantive and compliance tests
other information d. Ignore the other information
136. Not included as “other information” per PSA 720 is (are)
S2. The other information may undermine the credibility of the audited a. Financial ratios, financial summaries and highlights
financial statements when there are material inconsistencies b. A report by management or those charged with governance on
operations
a. True True
c. Names of officers and directors
b. True False
d. Information contained on the entity’s website
c. False True
137. Auditor’s responsibility when a material misstatement of fact is identified
d. False False
a. Discuss the matter with management
131. Per PSA 720: Financial and non-financial information (other than financial
b. Request management to consult with qualified third party
statements and the auditor’s report thereon) which is included either by law,
c. Notify the audit committee
regulation or custom, in a document containing audited financial statements
d. Seek legal advice
and the auditor’s report thereon
138. If management is unwilling to rectify a material misstatement of fact in the
a. Supplementary information
other information
b. Other information
a. Qualify the opinion or add an emphasis of matter paragraph
c. Annual reports
b. Request management to consult with a qualified third party
d. Other matter
c. Notify the audit committee
132. Per PSA 720: “documents containing audited financial statements” refers to
d. Seek legal advice
a. Supplementary information
139. Auditor’s responsibility when a material inconsistency is identified
b. Other information
a. Determine whether the audited financial statements or the other
c. Annual reports
information needs to be corrected
d. Other matter
b. Qualify the opinion or express an adverse an opinion
133. Other information that contradicts information contained in the audited
c. Ask management to appropriately amend the financial statements
financial statements is called
d. Seek legal advice
a. Anomaly
140. If management is unwilling to rectify its financial statements to resolve a
b. Misstatement of fact
material inconsistency with the other information
c. Error
a. Qualify the opinion or add an emphasis of matter paragraph
d. Inconsistency
b. Add an Emphasis of Matter paragraph describing the inconsistency
134. Other information that is unrelated to matters appearing in the audited
c. Qualify the opinion or express an adverse opinion
financial statements that is incorrectly stated or presented is called
d. Add an Other Matter paragraph describing the inconsistency
a. Anomaly
141. If management is unwilling to rectify the other information to resolve a
b. Misstatement of fact
material inconsistency with the audited financial statements
c. Error
a. Qualify the opinion or add an emphasis of matter paragraph
d. Inconsistency
b. Add an Emphasis of Matter paragraph describing the inconsistency 146. The auditor has no obligation to perform any audit procedures regarding the
c. Qualify the opinion or express an adverse opinion financial statements
d. Add an Other Matter paragraph describing the inconsistency I. After the date of the auditor’s report
II. After the financial statements have been issued
SUBSEQUENT EVENTS a. I only
b. II only
142. Per PSA 560, Subsequent Events are
c. Both I and II
I. Events occurring between the date of the financial statements
d. Neither I nor II
and the date of the auditor’s report
147. Per PAS 10 Events after the reporting period, these are events that provide
II. Facts that become known to the auditor after the date of the
evidence of conditions that existed at the end of the reporting period
auditor’s report
a. Events after the reporting period
a. I only
b. Subsequent events
b. II only
c. Adjusting events
c. Both I and II
d. Non-adjusting events
d. Neither I nor II
148. Most likely a non-adjusting event
143. Date the financial statements are issued
a. The settlement after the reporting period of a court case that confirms
a. The date of the end of the latest period covered by the financial
that the entity had a present obligation at the end of the reporting
statements
period
b. The date on which all the statements that comprise the financial
b. The bankruptcy of a customer that occurs after the reporting period
statements, including the related notes, have been prepared and
c. The determination oafter the reporting period of the amount of profit-
those with the recognized authority have asserted that they have
sharing or bonus payments and the entity had a present legal or
taken responsibility for those financial statements
constructive obligation at the end of the reporting period to make
c. The date the auditor dates the report on the financial statements
such payments
d. The date that the auditor’s report and audited financial statements
d. Decline in market value of investments between the end of reporting
are made available to third parties
period and the date when the financial statements are authorized to
144. It informs the reader that the auditor has considered the effect of events and
issue
transactions of which the auditor becomes aware and that occurred up to
149. Most likely an adjusting event
that date
a. Declaration of dividends after the reporting period
a. Date of the financial statements
b. A major business combination after the reporting period
b. Date of approval of financial statements
c. Commencing major litigation arising solely out of events that occurred
c. Date of the auditor’s report
after the reporting period
d. Date the financial statements are issued
d. The discovery of fraud or errors that show that the financial statements
145. In some cases, financial statements are required to be approved by
are incorrect
shareholders after they have been issued, per PAS 10, the financial
150. An event covered by the auditor’s responsibility is and event
statements are authorized for issue on
a. Occurring between FS date and report date known to the auditor
a. Date of the financial statements
b. Occurring between FS date and report date known to the auditor
b. Date of shareholder’s approval
c. Occurring after report date known to the auditor
c. Date of management’s approval
d. Occurring after the report date known to the auditor
d. Date the financial statements are issued
151. A subsequent event became known to the auditor after the report date but II. If management issued the financial statements despite the
before the financial statements are issued. The audit report was not yet auditor’s request not to, the auditor shall take appropriate
provided/released to the entity. Which is least correct? action to seek to prevent reliance on the auditor’s report
a. Notify the person responsible for the overalol direction of the entity which includes, for example, obtaining legal advice
(those charged with governance) not to issue the financial statements a. I only
to third parties before the necessary amendments have been made b. II only
b. Determine whether management prepared amended financial c. Both I and II
statements to reflect the adjusting event d. Neither I nor II
c. Issue a qualified or adverse opinion on the amended financial 155. An audit report was dual-dated for a subsequent event. This means that the
statements should management refuse to reflect the adjusting event auditor’s assumption of responsibility for the audit of subsequent events after
d. Retain the original date the audit report if the event is an adjusting the report date covers
event a. All events that occurred (known or unknown)
152. Stefan, CPA, completed the fieldwork of the audit of Damon’s December 21, b. Only the event mentioned in the second date
2012 financial statements on March 6, 2013. A subsequent event requiring c. Both A and B
adjustment to the 2012 financial statements occurred on April 10, 2013, and d. Neither A nor B
came to Stefan’s attention on April 24, 2013. If the adjustment is made
without disclosure of the event, Stefan’s report ordinarily should be dated COMPARATIVE INFORMATION
a. March 6, 2013
156. These are the amounts and disclosures included in the financial statements in
b. April 10, 2013
respect of one or more periods in accordance with the applicable financial
c. April 2r4, 2013
reporting framework
d. Using dual dating
a. Corresponding figures
153. Stefan, CPA, completed the fieldwork of the audit of Damon’s December 21,
b. Current period figures
2012 financial statements on March 6, 2013. A subsequent event requiring
c. Comparative financial statements
disclosure to the 2012 financial statements occurred on April 10, 2013, and
d. Comparative information
came to Stefan’s attention on April 24, 2013. If the disclosure of the event is
157. Comparative information where amounts and other disclosures for the prior
made, Stefan’s report ordinarily should be dated
period
a. March 6, 2013
 Are included as an integral part of the current period financial
b. April 10, 2013
statements, and
c. Using dual dating
 Are intended to be read only in relation to the amounts and other
d. Either b or C
disclosures relating to the current period
154. A subsequent event became known to the auditor after the report date but
a. Corresponding figures
before the financial statements are issued. The audit report was already
b. Current period figures
provided to the entity. Which is/are correct?
c. Comparative financial statements
I. Notify the person responsible for the overall direction of the
d. Comparative figures
entity (those charged with governance) not to issue the
158. Comparative information where amounts and other disclosures for the prior
financial statements to third parties before the necessary
period was
amendments have been made
 Included for comparison with the financial statements of the current
period but,
 If audited, are referred to in the auditor’s opinion are called b. Should be modified and should make reference to both the current
a. a. Corresponding figures period’s figures and corresponding figures giving rise to the
b. Current period figures modification
c. Comparative financial statements c. Should add an Other Matter paragraph describing the corresponding
d. Comparative figures figure
d. Should add an Other Matter paragraph updating prior period’s
Consider this case for 159 and 160 opinion
163. A continuing auditor’s report on prior period financial statements contained
ABC Trading prepares comparative financial information. Audited financial
an unmodified opinion. The auditor becomes aware that a material
statements for the current year 2013 are presented with audited financial statements
misstatement exists in the prior period financial statements. The auditor’s
for 2012 and 2011 and unaudited 2010 financial statements.
report on current period
159. Auditor’s opinion for corresponding figures covers I. Should be modified with respect to the corresponding figures if
a. 2013 only the matter remains unresolved
b. 2012 only II. Need not make reference to the corresponding figure if the
c. 2013, 2012, and 2011 only matter is resolved in the current period
d. 2013, 2012, 2011, 2010 a. I only
160. Auditor’s opinion for comparative financial statements covers b. II only
a. 2013 only c. Both I and II
b. 2012 only d. Neither I nor II
c. 2013, 2012, and 2011 only 164. If the financial statements of the prior period were audited by a predecessor
d. 2013, 2012, 2011, 2010 auditor, the auditor shall state in an Other Matter paragraph in the auditor’s
161. A continuing auditor’s report on prior period financial statements contained report (choose the exception)
a modified opinion. The matter giving rise to the modification is resolved in a. That the financial statements of the prior period were audited by the
the current period. The auditor’s report on current period predecessor auditor
a. Need not make reference to the corresponding figure b. The type of opinion expressed by the predecessor auditor
b. Should be modified and should make reference to both the current c. The date of the prior period report by the predecessor auditor
period’s figures and corresponding figures giving rise to the d. If the opinion was modified, the identity of the predecessor auditor
modification 165. An Other Matter paragraph may be included in the highlight that
c. Should add an Other Matter paragraph describing the corresponding I. The auditor is reporting is reporting in the current period as
figure continuing auditor
d. Should add an Other Matter paragraph updating prior period’s II. The prior period financial statements presented as
opinion comparative information were unaudited
162. A continuing auditor’s report on prior period financial statements contained III. A continuing auditor’s opinion in the prior period has changed
a modified opinion. The matter giving rise to the modification remains in the current period accompanied by the substantive reasons
unresolved in the current period. The auditor’s report on current period for the different or change in opinion
a. Need not make reference to the corresponding figure a. I and II only
b. II and III only
c. I and III only
d. I, II and III d. Neither I nor II
166. A client is presenting comparative (two-year) financial statements. Which of 170. Jewel, CPA, audited Infinite Co.’s prior year financial statements. These
the following is correct concerning reporting responsibilities of a continuing statements are presented with those of the current year for comparative
auditor? The auditor purposes without Jewel’s auditor’s report, which expressed a qualified
a. Should issue 1 audit report that is both presented years opinion. In drafting the current year’s auditor’s report, Crain, CPA, the
b. Should issue 2 audit reports, one on each year successor auditor, should
c. Should issue 1 audit report, but only on the most recent year I. Name Jewel as the predecessor auditor
d. May issue either 1 audit report on both presented years, or 2 audit II. Indicate the type of report issued by jewel and the date of
reports, one on each year that report
167. In May 2012, an auditor reissues the auditor’s report on the 2010 financial III. Indicate the substantive reasons for Jewel’s qualification
statements at a continuing client’s request. The 2010 financial statements are a. I and II only
not restated and the auditor does not revise the wording of the report. The b. II and III only
auditor should c. I and III only
a. Dual date the reissued report d. I, II and III
b. Use the release date of the reissued report 171. An auditor expressed a qualified opinion on the prior year’s financial
c. Use the original report date on the reissued report statements because of a lack of adequate disclosure. These financial
d. Use the current period auditor’s report on the prior period financial statements are properly restated in the current year and presented in
statements comparative form with the current year’s financial statements. The auditor’s
168. A continuing auditor’s report on prior period financial statements was updated report on the prior year’s financial statements should
changed in the current period (e.g. from modified to unmodified) giving rise a. Be accompanied by the auditor’s original report on the prior year’s
to an Other Matter paragraph. Which of the following is not included in that financial statements
paragraph? b. Continue to express a qualified opinion on the prior year’s financial
a. The audit report date on the prior period financial statements statements
b. The opinion expressed on the prior period financial statements c. Make no reference to the type of opinion expressed on the prior
c. The reasons for the updated opinion different from that previously year’s financial statements
issued d. Express an unqualified opinion on the restated financial statements of
d. The new date for the updated auditor report on the prior period the prior year
financial statements 172. Before issuing the prior year’s auditor’s report on the financial statements of a
169. A successor auditor reports on the current period financial statements. If former client, the predecessor auditor should obtain a letter of
comparative financial statements are presented and the predecessor representations from the
auditor’s report on prior period financial statements was re-issued: I. Former client’s management
I. The successor auditor reports on the current period financial II. Successor auditor
statements only a. I only
II. The successor auditor adds on Other Matter paragraph in his b. II only
audit report c. Both I and II
a. I only d. Neither I nor II
b. II only
c. Both I and II USING THE WORK OF AN EXPERT
173. Per PSA 620: an individual or organization possessing expertise in a field other 178. In using the work of a specialist, an auditor may refer to the specialist in the
than accounting or auditing, whose work in that field is used by the auditor to auditor’s report if, as a result of the specialist’s findings, the auditor
assist the auditor in obtaining sufficient appropriate evidence a. Discovers significant deficiencies in the design of the entity’s internal
a. Auditor’s report control that management does not correct
b. Management’s report b. Desires to disclose the specialist’s findings, which imply that a more
c. Auditor’s specialist thorough audit was performed
d. Management’s specialist c. Is able to corroborate another specialist’s findings that were consistent
174. Per PSA 620: an individual or organization possessing expertise in a field other with management’s representations
than accounting or auditing, whose work in that field is used by the entity in d. Becomes aware of conditions causing substantial doubt about the
preparing the financial statements entity’s ability to continue as a going concern
a. Auditor’s report 179. In using the work of a specialist, an auditor referred to the specialist’s findings
b. Management’s report in the auditor’s report. This would be an appropriate reporting practice if the
c. Auditor’s specialist a. Client is not familiar with the professional certification, personal
d. Management’s specialist reputation, or particular competence of the specialist
175. Not a specialist b. Auditor, as a result of the specialist’s findings , adds an explanatory
a. Actuary paragraph emphasizing a matter regarding the financial statements
b. Appraiser c. Client understands the auditor’s corroborative use of the specialist’s
c. Internal auditor findings in relation to the representations on the financial statements
d. Engineer d. Auditor, as a result of the specialist’s findings, decides to indicate a
176. Which of the following are experts? division of responsibility with the specialist
I. An individual with expertise in applying methods of accounting
for deferred income tax WRITTEN REPRESENTATIONS
II. An expert in taxation
180. For which of the following matters should an auditor obtain written
III. An expert in methods of accounting for financial instruments
management representations?
IV. An expert in complex modeling for the purpose of valuing
a. Management’s cost-benefit justifications for not correcting internal
financial instruments
control weaknesses
a. I and II
b. Management’s knowledge of the future plans that may affect the
b. I and IV
price of the entity’s stock
c. I and III
c. Management’s compliance with contractual agreements that may
d. II and III
affect t the financial statements
177. An auditor normally makes reference to the work of an expert in a report
d. Management’s acknowledgement of its responsibility for employees’
a. When the expert’s findings are relevant to the modification of the
violation of laws
report
181. The date of the management representation letter should coincide with the
b. Regardless whether the report is modified or unmodified
date of the
c. To indicate that such reference reduces the auditor’s responsibility for
a. Balance sheet
the opinion
b. Latest interim financial information
d. To indicate division of responsibility
c. Auditor’s report
d. Latest related-party transaction
182. Which of the following matters would an auditor most likely include in a 3. Per PSA 315: An identified and assessed risk of material misstatement that, in
management representation letter? the auditor’s judgment, requires special consideration.
a. Communications with the audit committee concerning weaknesses in a. Inherent risk
internal control b. Significant risk
b. The completeness and availability of minutes of stockholder’s and c. Audit risk
director’s meetings d. Control risk
c. Plans to acquire or merge with other entities in the subsequent year
d. Management’s acknowledgement of its responsibility for the 4. The risk of material misstatement is a function of
detection of employee fraud a. Inherent and control risk
183. A written representation from a client’s management which, among other b. Inherent and detection risk
matters, acknowledges responsibility for the fair presentation of financial c. Control and detection risk
statements, should normally be signed by the d. Inherent, control and detection risk
a. CEO and the chief financial officer (CFO)
b. CFO and the chairman of the board 5. The auditor shall perform risk assessment procedures to provide a basis for the
c. Chairman of the audit committee and of the BOD identification and assessment of risks of material misstatement at the
d. CEO, BOD chairman, and the client’s lawyer a. Financial statement level
b. Assertion level
AT.M-1405 c. Financial statement and assertion levels
RISK ASSESSMENT AND RESPONSES TO RISK d. Account balance level

1. These are the procedures performed by an auditor to obtain an 6. These are representations by management, explicit or otherwise, that are
understanding of the entity and its environment, including the entity’s internal embodied in the financial statements
control, to identify and assess the risks of material misstatement. a. Assumptions
a. Risk assessment procedures b. Assertions
b. Further audit procedures c. Statements
c. Substantive test d. Assurances
d. Test of Controls
7. An example of assertion made by management in an entity’s financial
2. Per PSA 315: A risk resulting from significant conditions, events, circumstances, statements
actions or inactions that could adversely affect an entity’s ability to achieve a. The financial statements were prepared in an unbiased manner
its objectives and execute its strategies, or from the setting of inappropriate b. Reported inventory balances reflect all related transactions for the
objectives and strategies. period
a. Business risk c. Reported accounts receivable do not include any uncollectible
b. Significant risk accounts
c. Audit risk d. The scope of the auditor’s investigation was not limited ion any way by
d. Information risk management

8. Not a required risk assessment procedure


a. Inquiries of management
b. Analytical procedures 14. Per Glossary: Involves tracing a few transactions through the financial
c. Reperformance reporting system
d. Inspection a. Substantive test
b. Test of Control
9. A required risk assessment procedure c. Walk-through test
a. Reperformance d. Direct test
b. Observation
c. Recalculation 15. To acquire an understanding of a continuing client’s business in planning an
d. Confirmation audit, an auditor would most likely will
a. Re-evaluate the client’s internal control system
10. Statement 1: Risk assessment procedures themselves provide sufficient b. Review prior year working papers
appropriate evidence on which to base the audit opinion. c. Read specialized industry journals
Statement 2: Further audit procedures consist of substantive test and test of d. Perform substantive tests
control. 16. Choose the correct statement.
a. True True a. Compared to the management, the auditor is required to have more
b. True False knowledge of the entity’s business
c. False True b. Initial knowledge about the entity’s industry must be acquired after
d. False False the engagement acceptance to determine whether the auditor has
the knowledge to perform the audit
11. Before performing a fieldwork, a CPA who does not have expertise in the c. Knowledge about the client’s business must be acquired at the start of
industry in which the client operates needs to the engagement following acceptance
a. Reduce audit risk by initially setting decreased materiality level d. The auditor need not perform risk assessment procedures for
b. Increase substantive procedure to cover up the lack of expertise continuing engagements
c. Involve experts in the field where the auditor lacks expertise
d. Obtain general knowledge of entity’s business 17. A process designed, implemented and maintained by those charged with
12. An auditor understands a client’s business primarily to governance, management and other personnel to provide reasonable
a. Assess the level of control risk assurance about the achievement of an entity’s objectives with regard to
b. Identify transactions that may impact the financial statements  Reliability of financial reporting
c. Develop an questioning attitude during the audit  Effectiveness and efficiency of operations
d. Make suggestions on how to improve internal control  Compliance with applicable laws and regulations
a. Control procedures
13. Least likely relevant to an auditor in performing risk assessment procedures b. Risk assessment
a. Discussion with people within the entity c. Planning
b. Industry-related publications d. Internal control
c. Tour of the entity’s facilities
d. Walk-through procedures 18. Not a component of internal control
a. Control activities
b. Control environment b. Active participation of those charged with governance (BOD)
c. Physical controls c. Management philosophy and operating style
d. Risk assessment d. Information processing

19. Not a component of internal control 24. Management philosophy and operating style most likely would have a
a. Entity’s risk assessment process significant influence on an entity’s control environment when
b. Information system a. The internal auditor reports directly to the management
c. Segregation of duties b. Management is dominated by one individual
d. Monitoring c. Accurate management job descriptions delineate specific duties
d. The audit committee actively oversees the financial reporting process
20. Process by which management identifies business risks relevant to financial
reporting objectives, estimates the significance of those risks, assess the 25. Not a specific control procedure (activity)
likelihood of their occurrence and decide actions to address those risks is a. Performance reviews
called b. Information processing
a. Risk assessment procedures c. Monitoring
b. Entity’s risk assessment process d. Physical controls
c. Internal control
d. Strategic business planning 26. Proper segregation of functional responsibilities calls for separation of the
functions of
21. Does not properly describe control environment a. Authorization, execution, and payment
a. It includes attitudes, awareness, and actions of management and b. Authorization, recording, and custody
those charged with governance concerning the entity’s internal c. Custody, execution, and reporting
control and its importance in the entity d. Authorization, payment, and recording
b. It sets the tone of an organization, influencing the control
consciousness of its people 27. An entity’s ongoing monitoring activities rather than a separate evaluation
c. It is the foundation for effective internal control, providing discipline often include
and structure a. Periodic audits by the audit committee
d. It refers to the policies and procedures that help ensure that b. Reviewing the purchasing function
management directives are carried out c. The audit of the annual financial statements
d. Control risk assessment in conjunction with the quarterly reviews
22. Not a factor explicitly considered in understanding the control environment
a. Organizational structure 28. Least likely considered an inherent limitation of the potential effectiveness of
b. Personnel policies and procedures an entity’s internal control
c. Assignment of responsibility and authority a. Incompatible duties
d. Performance reviews b. Management override
c. Mistakes in judgment
23. Not a factor explicitly considered in understanding the control environment d. Collusion among employfeesn
a. Commitment to competence
29. A compensating control for small entities d. Controls related to each principal transaction class and account
a. Appointment of the external auditor by the audit committee balance
b. Active participation of the owner-manager in the business operations
c. Strict segregation of the authorization, recording and custodianship 34. Not required of the auditor to perform while obtaining understanding of
functions internal control
d. Monthly financial statement audit a. Perform procedures to understand the design of internal control
b. Understand the internal control and the information system
30. When considering internal control, an auditor should be aware of the c. Determine whether the control activities relevant to audit planning
concept of reasonable assurance, which recognizes that has been placed in operation
a. Internal control may be ineffective due to mistakes in judgment and d. Search for significant deficiencies and in the operation of the internal
personal carelessness control
b. Adequate safeguards over access to assets and records should permit
a entity to maintain proper accountability 35. Which one of the following procedures most likely would provide an auditor
c. Establishing and maintaining internal control is an important with evidence about whether an entity’s internal control activities are suitably
responsibility of management designed to prevent or detect material misstatements?
d. The cost of the entity’s internal control should not exceed the benefits a. Performing analytical procedures using data aggregated at a high
derived level
b. Vouching a sample of transactions directly related to the activities
31. Control risk should be assessed in terms of c. Reperforming the activities for a sample of transactions
a. Specific controls d. Observing the entity’s personnel applying the activities
b. Type if potential fraud
c. Financial statement sasertions 36. An auditor assesses control riodk because it
d. Control environment factors a. Is relevant to the auditor’s understanding of the control environment
32. In obtaining an understanding of an entity’s internal control, an auditor is b. Provides assurance that the auditor’s materiality levels are appropriate
required to obtain knowledge about the c. Indicates to the auditor where inherent risk may be the greatest
1. Operating effectiveness of controls d. Affects the level of detection risk that the auditor may accept
2. Design of controls
3. Implementation of controls 37. When combined assessed level of inherent and control risk is low/less than
a. 1 and 2 only high/below maximum, which is correct?
b. 2 and 3 only a. Test of controls is not required
c. 1 and 3 only b. More substantive procedures are performed
d. 1, 2 and 3 c. Detection risk is increased
d. Basis for assessment need not be documented
33. In obtaining an understanding of an entity’s internal control relevant to audit e.
planning, an auditor is required to obtain knowledge about its 38. Required to be documented when control risk is high
a. Design of controls pertaining to internal control components 1. The understanding of the design and implementation of
b. Effectiveness of controls that have been placed in operation internal control
c. Consistency with which controls are currently being applied 2. The conclusion that control risk is high (the assessment)
3. The basis of the assessment c. Perform tests of details of transaction to detect material misstatements
a. 1 and 2 only in the financial statements
b. 2 and 3 only d. Consider whether controls can have a pervasive effect in the financial
c. 1 and 3 only statements
d. 1, 2 and 3
43. May not be required on a financial statement audit
39. When assessing control risk below the maximum level, an auditor is required to a. Risk assessment procedures
document the auditor’s b. Tests of controls
1. Understanding if the entity’s control environment c. Substantive procedures
2. Basis for concluding that control risk is below maximum level d. Analytical procedures
a. 1 only
b. 2 only 44. How frequently must an auditor test operating effectiveness of controls that
c. Both 1 and 2 appear to function as they have in past years and on which the auditor
d. Neither 1 nor 2 wishes to rely in the currebt year
a. Monthly
40. Assessing control risk at below maximum level most likely would involve b. Each audit
a. Performing more extensive substantive tests with larger sample sizes c. At least every second audit
than originally planned d. At least every third audit
b. Reducing inherent risk for most of the assertions relevant to account
balances 45. Further audit procedures consist
c. Changing the timing of substantive tests by omitting interim-date 1. risk assessment procedures
testing and performing the test at year end 2. Test of controls
d. Identifying specific controls relevant to specific assertions 3. Substantive procedures
a. 1 and 2 only
41. After assessing control risk at below the maximum level, an auditor desires to b. 2 and 3 only
seek a further reduction in the assessed level of control risk. At this time, the c. 1 and 3 only
auditor would consider whether d. 1, 2 and 3
a. It would be efficient to obtain an understanding of the entity’s
informarion system 46. Procedures designed to detect material misstatements in the financial
b. The entity’s controls have been placed in operation statements
c. The entity’s controls pertain to any financial statement assertions a. Risk assessment procedures
d. Additional audit evidence sufficient to support a further reduction is b. Tests of controls
likely to be available c. Substantive procedures
d. Analytical procedures
42. Not a step in an auditor’s assessment of control risk
a. Evaluate the effectiveness of internal control with tests of control 47. Not a substantive procedure
b. Obtain an understanding of the entity’s information system and a. Understanding of the entity
control environment b. Test of derails of balances
c. Test of details of transactions 51. Regardless of the assessed level of control risk, an auditor would perform
d. Analytical procedures some
a. Test of control to determine the effectiveness of internal control
48. Most important in determining further audit procedures (FAP) policies
a. Nature of FAP-test of control or substantive test b. Analytical procedures to verify the design of internal control
b. Extent of FAP-more or less audit procedures c. Substantive tests to restrict detection risk for significant transaction
c. Timing of FAP-interim or year-end performance of audit procedures classes
d. All are equally important d. Dual-purpose test to evaluate both the risk of monetary misstatement
and preliminary control risk
49. When an auditor increases an assessed level of control risk because certain
control activities were determined to be ineffective, the auditor would most 52. The objective of test of details of transactions performed as tests of control is
likely increase the to
a. Extent of test of controls a. Monitor the design and use of entity documents such as pre-
b. Level of detection risk numbered shipping forms
c. Extent of test of details b. Determine whether controls have been placed in operation
d. Level of inherent risk c. Detect material misstatements in the account balances of the
financial statements
50. An auditor may compensate for a weakness in internal control by increasing d. Evaluate whether controls operated effectively
the AT.M-1402
a. Level of detection risk EXPENDITURE CYCLE
b. Extent of test of controls
c. Preliminary judgment about audit risk MULTIPLE CHOICES
d. Extent of analytical procedure
1. It is an internal document sent by the department in need of the supplies to the
purchasing department.
A. Purchase requisition C. Purchase Invoice
B. Receiving report D. Purchase order
3. An auditor’s primary concern when performing test of control over purchasing is to
2. Which of the following policies is an internal control weakness related to the determine whether
acquisition of factory equipment? A. Purchase orders agree to purchase requisitions
A. Advance executive approvals are required for equipment acquisitions. B. Purchases are properly recorded
B. Variances between authorized equipment and actual costs are to be C. Purchases are properly authorized
immediately reported to the management. D. Purchasing personnel are performing their assigned functions properly
C. Depreciation policies are reviewed only once a year.
D. Acquisitions are to be made through and approved by the department in 4. Which among these activities is not an appropriate function of the purchasing
need of the equipment. department?
A. Determine the proper quantity of purchases
B. Prepare the purchase order
C. Determine the right vendor or supplier for the purchases 5. Employees in the same department most likely would approve purchase orders,
D. Prepare the receiving report upon receipt of the goods and also

A. Reconcile the invoice file C. Authorize requisitions of goods


B. Inspect goods upon receipt D. Negotiate terms with vendors
6. Two copies of purchases order are accomplished by the purchasing department.
One copy is sent to the vendor and the other copy is sent to which department?
A. User C. Receiving
B. Purchasing D. Accounting
7. Internal control is strengthened when the quantity of merchandise ordered is
omitted from the copy of the purchase order sent to the
A. Department that initiated the requisition C. Purchasing agent
B. Receiving department D. Accounts payable department
8. It is used to describe the receiving department’s copy of the purchase order that
does not indicate the number of items ordered.
A. Blind copy C. Xeroxed copy
B. Omitted copy D. Cat copy
B. Identify and return damaged goods as soon as they are received
C. Provide a cross-check for verifying the accuracy of perpetual inventory
9. Omitting quantities from copies of purchase orders sent to the receiving records
department is a control procedure intended mainly to D. Prevent theft of goods by receiving department personnel
A. Ensure that goods received are physically counted by receiving department
personnel 10. The authority to accept incoming goods in receiving should be based on a/an
A. Vendor’s invoice C. Bill of lading
B. Materials requisitions D. Approved purchase order
D. Is responsible for handling merchandise but not for representing receiving
11. Control over merchandise purchase is improved when a company’s receiving reports
department
A. Accepts merchandise only if an approved purchase order is on hand 12. The purchase order forwarded to the receiving department indicates the
B. Accepts and count all merchandise received from known vendors vendor’s name and the quantities of materials ordered. This may possibly cause
C. Relies on shipping documents to prepare receiving reports
A. Payment for unauthorized items C. Overpayment for incomplete deliveries
B. Payment for unauthorized vendors D. Delay in recording purchases
13. Which of the functions below is not that of the receiving department?
A. Preparing the receiving report C. Preparing a purchase invoice
B. Counting the number of goods received D. Checking the goods received for quality

14. Upon receipt of goods, the receiving clerk should match the goods with the
A. Purchase order and requisition
B. Vendor’s invoice and the receiving report 15. A company policy should clearly indicate that defective merchandise returned
C. Vendor’s shipping document and the purchase order by customers is to delivered to the
D. Receiving report and the vendor’s shipping documents
A. Sales clerk C. Inventory control clerk
B. Receiving clerk D. Accounts receivable clerk
C. The invoice was correctly prepared
16. A receiving report should be accompanied by a copy of the vendor’s invoice to D. A check was prepared for every invoice
ascertain that
A. The merchandise billed was received by the company 17. Which department matches the supplier’s invoice, the purchase order and the
B. The merchandise received was billed by the vendor receiving report?
A. Treasury C. Receiving
B. Purchasing D. Accounting

18. The accounts payable department receives a purchase order form to 21. A voucher is a document prepared by
accomplish all of the following except A. Purchasing department to indicate amount to be purchase
A. Comparing invoice price to purchase order price B. Receiving departments to indicate the quantity received and approves
B. Ensuring that the purchase had been properly authorized payment
C. Comparing quantity ordered to quantity purchased C. Accounts payable department to authorize a cash disbursement
D. Ensuring that the goods had been received by the party requesting the D. Accounts payable department to indicate the recognition of liability
goods
22. Which of the functions below is not usually performed in the vouchers payable
19. Preventive controls in the accounts payable area should include a separation of department?
which of the following functions? A. Matching the vendor’s invoice with the related receiving report
A. Vendor invoice verification and merchandise ordering B. Approving vouchers for payment by having an authorize employee sign the
B. Physical handling of merchandise received and preparation of receiving vouchers
reports C. Indicating the asset and the expense account to be debited
C. Check signing and cancellation of payment documentation D. Accounting for unused pre-numbered purchase orders and receiving reports
D. Cash disbursements and vendor invoice verification
23. Accounts payable department generally should
20. Which of the following would be the best procedure to determine whether A. Stamp, perforate, or otherwise cancel supporting documentation after
purchases were properly authorized? payment is mailed
A. Review and evaluate a flowchart of purchasing procedures B. Ascertain that each acquisition is approve as to price, quantity, and quality
B. Vouched payment for selected purchases to supporting receiving reports by an authorized employee
C. Determine whether a sample of entries in the purchase journal is supported by C. Obliterate the quantity ordered on the receiving department copy of the
properly executed purchase orders purchase order
D. Discuss authorization procedures with personnel in the controllers and D. Establish the agreement of the vendor’s invoice with the receiving report and
purchasing functions purchase order
24. Before approving payment and recording in the journals by the accounting
department, the following document must be present, except
A. Canceled check C. Purchase invoice
B. Receiving report D. Purchase order
B. Before recording in the journals, accounting department normally matches
25. The person who signs the check purchase order, receiving repot and vendor’s invoice
A. Reviews the monthly bank reconciliation C. Voided checks are mutilated, retained and accounted for
B. Returns the check to accounts payable D. Two signatures must be present on checks regardless of its amount
C. Is denied access to the supporting documents
D. Is also responsible for mailing checks 28. Which of the following is the least concern to an auditor? (which means internal
control is not weak)
26. To ensure that each voucher is submitted and paid only once, an auditor most A. The controller distributes the check to payees after the checks have been
likely would examine a sample of paid vouchers and determine whether each signed
voucher is B. Cash collections are not deposited intact in a daily basis
A. Supported by a vendor’s invoice C. The treasure does not verify the names and addresses or the payees of the
B. Stamped “paid” by the check signer checks
C. Pre-numbered and accounted for D. Checks are assigned only by a single company officer
D. Approved for authorized purchases
29. An auditor vouches a sample of entries in the voucher register to the supporting
27. Which is incorrect? documents. Which assertion would this test of controls most likely support?
A. After payment, the purchase order, receiving report and the vendor’s invoice
are stamped paid to prevent duplicate payments
A. Valuation C. Existence
B. Completeness D. Rights
numbered receiving report. To determine whether checks are being issued for
30. An entity’s internal control requires for every check request that there be an unauthorized expenditures, an auditor most likely would select items for testing from
approved voucher, supported by a pre-numbered purchase order and a pre- the population of all
A. Purchase orders C. Receiving report
B. Canceled checks D. Approved vouchers
31. To determine whether all approved expenditures for purchases are received, an
auditor most likely would select items for testing the population of all
A. Purchase orders C. Receiving report
B. Canceled checks D. Approved vouchers
32. An auditor performs test to determine whether all merchandise for which the
client was billed was received. The population for this test consists of all
A. Merchandise received C. Canceled checks
B. Vendor’s invoices D. Receiving reports
33. An internal control questionnaire indicates that an approved receiving report is B. Reconciling vendor’s monthly statements with subsidiary payable ledgers
required to accompany every check request for payment of merchandise. Which of accounts
the following procedures provides the greatest assurance that this control is C. Sending a written quarterly confirmations to all vendors
operating effectively? D. Tracing totals from the purchases journal to the ledger accounts
A. Select and examine receiving reports and ascertain that the related
canceled checks are dated no earlier than the receiving reports 36. Which of the following would prevent a p aid disbursement from being paid a
B. Select and examine receiving reports and ascertain that the related second time?
canceled checks are dated no later than the receiving reports A. Individuals responsible for signing checks should prepare vouchers
C. Select and examine canceled checks and ascertain that the related B. Disbursement should be approved by at least two responsible officials
receiving reports are dated no earlier than the checks C. The disbursement date should be within a few days of the date the voucher is
D. Select and examine canceled checks and ascertain that the related presented for payment
receiving reports are dated no later than the checks D. The official signing the check should cancel the supporting documents

34. Which of the following is a standard over cash disbursements? 37. A CPA learns that his client has paid a vendor twice for the same shipment, once
A. Checks should be signed by the controller and at least one other employee based upon the original invoice and based upon the monthly statement. A control
of the entity procedure that should have prevented this duplicate payment is
B. Checks and supporting documents should be cancelled immediately after A. Attachment of the receiving report to the disbursement support
the check is returned with the bank statement B. Pre-numbering of disbursement vouchers
C. Checks should be sent directly to the payee by the employee who prepares C. Use of a limit or reasonableness test
documents that authorize check preparation D. Pre-numbering of receiving reports
D. Checks should be consecutively numbered and accounted for by the person
who prepares bank reconciliations 38. An auditor suspects that certain employees are ordering merchandise for
themselves over the internet without recording the purchase or receipt of the
35. A client erroneously recorder a large purchase twice. Which of the following merchandise. When vendor’s invoices arrive, one of the employees approves the
internal control measures would be most likely to detect this error in a timely and invoices for payment. After the invoices are paid, the employee destroys the invoices
efficient manner? and the related vouchers. In gathering evidence regarding the fraud, the auditor
A. Footing the purchases journal most likely would select items for testing from the file of all
A. Cash disbursements C. Receiving reports
B. Approved vouchers D. Vendor’s invoices
39. It shows the total hours worked by each employee in a day.
A. Clock card C. Payroll register
B. Job time ticket D. Time summary
40. It shows what specific job/s the employees spend his hours on in a day.
A. Clock card C. Payroll register
B. Job time ticket D. Time summary
A. Approve the payroll voucher in the accounts payable department
41. Which of the following procedures is most likely to ensure that employee job time B. Keep employment information in the human resources
tickets are accurate?
C. Make sure that the number of hours per week on each employee’s job time B. Total of the checks drawn to employees for payroll
ticket is 40 C. Total gross payroll plus the total contributed by the employer for payroll taxes
D. Check the employee check cars against the job time tickets D. Total gross pay for the current week’s payroll

42. The total of the individual employee earnings in the payroll master file equals the 43. Which department approves changes in pay rates and deductions from
A. Total balance of gross payroll in general ledger accounts employee salaries?
A. Personnel C. Accounting
B. Treasury D. Payroll
A. The preparation of the payroll must be under the control of the personnel
44. An auditor vouched data for a sample of employees in a payroll register to department
approved clock card data to provide assurance that B. The confidentiality of employee payroll data should be carefully protected to
A. Payment of employees are computed at authorized rates prevent fraud
B. Employees worked the number of hours for which they are paid C. The duties of hiring, payroll computation and payment to employees should
C. Segregation of duties exist between the preparation and distribution of the be segregated
payroll D. The payment of cash to employees should be replace with payment by
D. Controls relating to unclaimed payroll checks are operating effectively checks

45. Which of the following best describes proper internal control over payroll? 46. No individual with access to time cards, payroll records, or checks should also be
permitted access to
A. Personnel records C. The canceled check
B. The computer D. Job time tickets
47. The payroll department should be responsible for
A. Processing payroll transactions C. Timekeeping
B. Authorization of new employee D. Signing payroll checks
C. Salary rates resulting from new hires are approved by the payroll supervisor
48. The purpose of segregating the duties of hiring personnel and distributing payroll D. Total hours used for determination of gross pay are calculated by the payroll
checks is to separate the supervisor
A. Administrative controls from the internal accounting controls
B. Human resources function from the controllership function 50. To minimize the opportunities for fraud, unclaimed cash payroll should be
C. Operational responsibility from the record keeping responsibility A. Deposited in a safe-deposit box
D. Authorization of transactions from the custody of related asset B. Held by the payroll custodian
C. Deposited in a special bank account
49. Which of these is a control that most likely could help prevent employee payroll D. Held by the controller
fraud?
A. The personnel department promptly sends employee termination notices to 51. In determining the effectiveness of an entity’s controls relating to the existence or
the payroll supervisor occurrence assertion for payroll transactions, an auditor most likely would inquire
B. Employees who distribute payroll checks forward unclaimed payroll checks to about and
the absent employee’s supervisor A. Inspect evidence of accounting for pre-numbered payroll checks
B. Recomputed the payroll deductions for employee fringe benefits B. Deductions from gross pay are calculated correctly and are properly
C. Verify the preparation of the monthly payroll account bank reconciliation authorized
D. Observe the segregation of duties concerning personnel responsibilities and C. Employees of record actually exist and are employed by the client
payroll disbursement D. Paychecks agree with the payroll register and the time cards

52. Which of the following controls most likely would prevent direct labor hours from 55. It would be appropriate for the payroll accounting department to be responsible
being charged to manufacturing overhead? for which of the following functions?
A. Periodic independent counts of work in process for comparison to recorded A. Approval of the employee time records
amounts B. Maintenance of records of employment, discharges, and pay increases
B. Comparison of daily journal entries with approved production orders C. Preparation of periodic government reports as to employees’ earning and
C. Use of time tickets to record actual labor worked on production orders withholding taxes
D. Reconciliation of work-in-process inventory with periodic cost budgets D. Temporary retention of unclaimed employee paychecks

53. Proper internal control over the cash payroll function would mandate which of 56. The auditor’s primary concern in the examination of payroll transactions is the
the following? possibility of
A. The payroll clerk should fill the envelopes with cash and a computation of the A. Overpayment and unauthorized payments
net wages B. Posting of gross payroll amounts to incorrect salary expense accounts
B. Unclaimed pay envelopes should be retained by the paymaster C. Misfootings of employee time cards
C. Each employee should be asked to sign a receipt D. Excess withholding of amounts required to withhold
D. A separate checking account for payroll be maintained
57. “Recorded payroll payments are for work actually performed by non-fictitious
54. The auditor may observe the distribution of paychecks to ascertain whether employees” satisfies the control objective of
A. Pay rate authorization is properly separated from the operating function
A. Authorization C. Validity
B. Completeness D. Valuation
58. “Existing payroll transactions are recorded” satisfies the control objective of
A. Authorization C. Validity
B. Completeness D. Valuation
59. To verify debits to the perpetual inventory records, an auditor would sample from
the recorded debits to a sample of
A. Purchase approvals C. Purchase orders
B. Purchase invoices D. Purchase requisitions
60. To verify credits to the perpetual inventory records, an auditor would sample from
the recorded credits to a sample of
A. Receiving reports C. Vendor’s invoices
B. Purchase orders D. Shipping documents
61. To determine that the client has completely included merchandise it owns in its
ending inventory, it reviews and test the
A. Terms of the open purchase orders B. The completion of production of a customer’s order
B. Purchase cut-off C. The initiation of production of a customer’s order
C. Commitments D. The acquisitions of raw materials for production of an order
D. Purchase invoices received around year-end
63. To adequately provide for the segregation of duties, the purchase requisitions for
62. In most manufacturing companies, the inventory and warehousing cycle begins the regular inventory stock should be initiated by which of the following
with departments?
A. The receipt of a customer’s order
A. Purchasing departments C. Shipping department
B. Sales department D. Warehouse
B. A JIT system to keep inventory levels to optimum balance
64. Which of the following is a question that the auditor would expect to find on the C. Periodic comparison of record and net realizable value of inventories
production cycle section of an internal control questionnaire? D. Supporting documents are matched before payment is approved
A. Are vendor’s invoices for raw materials approved for payment by an
employee who is independent of the cash disbursements function? 66. A most likely procedure in obtaining an understanding of a manufacturing entity’s
B. Are signed checks for the purchase of raw materials mailed directly after internal control over inventory balances
signing without being returned to the person who authorized the invoice A. Performing test counts when observing actual entity’s records?
processing? B. Performing analytical procedures designed to identify significant cost
C. Are all releases by storekeepers of raw materials from storage based on variances
approved requisition documents? C. Analyzing the inventory turnover and liquidity ratios
D. Are details of individual disbursements for raw materials balanced with the D. Reviewing the entity’s description of inventory policies and procedures
total to be posted to the appropriate general ledger account?
67. Comparing material usage reports to raw material stores issue slips is a control is a
65. Which of these is implemented to maintain accurate inventory records? control to help insure which assertion?
A. Periodic counts are conducted to adjust the perpetual records
A. Existence and occurrence C. Rights and obligations
B. Completeness D. Valuation or allocation
68. The auditor tests the quantity of materials charged to work in process by tracing
these quantities to
A. Cost ledgers C. Receiving reports
B. Perpetual records D. Material requisitions
69. The accuracy of perpetual inventory records may be established in part by
comparing perpetual inventory records with
A. Purchase requisitions C. Receiving reports
B. Purchase orders D. Vendor payment
70. As finished goods are completed by the production department and await
shipment, they are placed in the
A. Stockroom B. Storeroom
C. Waiting room
D. Shipping room
71. Which of the following controls most likely addresses the completeness assertion
for inventory?
A. Work in process account is periodically reconciled with subsidiary records
B. Employees responsible for custody of finished goods do not perform the
receiving function
C. Receiving reports are pre-numbered and periodically reconciled
D. There is a separation of duties between payroll department and inventory
accounting personnel

72. The objectives of internal control for a production cycle are to provide assurance
that transactions are properly executed and recorded, and that
A. Production orders are pre-numbered and signed by a supervisor
B. Custody of work in progress and of finished goods is properly maintained
C. Independent internal verification of activity reports is established
D. Transfers to finished goods are documented by a completed production
report and a quality control report

73. Which of the following is not true relating to the auditors’ observation of the
client’s physical inventory?
A. The auditors should evaluate the client’s planning of the physical inventory
B. The auditors should make certain that consigned items from suppliers are
included in physical inventory totals
C. The auditors should evaluate the adequacy of the client’s counting
procedures
D. The auditors should take test counts of the client’s inventory