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1. Who appoints the members of the Board of Accountancy?
A. The chairman of BOA
B. The president of the Philippines
C. The chairman of the PRC
D. The president of PICPA
2. The following statements relate to the submission of nominations to the Board of Accountancy. Which is correct?
A. The Accredited National Professional Organization of CPAs (APO) shall submit its nominations to the president
of the Philippines not later than sixty (60) days prior to the expiry of the term of an incumbent chairman or
member.
B. The APO shall submit its nominations to the PRC not later than thirty (30) days prior to the expiry of the term
of an incumbent chairman or member.
C. If the APO fails to submit its own nominee(s) to the PRC within the required period, the PRC in consultation
with the Board of Accountancy shall submit to the president of the Philippines a list of five (5) nominees for
each position.
D. There should be adequate documentation to show the qualifications and primary field of professional activity
of each nominee.
3. The Board of Accountancy has the power to conduct an oversight into the quality of audits of financial statements
through a review of the quality control measures instituted by auditors in order to ensure compliance with the
accounting and auditing standards and practices. This power of the BOA is called
A. Quality assurance review
B. Appraisal
C. Peer review
D. Quality control
4. A partner surviving the death or withdrawal of all the other partners in a partnership may continue to practice
under the partnership name for a period of not more than _____ years after becoming a sole proprietor.
A. 1
B. 2
C. 3
D. 4
5. Which of the following statements concerning ownership of working papers is incorrect?
A. All working papers made by a CPA and his/her staff in the course of an examination remain the property of
such CPA in the absence of a written agreement between the CPA and the client to the contrary.
B. Working papers include schedules and memoranda prepared and submitted by the client of the CPA.
C. Working papers include reports submitted by a CPA to his/her client.
D. Working papers shall be treated confidential and privileged unless such documents are required to be
produced through subpoena issued by any court, tribunal, or government regulatory or administrative body.
6. Section 5 of the Accountancy Act of 2004 states that the Board of Accountancy shall be composed of a Chairman
and
A. 2 members
B. 4 members
C. 6 members
D. 8 members
7. Who has the power to suspend or remove any member of the Board of Accountancy?
A. The Chairman of the FRSC
B. The Chairman of the PRC
C. The Chairman of the AASC
D. The President of the Philippines
8. Due professional care requires
A. A critical review of the work done at every level of supervision.
B. The examination of all corroborating evidence available.
C. The exercise of error-free judgment.
D. A consideration of internal control structure that includes tests of controls.
9. An auditor, while performing an audit, strives to achieve the appearance of independence in order to
A. Reduce risk and liability.
B. Comply with the generally accepted standards of fieldwork.
C. Become independent in fact.
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D. Maintain public confidence in the profession.
10. Competence as a certified public accountant includes all of the following except
A. Having the technical qualifications to perform an engagement.
B. Possessing the ability to supervise and evaluate the quality of staff work.
C. Warranting the infallibility of the work performed.
D. Consulting others if additional technical information is needed.
11. The concept of materiality would be least important to an auditor in determining
A. Transactions that should be reviewed.
B. The need for disclosing a particular transaction or event.
C. The extent of audit work planned for particular accounts.
D. The effects of an auditor's direct financial interest in a client.
12. Which of the following statements concerning a CPA’s disclosure of confidential client information is ordinarily
correct?
A. Disclosure may be made to any party on consent of the client.
B. Disclosure should not be made even if such disclosure will protect the CPA’s professional interests in legal
proceedings.
C. Disclosure should be made only if there is a legal or professional duty to make the disclosure.
D. Disclosure may be made to any government agency without subpoena.
13. Which of the following will not create self-interest threat for a professional accountant in public practice?
A. The possibility of losing a significant client.
B. Direct financial interest in the assurance client.
C. Undue dependence on total fees from a client.
D. Preparing the original data used to generate records that are the subject matter of the assurance
engagement.
14. Which part of the Code establishes the fundamental principles of professional ethics for professional accountants
and provides a conceptual framework that professional accountants shall apply to identify threats to compliance
with the fundamental principles, evaluate the significance of the threats identified, and apply safeguards, when
necessary, to eliminate the threats or reduce them to an acceptable level?
A. Part 1.
B. Part 2.
C. Part 3.
D. Part 4.
15. Broadly defined, the subject matter of any audit consists of
A. Financial statements
B. Operating data
C. Economic data
D. Assertions
16. Which of the following is a conceptual difference between the attestation standards and generally accepted
auditing standards?
A. The attestation standards do not apply to audits of historical financial statements, while the generally
accepted auditing standards do.
B. The requirement that the practitioner be independent in mental attitude is omitted from the attestation
standards.
C. The attestation standards do not permit an attest engagement to be part of a business acquisition study or a
feasibility study.
D. None of the standards of fieldwork in generally accepted auditing standards are included in the attestation
standards.
17. Which of the following is always present in an attestation engagement?
A. Subject matter
B. An examination report
C. Assertion about the subject matter
D. Generally accepted assurance principles
18. Sufficient competent evidential matter may in part be obtained through the following methods except
A. Inspection
B. Observation
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C. Confirmation
D. Reconciliation
19. Results of the financial statement audit are communicated to users through
A. Financial statements
B. Written management assertion
C. Audit report
D. None of the above
20. What is the primary difference between financial reporting risk and audit risk?
A. The application of accounting principles
B. Responsibilities of the respective parties involved
C. Demands of users of financial statements
D. Risks of being sued by third parties
21. Theindependent auditor lends credibility to client’s financial statements by
A. Maintaining a clear-cut distinction between management’s representations and the auditor’s representation
B. Testifying under oath about client’s financial statements
C. Stating in the auditor’s management letter that the examination was made in accordance with generally
accepted auditing standards
D. Attaching an auditor’s opinion to the client’s financial statements
22. The accountant who is not independent may perform which of the following types of engagements?
A. Audit
B. Agreed-upon procedures
C. Compilation
D. Review
23. Who ultimately determines the scope of the audit?
A. The auditor
B. The client
C. Both a and b
D. Neither a nor b
24. An auditor should not issue a report on
A. Quarterly financial information
B. Internal control
C. Management performance
D. The achievability of forecasts
25. The need for assurance services arises for all of the following reason except
A. Potential bias in providing information
B. Closeness between a user and the organization
C. Complexity of the processing systems
D. Remoteness between a user and the organization
26. Which one of the following is not a key attribute needed to perform assurance?
A. Subject matter knowledge
B. Independence
C. Established criteria or standards
D. Accounting skills
27. Which one of the following is not part of the attest process?
A. Providing the accuracy of the books and records
B. Gathering evidence about assertions
C. Evaluating evidence against objective criteria
D. Communicating the conclusions reached
28. The "hallmark" of auditing is
A. Available audit technology.
B. Generally accepted auditing standards.
C. Professional judgment.
D. Materiality and audit risk.
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29. The purpose of having communication between the predecessor and successor auditor is to:
A. allow the predecessor to disclose information which would otherwise be confidential.
B. help the successor auditor to evaluate whether to accept the engagement.
C. help the client by facilitating the change of auditors.
D. ensure the predecessor collects all unpaid fees prior to a change in auditor.
30. The predecessor auditor is required to respond to the request of the successor auditor for information, but the
response can be limited to stating that no information will be provided when:
A. the predecessor auditor has poor relations with the successor auditor.
B. the client is dissatisfied with the predecessor’s work.
C. there are actual or potential legal problems between the client and the predecessor.
D. the predecessor believes that the client lacks integrity.
31. An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity
should:
A. engage financial experts familiar with the nature of the business entity.
B. obtain a knowledge of matters that relate to the nature of the entity’s business.
C. refer a substantial portion of the audit to another CPA who will act as the principal auditor.
D. first inform management that an unqualified opinion cannot be issued.
32. Which of the following statements is true regarding communications between predecessor and successor auditors?
A. The burden of initiating the communication rests with the predecessor.
B. The predecessor’s response can be limited to stating that no information will be provided.
C. The predecessor should communicate with the successor only if the client is public.
D. There must be communication between the predecessor and successor if the successor is to accept the
engagement.
33. An engagement letter sent to an audit client usually would not include a(n):
A. reference to the auditor’s responsibility for the detection of errors or irregularities.
B. estimation of the time to be spent on the audit work by audit staff and management.
C. statement that management advisory services would be made available upon request.
D. reference to management’s responsibility for the financial statements.
34. Which is usually included in an engagement letter?
I. The financial statements are the responsibility of the company’s management
II. Ratios to be used by the auditor in the planning phase
A. I only
B. II only
C. Both I and II
D. Neither I nor II
35. Which is usually included in an engagement letter?
I. The projected type of opinion on the financials statement to be audited
II. Name(s) of the client personnel responsible for supplying the auditor with information
A. I only
B. II only
C. Both I and II
D. Neither I nor II
36. Client strategy templates provide a means for an auditor to
A. Acquire, evaluate, and document evidence.
B. Focus on transactions likely to affect audit risk.
C. Compile the strategies and characteristics of an entity.
D. Distinguish between engagement risk and audit risk.
37. The auditor will not ordinarily initiate discussion with the audit committee concerning the
A. Extent to which the work of internal auditors will influence the scope of the examination.
B. Extent to which change in the company's organization will influence the scope of the examination.
C. Details of potential problems the auditor believes might cause a qualified opinion.
D. Details of the procedures the auditor intends to apply.
38. In planning an audit engagement, which of the following affects the independent auditor's judgment as to the
quantity, type, and content of working papers?
A. The estimated occurrence rate of attributes.
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B. The preliminary evaluations based on substantive testing.
C. The content of the client's representation letter.
D. The anticipated nature of the auditor's report.
39. A difference of opinion over accounting and auditing matters relative to a particular phase of the audit arises
between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the
assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably
be
A. Silent on the matter since it is an internal matter of the firm.
B. Expanded to note that the assistant auditor is completely disassociated from responsibility for the auditor's
opinion.
C. Expanded to document the additional work required since all disagreements of this type will require expanded
substantive testing.
D. Expanded to document the assistant auditor's position and how the difference of opinion was resolved.
40. Which of the following situations would most likely require special audit planning by the auditor?
A. Some items of factory and office equipment do not bear identification numbers.
B. Depreciation methods used on the client's tax return differ from those used on the books.
C. Assets costing less than P1,000 are expensed even though the expected life exceeds one year.
D. Inventory comprises precious stones.
41. In what order should the following steps occur?
I. Assess client business risk
II. Understand the client’s business and industry
III. Perform preliminary analytical procedures
IV. Assess acceptable audit risk
A. IV, II, III, I
B. II, I, IV, III
C. II, IV, I, III
D. IV, III, II, I
42. Most auditors assess inherent risk as high for related parties and related-party transactions because:
A. of the unique classification of related-party transactions required on the balance sheet.
B. of the lack of independence between the parties.
C. of the unique classification of related-party transactions required on the income statement.
D. it is required by generally accepted accounting principles.
43. Following are four steps an auditor undertakes in assessing control risk:
I. Determine what control procedures are used by the entity.
II. Identify the system's control objectives.
III. Design tests of controls.
IV. Consider the potential errors or irregularities that could result.
In what order would an auditor perform these steps?
A. IV, II, I and III
B. II, III, IV and I
C. II, IV, I and III
D. IV, III, I and II
44. In general, a material weakness in internal control may be defined as a condition in which material errors or
irregularities may occur and not be detected within a timely period by
A. An independent auditor during tests of controls.
B. Employees in the normal course of performing their assigned functions.
C. Management when reviewing interim financial statements and reconciling account balances.
D. Outside consultants who issue a special-purpose report on internal control structure.
45. After considering a client's internal control, an auditor has concluded that the system is well designed and is
functioning as anticipated. Under these circumstances, the auditor would most likely
A. Cease to perform further substantive tests.
B. Not increase the extent of planned substantive tests.
C. Increase the extent of anticipated analytical procedures.
D. Perform all tests of controls to the extent outlined in the preplanned audit program.
46. The purpose of tests of controls is to provide reasonable assurance that the
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A. Accounting treatment of transactions and balances is valid and proper.
B. Control procedures are functioning as intended.
C. Entity has complied with disclosure requirements of GAAP.
D. Entity has complied with requirements of quality control.
47. After consideration of a client's internal control, an auditor might decide to
A. Increase the extent of substantive testing in areas where the control structure is strong.
B. Reduce the extent of tests of controls in areas where the controls are strong.
C. Reduce the extent of both substantive tests and tests of controls in areas where the controls are strong.
D. Increase the extent of substantive testing in areas where the controls are weak.
48. In an auditor's consideration of internal control, the completion of a questionnaire is most closely associated with
which of the following?
A. Separation of duties.
B. Understanding the system.
C. Flowchart accuracy.
D. Tests of controls.
49. The reliance placed on substantive tests in relation to control risk varies in a relationship that is ordinarily
A. Parallel.
B. Inverse.
C. Direct.
D. Equal.
50. To determine whether internal control effectively minimized errors of failure to bill a customer for a shipment, the
auditor would select a sample of transactions from the population represented by the
A. Customer order file.
B. Shipping records file.
C. Subsidiary customer accounts ledger.
D. Sales invoice.
51. The auditor is examining copies of sales invoices only for the initials of the person responsible for checking the
extensions. This is an example of a
A. Test of controls.
B. Substantive test.
C. Dual-purpose test.
D. Test of balances.
52. A client erroneously recorded a large purchase twice. Which of the following control procedures would be most
likely to detect this error in a timely and efficient manner?
A. Footing the purchases journal.
B. Reconciling vendors' monthly statements with subsidiary payable ledger accounts.
C. Tracing totals from the purchases journal to the ledger accounts.
D. Sending written quarterly confirmations to all vendors.
53. For effective internal control purposes, which of the following individuals should be responsible for mailing signed
checks?
A. Receptionist.
B. Treasurer.
C. Accounts payable clerk.
D. Payroll clerk.
54. Which of the following procedures relating to the audit of accounts payable could the auditor delegate entirely to
the client's employees?
A. Test footings in the accounts payable ledger.
B. Reconcile unpaid invoices to vendors' statements.
C. Prepare a schedule of accounts payable.
D. Mail confirmations for selected account balances.
55. For appropriate segregation of duties, journalizing and posting summary payroll transactions should be assigned
to
A. The treasurer's department.
B. General accounting.
C. Payroll accounting.
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D. The timekeeping department.
56. To strengthen control procedures over the custody of heavy mobile equipment, the client would most likely
institute a policy requiring a periodic
A. Increase in insurance coverage.
B. Inspection of equipment and reconciliation with accounting records.
C. Verification of liens, pledges, and collateralizations.
D. Accounting for work orders.
57. Sources of information gathered to assess fraud risks usually do not include:
A. analytical procedures.
B. inquiries of management.
C. communication among audit team members.
D. review of articles of incorporation and bylaws.
58. Which of the following statements describes circumstances that underlie employee incentives to misappropriate
assets?
A. Dissatisfied employees may steal from a sense of entitlement.
B. Weak internal controls encourage employees to take chances.
C. If management cheats customers and gets away with it, then employees believe they can do the same to
the company.
D. Employees have a vested interest in making the company’s financial statements erroneous.
59. Which of the following is not a factor that relates to opportunities to misappropriate assets?
A. Inadequate internal controls over assets.
B. Presence of large amounts of cash on hand.
C. Inappropriate segregation of duties or independent checks on performance.
D. Adverse relationships between management and employees.
60. For inquiry to be effective, auditors need to be skilled at listening and _______ an interviewee’s response to
questions.
A. evaluating
B. recording
C. transcribing
D. remembering
61. Which of the following is not a likely source of information to assess fraud risks?
A. Communications among audit team members.
B. Inquiries of management.
C. Analytical procedures.
D. Consideration of fraud risks discovered during recent audits of other clients.
62. Which party has the primary responsibility to oversee an organization’s financial reporting and internal control
processes?
A. The board of directors
B. The audit committee
C. Management of the company
D. The financial statement auditors
63. Auditor responses to fraud risks include which of the following?
I. Perform procedures to result in the issuance of a qualified opinion
II. Perform procedures to address the risk of management override of controls
A. I only
B. II only
C. Both I and II
D. Neither I nor II
64. An auditor plans to apply substantive tests to the details of asset and liability accounts as of an interim date
rather than as of the balance sheet date. The auditor should be aware that this practice
A. Eliminates the use of certain statistical sampling methods that would otherwise be available
B. Presumes that the auditor will re-perform the tests of the balance sheet date
C. Should be especially considered when there are rapidly changing economic conditions
D. Potentially increases the risk that errors that exist at the balance sheet date will not be detected
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65. The usefulness of the standard bank confirmation request may be limited because the bank employee who
completes the form may
A. Be unaware of all the financial relationships that the bank has with the client
B. Not believe that the bank is obligated to verify confidential information to a third party
C. Sign and return the form without inspecting the accuracy of the client's bank reconciliation
D. Not have access to the client's cutoff bank statement
66. If the objective of a test of details is to detect overstatements of sales, the auditor should trace transactions from
the
A. Cash receipts journal to the sales journal
B. Sales journal to the cash receipts journal
C. Source documents to the accounting records
D. Accounting records to the source documents
67. Which of the following statements concerning evidential matter is correct?
A. Appropriate evidence supporting management's assertions should be convincing rather than merely
persuasive.
B. Effective internal control contributes little to the reliability of the evidence created within the entity.
C. The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence
should be obtained.
D. A client's accounting data cannot be considered sufficient audit evidence to support the financial statements.
68. Before applying substantive tests to the details of asset and liability accounts at an interim date, the auditor
should
A. Assess the difficulty in controlling incremental audit risk.
B. Investigate significant fluctuations that have occurred in the asset and liability accounts since the previous
balance sheet date.
C. Select only those accounts that can effectively be sampled during year-end audit work.
D. Consider the tests of controls that must be applied at the balance-sheet date to extend the audit conclusions
reached at the interim date.
69. The auditor's program for the examination of long-term debt should include steps that require the
A. Verification of the existence of the bondholders.
B. Examination of any bond trust indenture.
C. Inspection of the accounts payable subsidiary ledger.
D. Investigation of credits to the bond interest income account.
70. As the acceptable level of detection risk decreases, an auditor may
A. Reduce substantive testing by relying on the assessments of inherent risk and control risk.
B. Postpone the planned timing of substantive tests from interim dates to the year-end.
C. Eliminate the assessed level of inherent risk from consideration as a planning factor.
D. Lower the assessed level of control risk from the maximum level to below the maximum.
END OF EXAMINATION
