After the study and evaluation of a clients internal control policies and procedures has been completed, an

auditor might decide to

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?

Increase the extent of substantive testing in areas where the internal control policies and procedures are weak.

Consider whether it is likely that undetected misstatements, when taken with aggregate corrected misstatements
could exceed materiality level.

Reduce the extent of control testing in areas where the internal control policies and procedures are strong.
Consider whether it is likely that undetected misstatements, when taken with aggregate uncorrected
misstatements could exceed materiality level.
Reduce the extent of both substantive and control testing in areas where the internal control policies and
procedures are strong.
Consider whether it is likely that undetected misstatements, when taken with individual uncorrected
misstatements could exceed materiality level.
Decrease the extent of substantive testing in areas where the internal controls are weak.

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:

Consider whether it is likely that detected misstatements, when taken with aggregate uncorrected misstatements
could exceed materiality level.

Which of the following statements on quality control is correct?

The term auditor means the person with least responsibility for the audit.

There is indication that the client misunderstands the objective and scope of the audit.

Personnel means all partners, professional and non-professional staff of a firm.

Any revised or special terms of the engagement.

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.

A recent change of rank and file employees.

The audit program, the time budget and the overall audit plan are all helpful tools for the communication of
audit directions.
Legal requirements and other government agencies pronouncements.
Which of the following situations is an incorrect interpretation of practice in education/academe?

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 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.

Pearl is a multi-skilled CPA and professor. During one semester, Pearl accepted offers to teach both Advanced
Accounting and Taxation.

the chairman must be a duly registered Certified Public Accountant.

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.

Which of the following statements is incorrect about the concept of uncertainty and the assessment of the going
concern assumption?

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.

Any judgment about the future is based on information available at the time at which the judgment is made.

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.

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.

In forming an audit opinion, the auditor

Obtains sufficient, appropriate audit evidence to be able to draw an opinion on which to base that conclusion.

Obtains sufficient, appropriate audit evidence to be able to draw conclusions on which to base that opinion.

The tests performed to obtain evidence about the suitability of design and effective operation of the accounting
and internal control systems.

Studies and evaluates the internal control structure of the company to be able to draw conclusions on which to
base an audit.

The tests performed to obtain audit evidence to detect material misstatements in the financial statements.

Evaluates the risk of material misstatements for various account balances and reports the misstatements to
management.

Procedures which comprise the source documents and accounting records underlying the financial statements
under audit.

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

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?

The information obtained by the auditor in arriving at the conclusion on which the audit opinion is based.

An asset or a liability exists at a given date.

An asset or liability is recorded at an appropriate carrying value.

A transaction or event is recorded at the proper amount and revenue or expense is allocated to the proper
period.

Nature of the accounting and internal control systems and the assessment of control risk.

Materiality of the item being examined.

An item is disclosed, classified and described in accordance with the applicable financial reporting
framework.
Results of audit procedures, excluding fraud or error which may have been found.
The auditors judgment as to what is sufficient, appropriate audit evidence is influenced by such factors as the
following, except

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.

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.

accuracy of the allowance for uncollectible accounts

B.
Observation.

Which of the following is the most applicable reply to the text message of the client:

D. Computation.
Okay. See you in the meeting tomorrow.?

The negative form of accounts receivable confirmation request is useful except when

Ok!

internal control surrounding accounts receivable is considered to be effective

Okay. Will c u @ 9am.

a large number of small balances are involved

Noted. We will be there before 9am at your office.

the auditor has reason to believe the persons receiving the requests are likely to give them consideration

Oks. S33 y0u t0m0rr0w

individual account balances are relatively large

15. The auditors failure to recognize a misstatement in an amount or a control deviation is described as a

The return of a positive confirmation of accounts receivable without an exception attests to the

a.
statistical error

collectibility of the receivable balance

c.
standard error of the mean

accuracy of the receivable balance

b.
sampling error

accuracy of the aging of accounts receivable

d.

nonsampling error

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

the same as that for tests of controls

greater than that for tests of controls

less than that for tests of controls

totally independent of that for tests of controls

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

a.

Options.

PSA 610.
c.
Repurchase agreements

b.

Safe custody
a.
I only
b. II only
c.

d.

I and II

Standby facility

d. None of the choices

19.

18.

These are computer systems that enable users to access data and programs directly through work-stations.

A facility offered by banks to their customers to store valuable property for safe-keeping.

a.

d.
Professional gathering.
On-line computer systems.

c.

A CIS environment is designed to ensure that management possesses the information it needs to carry out its
functions through the integrated actions of

Personal computer systems.

data gathering, analysis, and reporting functions

b.

Database management systems.

a computer-based information retrieval and decision-making system

statistical and analytical procedures functions

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.

production-budgeting and sales-forecasting activities

Which of the following conditions would not normally cause the auditor to question whether material
misstatements exist?

a.
Seminars.

c.

bookkeeping errors are listed on an EDP-generated error listing

differences exist between control accounts and supporting master files

Meetings.
b.
Conventions.

transactions are not supported by proper documentation

differences are disclosed by confirmations

The CPA reviews Pizzas payroll procedures. An example of an internal control weakness is to assign to a
department supervisor the responsibility for

distributing payroll checks to subordinate employees

_________ of the documents _________ valid and genuine.

a.

Each, is b. Each, are

c. Some, is

d. None of the choices

reviewing and approving time reports for subordinates

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

interviewing applicants for subordinate positions prior to hiring by the personnel department

statements, including the audit working papers.

initiating requests for salary adjustments for subordinate employees

a. 3
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?

b. 5
c. 7
d. 10

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.

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.

The firm, promptly notifies the professional that the financial interest should be disposed of.
a.
The disposal occurs at the earliest practical date after the identification of the issue, or the professional is
removed from the assurance team

Framework of Assurance Engagements

c.
Code of ethics

The disposal occurs and the professional is removed from the assurance team after the completion of the
engagement.

b.

National practices
29. Given the following information, what number results from (C) [(B) (A) - (D)]?
d.
PAPS

Item (A): The number of years that comprises a single term of a duly appointed SEC commissioner.

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?

Item (B): The required minimum number of CPE credit units that an accounting teacher shall earn in each year
prior to renewal of accreditation.

I.

Item (C): The age required for a registered professional to be exempted from CPE requirements permanently.

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

Item (D): The number of subjects covered in the CPA Licensure Examination.

a.

12

b. 13

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.

c. 60 d. 65

In the auditing environment, failure to meet generally accepted auditing standards is often

In comparing the control environment in complex versus non-complex IT systems, the control environment in
complex IT systems is:

An accepted practice.

More critical because there is greater potential for errors and irregularities.

A suggestion of negligence.

Less critical because the complexity ensures that controls will be built into the system.

Conclusive evidence of negligence.

More critical because of the high degree of technical competence needed by the programmers and operators.

Tantamount to criminal behavior.

Less critical because non-experts do not have the opportunity to interact with the system and mess it up.

Which of the following is not an advantage of converting from a manual to an IT-based system?

The most important output control is:

It usually centralizes data.

Distribution control, which assures that only authorized personnel receive the reports generated by the system.

It permits higher quality controls over operations.

Review of the data for reasonableness by someone who knows that the output should look like.
Control totals, which are used to verify that the computers results are correct.

It may eliminate the control provided by division of duties of independent persons who perform related
functions and compare results.
Logic tests, which verify that no mistakes were made in processing.

During one processing run, several transactions have been rejected by the IT system. Accordingly, the IT
department:

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

Is responsible for ensuring that these transactions are in fact resubmitted and re-entered for processing.
Should contact the user departments and inform them of the rejection.

Is not responsible for the resolution of rejected transactions.

35. A database management system

D.
Physically stores each element of data only once.

Data integrity and user integrity.

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

According to PAPS 1003, an important type of privilege that has to be considered regarding data ownership
is a(the):

Allows quick retrieval of data but at a cost of inefficient use of file space.

Administrators ability to grant privileges to another administrator.

Allows quick retrieval of data but it needs to update files continually.

Users ability to grant privileges to another user.

36. Which two important characteristics distinguish database systems?

Users ability to grant privileges to the network administrator.

A.

Network administrators ability to grant privileges to users.

Data integrity and data independence.

C.
Data sharing and data interconnection.

User access to the various elements of a database may be controlled through the use of passwords. These
restrictions apply to

B.
Data independence and data sharing.

Individuals but not to terminal devices and not to programs.

Terminal devices but not to individuals and not to programs.

A.
Programs but not to individuals and not to terminal devices.
Discretionary access controls.
Individuals, terminal devices and programs.
C.
These controls require a database administrator to assign security attributes to data that cannot be

Password controls.
B.

changed by database users:

Mandatory access controls.

D.
Distributed access controls.

A.
Discretionary access controls.

Material misstatements due to fraudulent financial reporting often result from:

C.

An overstatement of revenues (such as premature revenue recognition)

Password controls.
B.

An understatement of revenues (such as shifting income to a later period)

Both a and b

Mandatory access controls.

Neither a nor b
D.
Distributed access controls.

These controls allow users to specify who can access data they own and what action privileges they have
with respect to that data.

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:

Uncharacteristically large amounts of income being reported in the last few weeks of the reporting period.

The predecessor auditors need to be consulted.

Unusual transactions

The clients business, industry, and internal control are unfamiliar to the auditor and he needs to carefully
study them.

Application of conservatism or prudence in making accounting estimates

Income that is inconsistent with trends in cash flow from operations.

Parties are considered to be related if:

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.

A larger proportion of customer accounts receivable need to be confirmed on an initial audit.

Engagement quality control reviewers consider:

The work has been performed in accordance with GAAP.

Consultation with experts has been made for all phases of the engagement.
One party has the ability to control the other party and exercise significant influence over the other party in
making financial and operating decisions.

The work performed supports the conclusions reached and is appropriately documented.
Whether the system of quality control is operating effectively and adequately.

If one party discounts a note receivable to another party and the discounting is without recourse.
It describes the role of persons entrusted with supervision, control and direction of an entity.
If a transaction is processed in an unusual manner due to errors in the accounting and internal control system.
A.
An initial audit requires more audit time to complete than a recurring audit. One of the reasons for this is
that:

Management
C.
Audit committee

The new auditors are usually assigned to an initial audit.

B.

Governance
Changes in the supply chain.
D.
Steward of company resources

Changes in key personnel including departure of key executives

Low degree of complex regulation.

The following are examples of conditions and events that may indicate the existence of risks of material
misstatement, except:
This exists when other information contradicts information contained in the financial statements.
Operations in regions that are economically unstable, for example, countries with significant currency
devaluation or highly inflationary economies.
A.

Self-review threat

Material misstatement of fact

C.

C.

Advocacy threat

Material misstatements

B.

B.

Intimidation threat

Material scope limitations

D.

D.
Familiarity threat
Material inconsistency
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:
What threat to independence is created when the same senior personnel are used for assurance
engagements over a prolonged period?

Stages and methods of production

A.

Business segments

Alliances, joint ventures, and outsourcing activities

A.
Details of declining or expanding operations

Balance sheet
C.

Which of the following cases illustrate a violation of the provisions of RA9298 and its IRR?

Liabilities.
B.

Rushnell, CPA, obtained 60 units of Continuing Professional Education in order to qualify for renewal of
his professional license.

Assets.

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.

D.

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.

While performing analytical procedures, an auditor observes that operating income has declined significantly
between 2012 and 2013. Accordingly, the auditor should next:

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.

Owners Equity.

Require that the decline be disclosed in the financial statements.

Consider the possibility that the financial statements may be materially misstated.
Inform management that an except-for opinion on the financial statements will be issued.
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
Determine managements responsibility for the decline and discuss the issue with the audit committee of the
client.
areas would require the most amount of audit time?

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:

The auditors preliminary assessment of control risk

The auditor should notify the regulatory authorities.

The auditors preliminary evaluation of inherent risk based on the discussions with the client.

We must determine who was responsible for the illegal act.

The nature of the clients business.
The auditor should report the act to high level personnel within the clients organization and to the
committee.

The audit team will intensify the examination, because we must identify all illegal acts.

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?

The type of report to be issued by the auditor.

According to the IRR, this number is included in the seal used by a Certified Public Accountant?

A.
Professional tax receipt number.

Observe test counts of inventory of certain locations on an unannounced basis.

C.
Tax identification Number.

Perform analytical procedures rather than taking test counts.

B.
Community tax certificate number.

Request that inventories be counted prior to yearend.

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.

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?

D.

CPA Registration number.

Whenever there is a scope restriction, the appropriate response is to issue:

A disclaimer of opinion.
Where the client wont allow auditor to confirm receivables for fear of offending his customers.
An adverse opinion.

Where auditor doesnt have enough staff to audit all of clients foreign subsidiaries satisfactorily.

A qualified opinion.
Where client is going through Chapter 11 bankruptcy proceedings.
An unqualified report, a qualification of scope and opinion, or a disclaimer of opinion, depending on
materiality.

This refers to learning which uses course manuals or accredited learning modules.
Masteral degree

The most common case in which conditions beyond the clients and the auditors control cause a scope
restriction is an engagement:
Continuing professional education
Agreed upon after the clients balance sheet date.
In-service training

Self-directed learning package

a.
According to the IRR, this refers to a study, appraisal, or review by the Board or its duly authorized

CPA review.
c.
Professional review.

representatives, of the quality of audit of financial statements through a review of the quality control

b.
Peer review.

measures instituted by the individual CPA, firm or partnership of CPAs engaged in the practice of

d.
Quality review.

public accountancy.

Mark failed in the May 2012 examinations. He

62. The following have received the results of their CPA Board Exams:

took three reviews but still fell short of the grade.

Results of July 2014

Marvin
Failed

Candidate

Marvin failed in the May 2013 examinations.

Exams
Remarks
Martin

He took another examination in October 2013 and

Failed
This is Martins removal examination. He last
got conditional credits.

took the examination in October 2013, where he

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)?

received conditional credits.

a.

Manuel

Mark only.

Failed

c.

This is Manuels first quest for the CPA license.

Martin and Marvin.

Mark

b.

Failed

Mark and Marvin.

d.

Direct participation by the owner of the business in the record-keeping activities of the business.

Martin, Mark and Marvin.

Employment of temporary personnel to aid in the separation of duties.
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:

Delegation of full clear-cut responsibility to each employee for the functions assigned to each.

Affirm in writing managements approval of limitation on the scope of the audit.

General cash account.
Inventory account.

When an auditor is assessing the auditability of a small business client, the auditor should focus upon:

Income tax expense and liability accounts.

the integrity of management and the adequacy of the clients internal control systems.

Retained earnings account.

whether the auditor has adequate resources to accomplish the audit.
The most important aspect of any system of controls is:
Proper authorization procedures.

the amount of risk the audit represents and the audit fee which can be collected.

Competent, trustworthy personnel.

whether the clients accounting personnel are well trained and professionally qualified.

Separation of duties.

Which of the following topics is not normally included in an engagement letter?

Regular review by top management.

The auditors estimate of the professional fee for the engagement.

In a small company that employs inadequate number of employees to permit proper division of
responsibilities, effective internal control can best be strengthened by:

Limitations on the scope of the engagement.

industry data
A description of responsibility for the detection of fraud.

B.
budgetary data

The auditors preliminary assessment of internal control.

D.

A document which the auditor receives from the client, but which was prepared by someone outside the
clients organization, is a(n):

unaudited data

A.

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?

Confirmation.
C.

Special problems known to be relevant to the audit.

External document.

Extent to which the independent auditor will need assistance and cooperation from the organizations
personnel.

B.
Internal document.
D.

Condition of accounting records and other data sources which may affect the scope of the audit and
difficulty of completion.

Inquiry.
Audit program to be followed.
When performing analytical tests, a CPA is least likely to compare the current years balances or ratios to
expectations derived from:
A CPA certificate is evidence of:
A.
informed judgment

Recognition of independence in mind.

Basic competence at the time the certificate is granted.

C.
Culmination of the educational process.

Membership in the PICPA.

72. What are the two most common types of tax services?

Determining if fraud has occurred.

Determining if taxable income has been calculated correctly.

a.

Analyzing the financial information to be sure that it complies with government requirements.

Tax evasion and tax planning.

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

c.
Tax computation and tax planning.

a.
b.

Professional responsiveness.
c.

Tax planning and tax compliance.

Objective judgment.
d.
Tax compliance and tax shelter.

b.
Conservative advocacy.
d.

In auditing accounting data, the focus is with:

Professional skepticism.
Determining whether recorded information properly reflects the economic events that occurred during the accounting
period.

Because an external auditor is paid a fee by a client company, he or she:

Is absolutely independent and may conduct an audit.

Notes payables in the balance sheet include all such obligations of the entity.
Property cost is systematically allocated to appropriate accounting period.

May be sufficiently independent to conduct an audit.

Is never considered to be independent.

Must receive approval of the Securities and Exchange Commission before conducting an audit.

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

Which of the following is not an underlying condition that creates a demand by users for reliable information?
c.
Transactions that are numerous and complex.

we are unable to express an opinion

b.
the financial statements present fairly

Decisions are not time-sensitive.

d.
except for the issues explained above

Financial decisions that are important to investors and users.

Users separated from accounting records by distance and time.

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?

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:

The lack of expertise of the CPA in performing the engagement process.

Property is recorded at historical cost.

The inherent limitations of accounting and internal control systems.

Trade accounts receivables in the balance sheet are stated at net realizable value.
The use of judgment in gathering evidence and drawing conclusions based on that evidence.

The use of selective testing.

Conflict between financial statement users and auditors often arises because of:

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:

High cost of performing an audit.

Extremely technical vocabulary which the auditor uses in the report.

Not independent, and therefore, may not be associated with the financial statements.
Placement of the auditors report in the back of the clients annual report, where it is hard to locate.

Not independent, and therefore, may not issue a review report.

Expectation gap.
Not independent, and therefore, may issue a review report, but may not issue an auditors report.

Independent because the financial interest is immaterial, and therefore, may issue a review report.

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:

In forming an audit opinion, the auditor

Is sufficient evidence for Leovic to conclude that the completeness assertion is supported for the expenses.

Obtains sufficient, appropriate audit evidence to be able to draw an opinion on which to base that conclusion.

Can enable Leovic to minimize his work on the assessment of control risk for the completeness of expenses.

Obtains sufficient, appropriate audit evidence to be able to draw conclusions on which to base that opinion.

Should be disregarded because it is not in writing.

Is not considered a sufficient basis for Leovic to conclude that all expenses have been recorded.

Studies and evaluates the internal control structure of the company to be able to draw conclusions on which to base
an audit.

Evaluates the risk of material misstatements for various account balances and reports the misstatements to
management.

Which of the following phrases is most likely found in the auditors responsibility paragraph?

We have audited the accompanying financial statements of Rez Company, which comprise the balance sheet as at
December 31, 2014

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.

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):

Prepared on a comprehensive basis for accounting other than PFRS.

Pervasively misstated.
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

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:

Choose between expression of a qualified opinion or a disclaimer of opinion.

Misleading.

Materially misstated.

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:

Try to resign from the engagement, if practicable; otherwise, Silver will express a disclaimer of opinion on
the financial statements.

should obtain the permission of Paul before making such a reference.

Choose between expression of a qualified opinion or adverse opinion.

may refer to Paul without permission, but Ashs identity must be concealed.
should seek legal advice on action that must be taken regarding the situation.

Express an adverse opinion on the financial statements.

cannot refer to Paul under any circumstance.

Under the comparative financial statements framework, the prior year information are:

Review the cut-off bank statements for three days before and after the year-end

An integral part of the current period financial statements

Inquire of the clients legal counsel concerning litigation, contingencies and pending cases.
Investigate reportable conditions previously communicated to the client.

Implicitly given an opinion when the auditor expresses an opinion for the current year financial statements.
Analyze related party transactions to determine the propriety of accounting and completeness of disclosures.
Read with reference to amounts and other disclosures relating to the current period
Capable of standing alone

Which of the following procedures would an auditor ordinarily perform during the review of subsequent
events?

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?

The financial statements should be adjusted to recognize the loss.

The loss should be disclosed in the notes to the financial statements, but financial statements themselves
need not be adjusted.

The loss should be disclosed in an explanatory paragraph in the auditors report.

No disclosure of recognition is required.

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.

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.

Clients management
B.
Court records

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:

D.
Independent auditor

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?

Issue a modified report, as a corrigendum, together with a written apology addressed to the board of
directors and shareholders of the entity.

Issue a modified report, as a corrigendum, but without a written apology.

Ask for legal advice, and take action to prevent reliance on the auditors report.

Confirmation of claims and assessments from an officer of the court presiding over the litigation.

Letter of audit inquiry to the clients lawyer.

Confirmation of claims and assessments from the other parties to the litigation.

Letter of corroboration from the auditors lawyer upon review of the legal documentation.

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):

Unqualified opinion and qualified opinion

Qualified opinion and adverse opinion
Qualified opinion and disclaimer of opinion

Adverse opinion and disclaimer of opinion

An auditors major consideration regarding going concern is:

The assessment of future conditions and events for a period of time, normally 12 months after balance
sheet date.

The propriety and adequacy of note disclosures about the going concern uncertainty.

The material misstatements that always arise whenever there is doubt about the going concern
assumption.

The assurance that such uncertainty should be accounted on an arms length basis.

Management representation letters (choose the best answer):

Complements the results of risk assessment procedures.

Complements the results of test of control procedures.

Are not substitutes for substantive test procedures.

Are substitutes for auditor reliance on the internal controls of a client.

Normally, who is the maker and the recipient of the management representation letter?

Management, auditor, respectively

Auditor, management, respectively.

Management, management, respectively.

Auditor, auditor, respectively.

An operational audit is designed to

assess the efficiency and effectiveness of managements operating procedures

assess the presentation of managements financial statements in accordance with generally accepted
accounting principles

determine whether management has complied with applicable laws and regulations

determine whether the audit committee of the board of directors is effectively discharging its
responsibility to oversee managements operations

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.

As the combined assessments of inherent and control risk decreases,

Acceptable detection risk decreases; consequently, substantive tests decrease.

Acceptable detection risk decreases; consequently, substantive tests increase.

Acceptable detection risk increases; consequently, substantive tests decrease.

Acceptable detection risk increases; consequently, substantive tests increase.