Our Lady of Fatima University

ACCTG 16

SET 7

1)In auditing accounting data, the auditor is concerned with

1. 1. Analyzing the financial information to be sure that it complied with government requirement.
   2. Determining if fraud has occurred.
   3. Determining whether recorded information properly reflects the

economic          events         that        occurred during the accounting period.

1. 4. Determining if taxable income has been calculated correctly.

2. Which one of the following is an example of management expectations from the independent auditors?
   1. An expert providing a written communication as the product of the engagement.
   2. Individuals who perform day-to-day accounting functions on behalf of the company.

C. AN active participant in management decision-making.

d. An internal source of expertise  on financial and other matters.

3. Broadly defined, the subject matter of any audit consists of
   1. Financial statements.
   2. Assertions.
   3. Operating data.
   4. Economic data.

4. An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm.
   1. Attestation engagement
   2. Peer review engagement
   3. Quality control engagement
   4. Quality assurance engagement

5. The      risk       associated         with      a      company's survival and profitability is referred to as:
   1. Information risk
   2. Business risk
   3. Control risk
   4. Detection risk

6. An operational audit differs in many ways from an audit of financial statements. Which of the following is the best example of these differences?
   1. Operation audits do not ordinarily  result in the preparation of a report.
   2. The usual audit of financial statement covers the four  basic  financial statements whereas  the  operational audit is usually limited either the balance sheet or the income statement.
   3. The boundaries of an operation audit are often drawn from an

organization chart and are not limited to a single accounting period.

1. 4. The operational audit deals  with operating profit while financial audit considers both the operating and net profits.

7. The audit of historical financial statements should be conducted by  the  CPA professionals in accordance with
   1. The auditor's judgment.
   2. The audit program.
   3. Philippine Financial Reporting Standards.
   4. Philippine Standards on Auditing.

8. In determining the primary responsibility of the external auditor for an audit of a company's financial statements, the auditor owes primary allegiance to:
   1. The management of the audit client because the auditor is hired and paid by management.
   2. The audit committee of the audit client because that committee  is  responsible for coordinating and reviewing all audit activities within the company.
   3. Stockholders, creditors, and the investing publi
   4. The Auditing and Assurance Standards Council, because it determines auditing standards and auditor's responsibility.

9. Assurance services may include which of the following?
   1. Attesting to financial statements
   2. Examination           of       the       economy         and efficiency of governmental operations
   3. Evaluation of a division's performance for management
   4. All of the given choices

10. The auditor of financial statements must make very difficult interpretations regarding authoritative literature. Additionally, the auditor must
    1. Proceed beyond PFRS to assess how the economic activity is portrayed in the financial statements.
    2. Force management to make certain decisions regarding their financial statements.
    3. Disregard independence in order to find the underlying truth of the evidence.

1. 4. Establish new criteria by which financial statements may be compared.

11. Which one of the following is not a part of the attest process?
    1. Evaluating         evidence       against       objective criteria
    2. Gathering evidence about assertions
    3. Proving the accuracy of the books and records
    4. Communicating the conclusions reached

12. Which one of the following is not a reason why the users of financial statements desire for an independent assessment of the financial statement presentation?
    1. Complexity of transactions affecting the financial statements
    2. Lack of criteria on which to base information
    3. Remoteness         of      the      user       from      the organization
    4. All of them are potential reasons

13. An audit which determines whether organizational policies are being  followed and whether external mandates are  being met is referred to as
    1. A financial audit
    2. A compliance audit.
    3. An operational audit.
    4. None of the above

14. Which of the following factors most likely would cause a CPA to decline a new audit engagement?
    1. The CPA does not understand the entity's operations and industry.
    2. The     CPA     is      unable      to     review     the predecessor auditor's working papers.
    3. Management is unwilling to permit inquiry of its legal counsel.
    4. Management     acknowledges      that      the entity has had recurring operating losses.

15. Auditing standards are
    1. Statutory in nature.
    2. Rules imposed by the Securities and Exchange Commission.
    3. General guidelines to help auditors.
    4. Rules imposed by the PICPA.

16. Which of the following best describes what is meant by generally accepted auditing standards?
    1. Pronouncements issued by the Auditing and Assurance Standards Council.
    2. Rules acknowledged by the accounting profession because of their universal compliance.
    3. Procedures to be used to gather evidence to support financial statements.
    4. Measures of the quality of the auditor's performance.

17. Generally Accepted Auditing  Standards (GAAS) and Philippine Standards on Auditing (PSA) should be looked upon by practitioners as
    1. Ideals to work towards, but which are not achievable.
    2. Benchmarks to be used on all audits, reviews, and compilations.
    3. Maximum standards which denote excellent work.
    4. Minimum standards of performance which must be achieved on each audit engagement.

18. Competence as a certified public accountant includes all of the following except
    1. Consulting others if additional technical information is needed.
    2. Possessing the ability to supervise and evaluate the quality of staff work.
    3. Having the technical qualifications to perform an engagement.
    4. Warranting the infallibility of the work performe

19. Which one of the following attributes is required of an auditor in relation to audit clients?
    1. Loyalty
    2. Rationalization
    3. Independence
    4. Bias

20. To be independent, the auditor:
    1. Must be impartial when dealing with the client.
    2. Cannot place any reliance on the client's verbal and written assertions.
    3. Is responsible only to third-party users of the financial statements.
    4. Cannot perform any consulting services

for an audit client.

21. Practitioner's independence:
    1. Minimizes risk.
    2. Defends against liability
    3. Helps achieve public confidence
    4. Achieves compliance with the standards of fieldwork.

22. The      exercise       of     due      professional        care requires that an auditor
    1. Uses error-free judgment.
    2. Considers internal control, including tests of controls.
    3. Examines         all       corroborating          evidence available.
    4. Be responsible for fulfilling his or her duties diligently and carefully.

23. The exercise of due professional  care requires that an auditor
    1. Critically review the judgment exercised at every level of supervision.
    2. Attain the proper balance of professional experience and formal education.
    3. Reduce control risk below the maximum.
    4. Examine all available corroborating evidence.

24. The      exercise       of     due      professional        care requires that an auditor
    1. Use error-free judgment.
    2. Consider internal control, including tests of controls.
    3. Critically review the work done at every level of supervision.
    4. Examine         all        corroborating          evidence available.

25. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity, should
    1. Engage financial experts familiar with the nature of the business entity.
    2. Obtain a knowledge of matters that relates to the nature of the entity's business.
    3. Refer a substantial portion of the audit to another CPA who will act as the principal auditor.
    4. First inform management that an unqualified opinion cannot be issued.

26. Which of the following underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting?
    1. Element of corroborating evidence
    2. Element of reasonable assurance
    3. Elements of materiality and risk
    4. Element of internal control

27. Which of the following is the authoritative body designated to promulgate auditing standards?
    1. Financial Reporting Standards Council
    2. PICPA
    3. Association of CPAs in Public Practice and PICPA
    4. Auditing and Assurance Standards Council

28. Which of the following mostly describes the function of AASC?
    1. To monitor full compliance by auditors to PSAs.
    2. To assist the Board of Accountancy in conducting  administrative   proceedings on erring CPAs in audit practice.
    3. To promulgate auditing standards, practices and procedures that shall be generally accepted by the accounting profession in the Philippines.
    4. To undertake continuing research on both auditing and financial accounting in order to make them responsive to the needs of the public.

29. The Philippine Standards on Auditing issued by the Auditing and Assurance Standards Council (AASC)
    1. Are       interpretations           of       generally accepted auditing standards
    2. Are the equivalent of laws for audit practitioners.
    3. Must be followed in all situations.
    4. Are optional guidelines which an auditor may choose to follow or not follow when conducting an audit.

30. Which of the following statements best describes the primary purpose of Philippines Standards on Auditing?
    1. They are authoritative statements, enforced through the Code of Ethics for

Professional Accountants, that are intended to limit the degree of auditor judgment.

1. 2. They are procedural outlines which are intended to narrow the areas of inconsistency and divergence of auditor opinion.
   3. They are guides intended to set forth auditing procedures that  are  applicable to a variety of situations.
   4. They are interpretations which are intended to clarify the meaning of "generally accepted auditing standards."

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

32. The Philippine Standards on Auditing issued by AASC
    1. Need to be applied on all audit related.
    2. Require that in no circumstances would an auditor may judge it necessary to depart from a PSA, even though such a departure may result to more effective achievement of the objective of an audit.
    3. Apply to  independent  examination of financial statements of any entity when such an examination is conducted for the purpose of expressing an opinion.
    4. Must not apply to other related activities of auditors.

33. An auditor needs not abide by a Philippines Standard on Auditing if the auditor believes that
    1. The amount is insignificant.
    2. The requirement of the PSA is impractical to perform.
    3. The requirement of the PSA is impossible to perform.
    4. Any of the above three is correct.

34. Auditing        standards        differ      from      auditing procedures in that procedures relate to:
    1. Measures of performance
    2. Acts to be performed.
    3. Audit judgments.

1. 4. Audit principles.

35. Every independent audit  engagement involves both auditing  standards  and auditing procedures. The relationship between the two may be illustrated by how they apply  from  engagement  to engagement. The  best  representation  of this application is that, from one audit engagement to the next,
    1. Auditing standards are applied uniformly but auditing procedures may vary.
    2. Auditing standards may vary but auditing procedures are applied uniformly.
    3. Auditing standards are applied uniformly but auditing procedures are optional.
    4. Both auditing standards and auditing procedures are applied uniformly.

36. Generally accepted accounting principles (GAAP) are distinguished from generally accepted auditing standards (GAAS) in that:
    1. GAAP are the principles auditors follow when conducting an audit,  while  GAAS are the standards for presentation of financial statements and underlying transactions.
    2. GAAP are the principles for presentation of financial statements and underlying transactions, while GAAS are the standards that the auditors should follow when conducting an audit.
    3. When GAAP are violated, sufficiently strong GAAS may  make  up  for  most GAAP deficiencies.
    4. GAAP are promulgated by the SEC, while GAAS are promulgated by the PFRC.

37. How frequent can a professional accountants have press and other media releases commemorating their anniversaries in public practice by informing the public of their achievements or accomplishments in contributing toward nation building or enhancing the image or standards of the accounting profession?
    1. 2 years
    2. 3 years
    3. 5 years
    4. 6 years

38. Which of the following is not allowed to be included in a website of a firm  of professional accountants?
    1. Names  of  partners/principals  with  their educational attainment.
    2. Membership in any professional body.
    3. Awards received
    4. Listings of the firm's clients.

39. In     their      fiduciary        role,      the      professional accountants owe their primary loyalty to:
    1. The accounting profession
    2. The general public
    3. The client
    4. Government regulatory agencies

40. Which of the following is a distinguishing mark of the accountancy profession?
    1. A drive to excellence
    2. Acceptance of the responsibility to act in the public interest
    3. Professional objectivity
    4. Professional skepticism

1. 1. A  professional  accountant  is  likened  to  a prudent  father  to  his  son.   This  relates to what fundamental principle?
      1. Professional         competence       and      due care
      2. Confidentiality
      3. Integrity
      4. Objectivity

42. Which fundamental principle is seriously threatened by an engagement that is compensated based on the net proceeds on loans received by the client from a commercial bank?
    1. Integrity
    2. Objectivity
    3. Professional behavior
    4. Confidentiality

43. Which       of     the      following        values       is      not necessary for a professional accountant?
    1. Honesty
    2. Objectivity
    3. Integrity
    4. A      primary        commitment         to      self- interest

44. Professional accountants may encounter problems in identifying unethical behavior or in resolving an ethical conflict. When faced

with significant ethical issues, professional accountants should do the following, except

1. 1. Follow the established policies of the employing organization to seek a resolution of such conflict
   2. Review the conflict problem with the immediate superior if the organization's policies do not resolve the  ethical conflict.
   3. If the problem is not resolved with the immediate superior and the professional accountant determines to go to the next higher managerial level, the immediate superior need not be notified of the decision.
   4. Seek counseling and advice on a confidential basis with an independent advisor or the applicable professional accountancy body or regulatory body to obtain an understanding of possible courses of action.

45. As a resolution of the conflict in the application of fundamental principles, the auditor, after considering the ethical issues and relevant facts may do any of the following, except:
    1. Must immediately resign from the engagement or the employing entity.
    2. Should weigh me consequences of each possible course of action.
    3. Should consult with other appropriate persons within the firm or employing organization for help to finally resolve the matter.
    4. The professional accountant may wish to obtain professional advice from, the relevant professional body without breaching confidentiality if significant conflict cannot be resolved.

46. Which of the following is incorrect regarding integrity and objectivity?
    1. Integrity implies not merely honesty but fair dealing and truthfulness.
    2. The principle of objectivity imposes the obligation  on all  professional accountants to be fair,  intellectually  honest  and  free of conflicts of interest.
    3. Professional accountants serve in many different capacities and should demonstrate their objectivity in varying circumstances.

1. 4. Professional accountants should neither accept nor offer any gifts or entertainment.

47. If a professional accountant is  billing  an audit client a number of hours greater than those actually worked, which of the following fundamental principles is likely violated?
    1. Objectivity
    2. Integrity
    3. Professional due care
    4. Confidentiality

48. Which of the following is not a function of the Board of Accountancy as specified in the Philippine Accountancy Act of 2004?
    1. To investigate violations of the Accountancy Law and the rules and regulations promulgated therewith.
    2. To look from time to time into the conditions affecting the practice of the accountancy profession.
    3. To create and direct accrediting agencies that are entrusted the functions of reviewing higher educational institutions' policies and practices      leading                to accreditation/reaccreditation of BSA program.
    4. To determine and prescribe minimum requirements leading to the admission of candidates to the CPA licensure examination.

49. All of the following are represented to the Financial Reporting Standards Council, except:
    1. Securities and Exchange Commission
    2. Bureau of Internal Revenue
    3. Commission on Higher Education
    4. Board of Accountancy

1. 1. A CPA whose certificate  of  registration has been revoked:
      1. Can no longer be reinstated.
      2. Is automatically  reinstated as a CPA by the PRC after two years if he has acted in an exemplary manner.
      3. May be reinstated by the Professional Regulation Commission after two years if he has acted in an exemplary manner.
      4. May be reinstated as a CPA by the Board of Accountancy after two

years        if       he       has       acted        in       an exemplary manner.

51. The Philippine Accountancy Act of 2004 provides that all Working  papers  made during an audit shall be the property of the auditor. These working papers shall include the following, except:
    1. Working papers prepared by the CPA and his staff.
    2. Analysis and schedule prepared and submitted to the auditor by his client's staff.
    3. Excerpts or copies  of  documents furnished to the auditor.
    4. Any report submitted by the auditor to his client.

52. Who are required to apply for accreditation with the Professional Regulation Commission if the applicant is a partnership of Professional Accountants?
    1. Managing partner only
    2. All partners only
    3. Partners and staff members
    4. Partners, principals, and staff members

53. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register with the BOA and the PRC. If the accreditation of Velasco and Co., CPAs, was renewed on September 30, 2008, the next renewal must be on or before:
    1. September 30, 2010
    2. September 30, 2011
    3. December 31, 2010
    4. December 31, 2011

54. The APO shall renew its Certificate of Accreditation once every how many years after the date of the Resolution granting the petition for re-accreditation and the issuance of the said certificate upon submission of the requirements?
    1. 2 years
    2. 3 years
    3. 4 years
    4. 6 years

55. Engagement letters are widely used in practice for professional engagements of all types. The primary purpose of the engagement letter is to

1. 1. Remind management of its primary responsibility over the financial statements.
   2. Satisfy the requirements of the Code of Professional Conduct for CPAs.
   3. Provide a starting point for the auditor's preparation of the preliminary audit program.
   4. Provide a written record of the agreement with the client as to the services to be provide

56. Which of the following is not likely a quality control procedure on consultation?
    1. Identifies areas and specialized situations where consultation is required and encourages personnel to consult with or in use authoritative sources on other complex matters.
    2. Designates individuals as specialists to serve as authoritative sources and define their authority in consultative situations.
    3. Assigns an appropriate person or persons to be responsible for assigning personnel to audits.
    4. Specifies the extent of documentation to be provided for the result of consultation in those areas and specialized situations where consultation is required.

57. According to Philippine Standards  on Auditing, because there are inherent limitations in an audit that affect the auditor's ability to detect material misstatements, the auditor is:
    1. Neither a guarantor nor an insurer of financial statements.
    2. A guarantor but not an insurer of the statements.
    3. An insurer but not a guarantor of the statements.
    4. Both a guarantor and an insurer of the financial statements.

58. The working papers prepared by a CPA in connection with an audit engagement are owned by the CPA, subject to certain limitations. The rationale for this rule is to
    1. Protect the working papers from being subpoenaed.
    2. Provide the basis for excluding admission of the working papers as  evidence because  of  the  privileged communication rule.

1. 3. Provide the CPA with evidence and documentation which may be helpful in the event of a lawsuit.
   4. Establish a continuity of relationship with the client whereby indiscriminate replacement of CPAs is discouraged.

59. The responsibility for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the financial statements rests
    1. With the management.
    2. With the independent auditor.
    3. Equally with management and  the auditor.
    4. With the internal audit department.

60. The ordinary examination of financial statements is not primarily designed to disclose defalcations and other irregularities although their discovery may result. Normal audit procedures are more likely to detect a fraud arising from
    1. Collusion         on       the       part        of       several employees.
    2. Failure       to      record       cash       receipts        for services rendered.
    3. Forgeries on company checks.
    4. Theft of inventories.

1. 1. A    principal    purpose    of    a    letter of representation from management is to
      1. Serve as an introduction to company personnel and an authorization  to examine the records.
      2. Discharge the auditor from legal liability for his examination.
      3. Confirm in  writing  management's approval of limitations on the scope  of the audit.
      4. Remind management of its primary responsibility             for         financial statements.

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

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

64. Generally, the decision to notify parties outside the client's organization regarding a noncompliance with laws and regulations
    1. Independent auditor.
    2. Management.
    3. Outside legal counsel.
    4. Internal auditors.

65. An audit made in accordance with Philippine Standards on Auditing generally should
    1. Be expected to provide assurance that noncompliance with laws and regulations will be detected if the internal control is effective.
    2. Be relied upon to disclose indirect-effect noncompliance with  laws  and regulations.
    3. Encompass a plan to search actively for noncompliance with laws and regulations which relate to operating aspects.
    4. Not be relied upon to provide assurance that all noncompliance with laws and regulations will be detecte

66. An auditor who believes that a material irregularity may exist should initially
    1. Discuss the matter with those believed to be involved in the perpetration  of material irregularity.
    2. Discuss the matter with a  higher level of management.
    3. Withdraw from the engagement.
    4. Consult legal counsel.

67. When management refuses to disclose in the financial statements noncompliance to laws and regulations which are identified by the independent auditor, the CPA may  be charged with unethical conduct for
    1. Withdrawing from the engagement.
    2. Issuing a disclaimer of opinion.

1. 3. Failure to uncover the noncompliance to laws and regulations during the prior audits.
   4. Reporting these activities to the audit committee.

1. 1. A  procedure   in   which  a   quality control partner periodically tests the application of quality control procedures is most  directly related to which quality control element?
      1. Engagement performance
      2. Independence, integrity, and objectivity
      3. Monitoring
      4. Personnel management

69. The work of each assistant needs to be reviewed by personnel of at least equal competence. Which of the following is not one of the objectives of this requirement?
    1. The conclusions expressed are consistent with the result of the work performed and support the opinion.
    2. The work performed and the results obtained have been adequately documented.
    3. The audit objectives have been achieved.
    4. All available evidences have been obtained,           evaluated         and documente

70. Which of the following statements is true when the CPA has been engaged to do an attestation engagement?
    1. The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client.
    2. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are the statement users.
    3. Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact client's financial statements either positively  or negatively, the CPA is free to endorse the choice which is best in the client's interest.
    4. As long as CPA firms are competent, it is not required that they remain unbiased.

71. When CPAs are able to maintain an independent attitude in fulfilling their

responsibility,            it        is        referred         to        as independence in

1. 1. Fact.
   2. Appearance.
   3. Conduct.
   4. Total.

72. When the users of financial statements have confidence in the independence of the CPA, it is referred to as in independence in
    1. Fact.
    2. Appearance.
    3. Conduct.
    4. Total.

73. When determining whether independence is impaired because of an ownership interest in client company, materiality will affect whether ownership is a violation of rule of independence
    1. In all circumstances.
    2. Only for direct ownership.
    3. Only for indirect ownership.
    4. Under no circumstances.

1. 1. A professional accountant has a professional duty or right  disclose confidential information in each of the following, except:
      1. To comply with technical standards and ethics requirements.
      2. To disclose to the Bureau of Internal Revenue any fraudulent scheme committed by the client on payment of income tax.
      3. To comply with the quality review of a member body or professional body
      4. To respond to an inquiry or investigation by a member body or regulatory body.

75. Which of the following best describes the passing of confidential information from a client to its auditor? The information:
    1. Should in no circumstances be conveyed to third parties.
    2. Is not legally protected and can be subpoenaed by a competent court.
    3. Can only be released for peer reviews after receiving permission from  the client.
    4. Should be conveyed to the public if it affects the "correctness" of the financial statements.

1. 1. A member in public practice may perform for a contingent fee  any  professional services for  a  client  for  whom   the member or member's firm performs
      1. An audit.
      2. A review.
      3. A compilation used only by management.
      4. An audit of prospective financial information.

77. Which one of the following contingent fee is allowed?
    1. All services performed by a CPA film.
    2. Non-attestation services.
    3. Non-attestation services, unless the CPA firm was also performing attestation services for the same client.
    4. Attestation services.

78. When the auditor issues  an  erroneous opinion as a consequence of an underlying failure to comply with the requirements of generally accepted auditing standards, it results to
    1. Business failure.
    2. Audit failure.
    3. Audit risk.
    4. All of them

79. The responsibility for the fairness of the financial assertions that are embodied in the financial statements and in the notes to the financial statements rests:
    1. With the audit committee.
    2. With management.
    3. With Securities and  Exchange Commission.
    4. Equally with management and the stockholders.

80. When preparing the financial statements, it is acceptable for the auditor to prepare
    1. The footnotes for client.
    2. The statement for client.
    3. A      draft       of      the      statements        and footnotes for client.
    4. A draft of the statements for client.

81. Which of the following statements best describes the auditor's  responsibility regarding the detection of material  errors and frauds?

1. 1. The auditor is responsible for the failure to detect material errors and frauds only when such failure results from the misapplication of generally accepted accounting principles.
   2. The auditor is responsible for the failure to detect material errors and frauds only when the auditor fails to confirm receivables or observe inventories.
   3. The audit should be designed to provide reasonable assurance that material errors and frauds are detected.
   4. Extended auditing procedures  are required to detect unrecorded transactions even if there is no evidence that material errors and frauds may exist.

82. The auditor has considerable  responsibility for notifying users as to whether or not the statements are  properly  stated.  This imposes upon the auditor a duty to
    1. Provide reasonable assurance that material misstatements will be detected.
    2. Be an insurer of the fairness in the statements.
    3. Be a guarantor of the fairness in the statements.
    4. Be equally responsible with management for the preparation of the financial statements.

83. The factor that distinguishes an error from an irregularity is
    1. Whether it is peso amount or a process.
    2. Whether it is a caused by the auditor or the client.
    3. Materiality.
    4. Intent.

84. The reason why an auditor accumulates evidence is to
    1. Defend himself in the event of a lawsuit.
    2. Justify the conclusions he has otherwise reached.
    3. Satisfy the requirements of the bureau of internal revenue.
    4. Enable him to reach conclusions about the fairness of the financial statements and issue an appropriate audit report.

85. The auditor gives an audit opinion on the fair presentation of the financial statements and associates his or her name with them when, on the basis of adequate evidence, the auditor concludes that the financial statements are unlikely to mislead
    1. A prudent user.
    2. Management.
    3. The reader.
    4. Investors.

86. The probability that 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. Detection risk.
    3. Inherent risk.
    4. Control risk.

87. Which of the following is not included in an audit engagement letter?
    1. Objectives of the engagement
    2. Representations that the financial statements were prepared in accordance with PFRS
    3. Management's responsibilities
    4. A clear explanation of the services to be performed on the engagement

88. Which of the following is least likely included in an auditor’s inquiry of management while obtaining information to identify the risks of material misstatement due to fraud?
    1. Are financial reporting operations controlled by and limited to one location?
    2. Does it have knowledge of fraud or suspect fraud?
    3. Does it have programs to mitigate fraud risks?
    4. Has it reported to the audit  committee the nature of the company's internal control?

89. Which of the following should the auditors normally interview as part of  their assessment of fraud risk?
    1. Senior management
    2. Audit committee
    3. Various   employees                     whose duties financial reporting responsibilities
    4. All of the given choices

90. An audit plan is a
    1. Detailed plan of analytical  procedures and all substantive tests to be performed in the course of the audit.
    2. Document that provides an overview of the company and a general plan for the audit work to be accomplished, timing of the work, and other matters of concern to the audit.
    3. Generic document that auditing  firms have developed to lead the  process  of the audit through a  systematic  and logical process.
    4. Budget of the time that should be necessary to complete each phase of the audit procedures.

91. There is generally an agreement within the auditing profession and the courts that the auditor
    1. Is both a guarantor and an insurer of the financial statements.
    2. Is a guarantor but not an insurer of the statements.
    3. Is an insurer but not a guarantor of the statements.
    4. Is neither a guarantor nor an insurer of financial statements.

92. The auditor is not liable to his client for
    1. Negligence.
    2. Bad faith.
    3. Errors of judgment
    4. Dishonesty.

93. Which of the following services provides the highest level of assurance to third parties about a company's financial statements?
    1. Audit.
    2. Review.
    3. Compilation.
    4. Each of the above provides the same level of assurance.

94. Most accounting and auditing professionals agree that when an audit has failed to uncover material misstatements, and the wrong type of audit opinion is issued, the audit firm
    1. Has failed to follow generally accepted auditing standards (GAAS).
    2. Should   be   asked   to   defend   the