Our Lady of Fatima University

ACCTG 16

SET 6

1)Conflict between financial statement users and auditors often arises because of the

1. 1. High cost of performing an audit.
   2. Expectation gap.

1. 3. Technical vocabulary which the auditor uses in the report.
   4. Placement of the auditor's report in the back of the client's annual report where it is hard to locate.

2. Which of the following is best considered a fraud?
   1. Inability to provide due diligence.
   2. Intentional           misrepresentation             of financial information.
   3. Declining to finish work on client in light of a valid contract.
   4. Not           acting             professionally              while performing services.

3. Anyone identified to the auditor by name prior to the audit who is to be the principal recipient of the auditor's report is a
   1. Primary beneficiary.
   2. Third party.
   3. Foreseen beneficiary.
   4. Secondary beneficiary.

4. A director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement  has been a member of the assurance team or partner of the firm. This situation least likely create
   1. Self-interest threat.
   2. Advocacy threat.
   3. Intimidation threat.
   4. Familiarity threat.

5. A former officer, director or employee of the assurance client serves as a member of the assurance team. This situation will  least likely create
   1. Self-interest threat.
   2. Self-review threat.
   3. Familiarity threat.
   4. Intimidation threat.

6. A professional accountant has a professional duty or right to disclose confidential information in each of the following, except:
   1. To disclose to BIR fraudulent scheme committed by the client on payment of income tax.
   2. To comply with technical standards and ethics requirements.
   3. To comply with the quality review of a

member body or professional body

1. 4. To respond to an inquiry or investigation by a member body or regulatory body.

7. Which of the following is not likely a threat to independence?
   1. Acting as an advocate on behalf of an assurance client in litigation or in resolving disputes with third parties.
   2. Long association of a senior member of the assurance team with the assurance client.
   3. Threat of replacement over a disagreement with the application of an accounting principle.
   4. Owning immaterial indirect financial interest in an audit client.

8. Examples of circumstances that may create self-interest threat include:
   1. Contingent fees relating to assurance engagements.
   2. A direct financial interest or material indirect financial interest in an assurance client.
   3. A loan or guarantee to or from an assurance client or any of its directors or officers.
   4. All of the above

9. Examples of circumstances that may create self-review threat least likely include
   1. Potential employment with an assurance client.
   2. Preparation of original data used to generate financial statements or preparation of other records that are the subject matter of the assurance engagement.
   3. A member of the  assurance team being, or having recently been, an employee of the assurance client in a position to exert direct and significant influence over the subject matter of the assurance engagement.
   4. Performing services for an  assurance client that directly affect the subject matter of the assurance engagement.

1. 1. A CPA-lawyer, acting  as  a  legal  counsel to one of his audit client, is an example of
      1. Advocacy threat
      2. Familiarity threat

1. 1. 3. Self-interest threat
      4. Self-review threat

11. Examples of circumstances that may create familiarity threat least likely include
    1. A former partner of the firm being a director, officer of the assurance client or an employee in a position to exert direct and significant influence over the subject matter of the assurance engagement.
    2. Dealing in, or being a promoter of, share or other securities in an assurance client.
    3. A member of the assurance team having an immediate family member or close family member who is a director  or officer of the assurance client.
    4. A member of the assurance team having an immediate family member or close family member who, as an employee of the assurance client, is in a position to exert direct and significant influence over the subject matter of the assurance engagement.

12. The following are modifications made to the IFAC Code to consider Philippine regulatory requirements and circumstances, except
    1. The period for rotation of the lead engagement partner was changed from five to seven years.
    2. Advertising and solicitation by individual professional accountants in  public practice were not permitted in the Philippines.
    3. Additional examples relating to anniversaries       and       websites wherein publicity is acceptable, as provided in boa resolution 19, series of 2000, were included.
    4. Payment and receipt  of  commissions were not permitted in the Philippines.

13. The network firms are required to be independent of the client
    1. For  assurance  engagements provided to an audit client.
    2. For assurance engagements provided to clients that are not audit clients, when the report is not expressly restricted for use by identified users.
    3. For assurance engagements provided to clients that are not audit clients, when

the       assurance          report        is       expressly restricted for use by identified users.

1. 4. All of the above

14. Which of the following is incorrect regarding independence?
    1. Independence consists  of  independence of mind and  independence  in appearance.
    2. Independence is a combination of impartiality, intellectual honesty and a freedom from conflicts of interest.
    3. Independence of mind is the  state  of mind that permits the provision of an opinion without being affected by influences that compromise professional judgment, allowing an individual to act with integrity, and exercise objectivity and professional skepticism.
    4. Independence in appearance is the avoidance of facts and circumstances that are so significant a reasonable and informed third party, having knowledge of all relevant information, including any safeguards applied, would reasonably conclude a firm's or a member of the assurance team's integrity, objectivity or professional skepticism had been compromised.

1. 1. A CPA firm is  considered  independent when it performs which of the following services for a publicly-traded audit client?
      1. Serving as a member of the client's board of directors.
      2. Determining which accounting policies will be adopted by the client.
      3. Accounting information system  design and implementation.
      4. Tax return preparation as approved by the board of directors.

16. In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if
    1. Statistical sampling techniques were not used on the audit engagement.
    2. The fraud was perpetrated by one client employee, who  circumvented  the existing internal control.
    3. The auditor planned the work in a hasty and inefficient manner.
    4. Accountants performing  important parts

of the work failed to discover a close relationship between the treasurer and the cashier.

17. Which of the following conditions suggests auditor negligence?
    1. Failure to detect collusive fraud perpetrated by members of middle management.
    2. Failure to detect collusive fraud perpetrated by members of top management.
    3. Failure to detect errors occurring outside the internal control structure.
    4. Failure to detect material errors under conditions of weak internal control.

18. Which of the following statements is correct?
    1. Sufficiency refers to the quality of evidence, while appropriateness refers to the quantity of evidence.
    2. The reliability of evidence is influenced not by its nature but by its source.
    3. The performance of consulting services for audit clients does not, in and of itself, impair the auditor’s independence.
    4. A belief that management and those charged with governance are honest and have integrity relieves the auditor of the need to maintain professional scepticism.

19. Which of the following statements is correct?
    1. The fair presentation of audited financial statements in accordance with applicable financial reporting framework is an implicit part of the auditor’s responsibility.
    2. Professional judgment can be used as the justification for the decisions made by the auditor that are not otherwise supported by the facts and circumstances of the engagement or sufficient appropriate evidence.
    3. Appropriateness is the measure of the quality of evidence, that is, its reliability and persuasiveness.
    4. Most CPAs, including those who provide audit and tax services, also provide consulting services to their clients.

20. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register with the BOA and the PRC. Assuming that the application for registration of Sisip and Co., CPAs was approved on August 30, 2005, which of the following is true?
    1. The registration will expire on Dec. 31, 2007.
    2. The registration must be renewed on September 30, 2007.
    3. The registration will expire on August 30, 2007 since the validity of the certificate of registration is three years.
    4. The registration will expire on Dec. 31, 2007 which is also the last day of renewal of certificate of registration.

21. Auditor’s           responsibility             for         detecting noncompliance is limited to those:
    1. Direct-effect noncompliance.
    2. Material                                              direct-effect noncompliance.
    3. Material indirect-effect noncompliance.
    4. All noncompliance since they affect the financial statements directly or indirectly.

22. Auditors would perform the following steps in which order?
    1. Determine audit risk; assess control risk; determine detection risk; set materiality.
    2. Set materiality; assess control risk; determine detection risk; determine audit risk.
    3. Set materiality; determine audit risk; assess control risk; determine detection risk.
    4. Determine audit risk; set materiality; assess control risk; determine detection risk.

23. Which of the following statements is an not an example of an inherent limitation of internal control?
    1. The effectiveness of control procedures depends on segregation of duties.
    2. Errors may arise from mistakes in judgments.
    3. Most internal controls tend to be directed at routine transactions rather than non- routine transactions.
    4. The cost-benefit relationship is a primary criterion in designing internal control,

24. Compliance with the independence requirement is necessary whenever a CPA performs:
    1. Non-assurance services
    2. Professional services
    3. Tax consultancy services
    4. Assurance services

25. It is acceptable for the auditor to prepare:
    1. The financial statements for the client.
    2. The notes to financial statements for the client.
    3. A draft of the financial statements for the client.
    4. A draft of the financial statements and notes to the financial statements for the client.

26. When an accountant performs  more  than one level of service, he generally  should issue a report that is appropriate for:
    1. The lowest level of service rendered.
    2. A compilation engagement.
    3. The highest level of service rendered.
    4. A review engagement.

27. An accountant who reviews the financial statements should issue a report stating that a review
    1. Is substantially less in scope than an audit.
    2. Provides negative assurance that the internal control is functioning  as designed.
    3. Provides only a limited  assurance  that the financial statements are fairly presented.
    4. Is substantially more in scope than a compilation

28. Which of the following is required to be performed in an audit but not in review engagement?
    1. Complying with the "Code of Professional Ethics for Certified Public Accountants" promulgated by the  Board  of Accountancy
    2. Planning the engagement
    3. Agreeing on the terms of engagement
    4. Studying and evaluating internal control structure

29. Which statement is incorrect regarding procedures and evidence obtained in  a review engagement?
    1. The auditor should apply judgment in determining the specific nature, timing and extent of review procedures.
    2. The auditor should apply the same materiality considerations as would be applied if an audit opinion on  the financial statements were being given.
    3. There is a greater risk that misstatements will not be detected in an audit than in a review.
    4. The judgment as to what is material is made by reference to the information on which the auditor is reporting and the needs of those relying on  that information, not to the level of assurance provided.

30. Which of the following is not a document or record that should be examined early in the engagement?
    1. Corporate charter and by-laws.
    2. Contracts.
    3. Management letter.
    4. Minutes       of     board       of      directors'        and stockholders' meetings.

31. Philippine Standards on Auditing require auditors to assess the risk of material misstatements due to fraud
    1. For first-time audits.
    2. Sufficient to find any frauds which may exist.
    3. For every audit.
    4. Whenever it would be appropriate.

32. In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if
    1. Accountants performing important  parts of the work failed to discover a close relationship between the treasurer and the cashier.
    2. The auditor planned the work in a hasty and inefficient manner.
    3. Statistical sampling techniques were not used on the audit engagement.
    4. The fraud was perpetrated by one client employee, who  circumvented  the existing internal control.

33. Which of the following is not true regarding planning in an electronic environment?
    1. The definition of auditing is not changed
    2. The purposes of auditing is not changed
    3. The        procedures          used        are        not changed
    4. Auditing standards are not changed

34. Which of the following concepts  of materiality is incorrect?
    1. Materiality is based on quantitative and non-quantitative factors.
    2. Materiality is a matter of professional audit judgment.
    3. Materiality does not apply if internal control is highly effective.
    4. Materiality is more closely related to the fieldwork and reporting standards than to general standards.

35. Which of the following statements  is incorrect about materiality?
    1. The concept of materiality  recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important.
    2. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.
    3. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments.
    4. An auditor’s consideration  of materiality is influenced by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements.

36. After discovering that a related-party transaction exists, the auditor should be aware that the
    1. Transaction is assumed to be outside the ordinary course of business.
    2. Substance of the transaction  could be significantly different from its form.
    3. Adequacy of disclosure of the transaction is secondary to its legal form.
    4. Financial statements  should  recognize the legal form of the transaction rather

than its substance.

37. Auditors focus on
    1. Areas where the risk of material errors and irregularities is least.
    2. Areas where the risk of material errors and irregularities is greatest.
    3. All areas equally.
    4. A random selection of all areas.

38. Audit risk components consist of inherent, control and detection risks. Which of them is are dependent variable(s)?
    1. Inherent risk
    2. Control risk
    3. Detection risk
    4. Inherent and control risks

39. The risk that the audit will fail to uncover a material misstatement is eliminated
    1. When the auditor has complied with generally accepted auditing standards.
    2. If a client has strong internal controls.
    3. If a client follows generally accepted accounting principles.
    4. Under no circumstances.

40. The probability of an auditor's procedures leading to the conclusion that a material error does not exist in an account balance when, in fact, such error does exist is referred to as
    1. Prevention risk.
    2. Inherent risk.
    3. Control risk.
    4. Detection risk.

41. Which of the following does an auditor least likely perform in assessing audit risk?
    1. Understand the economic substance of significant transactions completed by the client.
    2. Understand the entity and the industry in which it operates.
    3. Gather audit evidence in support of recorded transactions.
    4. Obtain an understanding of the client's system of internal control.

42. Which of the following is most likely to be an overall response to fraud risks identified in an audit?
    1. Supervise members of the audit team less closely and rely more upon

judgment.

1. 2. Use less predictable audit procedures.
   3. Use only certified public accountants on the engagement.
   4. Place increased emphasis on the audit of objective transactions rather than subjective transactions.

43. If the auditor is convinced that the client has an excellent internal control structure, the amount of audit evidence to be gathered.
    1. Can be significantly less than where internal control is not adequate.
    2. Will not be affected since the auditor must arrive at an independently determined opinion.
    3. Must be increased to  support  the auditor's belief.
    4. Is not determinable.

44. Why should the auditor plan more work on individual accounts as lower acceptable levels of both audit risk and materiality are established?
    1. To find smaller errors
    2. To find larger errors
    3. To increase the tolerable error in the accounts
    4. To decrease the risk of overreliance

45. Which of the following most accurately summarizes what is meant by the term “material misstatement?”
    1. Fraud and direct-effect illegal acts.
    2. Fraud involving senior management and material fraud.
    3. Material error, material fraud, and certain illegal acts.
    4. Material error and material illegal acts.

46. The risk of fraudulent financial reporting increases in the presence of
    1. Substantial increases in sales.
    2. Incentive            systems            based            on operating income.
    3. Improved control systems.
    4. Frequent changes in suppliers.

47. Which of the following is most likely to be considered a risk factor  relating  to fraudulent financial reporting?
    1. Domination of management by top executives.

1. 2. Negative               cash              flows             from operations.
   3. Large amounts of cash processed.
   4. Small high-dollar inventory items.

48. When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should
    1. Make inquiries of management regarding their policies and their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities.
    2. Still include some audit  procedures designed specifically to uncover illegalities.
    3. Ignore the topic.
    4. Include audit procedures which have a strong probability of detecting  illegal acts.

49. Which statement best describes the emphasis of the systems and substantive approaches in the audit plan?
    1. A thoroughly designed systems approach to auditing can eliminate the need for any substantive procedures.
    2. The systems approach focuses on detailed testing of specific accounts for accuracy, while the substantive approach is the testing controls to make sure they are effective.
    3. The systems approach focuses on testing controls to make sure they are effective, while the substantive approach is the detailed testing of specific accounts for accuracy.
    4. The systems approach focuses on  the use of computer systems to aid in the audit while the substantive approach focuses on more manual tests.

50. Audit programs should be designed so that
    1. Most of the required procedures can be performed as interim work.
    2. The          audit           evidence           gathered supports the auditor’s conclusions.
    3. Inherent risk is assessed at a sufficiently low level.
    4. The       auditor        can       make       constructive suggestions to management.

51. The decision as to how much evidence to be accumulated for a given set of circumstances is:
    1. Provided in the Philippines Standards on Auditing.
    2. Provided by following GAAP
    3. One requiring professional judgment
    4. Determined by statistical analysis

52. The revised Code of Ethics is mandatory for all CPAs and is applicable to professional services performed in the Philippines on or:
    1. Before June 30. 2008
    2. After June 30, 2008
    3. Before January 1,2008
    4. After January 1, 2008

53. Which of the following is not explicitly referred to in the Code of Ethics as source of technical standards?
    1. Commission on Audit (COA)
    2. Auditing and Assurance Standards Council (AASC)
    3. Securities      and     Exchange      Commission (SEC)
    4. Relevant legislation

54. In designing written audit programs, an auditor should establish specific audit objectives that relate primarily to the
    1. Financial statement assertions.
    2. Timing of audit procedures.
    3. Cost-benefit of gathering evidence.
    4. Selected audit techniques.

55. An audit program provides proof that
    1. Sufficient         appropriate         evidence         was obtained.
    2. The work was adequately planned.
    3. There was a proper study and evaluation of internal control.
    4. There was compliance with generally accepted standards of reporting.

56. The audit program usually cannot  be finalized until the
    1. Reportable conditions have been communicated to the audit committee of the board of directors.
    2. Engagement letter has been signed by the auditor and the client.
    3. Consideration of the entity’s internal control has been completed.

1. 4. Search for unrecorded liabilities has been performed and documented.

1. 1. A  person  or  firm  possessing   special skill, knowledge and experience in a particular field excluding accounting and auditing.
      1. Quality control reviewer
      2. Multiskilled personnel
      3. Expert
      4. Taxation specialist

58. The Code of Ethics for Professional Accountants in the Philippines is applicable to professional services in the Philippines on or before:
    1. December 31, 2009
    2. July 1, 2004

c. June 30, 2008

d.  June 30, 2009

59. Which part of the Code of Ethics applies to professional accountants in public practice?
    1. Part A
    2. Part B
    3. Part A and Part B
    4. Part C

60. This fundamental ethical principle prohibits association of professional accountants with reports, returns, communications and other information that contains materially false or misleading information or statements.
    1. Integrity
    2. Objectivity
    3. Professional competence and due care
    4. Professional behavior

61. The principle professional competence and due care imposes which of the following obligations on professional accountants?
    1. To maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service.
    2. To comply with relevant laws and regulations and avoid any action that discredits the profession.
    3. Not to override or compromise his professional or business  judgment because of bias, conflict of interest or undue influence of others.
    4. To be fair and truthful.

62. Attainment of professional competence requires the following, except:
    1. Initially, a high standard of education.
    2. Specific education, training, and examination in professionally relevant subjects.
    3. Whether prescribed or not, a period of work experience.
    4. A continuing awareness and an understanding of relevant technical professional        and                                                 business developments.

1. 1. A draft of  statement,  studies  or standards should  be  discussed  by the Council en banc. How  many  members   of the   AASC   are required to approve the draft for exposure?
      1. Eight
      2. Ten
      3. Twelve
      4. Majority

64. How many members of the AASC are needed to approved the exposed draft as PSA
    1. At least 8
    2. At least 10
    3. At least 12
    4. Majority of the regular members

65. An auditor's examination performed in accordance with generally accepted auditing standards generally should
    1. Be expected to provide assurance that illegal acts will be detected where internal control is effective.
    2. Be relied upon to disclose violations of truth-in-lending act.
    3. Encompass a plan to search actively for illegalities which relate to operating aspects.
    4. Not be relied upon to provide assurance that illegal acts will be detecte

66. Which of the following statements is true?
    1. It is usually equally difficult for the auditor to uncover errors or irregularities.
    2. It is usually easier for the auditor to uncover irregularities than errors.
    3. It is usually easier for the auditor to uncover errors than irregularities.
    4. Usually, none of the above statements is true.

67. The audit should not assume that management is dishonest, but the possibility of dishonesty must be considered."    This is an example of
    1. Due diligence.
    2. Unprofessional behavior.
    3. An attitude of professional skepticism.
    4. An ethical requirement.

68. In discovering material management fraud and an equally material error, the audit plan
    1. Cannot be expected to provide the same degree of assurance.
    2. Provide no assurance of detecting either.
    3. Should be expected to provide the same degree of assurance.
    4. Should provide complete assurance of detection.

69. In comparing management fraud with employee fraud, the auditor's risk of failing to discover the fraud is
    1. Greater for employee fraud because  of the larger number of employees in the organization.
    2. Greater for employee fraud because  of the higher crime rate among blue collar workers.
    3. Greater for management fraud because of management's ability to override existing internal controls.
    4. Greater for management fraud because managers are inherently smarter than employees.

70. The risk that the audit will fail to uncover a material misstatement is eliminated
    1. When the auditor has complied with generally accepted auditing standards.
    2. If client has good internal control.
    3. If      client       follows       generally         accepted accounting principles.
    4. Under no circumstances.

71. The practitioner’s report on an assurance engagement should always include the following, except
    1. A description of the engagement and identification of the subject matter
    2. Identification        of     the     standards        under which the engagements was conducted.
    3. Identification of the criteria.
    4. Reference to the work of an expert.

72. Which of the following is required if the professional accountant uses  experts  who are not professional accountants?
    1. The professional accountant  is discouraged to engage the services of experts who are not a professional accountant.
    2. The ultimate responsibility for the professional service is assumed by the expert who is not a professional accountant.
    3. The professional accountant must take steps to see that such experts are aware of the ethical requirements of the profession.
    4. Experts who are not professional accountants need not be informed of ethical requirements because they  are not members of the Accountancy profession.

73. Which of the following is expected of AASC to do?
    1. AASC should normally expose its opinion on specific queries from a practicing CPA.
    2. AASC should normally expose a proposed interpretation of statements.
    3. To make the statements on Philippine Standards on Auditing operative, the final statement shall be submitted to the Board of Accountancy for approval.
    4. When it is deemed necessary to expose a statement for a comment on proposed interpretations of statements, the exposure period  is  understandably shorter than those of the regular drafts of standards.

74. Required auditor communication to the Audit Committee concerning noncompliance with laws and regulations that were detected includes:
    1. All      those      which      are      not      adequately addressed by management.
    2. All those that constitute management fraud.
    3. All material items.
    4. Any of such acts.

75. Firm includes the following except:
    1. A sole practicing professional accountant,

1. 2. An entity that controls a partnership of professional accountants.
   3. An entity controlled by a partnership of professional accountants.
   4. A sole practitioner, partnership or corporation     of           professional accountants.

76. The term professional accountant in public practice includes the following, except:
    1. A sole proprietor providing professional services to a client.
    2. Each partner or person occupying a position similar to that of a partner staff in a practice providing professional services to a client.
    3. Professional accountants  employed in the public sector having managerial responsibilities.
    4. A firm of professional accountants in public practice.

77. The term receiving accountant includes the following, except;
    1. A professional accountant in public practice to whom existing accountant has referred tax engagement.
    2. A professional accountant in public practice to whom the client of  the existing accountant has referred audit engagement.
    3. A professional accountant in public practice who is consulted in order  to meet the needs of the client.
    4. A professional accountant in public practice currently holding an audit appointment or carrying out accounting, taxation, consulting or similar professional services for a client.

1. 1. A primary purpose for establishing a code of ethics within a  professional  organization is to:
      1. Demonstrate the acceptance of responsibility Jo the interest of those served by the profession.
      2. Reduce the likelihood that members  of the profession will be sued  for substandard work.
      3. Ensure that all members  of  the profession posses  approximately  the same level of competency.

1. 1. 4. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of the organization.

79. The communication to the public of facts about a professional accountant which  are not designed for the deliberate promotion of that professional accountant.
    1. Publicity
    2. Indirect promotion
    3. Advertising
    4. Solicitation

80. Advertising, as defined in the Code of Ethics, means
    1. The communication to the public of facts about a professional  accountant  which are not designed for the deliberate promotion of that  professional accountant.
    2. The approach to a potential client for the purpose of offering professional services.
    3. The communication to the public of information as to the services or skills provided by professional accountants in public practice with a view to procuring professional business.
    4. Any of the given choices.

81. Which of the following is least  likely  the basis of determining audit fees?
    1. The skill and knowledge required for the type of work involved.
    2. The degree of responsibility and urgency that the work entails.
    3. The expected outcome of the engagement.
    4. The required level of training and experience of the person engaged on the work.

82. Though PSAs do not provide "hard and fast rules," they provide subjective guidance which allow the auditors to:
    1. Only apply those standards that are important to the audit.
    2. Use adequate professional judgment when applying the standards.
    3. Tailor their audit to procedures requested by management.
    4. Accurately interpret the Code of Ethics for CPAs.

83. Which one of the following is not a key attribute that is essential to perform an assurance service?
    1. Independence
    2. Accounting skills
    3. Established criteria or standards
    4. Subject matter knowledge

84. Upon completion of a typical audit, the auditor has
    1. No assurance that all material errors and fraud have been found.
    2. A low level of assurance that all material errors and fraud have been found.
    3. High level of assurance that all material errors and fraud have been found.
    4. Total assurance that al material  errors and fraud have been found.

85. An investor, while reading the financial statements of Star Corporation, learned that the statements are accompanied by an unqualified auditor's report. From this the investor may conclude that:
    1. The auditor has ascertained that Silver's financial statements have been prepared accurately.
    2. The auditor is satisfied that Silver is operationally efficient.
    3. Any disputes over significant accounting issues have been settled to the auditor's satisfaction.
    4. Informative disclosures in the financial statements but not necessarily in the notes to financial statements are to be regarded as reasonably adequate.

1. 1. A CPA  should  maintain  objectivity  and be free of conflicts of interest when performing:
      1. All attestation services, but not other professional services.
      2. All attestation and tax services, but not other professional services.
      3. Audits, but not any other professional services.
      4. All professional services.

87. Which of the following has primary responsibility for the performance of an audit?
    1. The partner in charge of the engagement
    2. The senior assigned to the engagement

1. 3. The managing partner of the firm
   4. The        manager         assigned         to        the engagement

88. The most common type of audit report contains a(n):
    1. Unqualified opinion.
    2. Qualified opinion.
    3. Adverse opinion.
    4. Disclaimer of opinion.

89. Assurance services involve all the following except:
    1. Improving the quality of information for decision purposes.
    2. Improving the quality of the decision model used.
    3. Improving the relevance of information.
    4. Implementing a system that improves the processing of information.

90. Which of the following is the broadest and most inclusive concept?
    1. Audits of financial statements.
    2. Internal control audit.
    3. Assurance services.
    4. Compilation services.

91. Whenever a CPA professional is engaged to perform an audit of financial statements according to Philippine Standards  on Auditing, he required to comply with those standards in order to
    1. Eliminate audit risk.
    2. Eliminate the professional judgment in resolving audit issues.
    3. Have a measure of the quality of audit performance.
    4. To reduce the audit program to be prepared by the auditor.

92. Certain fundamental beliefs called "postulates" underlie auditing theory. Which of the following is not a postulate  of auditing?
    1. Economic assertions can be verified.
    2. The auditor acts exclusively as an auditor.
    3. An audit has a benefit only to the owners.
    4. No long-term conflict exists between the auditor and the management of the entity under audit.

93. In all cases, audit reports must
    1. Communicate the auditor’s finding to the general public.
    2. Be signed by the individual who performed the audit procedures.
    3. Certify the accuracy of the quantitative information which was audited.
    4. Inform readers of the degree of correspondence between the quantifiable information and the established criteria.

94. The framework for auditing and related services as addressed by PSA excludes
    1. Review
    2. Compilation
    3. Tax services
    4. Agreed upon procedure

95. It refers to the level of auditor’s satisfaction as to the reliability of an assertion being made by one party for use by another party.
    1. Confidence level
    2. Assurance level
    3. Reasonableness level
    4. Tolerable level

96. Which of the following is true of the report based on agreed-upon-procedures?
    1. The report is restricted to those parties who have agreed to the procedures to be performed.
    2. The CPA provides the recipients of the report limited assurance as to reasonableness of the assertion(s) presented in the financial information.
    3. The report states that the auditor has not recognized any basis that requires revision of financial statements.
    4. The report should state that the procedures performed are limited to analytical procedures and inquiry.

97. The three types of attestation services are:
    1. Audits, review, and compilations
    2. Reviews,          compilations,             and         other attestation services
    3. Audits,            compilations,              and           other attestation services
    4. Audits,             reviews,             and            other attestation services