1.

After the study and evaluation of a clients internal control policies and procedures has been completed, an
auditor might decide to
A. Increase the extent of substantive testing in areas where the internal control policies and procedures are
weak.
B. Reduce the extent of control testing in areas where the internal control policies and procedures are
strong.
C. Reduce the extent of both substantive and control testing in areas where the internal control policies
and procedures are strong.
D. Decrease the extent of substantive testing in areas where the internal controls are weak.

C. The University of Pasado is conducting a review of job descriptions and qualifications of its academic
staff. One of the new requirements for the department chairman of the Accountancy Department is that
the chairman must be a duly registered Certified Public Accountant.
D. In an interview for the student paper, the dean of the College of Accountancy has stated his intention
to go back into teaching Auditing Theory after my term as dean. Due to the demands of the deanship
I have not taught any accounting class during my tenure. I could not wait to resume my practice in
education/academe I have been away for so long.
6.

Which of the following statements is incorrect about the concept of uncertainty and the assessment of the
going concern assumption?
A. In general terms, the degree of uncertainty associated with the outcome of an event or condition
decreases significantly the further into the future a judgment is being made about the outcome of an
event or condition.
B. Any judgment about the future is based on information available at the time at which the judgment is
made.
C. The size and complexity of the entity, the nature and condition of its business and the degree to which
it is affected by external factors all affect the judgment regarding the outcome of events or conditions.
D. In general terms, the degree of uncertainty associated with the outcome of an event or condition
increases significantly the further into the future a judgment is being made about the outcome of an
event or condition.

7.

In forming an audit opinion, the auditor

A. Obtains sufficient, appropriate audit evidence to be able to draw an opinion on which to base that
conclusion.
B. Obtains sufficient, appropriate audit evidence to be able to draw conclusions on which to base that
opinion.
C. Studies and evaluates the internal control structure of the company to be able to draw conclusions on
which to base an audit.
D. Evaluates the risk of material misstatements for various account balances and reports the misstatements
to management.

8.

PSA 500, Audit Evidence, requires an auditor to obtain sufficient, appropriate audit evidence to be able to
draw reasonable conclusions on which to base the audit opinion. Substantive procedures means
A. The information obtained by the auditor in arriving at the conclusion on which the audit opinion is
based.
B. The tests performed to obtain evidence about the suitability of design and effective operation of the
accounting and internal control systems.
C. The tests performed to obtain audit evidence to detect material misstatements in the financial
statements.
D. Procedures which comprise the source documents and accounting records underlying the financial
statements under audit.

9.

Financial statement assertions are assertions by management, explicit or otherwise, that are embodied in
the financial statements. Which statement below refers to the Measurement assertion?
A. An asset or a liability exists at a given date.
B. An asset or liability is recorded at an appropriate carrying value.

2. In the case of recurring audits, the auditor should consider whether circumstances require the terms of
engagement to be revised and whether there is a need to remind the client of the existing terms of the
engagement. The auditor may decide not to send a new engagement letter each period. However, the
following factors may make it appropriate to send a new letter, except:
A. There is indication that the client misunderstands the objective and scope of the audit.
B. Any revised or special terms of the engagement.
C. A recent change of rank and file employees.
D. Legal requirements and other government agencies pronouncements.
3. You are the auditor of Baron Flowers, Inc. for 2013. To date, the aggregate of uncorrected misstatements
that you have identified is approaching the materiality level. What is the best course of action to take?
A. Consider whether it is likely that undetected misstatements, when taken with aggregate corrected
misstatements could exceed materiality level.
B. Consider whether it is likely that undetected misstatements, when taken with aggregate uncorrected
misstatements could exceed materiality level.
C. Consider whether it is likely that undetected misstatements, when taken with individual uncorrected
misstatements could exceed materiality level.
D. Consider whether it is likely that detected misstatements, when taken with aggregate uncorrected
misstatements could exceed materiality level.
4. Which of the following statements on quality control is correct?
A. The term auditor means the person with least responsibility for the audit.
B. Personnel means all partners, professional and non-professional staff of a firm.
C. The firms general quality control policies and procedures should be communicated to its personnel in a
manner that provides absolute assurance that the policies and procedures are understood and
implemented.
D. The audit program, the time budget and the overall audit plan are all helpful tools for the communication
of audit directions.
5.

Which of the following situations is an incorrect interpretation of practice in education/academe?

A. The chairman of the BSA program of Tulog University is having problems because Atty. Sakitin, is
sick and there is no one to handle the business law curriculum. His only alternative is to offer the
subject to Enchong, CPA. Enchong is not a lawyer, though he aspired to be one and is known for his
great proficiency in business law. Enchong accepted the offer and taught business law for that semester.
B. Pearl is a multi-skilled CPA and professor. During one semester, Pearl accepted offers to teach both
Advanced Accounting and Taxation.

C. A transaction or event is recorded at the proper amount and revenue or expense is allocated to the
proper period.
D. An item is disclosed, classified and described in accordance with the applicable financial reporting
framework.
10.

11.

The auditors judgment as to what is sufficient, appropriate audit evidence is influenced by such factors as
the following, except
A. Auditors assessment of the nature and level of inherent risk at both the financial statement level and
the account balance level or class of transactions level.
B. Nature of the accounting and internal control systems and the assessment of control risk.
C. Materiality of the item being examined.
D. Results of audit procedures, excluding fraud or error which may have been found.
This procedure for obtaining audit evidence consists of checking the arithmetical accuracy of source
documents and accounting records or of performing independent calculations.
A. Inspection.
C. Inquiry and confirmation.
B. Observation.
D. Computation.

12. The negative form of accounts receivable confirmation request is useful except when
a. internal control surrounding accounts receivable is considered to be effective
b. a large number of small balances are involved
c. the auditor has reason to believe the persons receiving the requests are likely to give them consideration
d. individual account balances are relatively large
13. The return of a positive confirmation of accounts receivable without an exception attests to the
a. collectibility of the receivable balance
b. accuracy of the receivable balance
c. accuracy of the aging of accounts receivable
d. accuracy of the allowance for uncollectible accounts
14. Which of the following is the most applicable reply to the text message of the client:
Okay. See you in the meeting tomorrow.?
a.
b.
c.
d.

Ok!
Okay. Will c u @ 9am.
Noted. We will be there before 9am at your office.
Oks. S33 y0u t0m0rr0w

15. The auditors failure to recognize a misstatement in an amount or a control deviation is described as a
a. statistical error
c. standard error of the mean
b. sampling error
d. nonsampling error

16. Aireeza, auditor, makes separate tests of controls and substantive tests in the accounts payable area, which
has good internal control. If she uses audit sampling for both of these tests, the acceptable risk established
for the substantive tests is normally
a. the same as that for tests of controls
b. greater than that for tests of controls
c. less than that for tests of controls
d. totally independent of that for tests of controls
17. Engagement team, as revised in the Definitions section of the Code of Ethics, is defined as all partners and
staff performing the engagement, and any individuals engaged by the firm or a network firm who perform
assurance procedures on the engagement. Which of the following statements is/are true in relation to the
revised definition of the term engagement team?
I. Engagement team excludes external experts engaged by the firm or by a network firm.
II. Engagement team also excludes individuals within the clients internal audit function who provide
direct assistance on an audit engagement when the external auditor complies with the requirements of
PSA 610.
a. I only
b. II only
c. I and II
d. None of the choices
18. A facility offered by banks to their customers to store valuable property for safe-keeping.
a.
Options.
c.
Repurchase agreements
b. Safe custody
d. Standby facility
19. These are computer systems that enable users to access data and programs directly through work-stations.
a.
On-line computer systems.
c.
Personal computer systems.
b. Database management systems.
d. Database systems.
20. This refers to the gathering of professionals which shall include among others, workshops, technical lectures
or subject matter meetings, non-degree training courses and scientific meetings.
a.
Seminars.
c.
Meetings.
b.
Conventions.
d.
Professional gathering.
21. A CIS environment is designed to ensure that management possesses the information it needs to carry out
its functions through the integrated actions of
a. data gathering, analysis, and reporting functions
b. a computer-based information retrieval and decision-making system
c. statistical and analytical procedures functions
d. production-budgeting and sales-forecasting activities

22. Which of the following conditions would not normally cause the auditor to question whether material
misstatements exist?
a. bookkeeping errors are listed on an EDP-generated error listing
b. differences exist between control accounts and supporting master files
c. transactions are not supported by proper documentation
d. differences are disclosed by confirmations

Item (D): The number of subjects covered in the CPA Licensure Examination.
23. The CPA reviews Pizzas payroll procedures. An example of an internal control weakness is to assign to a
department supervisor the responsibility for
a. distributing payroll checks to subordinate employees
b. reviewing and approving time reports for subordinates
c. interviewing applicants for subordinate positions prior to hiring by the personnel department
d. initiating requests for salary adjustments for subordinate employees
24. Which of the following situations would impair the independence of the firm or a member of the assurance
team in an inadvertent violation of the Code as it relates to a financial interest in an assurance client?
a.
The firm has established policies and procedures that require all professionals to report promptly to the
firm any breaches resulting from the purchase, inheritance or other acquisition of a financial interest
in the assurance client.
b. The firm, promptly notifies the professional that the financial interest should be disposed of.
c.
The disposal occurs at the earliest practical date after the identification of the issue, or the professional
is removed from the assurance team
d. The disposal occurs and the professional is removed from the assurance team after the completion of
the engagement.
25. _________ of the documents _________ valid and genuine.
a. Each, is
b. Each, are
c. Some, is

d. None of the choices

26. The number of years the independent CPA, who audited the records and certified the financial statements
of the Company, shall maintain and preserve electronic copies of the audited and certified financial
statements, including the audit working papers.
a. 3
b. 5
c. 7
d. 10
27. A set of guidelines not having the authority of standards defined by an authoritative body at a national level
and commonly applied by auditors in the conduct of an audit, review, other assurance or related services.
a.
Framework of Assurance Engagements
c.
Code of ethics
b.
National practices
d.
PAPS
28. Harve is working at his desk when his phone rings. He picks it up and says, Hello? The caller asks to
speak to Harve. If Harve wants to be grammatically correct, which of the following responses should he
choose?
I. This is his.
II. This is he.
III. Speaking.
a.

I or III only

b. II or III only

c. III only

d. None of the choices

29. Given the following information, what number results from (C) [(B) (A) - (D)]?
Item (A): The number of years that comprises a single term of a duly appointed SEC commissioner.
Item (B): The required minimum number of CPE credit units that an accounting teacher shall earn in each year
prior to renewal of accreditation.
Item (C): The age required for a registered professional to be exempted from CPE requirements permanently.

a.
30.
a.
b.
c.
d.

12

b. 13

c. 60

d. 65

In the auditing environment, failure to meet generally accepted auditing standards is often
An accepted practice.
A suggestion of negligence.
Conclusive evidence of negligence.
Tantamount to criminal behavior.
31. Which of the following is not an advantage of converting from a manual to an IT-based system?
A. It usually centralizes data.
B. It permits higher quality controls over operations.
C. It may eliminate the control provided by division of duties of independent persons who perform
related functions and compare results.
D. It may take the record-keeping function and the document preparation function away from
those who have custody of assets and put those functions into the IT center.

32. In comparing the control environment in complex versus non-complex IT systems, the control
environment in complex IT systems is:
A. More critical because there is greater potential for errors and irregularities.
B. Less critical because the complexity ensures that controls will be built into the system.
C. More critical because of the high degree of technical competence needed by the programmers and
operators.
D. Less critical because non-experts do not have the opportunity to interact with the system and
mess it up.
33. The most important output control is:
A. Distribution control, which assures that only authorized personnel receive the reports
generated by the system.
B. Review of the data for reasonableness by someone who knows that the output should look like.
C. Control totals, which are used to verify that the computers results are correct.
D. Logic tests, which verify that no mistakes were made in processing.
34. During one processing run, several transactions have been rejected by the IT system. Accordingly, the
IT department:
A. Should contact the user departments and inform them of the rejection.
B.

Should re-encode the inputs previously made by computer operators and reprocess the transactions.

C.
D.

Is responsible for ensuring that these transactions are in fact resubmitted and re-entered for processing.
Is not responsible for the resolution of rejected transactions.

35. A database management system

A. Physically stores each element of data only once.
B.

Stores data on different files for different purposes, but always knows where they are and how
to retrieve them.

C.
D.

Allows quick retrieval of data but at a cost of inefficient use of file space.
Allows quick retrieval of data but it needs to update files continually.

36. Which two important characteristics distinguish database systems?

A. Data integrity and data independence.
C. Data sharing and data interconnection.
B. Data independence and data sharing.
D. Data integrity and user integrity.
37. According to PAPS 1003, an important type of privilege that has to be considered regarding data
ownership is a(the):
A. Administrators ability to grant privileges to another administrator.
B. Users ability to grant privileges to another user.
C. Users ability to grant privileges to the network administrator.
D. Network administrators ability to grant privileges to users.
38. User access to the various elements of a database may be controlled through the use of passwords.
These restrictions apply to
A. Individuals but not to terminal devices and not to programs.
B. Terminal devices but not to individuals and not to programs.
C. Programs but not to individuals and not to terminal devices.
D. Individuals, terminal devices and programs.
39. These controls require a database administrator to assign security attributes to data that cannot be
changed by database users:
A. Discretionary access controls.
C. Password controls.
B. Mandatory access controls.
D. Distributed access controls.
40. These controls allow users to specify who can access data they own and what action privileges they
have with respect to that data.
A. Discretionary access controls.
C. Password controls.
B. Mandatory access controls.
D. Distributed access controls.

A.
B.
C.
D.

Uncharacteristically large amounts of income being reported in the last few weeks of the reporting
period.
Unusual transactions
Application of conservatism or prudence in making accounting estimates
Income that is inconsistent with trends in cash flow from operations.

43. Parties are considered to be related if:

A. If a breach of covenants has occurred, and if on or before balance sheet date, one party has obtained
a grace period of at least twelve months after balance sheet date during which said party can rectify
the breach, and the other party has agreed not to demand payment for the term of the grace period.
B. One party has the ability to control the other party and exercise significant influence over the other
party in making financial and operating decisions.
C. If one party discounts a note receivable to another party and the discounting is without recourse.
D. If a transaction is processed in an unusual manner due to errors in the accounting and internal
control system.
44. An initial audit requires more audit time to complete than a recurring audit. One of the reasons for this
is that:
A. The new auditors are usually assigned to an initial audit.
B. The predecessor auditors need to be consulted.
C. The clients business, industry, and internal control are unfamiliar to the auditor and he needs to
carefully study them.
D. A larger proportion of customer accounts receivable need to be confirmed on an initial audit.
45. Engagement quality control reviewers consider:
A. The work has been performed in accordance with GAAP.
B. Consultation with experts has been made for all phases of the engagement.
C. The work performed supports the conclusions reached and is appropriately documented.
D. Whether the system of quality control is operating effectively and adequately.
46. It describes the role of persons entrusted with supervision, control and direction of an entity.
A. Management
C. Audit committee
B. Governance
D. Steward of company resources

41. Material misstatements due to fraudulent financial reporting often result from:
A. An overstatement of revenues (such as premature revenue recognition)
B. An understatement of revenues (such as shifting income to a later period)
C. Both a and b
D. Neither a nor b

47. The following are examples of conditions and events that may indicate the existence of risks of material
misstatement, except:
A. Operations in regions that are economically unstable, for example, countries with significant
currency devaluation or highly inflationary economies.
B. Changes in the supply chain.
C. Changes in key personnel including departure of key executives
D. Low degree of complex regulation.

42. The auditor should be alert for particular trends and relationships that may indicate a risk of material
misstatement due to fraud, such as the following, except:

48. This exists when other information contradicts information contained in the financial statements.

A.
B.

Material misstatement of fact

Material scope limitations

C.
D.

Material misstatements
Material inconsistency

49. What threat to independence is created when the same senior personnel are used for assurance
engagements over a prolonged period?
A. Self-review threat
C. Advocacy threat
B. Intimidation threat
D. Familiarity threat
50. According to PSA 315, an example of the matters that the auditor may consider to obtain an
understanding of the nature of the entity is conduct of operations. Conduct of operations include the
following, except:
A. Stages and methods of production
B. Business segments
C. Alliances, joint ventures, and outsourcing activities
D. Details of declining or expanding operations
51. Which of the following cases illustrate a violation of the provisions of RA9298 and its IRR?
A. Rushnell, CPA, obtained 60 units of Continuing Professional Education in order to qualify for
renewal of his professional license.
B. Paul, a non-CPA, was removed from his position as internal auditor of Table Company because of
the IRR requirement that high accounting positions in large companies (qualifying under Section
4 of the IRR) must be CPAs.
C. Jensie, CPA, is the dean of a university offering BS Accountancy. Jensie was considered practicing
the profession in education, even though Jensie spends more time in the office and has only 3 units
teaching load.
D. Gizelle, CPA, withdrew from an audit engagement after a client refused to accept her audit report.
Gizelle gave the client an adverse opinion, due to the presence of material and pervasive
uncorrected misstatements in the financial statements.
52. Janine, CPA, is planning the time budget for the audit of Leah Napkins, Inc., a medium-sized
manufacturing concern with less than one hundred (100) shareholders. Which one of the following
areas would require the most amount of audit time?
A. Balance sheet
C. Liabilities.
B. Assets.
D. Owners Equity.
53. While performing analytical procedures, an auditor observes that operating income has declined
significantly between 2012 and 2013. Accordingly, the auditor should next:
A. Require that the decline be disclosed in the financial statements.
B. Consider the possibility that the financial statements may be materially misstated.
C. Inform management that an except-for opinion on the financial statements will be issued.
D. Determine managements responsibility for the decline and discuss the issue with the audit
committee of the client.

54. During audit planning, the entire audit team is considering the risk of non-compliance. The audit
associate asked the audit partner: If an illegal act is discovered during the audit of a publicly held
company, what should the auditor do? Select the most appropriate reply of the partner:
A.
The auditor should notify the regulatory authorities.
B.
We must determine who was responsible for the illegal act.
C.
The auditor should report the act to high level personnel within the clients organization and to the
committee.
D.
The audit team will intensify the examination, because we must identify all illegal acts.
55. Which of the following is most likely to be a response to the auditors assessment that the risk of
material misstatement due to fraud for the existence of inventory is high?
A. Observe test counts of inventory of certain locations on an unannounced basis.
B. Perform analytical procedures rather than taking test counts.
C. Request that inventories be counted prior to yearend.
D. Request that inventory counts at the various locations be counted on different dates so as to allow
the same auditor to be present at every count.
56. During audit planning, which of the following is not a factor that affects the auditors judgment as to
the quantity, type, and content of working papers?
A. The auditors preliminary assessment of control risk
B. The auditors preliminary evaluation of inherent risk based on the discussions with the client.
C. The nature of the clients business.
D. The type of report to be issued by the auditor.
57. According to the IRR, this number is included in the seal used by a Certified Public Accountant?
A. Professional tax receipt number.
C. Tax identification Number.
B. Community tax certificate number.
D. CPA Registration number.
58. Whenever there is a scope restriction, the appropriate response is to issue:
A. A disclaimer of opinion.
B.
An adverse opinion.
C.
A qualified opinion.
D. An unqualified report, a qualification of scope and opinion, or a disclaimer of opinion, depending
on materiality.
59. The most common case in which conditions beyond the clients and the auditors control cause a scope
restriction is an engagement:
A.
Agreed upon after the clients balance sheet date.
B.
Where the client wont allow auditor to confirm receivables for fear of offending his customers.
C.
Where auditor doesnt have enough staff to audit all of clients foreign subsidiaries satisfactorily.
D.
Where client is going through Chapter 11 bankruptcy proceedings.
60. This refers to learning which uses course manuals or accredited learning modules.
a. Masteral degree
b. Continuing professional education

c. In-service training
d. Self-directed learning package
61. According to the IRR, this refers to a study, appraisal, or review by the Board or its duly authorized
representatives, of the quality of audit of financial statements through a review of the quality control
measures instituted by the individual CPA, firm or partnership of CPAs engaged in the practice of
public accountancy.
a.
CPA review.
c.
Professional review.
b.
Peer review.
d.
Quality review.
62. The following have received the results of their CPA Board Exams:

Candidate
Martin

Results of July 2014

Exams
Failed

Manuel
Mark

Failed
Failed

Marvin

Failed

Remarks
This is Martins removal examination. He last
took the examination in October 2013, where he
received conditional credits.
This is Manuels first quest for the CPA license.
Mark failed in the May 2012 examinations. He
took three reviews but still fell short of the grade.
Marvin failed in the May 2013 examinations.
He took another examination in October 2013 and
got conditional credits.

Who among these candidates must take a refresher course (of at least 24 units of subject given in the
licensure examination) before embarking on another attempt for a CPA License (assume that 2014 is
the current year)?
a.
Mark only.
c.
Martin and Marvin.
b.
Mark and Marvin.
d.
Martin, Mark and Marvin.

65. In a small company that employs inadequate number of employees to permit proper division of
responsibilities, effective internal control can best be strengthened by:
A.
Direct participation by the owner of the business in the record-keeping activities of the business.
B.
Employment of temporary personnel to aid in the separation of duties.
C.
Delegation of full clear-cut responsibility to each employee for the functions assigned to each.
D.
Affirm in writing managements approval of limitation on the scope of the audit.
66. When an auditor is assessing the auditability of a small business client, the auditor should focus upon:
A. the integrity of management and the adequacy of the clients internal control systems.
B. whether the auditor has adequate resources to accomplish the audit.
C. the amount of risk the audit represents and the audit fee which can be collected.
D. whether the clients accounting personnel are well trained and professionally qualified.
67. Which of the following topics is not normally included in an engagement letter?
A. The auditors estimate of the professional fee for the engagement.
B. Limitations on the scope of the engagement.
C. A description of responsibility for the detection of fraud.
D. The auditors preliminary assessment of internal control.
68. A document which the auditor receives from the client, but which was prepared by someone outside
the clients organization, is a(n):
A. Confirmation.
C. External document.
B. Internal document.
D. Inquiry.
69. When performing analytical tests, a CPA is least likely to compare the current years balances or ratios
to expectations derived from:
A. informed judgment
C. industry data
B. budgetary data
D. unaudited data

63. An audit senior is providing a pre-audit conference to the team. An associate asked, Which general
ledger account is the most important, included in and affecting several transaction cycles? The
appropriate reply would be:
A.
General cash account.
B.
Inventory account.
C.
Income tax expense and liability accounts.
D.
Retained earnings account.

70. A preliminary or entrance conference with the auditee is a useful step in avoiding misunderstandings.
Which of the following items is usually not covered in a preliminary conference?
A. Special problems known to be relevant to the audit.
B. Extent to which the independent auditor will need assistance and cooperation from the
organizations personnel.
C. Condition of accounting records and other data sources which may affect the scope of the audit
and difficulty of completion.
D. Audit program to be followed.

64. The most important aspect of any system of controls is:

A.
Proper authorization procedures.
B.
Competent, trustworthy personnel.
C.
Separation of duties.
D.
Regular review by top management.

71. A CPA certificate is evidence of:

a. Recognition of independence in mind.
b. Basic competence at the time the certificate is granted.
c. Culmination of the educational process.
d. Membership in the PICPA.

72. What are the two most common types of tax services?
a. Tax evasion and tax planning.
c.
b. Tax planning and tax compliance.
d.

Tax computation and tax planning.

Tax compliance and tax shelter.

73. In auditing accounting data, the focus is with:

a. Determining whether recorded information properly reflects the economic events that occurred during the
accounting period.
b. Determining if fraud has occurred.
c. Determining if taxable income has been calculated correctly.
d. Analyzing the financial information to be sure that it complies with government requirements.
74. Because an examination in accordance with generally-accepted auditing standards is influenced by the
possibility of material errors, the auditor should conduct the examination with an attitude of
a. Professional responsiveness.
c. Objective judgment.
b. Conservative advocacy.
d. Professional skepticism.
75. Because an external auditor is paid a fee by a client company, he or she:
a. Is absolutely independent and may conduct an audit.
b. May be sufficiently independent to conduct an audit.
c. Is never considered to be independent.
d. Must receive approval of the Securities and Exchange Commission before conducting an audit.

76. Which of the following is not an underlying condition that creates a demand by users for reliable
information?
a. Transactions that are numerous and complex.
b. Decisions are not time-sensitive.
c. Financial decisions that are important to investors and users.
d. Users separated from accounting records by distance and time.
77. Assertions are representations of management that are embodied in financial statement components.
They can be either explicit or implicit. Which of these assertions is not about valuation or allocation?
a. Property is recorded at historical cost.
b. Trade accounts receivables in the balance sheet are stated at net realizable value.
c. Notes payables in the balance sheet include all such obligations of the entity.
d. Property cost is systematically allocated to appropriate accounting period.
78. In a review engagement the public accountant provides negative assurance in the report which is issued.
This can best be described by the phrase:
a. nothing has come to my attention
c. we are unable to express an opinion
b. the financial statements present fairly
d. except for the issues explained above

79. Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance
to an absolute level of assurance. In practice, the professional accountant cannot provide absolute
assurance because of the following reasons, except:
a. The lack of expertise of the CPA in performing the engagement process.
b. The inherent limitations of accounting and internal control systems.
c. The use of judgment in gathering evidence and drawing conclusions based on that evidence.
d. The use of selective testing.
80. Jeff, CPA, was requested to perform a review engagement for Beauty, Inc., a non-public entity. Jeff
has an immaterial direct financial interest. In this situation, Jeff is:
a. Not independent, and therefore, may not be associated with the financial statements.
b. Not independent, and therefore, may not issue a review report.
c. Not independent, and therefore, may issue a review report, but may not issue an auditors report.
d. Independent because the financial interest is immaterial, and therefore, may issue a review report.
81. In forming an audit opinion, the auditor
a. Obtains sufficient, appropriate audit evidence to be able to draw an opinion on which to base that
conclusion.
b. Obtains sufficient, appropriate audit evidence to be able to draw conclusions on which to base that
opinion.
c. Studies and evaluates the internal control structure of the company to be able to draw conclusions
on which to base an audit.
d. Evaluates the risk of material misstatements for various account balances and reports the
misstatements to management.
82. Conflict between financial statement users and auditors often arises because of:
a. High cost of performing an audit.
b. Extremely technical vocabulary which the auditor uses in the report.
c. Placement of the auditors report in the back of the clients annual report, where it is hard to locate.
d. Expectation gap.
83. Leovic, CPA, is planning the audit of Theory, Inc. Theory verbally asserts to Leovic that all the
expenses for the year have been recorded in the accounts. Theorys representation in this regard:
a. Is sufficient evidence for Leovic to conclude that the completeness assertion is supported for the
expenses.
b. Can enable Leovic to minimize his work on the assessment of control risk for the completeness of
expenses.
c. Should be disregarded because it is not in writing.
d. Is not considered a sufficient basis for Leovic to conclude that all expenses have been recorded.
84. Which of the following phrases is most likely found in the auditors responsibility paragraph?
A. We have audited the accompanying financial statements of Rez Company, which comprise the
balance sheet as at December 31, 2014

B.

C.
D.

This responsibility includes: designing, implementing and maintaining internal control relevant to
the preparation and fair presentation of financial statements that are free from material
misstatement
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements.
In our opinion, the financial statements present fairly, in all material respects, the financial position
of Rez Company as of December 31, 2014, and of its financial performance and its cash flows

85. Silver, CPA, is performing an audit of the financial statements of Ash Company. In the course of his
audit, he was not allowed by management to confirm receivables with customers of the company.
Assuming Silver was not able to perform satisfactory alternative audit procedures, and that the resulting
scope limitation is material and pervasive to the financial statements, Silver will:
A. Choose between expression of a qualified opinion or a disclaimer of opinion.
B. Try to resign from the engagement, if practicable; otherwise, Silver will express a disclaimer of
opinion on the financial statements.
C. Choose between expression of a qualified opinion or adverse opinion.
D. Express an adverse opinion on the financial statements.
86. An auditor's report includes a statement that "the financial statements do not present fairly the financial
position in accordance with Philippine Financial Reporting Standards." This auditor's report was
probably issued in connection with financial statements that were (select the exception):
a.
Prepared on a comprehensive basis for accounting other than PFRS.
b.
Pervasively misstated.
c.
Misleading.
d.
Materially misstated.
87. Ash, CPA, has audited Ace Semiconductors, Inc. During the course of the audit, Ash enlisted the
services of Paul, an expert on electronics. As a result of Pauls services, Ash issued a modified report.
While drafting the explanation to the modification, Ash decided that reference to the expert is required.
The expert did not grant permission to use his name. In these circumstances, Ash:
A. should obtain the permission of Paul before making such a reference.
B. may refer to Paul without permission, but Ashs identity must be concealed.
C. should seek legal advice on action that must be taken regarding the situation.
D. cannot refer to Paul under any circumstance.
88. Under the comparative financial statements framework, the prior year information are:
A. An integral part of the current period financial statements
B. Implicitly given an opinion when the auditor expresses an opinion for the current year financial
statements.
C. Read with reference to amounts and other disclosures relating to the current period
D. Capable of standing alone
89. Which of the following procedures would an auditor ordinarily perform during the review of
subsequent events?

A.
B.
C.
D.

Review the cut-off bank statements for three days before and after the year-end
Inquire of the clients legal counsel concerning litigation, contingencies and pending cases.
Investigate reportable conditions previously communicated to the client.
Analyze related party transactions to determine the propriety of accounting and completeness of
disclosures.

90. On May 25, 2014, before the M Company released its financial statements for the fiscal year ended
April 30, 2014, P, Inc., a customer, declared bankruptcy. P had no previous history of financial
difficulty. M estimates that it will suffer a material loss on an account receivable from P. How should
this loss be disclosed or recognized?
A. The financial statements should be adjusted to recognize the loss.
B. The loss should be disclosed in the notes to the financial statements, but financial statements
themselves need not be adjusted.
C. The loss should be disclosed in an explanatory paragraph in the auditors report.
D. No disclosure of recognition is required.
91. The primary source of information to be reported about litigation, claims, and assessments is
management. Which of the following is another likely source?
A. Clients lawyer
C. Clients management
B. Court records
D. Independent auditor
92. Shortly after the audit report has already been released to Gizelle Company, Uner, CPA, discovered
that a material subsequent event requiring adjustment of the financial statements. Despite asking
Gizelle Company NOT to release the financial statements and the audit report thereon, GIZELLE
ISSUED BOTH DOCUMENTS. Related to this, what is the best course of action on part of Uner?
A. Issue a modified report, as a corrigendum, together with a written apology addressed to the board
of directors and shareholders of the entity.
B. Issue a modified report, as a corrigendum, but without a written apology.
C. Ask for legal advice, and take action to prevent reliance on the auditors report.
D. Issue a modified report, with a qualified or adverse opinion, to be printed in a newspaper of general
circulation, no less than 15 days after the issuance of the unamended financial statements and the
original audit report.
93. Pursuant to an attitude of professional skepticism, an auditor is seeking support for management
representations regarding litigation. The auditors primary means of obtaining corroboration of
managements information is a:
A. Confirmation of claims and assessments from an officer of the court presiding over the litigation.
B. Letter of audit inquiry to the clients lawyer.
C. Confirmation of claims and assessments from the other parties to the litigation.
D. Letter of corroboration from the auditors lawyer upon review of the legal documentation.
94. A lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments,
and the auditor is unable to perform alternative procedures to obtain the corroborating information. In
this case, the auditor will choose between issuing a(n):

A.
B.
C.
D.

Unqualified opinion and qualified opinion

Qualified opinion and adverse opinion
Qualified opinion and disclaimer of opinion
Adverse opinion and disclaimer of opinion

95. An auditors major consideration regarding going concern is:

A. The assessment of future conditions and events for a period of time, normally 12 months after
balance sheet date.
B. The propriety and adequacy of note disclosures about the going concern uncertainty.
C. The material misstatements that always arise whenever there is doubt about the going concern
assumption.
D. The assurance that such uncertainty should be accounted on an arms length basis.
96. Management representation letters (choose the best answer):
a.
Complements the results of risk assessment procedures.
b.
Complements the results of test of control procedures.
c.
Are not substitutes for substantive test procedures.
d.
Are substitutes for auditor reliance on the internal controls of a client.
97. Normally, who is the maker and the recipient of the management representation letter?
A. Management, auditor, respectively
B. Auditor, management, respectively.
C. Management, management, respectively.
D. Auditor, auditor, respectively.
98. An operational audit is designed to
A. assess the efficiency and effectiveness of managements operating procedures
B. assess the presentation of managements financial statements in accordance with generally
accepted accounting principles
C. determine whether management has complied with applicable laws and regulations
D. determine whether the audit committee of the board of directors is effectively discharging its
responsibility to oversee managements operations
99. Where the client is changing auditors, PSA requires communication between the predecessor and
successor auditors. The burden of approving the communication rests with:
A. The predecessor auditor.
C. The successor auditor.
B. The client.
D. The PRC.
100. As the combined assessments of inherent and control risk decreases,
A. Acceptable detection risk decreases; consequently, substantive tests decrease.
B. Acceptable detection risk decreases; consequently, substantive tests increase.
C. Acceptable detection risk increases; consequently, substantive tests decrease.
D. Acceptable detection risk increases; consequently, substantive tests increase.