Our Lady of Fatima University

ACCTG 16

SET 9

1)This is the traditional service provided  by CPA firms.

1. 1. Tax services
   2. Compilation
   3. Reviews
   4. Audits

2. The billing arrangement based on actual time spent by audit engagement team is
   1. Flat sum basis
   2. Per diem basis
   3. Maximum fee basis
   4. Retainer basis

3. Professionals         are       expected        to      conduct themselves at a higher level than
   1. Anyone else.
   2. Their clients.
   3. Most other members of society.
   4. Most other members of their profession.

4. A candidate who fails in two (2) complete CPA examinations shall be:
   1. Reverted to undergraduate status.
   2. Forever banned from taking another set of examinations

1. 3. Considered as having passed the examination, under the rule of  efforts and professional mercy.
   4. Required to take a refresher course before making another attempt at the CPA Board exams.

5. Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?
   1. The auditor's report should provide an assurance as to the future viability of the entity.
   2. Making suggestions that are  adopted about the form and content of an entity's financial statements impairs an auditor's independence.
   3. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.
   4. The fair presentation of audited financial statements in accordance with an applicable  financial reporting framework is an implicit part of the auditor's responsibilities.

6. Which  of  the  following  statements  does not properly describe a limitation of  an audit?
   1. Many financial statement assertions cannot be audited.
   2. Many audit conclusions are made on the basis of examining a sample of evidence.
   3. The work, under taken by the auditor is permeated by judgment.
   4. Fatigue and human weaknesses can cause auditors to overlook pertinent evidence.

7. Which of the following is not one of the general principles governing the audit of financial statements?
   1. The auditor should conduct the audit in accordance with PSA.
   2. The auditor should comply with the Philippine Code of Professional Ethics.
   3. The auditor  should  plan  and  perform the audit with  an  attitude  of professional skepticism.
   4. The auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical

procedures        to      be      able       to      draw reasonable conclusions.

8. Which of the following statements does not properly describe an element of the theoretical framework of auditing?
   1. An audit benefits the public.
   2. The data to be audited can be verified.
   3. Auditors act on behalf of management.
   4. Short-term conflicts may exist between managers  who  prepare  data  and auditors who examine the data.

9. Which of the following criteria is unique to the independent auditor's attest function?
   1. Independence.
   2. General competence.
   3. Due professional care.
   4. Familiarity with the particular industry of each client.

10. Auditing is based on the assumption that financial data are verifiable. Data are verifiable when two or more qualified individuals,
    1. Working together, can prove, beyond doubt, the accuracy of the data.
    2. Working independently, can  prove, beyond reasonable doubt,  the truthfulness of the data.
    3. Working independently, each reach essentially similar conclusions.
    4. Working together, can agree upon the accuracy of the data.

11. The QRC shall have the following functions:
    1. Conduct quality control review on applicants for registration to practice public accountancy and render a report on such quality review.
    2. Mete out sentences of imprisonment to CPAs who fail to present a valid system of quality control.
    3. Revoke the certificate of registration and professional ID of an individual CPA, firm, or partnership of CPAs who have not observed quality control measures and who has not complied with the standards of quality prescribed for the practice of public accountancy.
    4. All of these.

12. The need for independent audits of financial statements can be attributed to all of the following conditions except:
    1. Validity
    2. Remoteness
    3. Consequence
    4. Complexity of subject matter

13. The underlying conditions that  create demand by users for reliable information include the following except:
    1. Decisions are not time-sensitive.
    2. Transactions that are numerous and complex.
    3. Users  separated  from   accounting records by distance and time.
    4. Financial decisions that are important to investors and users.

14. Why does a company choose to have an independent auditor report on its financial statements?
    1. Independent auditors will always detect management fraud.
    2. Independent auditors guarantee the accuracy of the financial statements.
    3. The company preparing the statements may have a vested interest in reporting certain results.
    4. An independent audit is designed  to search for deficiencies in the company's internal controls.

15. Which of the following statements does not describe a condition that creates a demand for auditing?
    1. Users can directly assess the quality of information.
    2. Information can have  substantial economic consequences for a decision maker.
    3. Expertise is often required  for information preparation and verification.
    4. Conflict between  an  information preparer and a user can result in biased information.

16. Information risk refers to the risk that
    1. The client may not be able to remain in business.
    2. Errors and frauds would not be detected by the auditor's procedures.
    3. The auditor may express an unqualified opinion on financial statements that are

material misstated.

1. 4. The client's financial statements may be materially false and misleading.

17. Which      of     the     following       is     a     cause       of information risk?
    1. Voluminous data.
    2. Biases and motives of the provider of information.
    3. Remoteness of the information.
    4. Each of the above is a cause of information risk.

18. In financial statement audits, the audit process should be conducted in accordance with
    1. The audit program
    2. Philippine Accounting Standards
    3. Philippine Standards on Auditing
    4. Philippine Financial Reporting Standards

19. The overall objective of forensic auditing is to
    1. Attest to the efficiency with which resources are employed
    2. Assist members of the organization in the effective discharge of  their responsibilities
    3. Unearth the truth and provide evidence in legal and financial disputes
    4. Provide assurance that financial  data have been accurately recorded

20. Which of the following types of auditing is performed most commonly by CPA's on a contractual basis?
    1. Internal auditing
    2. Income tax auditing
    3. External auditing
    4. Government auditing

21. Which of the following types of audits is performed to determine whether an entity's financial statements are fairly stated in conformity with generally accepted accounting principles?
    1. Operational audit
    2. Compliance audit
    3. Performance audit
    4. Financial statement audit

22. Which of the following has the primary responsibility for the fairness of the representations made in the financial statements?
    1. Audit committee
    2. Client's management
    3. Independent auditor
    4. Board of Accountancy

23. The best statement of the responsibility of the auditor with respect to audited financial statement is:
    1. The auditor's responsibility on fair presentation of financial statements is limited only up to the date of the audit report.
    2. The auditor's responsibility is confined to the expression of opinion on the financial statements audited.
    3. The responsibility over the financial statements rests with the management and the auditor assumes responsibility with respect to the notes of financial statements.
    4. The auditor is responsible only to his qualified opinion but not for any other type of opinion.

24. The level of assurance provided by a professional accountant  on an  audit report is:
    1. Low
    2. Reasonable
    3. Moderate
    4. None

25. Reasonable assurance means:
    1. Gathering of all available corroborating evidence for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole.
    2. Gathering of the  audit  evidence necessary for the auditor  to  conclude that the financial statements, taken as a whole, are free from any misstatements.
    3. Gathering of the  audit  evidence necessary for the auditor  to  conclude that the financial statements are free of material unintentional misstatements.
    4. Gathering of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial

statements, taken as a whole.

26. Which       of     the      following       is     one     of     the limitations of an audit?
    1. Nature of evidence obtained
    2. Inadequacy of the accounting records
    3. Confidentiality of information
    4. Scope limitations imposed by the entity

27. Which  of  the  following  statements  does not properly describe a limitation of  an audit?
    1. Many audit conclusions are made on the basis of examining a sample of evidence.
    2. The work, under taken by the auditor is permeated by judgment.
    3. Fatigue and human weaknesses can cause auditors to overlook pertinent evidence.
    4. Many financial statement assertions cannot be audited.

28. Financial statements audits:
    1. Reduce the cost of capital
    2. Report on compliance with laws and regulations
    3. Assess management's efficiency
    4. Overlook information risk

29. In relation to auditing, which of the following is an incorrect phrase?
    1. Auditing is a systematic process.
    2. Auditing        subjectively         obtains       and evaluates evidence.
    3. Auditing evaluates evidence regarding assertions.
    4. Auditing          communicates             results          to interested users.

30. Broadly defined, the subject matter of any audit consists of
    1. Economic data
    2. Financial statements
    3. Assertions about economic actions and events
    4. Operating data

31. Auditing is based on the assumption that financial data and statements are
    1. Verifiable
    2. In        conformity          with        the        identified applicable financial reporting framework
    3. Presented fairly

1. 4. Consistently applied

32. The firm should establish a system of quality control designed to provide it  with reasonable assurance regarding:
    1. Compliance with professional standards
    2. Compliance with regulatory and legal requirements
    3. Appropriateness of reports issued by the firm or engagement partners
    4. All of the above

1. 1. A process designed to  provide  an objective evaluation, before the report is issued, of the significant judgments the engagement  team  made  and  the conclusions they reached in formulating the report.
      1. Peer review
      2. Inspection
      3. Engagement quality control review
      4. Monitoring

1. 1. A     process      comprising      an ongoing consideration  and  evaluation  of the firm's system of  quality  control, including a periodic  inspection  of  a selection of completed engagements, designed     to  enable    the    firm    to obtain    reasonable assurance  that  its system of quality control is operating effectively.
      1. Inspection
      2. Monitoring
      3. Peer review
      4. Engagement quality control review

35. The firm should obtain written confirmation of compliance with its policies  and procedures on independence from all firm personnel required to be independent by the Code of Ethics at least:
    1. Annually
    2. Every 3 years
    3. Every 2 years
    4. Every 5 years

36. The firm should obtain acceptance and continuance information as it considers necessary in the following circumstances:
    1. When accepting an engagement with a new client
    2. When deciding whether to continue an existing engagement

1. 3. When accepting a new engagement with an existing client
   4. All of these.

37. The following methods are most likely to develop capabilities and  competence, except:
    1. Professional education.
    2. Continuing professional development, including training.
    3. Work experience and coaching by less experienced staff
    4. Self-study modules on professional accounting and auditing literature.

38. Consultation is usually undertaken for:
    1. Difficult or contentious matters.
    2. Matters       for      which       there       is      readily available support.
    3. Matters for which the judgment of the engagement leader is deemed sufficient.
    4. Straightforward               matters             involving accounting and auditing.

39. The standard-setting body whose chairman had been or presently a senior accounting practitioner in any scope of accounting practice is
    1. AASC
    2. FRSC
    3. PICPA
    4. ACPAPP

40. The chairman and the members of the AASC and FRSC shall have a term of
    1. 1 year.
    2. 3 years.
    3. 3 years with no renewal.
    4. 3 years renewable for another term.

41. The       benefits        of      an       operational         audit generally include all of the following except
    1. Decreased costs.
    2. Increased revenue
    3. Increased productivity.
    4. Increased reliability of the financial statements.

42. The auditor is required to comply with all PSAs relevant to the audit of an entity's financial statements. A PSA is  relevant  to the audit when:

1. The PSA is in effect.

2. The circumstances addressed by the PSA exist.

1. I only
2. II only
3. Either I or II
4. Both I and II

43. Preplanning the audit involves several key activities which include the following except:
    1. Investigating the client's background.
    2. Communicating with the prospective client's prior auditor to inquire about any disagreements with the client.
    3. Understanding the client's reasons for obtaining an audit.
    4. Determining the likelihood of issuing an unqualified audit opinion on the client's financial statements.

44. Which of the following is incorrect regarding professional competence?
    1. Professional accountants may portray themselves as having expertise or experience they do not possess.
    2. Professional competence may be divided into two separate phases.
    3. The attainment of professional competence requires initially a high standard of general education.
    4. The maintenance of professional competence requires a continuing awareness of development in the accountancy profession.

45. The following procedures relate to Skills and Competence, except
    1. Identify criteria which will be considered in evaluating individual performance and expected proficiency.
    2. Provide procedures for maintaining the firm's standards of quality  for the work performed.
    3. Establish qualifications and guidelines for evaluating potential hirees at each professional level.
    4. Provide, to the extent necessary, programs to fill the firm's needs for personnel with expertise in specialized and industries.

46. It is essential that users regard CPA firms as
    1. Competent.
    2. Unbiased.

1. 3. Technically proficient.
   4. All of the above

47. The Code of Professional Ethics states, in part, that a CPA should maintain  integrity and objectivity. Objectivity refers to the CPA's ability to
    1. Determine accounting  practices  that were consistently applied.
    2. Maintain an impartial attitude on all matters which come under his review.
    3. Determine the materiality of items.
    4. Insist on all matters regarding audit procedures.

1. 1. A     professional     accountant     may be associated with a tax return that
      1. Contains a false or misleading statement.
      2. Contains statements or information furnished recklessly or without any real knowledge of whether they are true or false.
      3. Omits or obscures  information  required to be submitted and such omission or obscurity would mislead the revenue authorities.
      4. Uses of estimates if such use is generally acceptable or if it is impractical under the circumstances to obtain exact data.

49. Prior to beginning the field work on a new audit engagement in which a CPA does not possess expertise in the industry  in  which the client operates, the CPA should
    1. Reduce audit risk by lowering the preliminary levels of materiality.
    2. Design special substantive tests to compensate for the lack of industry expertise.
    3. Engage financial experts familiar with the nature of the industry.
    4. Obtain a knowledge of matters that relates to the nature of the entity's business.

50. Which of the following is not one of the duties of the Commission on Audit
    1. Keep      the      general        accounts        of      the government
    2. Promulgate           accounting            rules          and regulations

1. 3. Define the scope of its audit and examination
   4. Assume fiscal responsibility for the government and       its instrumentalities

51. The early appointment of the independent auditor has many advantages to the auditor and the client. Which of the following advantages is least likely to occur as a result of early appointment of the auditor?
    1. The auditor will be able to plan the audit work so that it may be  done expeditiously.
    2. The auditor will be able to complete the audit work in less time.
    3. The auditor will be able to better plan for the observation of the physical inventories.
    4. The auditor will be able to perform the examination more efficiently and will be finished at an early date after the year- end.

52. Which of the following is the most likely first step an auditor would perform at the beginning of an initial audit engagement?
    1. Prepare a rough draft of the financial statements and of the auditor's report.
    2. Study and evaluate  the  system  of internal administrative control.
    3. Tour the client's facilities and review the general records.
    4. Consult with and review the work of the predecessor auditor prior to  discussing the engagement with the client management.

53. An extensive understanding of the client's business and industry and knowledge about the company's operations are essential for doing an adequate audit. For a new client, most of this information is obtained
    1. From     the      Securities       and      Exchange Commission.
    2. From the predecessor auditor.
    3. From the permanent file.
    4. At the client's premises.

54. When the continuing auditor intends to use information about the entity and its environment obtained in prior periods, the auditor should:

1. 1. Assess control risk as "high" for the assertions affected by the prior-period information.
   2. Seek permission with the client in using the prior period information obtained by the auditor.
   3. Determine whether changes have occurred that may affect the relevance of such information in the current audit.
   4. Determine whether to equitably reduce the audit fee due to lower audit effort expended during the engagement.

55. Relevant   industry   conditions               include       the following, except:
    1. The market and competition, including demand, capacity and price competition.
    2. Regulatory              framework            for          a regulated industry.
    3. Cyclical or seasonal activity.
    4. Product        technology         relating        to      the entity's products.

56. An auditor obtains an understanding of the entity and its environment in order to
    1. Make  constructive   suggestions concerning improvements to the client's internal control.
    2. Understand the events and transactions that may have an effect on the client's financial statements.
    3. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated.
    4. Develop an attitude of professional skepticism concerning management's financial statement assertions.

57. Maintaining or providing access to adequate reference libraries and other authoritative sources is a procedure that is most likely performed to comply with the policy of
    1. Monitoring
    2. Ethical requirements
    3. Assignment
    4. Consultation

1. 1. A process designed to  provide  an objective evaluation, before the report is issued, of the significant judgments the engagement  team  made  and  the conclusions they reached in formulating the report is called:

1. 1. 1. Inspection
      2. Documentation
      3. Monitoring
      4. Engagement quality control review

1. 1. A CPA firm would be reasonably assured of meeting     its     responsibility     to provide  professional    services    that conform with professional standards by:
      1. Maintaining an attitude of independence in its engagements.
      2. Adherence           to         generally           accepted auditing standards.
      3. Having an appropriate a system of quality control.
      4. Continuing professional education.

60. At the beginning of the current audit engagement, the auditor should perform key preplanning activities which include all of the following except:
    1. Performing procedures regarding client acceptance or continuance.
    2. Evaluating           compliance           with        ethical requirements.
    3. Establishing         an     understanding         of     the terms of the engagement.
    4. Considering internal control.

61. When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor.   This is a necessary procedure because the predecessor may be able to provide the successor with information that will  assist the successor in determining
    1. Whether, in the predecessor's opinion, internal control of the company has been satisfactory.
    2. Whether the engagement should be accepted.
    3. Whether the predecessor's  work  should be utilized.
    4. Whether the company follows  the policy of rotating its auditors.

62. Which of the following will an auditor least likely discuss with the former auditors of a potential client prior to acceptance?
    1.         Disagreements       with      management regarding accounting principles
    2. Integrity of management
    3. Fees charged for services
    4. Reasons for changing audit firms

63. Which of the following  statements  are factors to consider whether the firm has the capabilities, competence,  time  and resources to undertake a new audit engagement from a prospective client:

1. Firm personnel have knowledge of relevant industries.
2. The firm has sufficient personnel with the necessary capabilities and competence.
3. Experts are available, if needed.
4. The firm is able to complete the engagement within the reporting deadline.
   1. I and II only
   2. II and IV only.
   3. II, III and IV only
   4. I, II, III and IV

64. The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the
    1. Methods of statistical sampling to be used in confirming accounts receivable.
    2. Pending legal matters to be included in the inquiry of the client's attorney.
    3. Evidence to be gathered to provide a sufficient basis for the auditor's opinion.
    4. Schedules          and        analyses          to       be prepared by the client's staff.

65. The understanding between the client  and the auditor as to the degree  of responsibilities to be assumed by each is normally set forth in a(an)
    1. Management letter.
    2. Representation letter.
    3. Engagement letter.
    4. Comfort letter.

66. Which of the following best describes the purpose of the engagement letter?
    1. The engagement letter conveys to management the detailed steps to be applied in the audit process.
    2. The engagement letter relieves the auditor of some responsibility for the exercise of due care.
    3. By clearly defining the nature of the engagement, the engagement letter helps avoid and resolve misunderstandings between CPA and

client regarding the precise nature of the work to be performed and the type of report to be issued.

1. 4. The engagement letter should be signed by both the client and the  CPA  and should be used only for independent audits.

67. Which of the following statements would least likely appear in an auditor's engagement letter?
    1. Our engagement is subject to the  risk that material errors, fraud, and defalcations, if they exist, will not be detected.
    2. During the course of our audit we may observe opportunities for economy in, or improved controls over, your operations.
    3. After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement.
    4. Fees for our services are based on our regular per diem rates, plus travel and other out-of-pocket expenses.

68. Which of the following is an element of "directing an audit assistant" objective?
    1. Identifying in advance the staffing requirements of a particular audit engagement.
    2. Resolving any differences in professional judgment between audit personnel.
    3. Resolution of differences in audit findings.
    4. Informing assistants of their responsibilities and the  objectives of the procedures they are to perform.

1. 1. A CPA  establishes  quality  control policies and  procedures  for  deciding whether  to accept  a  new  client  or continue to perform services for a current client.  The   primary  purpose  for establishing  such   policies   and procedures is
      1. To enable the auditor to attest to the integrity or reliability of a client.
      2. To comply with the quality control standards established by regulatory bodies.
      3. To minimize the likelihood of association with clients whose

management lacks integrity.

1. 1. 4. To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements.

70. Which of the following is prohibited by the Code of Professional Ethics for CPAs?
    1. Use of a firm name which includes the name of a retired partner.
    2. Accepting an engagement or employment which one cannot reasonably expect to complete or discharge with professional competence.
    3. Announcement in a newspaper of the opening of a public accounting office.
    4. Engaging in civic  activities  during business hours.

71. Which of the following statements best describes why the profession of certified public accountants has deemed it essential to promulgate a code of ethics and to establish a mechanism for enforcing observance of the code?
    1. The law requires an establishment of a code of ethics.
    2. A distinguishing mark of a profession is its acceptance of responsibility to the public.
    3. A prerequisite to success is the establishment of an ethical code that stresses primarily the professional's responsibility to clients and colleagues.
    4. An essential means of self-protection for the profession is the establishment of flexible ethical standards by the profession.

72. Which of the following is not one of the qualifications of the members of the Board of Accountancy?
    1. He/She  must  not  be  a  director  or  officer of PICPA at the time of his appointment.
    2. He/She  must  be  a  natural-born  citizen and a resident of the Philippines.
    3. He/She must be a duly Certified Public Accountant with at least ten years of experience in practice of public accountancy.
    4. He/She   must   not   have   any   direct   or indirect pecuniary interest in any school, college, university, or institution offering