. Which of the following is not primary category of attestation report?

9
Compilation Report

. 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.
8
Assurance level

. All three of the above are equally difficult

Discipline that attests to the results of accounting and other operations
and data
7
. Identify the following as financial audit (FA), compliance audit (CA), and
operational audit (OA).• A supervisor is not carrying out his assigned
responsibilities.• A company’s tax return does not conform to income tax
laws and regulations.• A municipality’s financial statements correctly
show actual cash receipts and disbursements.• A company’s receiving
6
department is inefficient.
OA, CA, FA, OA

. Any services in which the CPA firm issues a written communication that
express a conclusion with respect to the reliability of a written assertion
5
that is the responsibility of another party is a (n)
Attestation service

. Which of the following best describes the objective of an audit of

financial statements?
To express an opinion whether the financial statements are prepared, in
all material respect, in accordance with an identified financial reporting
framework.
4
. Which of the following is an objective of a review engagement?
Reporting whether material modifications should be made to such
financial statements to make them conform with generally accepted
accounting principles.
3
. To provide for the greatest degree of independence in performing
internal auditing functions, an internal auditor most likely should report to
Board of Directors
2
. Which of the following is true of the report based on agreed-upon-
procedures?
1
1
0
The report is restricted to those parties who have agreed to the
procedures to be performed.

. Audit came from the Latin Word "AUDIRE" which means?

to hear

. Which of the following types of audit uses as its criteria laws and
regulations?
Compliance Audit

. In all cases, audit reports must

Inform readers of the degree of correspondence between the
quantifiable information and the established criteria.

. Which of the following is responsible for an entity’s financial statements?

The entity’s management

. Internal auditors cannot be independent

As long as an employer-employee relationship exists.

. Because an examination in accordance with generally accepted auditing

standards is influenced by the possibility of material errors, the auditor
should conduct the examination with an attitude of
Professional skepticism

. The single feature that most clearly distinguishes auditing, attestation,

and assurance is
Scope of services

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

May be sufficiently independent to conduct an audit

. The primary goal of the CPA in performing the attest function is to

Determine whether the client's assertions are fairly stated

. Which statement is correct regarding the relationship between internal

auditing and the external auditor?
Certain aspects of internal auditing may be useful in determining the
nature, timing and extent of external audit procedures

. To operate effectively, an internal auditor must be independent of

The line functions of the organizations
 . Which of the following is an appraisal activity established within an entity
as a service to the entity?
Internal auditing

. A review of any part of an organization’s procedures and methods for the

purpose of evaluating efficiency and effectiveness is classified as a (n)
Operational audit

. The best statement of the responsibility of the auditor with respect to

audited financial statement is:
The auditor’s responsibility is confined to his expression of opinion
about the audited financial statements.

. It refers to the audit procedures deemed necessary in the circumstances

to achieve the objective of the audit.
Scope of an audit

. The main way(s) to reduce information risk is to have

All of the above

. An audit can have a significant effect on

Information Risk

. Which one of the following is more difficult to evaluate objectively?

Efficiency and effectiveness of operations.

. The framework for auditing and related services as addressed by PSA

excludes
Review

. As used in auditing, which of the following statements best describes

"assertions"?
Assertions are the representations of management as to the fairness of
the financial statements.

. The criteria for evaluating quantitative information vary. For example, in

the audit of historical financial statements by CPA firms, the criteria are
usually
Generally accepted accounting principles.

. A financial statement audit:

Lends credibility to the financial statements.
 . Certain fundamental beliefs called "postulates" underlie auditing theory.
Which of the following is not a postulate of auditing?
An audit has a benefit only to the owners.

. Assurance engagement
Is an engagement intended to enhance the credibility of information
about a subject matter by evaluating whether the subject matter conforms in
all material respects with suitable criteria, thereby improving the likelihood
that the information will meet the needs of an intended user.

. Which of the following best describes why an independent auditor

reports on financial statements?
Competing interests may exist between management and the users of
the statements

. According to Philippine Standard on Auditing, the procedures employed

in doing compilation are
Not designed to enable the accountant to express any form of
assurance.

. The three types of attestation services are:

Audits, reviews, and other attestation services

. The expertise that distinguishes auditors from accountants is in the

Ability to interpret generally accepted accounting principles.

. Which of the following criteria is unique to the independent auditor’s

attest function?
Independence

. The auditor communicates the results of his or her work through the
medium of the
Audit report

. An operational audit is designed to

Assess the efficiency and effectiveness of management’s operating
procedures

Why Auditors can only issue "Reasonable Assurance"

The PSA provides that the auditor can issue a reasonable assurance rather
than the absolute assurance for auditors are human beings and tend to make
mistakes. They have limitations and reasonable assurance can guarantee and
satisfy the interested users that the financial statements are free from material
misstatements.

Describe and discuss the Limitations of an Audit.

The first limitation of an audit is the sampling risk wherein there are so many
accounts and the auditor can choose what account he wants to evaluate. Second,
error in the application of judgment, whereas the auditor has the tendency to make
mistakes when it comes to the audit report. Next is the reliance on management's
representation, the auditor should not immediately believe the documents
provided. The fourth one is the inherent limitations of the client's accounting and
internal control systems, wherein mistakes overlap and can affect the audit report
itself. Lastly is the nature of evidence, the auditor should gather evidence that is
persuasive or pervasive and not conclusive in nature. As long as the data
saturation are not met, keep asking for evidence from the accountant.

. The two types of independence are: 1.independence in fact (real

independence/mind) 2. independence in appearance (perceived
independence)
True

. These are issued to provide practical assistance to auditors in

implementing the standards and to promote good practice in the
accountancy profession
Practice Statements

. A body that is created through the Philippine Accountancy Act of 2004

and is intended to replace the ASPC.
Auditing and Assurance Standards Council (AASC)

. Indicate whether the following functions would be performed by: P –

Partner | S – Senior | M – Manager | AS – Audit Assistant | (1) Supervises
two or more concurrent audit engagements(2) Performs detailed audit
procedures(3) Overall responsibility for audit(4) Signs audit report
M AS P P

. Standards of Fieldwork includes Planning, Internal Control Consideration

and Effective Communication (PIE)
False

. Based on the structure of AASC pronouncements, related services

include, Assurance, Review, Agreed-upon procedures and Compilation
False
 . Statements on financial accounting standards constituting GAAP are
issued by the
Accounting Standards Council

. Which of the following mostly describes the function of ASPC?

To promulgate auditing standards, practices and procedures that shall
be generally accepted by the accounting profession in the Philippines.

. Which of the following Quality Control objectives would be least

important to the auditor
Determination of Audit Fee

. The following statements relate to the accounting profession: I. To merit

public trust and confidence, the professional person must convince the
public that he will place public service ahead of personal reward. II. A
CPA certificate is evidence of basic competence in the discipline of
accounting at the time the certificate is granted. III. A code of
professional conduct is one of the most important distinguishing
characteristics of a profession. State whether the foregoing statements
are true or false.
All of the statements are true

. The third standard of fieldwork states that the sufficient competent

evidential matter may in part be obtained thru Reconciliation Method
False

. Integrity is one of the ethical requirements of audit's system of quality

control that means free from bias
False

. These statements are issued to provide practical assistance to auditors in

implementing the PSAs
PAPS

. Engagement Quality Control Review aka EQR requires the engagement

partner to discuss significant matters arising during the audit
engagement, including those identified during the quality control review,
with the engagement quality control reviewer
True

. The Senior Auditor is the main responsible for the policies and
procedures for the Acceptance and Continuance of Client Relationships
 False

. Which of the following is not normally a service rendered by public

accountants?
Internal auditing

. Observation includes Understanding the Process and Walkthrough

procedures of the audit
True

. The primary duty to enforce the provisions of RA 9298 and its IRR rests
with
both PRC and BOA

. In the absence of pronouncements issued by the ASPC and the PICPA,

published statements and guidelines issued by other authoritative bodies
like AICPA, IAASB and AFA are the bases of determining generally
accepted auditing standards (GAAS). What effect do these
Persuasive

. Which statement is incorrect regarding the pronouncements of ASPC?

The Interpretations have the same authority as the PAPSs

. The Philippine Standards on Auditing issued by ASPC

Apply to independent examination of financial statements of any entity
when such an examination is conducted for the purpose of expressing an
opinion thereon.

. The government agency tasked by law of implementing and enforcing the

regulatory policies of the national government with respect to the
regulation and licensing of the various professions and occupations
under its jurisdiction is
PRC

. Pronouncements issued by AASC may be in form of: PSA | PSAE | PSRE |

PSRS
yes yes yes yes

. Which of the following quality control procedures relates to the

engagement performance
Direction

. Which of the following quality control procedures relates to the

 .
engagement performance
Volume of audit work and degree of competence and responsibilities
involved.

. The firm should establish policies and procedures designed to provide it

with reasonable assurance that the firm and its personnel comply with
ethical requirements, which include integrity, objectivity, due care,
confidentiality and professional behavior
True

. A CPA firm offers management advisory services to clients. Its primary

purpose is to
Furnish professional advice and assistance which will enable the client
to improve operations.

. Direction involves monitoring the progress of the audit, resolving

accounting and audit issues, and considering the level of consultation
appropriate for the engagement
False

. GAAS
Generally Accepted Auditing Standards

. Which of the following best describes what is meant by GAAS

Measures of the quality of the auditor's performance

Choose one of the three classifications of GAAS and describe each

component.
The general standard talks about being an auditor as a whole. It involves
technical training and proficiency, independence, and professional care. In the first
standard, an auditor should undergo a series of training before working in a field in
order to be proficient enough to do an audit report. The auditor must possess the
two types of independence, the independence in mind wherein he should know
what is right and wrong and do his work that is free from bias. Second is the
independence in appearance in which he has this aura of being an auditor, a
confident one so that others won't underestimate or look down on him. Lastly is
professional care, an auditor should always remember the diligence of a good
father of a family wherein he should exert extra care and effort in doing his work
just like how a good father did his best to provide for his family.

Differentiate the types of Assurance Engagements that the Auditor

may render during the conduct of fieldwork.
Assurance engagement has three different types; review engagement,
agreed-upon procedure engagement, and compilation engagement. The review is
where an auditor does not audit the financial statements of a company, he simply
review it and checks for an error. The agreed-upon procedure is there is only one
account that the auditor will be auditing. Lastly, the compilation is the compilation
of the financial statements or bookkeeping.

. Which of the following best describes what is meant by the term “fraud
risk factor”?
Factors whose presence often has been observed in circumstances
where frauds have occurred.

. Factors whose presence often has been observed in circumstances

where frauds have occurred.
False

. When the auditor believes that material error or fraud exists. the auditor
should request the management to revise the financial statements.
Otherwise, the auditor will express a qualified or disclaimer of opinion.
False

. Which of the following illustrates a perceived opportunity to commit

fraud?
An individual believes internal control could be circumvented because
the individual is in a position of trust or has knowledge of specific
weaknesses in the internal control system.

. Which statement is incorrect regarding the auditor’s responsibility to

consider fraud and error in an audit of financial statements?
The auditor should design test of controls to reduce to an acceptably low
level the risk that misstatements resulting from fraud and error that are
material to the financial statements taken as a whole will not be detected.

. The following are examples of fraud risk factors relating to industry

conditions, except
There is a high turnover of management, counsel or board members.

. Which of the following is least likely a category of fraud risk factors that
relate to misstatements resulting from fraudulent financial reporting?
Susceptibility of assets to misappropriation.

. Fraudulent financial reporting involves intentional misstatements or

omissions of amounts or disclosures in financial statements to deceive
financial statement users. Fraudulent financial reporting least likely
 .

involve
Embezzling receipts, stealing physical or intangible assets, or causing
an entity to pay for goods and services not received.

. The term “fraud” refers to an intentional act by one or more individuals

among management, those charged with governance, employees, or
third parties, involving the use of deception to obtain an unjust or illegal
advantage. Which statement is correct regarding fraud?
Misstatement of the financial statements may not be the objective of
some frauds.

. Fraud risk factors relating to management’s characteristics and influence

over the control environment
Pertain to management’s abilities, pressures, style, and attitude relating
to internal control and the financial reporting process.

. The primary responsibility for the prevention and detection of fraud and
error rests with
The management of an entity and those charged with governance

. In comparing management fraud with employee fraud, the auditor’s risk

of failing to discover the fraud is
Greater for management fraud because of management’s ability to
override existing internal controls.

. When planning and performing audit procedures and evaluating and

reporting the results thereof, the auditor should
Consider the risk of material misstatements in the financial statements
resulting from fraud or error.

. The risk of the auditor not detecting a material misstatement resulting

from management fraud is greater that employee fraud.
True

. Which of the following is least likely an example of fraud risk factors

relating to management’s characteristics and influence over the control
environment?
New accounting, statutory or regulatory requirements that could impair
the financial stability or profitability of the entity.

. The auditor’s ability to detect a fraud depends on factors such as I. The

skillfulness of the perpetrator. II. The frequency and extent of
manipulation. III. The degree of collusion involved. IV. The relative size of
 .

individual amounts manipulated. V. The seniority of those involved.

All of the above

. The risk of not detecting a material misstatement resulting from fraud is

higher than the risk of not detecting a material misstatement resulting
from error because
Fraud is ordinarily accompanied by acts specifically designed to conceal
its existence.

. The following are examples of error, except

Misrepresentation in the financial statements of events, transactions or
other significant information.

. Whether the auditor has performed an audit in accordance with PSAs is

determined by
The adequacy of the audit procedures performed in the circumstances
and the suitability of the auditor’s report based on the result of these
procedures.

. The subsequent discovery of a material misstatement of the financial

statements resulting from fraud or error, in and of itself, indicates: • a
failure to obtain reasonable assurance | • inadequate planning,
performance or judgment | • the absence of professional competence
and due care | • a failure to comply with PSAs
No No No No

. If a scope limitation has precluded the auditor from obtaining sufficient

evidence to evaluate the effects of noncompliance with laws and
regulations, the auditor should express an unqualified or adverse opinion.
False

. Which of the following statements describes why a properly designed

and executed audit may not detect a material fraud
Audit procedures that are effective for detecting an unintentional
misstatement may be ineffective for an intentional misstatement that is
concealed through collusion.

. When planning the audit, which of the following is least likely a purpose
of the auditor’s inquiries of management?
To determine extent of authentication of documentation.

. The types of intentional misstatements that are relevant to the auditor’s

consideration of fraud include I. Misstatements resulting from fraudulent
 .

financial reporting II. Misstatements resulting from misappropriation of

assets
I and II

. The risk of not detecting a material misstatement resulting from error is

higher than the risk of not detecting misstatements resulting from fraud.
True

. The auditor should obtain a Management Letter that management has

disclosed to the auditor all known actual or possible noncompliance with
laws and regulations that could materially affect the financial statements.
False

Discuss and describe each component of Fraud Risk Triangle. Give

an example of a scenario where Fraud is being highlighted.
In the incentive or pressure, the management or other personnel of a
company has a thought process to commit fraud due to personal reasons and
interests that push them to steal and downgrade their integrity. Then, the motive
or attitude refers to if an employee has this mindset that it is okay to steal, he will
do so because of the benefits of greed. Lastly is the opportunity, when there is an
opportunity to commit mistakes without others knowing the perpetrator grabs this
chance to commit fraud. A scenario I can think of is the infamous case wherein
Enron has been put into. The company misrepresented its financial information by
falsely increasing its revenues and hiding the losses to attract investors. It is a
management fraud and the suspected culprit is the CEO itself. Enron became one
of the powerful companies before but bankruptcy took place when fraud is
disclosed to the public.

. An assertion that transactions are recorded in the proper accounting

period is
Cut-Off

. Jemerald, CPA is succeeding Niño, CPA on the audit engagement of Tria

Corporation. Jemerald plans to consult Niño and to review Niño's prior
year working papers. Jemerald may do so if
Niño and Tria consent

. A current or new auditor most likely would make specific inquiries of the
predecessor auditor regarding
Disagreements with management as to auditing procedures.

. Before accepting an audit engagement, a successor auditor should

make specific inquiries of the predecessor auditor regarding the
 .

predecessor’s
Understanding as to the reasons for the change of auditors.

. In which of the following situations would the auditor be unlikely to send

a new engagement letter to a continuing client?
a recent change in the member of the audit engagement team

. Which of the following assertions does not relate to classes of

transactions and events for the period?
Valuation

. Which of the following least likely requires the auditor to send a new
engagement letter?
A recent change in the audit firm’s management.

. In making a decision to accept or continue with a client, the auditor

should consider |Its Competence | Its Independence | Its ability to serve
the client properly | The integrity of client's management
yes yes yes yes

. According to PSA 210, which of the following statements is correct?

The auditor may agree to a change of engagement where there is
reasonable justification for doing so.

. Which of the following assertions does not relate to balances at period

end?
Occurence

. Which of the following is not normally performed in the pre-engagement

phase?
Making preliminary estimate of materiality

. If an auditor believes that an understanding with the client has not been
established, he or she should ordinarily
Decline to accept or perform the audit

. The following are valid reasons why an auditor sends to his client an
engagement letter: a. Avoid misunderstanding with respect to
engagement b. Confirms the auditor’s acceptance of the appointment c.
Objective and scope of the audit d. Assures CPA’s compliance to GAAS
yes yes yes no

. When the auditor of a parent entity is also the auditor of its subsidiary,
.
branch or division; which of the following factors would least like
influence the auditor's decision to send separate letter to a component
of a parent entity?
Geographical location of the component

. When an independent auditor is approached to perform an audit for the

first time, he or she should make inquiries of the predecessor auditor.
Inquiries are necessary because the predecessor may be able to provide
the successor with information that will assist the successor in
determining whether
The engagement should be accepted.

. Which of the following actions may be appropriate if the auditor is

unable to agree to a change of the engagement and is not permitted to
continue the original engagement I. Issue a qualified opinion due to a
significant scope limitation. II. Auditor should withdraw from the
engagement. III. Consider whether there is any obligation to report to
the board of directors or shareholders the circumstances necessitating
withdrawal
II and III

. Inherent risk is the risk that the client's internal control may not prevent
or detect material misstatements in the financial statements
False

. The assertions may fall into three categories, about the classes of
transactions and events after the period under audit, about the account
balances at the period end and about the presentation and disclosure of
the financial statements
False

. Which of the following is the correct order of steps in the Audit Process
A. Perform Test of Control B. Develop an overall strategy for the
expected conduct and scope of an audit C. Obtain Client's
representation letter D. Prepare engagement letter E. Perform
Substantive Test
DBAEC

. Which of the following is least likely included in an audit engagement

letter?
The objective of financial reporting.
 . Prior to the acceptance of an audit engagement with a client who has
terminated the services of the predecessor auditor, the CPA should
Advise the client of the intention to contact the predecessor auditor and
request permission for the contact.

. When a change in the type of engagement from higher to lower level of

assurance is reasonably justified, the report based on the revised
engagement
Omits reference to the original engagement.

. Which of the following factors most likely would influence an auditor's

determination of the auditability of the entity's financial statements
The adequacy of the accounting records

. Before performing any audit procedures, the auditor and the client
should agree on the | Type of opinion to be expressed | Terms of the
engagement
no yes

. Which of the following should an auditor obtain from the predecessor

auditor prior to accepting an audit engagement?
Facts that might bear on the integrity of management

. The objective and scope of the audit and the extent of the auditor’s
responsibilities to the client are best documented in
Audit engagement letter

. Which of the following least likely influence the auditor’s decision to

send a separate engagement letter to a component of parent entity
client?
Location of the principal place of business of the component entity

. The extent of the substantive tests is highly dependent on the results of

the auditor's consideration of internal control.
True

. In an audit, communication between the predecessor and incoming

auditor should be
either written or oral

. Inspection as an audit procedure consists of merely looking at a process

or procedure being performed by others
 False

. Which of the following is a NOT valid reason for a change of the

engagement to a lower “level of assurance”?
Restriction on the scope of the engagement.

. An audit engagement letter least likely includes

Identification of specific audit procedures that the auditor needs to
undertake.

. Management and auditor are the main responsible for the fair
presentation of financial statements that reflect  the nature and
operations of the entity.
False

. If permission from client to discuss its affairs with the proposed auditor
is denied by the client, the predecessor auditor should:
Disclose the fact that the permission to disclose is denied by the client.

Which of the following is appropriately included in an audit engagement letter? I.

Because of the test nature and other inherent limitations of an audit, together with
the inherent limitations of any accounting and internal control system, there is an
unavoidable risk that even some material misstatements may remain undiscovered.
II. The audit will be made with the objective of expressing an opinion on the
financial statements. III. An audit also includes assessing the accounting
procedures used and significant estimates made by management.
I and II

How to accept an Audit Client/Engagement?

To accept an audit client/engagement, the auditor should have preliminary
knowledge about the client and reflect his competency if he is eligible and
expertise enough to fit and become their auditor. As always that has been said, the
auditor shall not have any personal relationship or connection to the client to
maintain his independence and be able to make an opinion that is free from bias.
The firm should also consider if an auditor has the means to serve the client
properly following the professional standards. Lastly, it is very significant to do a
background check regarding the prospective client so that the auditor will know
their history and its integrity and credibility during the past auditing reports.

Discuss briefly the six AUDIT PROCESSES/STAGES/PHASES

The first stage in the audit process is accepting an engagement, whereas the
auditor should reflect if he is competent enough to the client. After accepting the
client, there comes the audit planning wherein the auditor obtains knowledge
about the client. It includes doing an interview and having preliminary knowledge
about the risk and materiality. Next is the consideration of the internal control, it is
highly recommended if the auditor is close with the internal control because if he
smoothly assesses the internal control process, it will lead to good results. The
fourth one is the performing of the substantive test, it is really the work of an
auditor wherein he is in-depth examining the documents and evidence to support
the claims of the financial statements after. The fifth one is completing the audit,
this stage involves gathering more evidence to prove if the results in the
substantive test are true and valid. Lastly is issuing a report, the auditor will give a
verdict about the results of the financial statements if it is unqualified, qualified,
adverse, or disclaimer of opinion.

. Which of the following is least likely considered by the auditor in

developing the overall audit plan?
The general level of competence of audit assistants.

. As the acceptable level of detection risk decreases, the assurance

directly provided from
Substantive tests should increase.

. In designing written audit programs and auditor should establish a

specific audit objectives that relate primarily to the
financial statement assertions

. Which of the following is an aspect of scheduling and controlling the

audit engagement?
Including in the audit program a column for estimated and actual time.

. Which of the following factors is not a good indicator of potential

financial failure?
Client’s retained earnings were reduced by half as a result of a large
dividend payout.

. Which of the following is an effective audit planning and control

procedures that helps prevent misunderstandings and inefficient use of
audit personnel?
Arrange a preliminary conference with the client to discuss audit
objectives, fees, timing, and other information.

. Audit Risk = 10% Inherent Risk = 60% Control Risk = 60% Detection Risk
=?
27.8%
 . Incremental risk is the increased risk that errors may not be detected at
the balance sheet date because:
Audit procedures were performed at an interim date

. The risk that the assertion contains material misstatements that, when
aggregated with misstatements in other assertions, could make the
entire financial statements materially misstated is:
Individual audit risk

. There is an inverse relationship between materiality and the level of

audit risk, that is the higher the materiality level,  the lower the audit risk
and vice versa.
true

. When the auditor determines that detection risk regarding a financial

statement assertion for a material account balance or class of
transactions cannot be reduced to an acceptable level, the auditor
should express
Qualified or disclaimer of opinion

. Which of the following statements is correct concerning analytical

procedures?
Analytical procedures used in planning an audit generally use data
aggregated at a high level.

. Which of the following matters would least likely appear in the audit
program
documentation of the accounting and internal control systems being
reviewed

. Which of the following procedures would an auditor most likely perform

in planning a financial statement audit?
Comparing the financial statements to anticipated results.

. Why would the auditor assess control risk?

Because it affects the level of detection risk the auditor may accept.

. Which of the following is not a typical analytical review procedure?

Comparison of recorded amounts of major disbursements with
appropriate invoices

. Analytical procedures can be used in audit in planning stage, in

.
substantive testing stage and overall review stage.
True

. The relationship between acceptable level of detection risk and the

combined level of inherent and control risk is
Inverse

. Which of the following is an incorrect statement?

Detection risk cannot be changed at the auditor’s discretion.

. To obtain an understanding of a continuing client’s business in planning

an audit, an auditor most likely would
Review prior-year working papers and the permanent file for the client.

. Analytical procedures, which means the analysis of significant ratios and

trends including the resulting investigation of fluctuations and
relationships that are inconsistent with other relevant information or
which deviate from predicted amounts, are not required to be applied
As substantive procedures

. Analytical procedures used in planning an audit should focus on

Enhancing the auditor’s understanding of the client’s business

. A 10% acceptable level of detection risk means that substantive test

must be designed to provide a 90% assurance of detecting material
misstatements
True

. It is an estimate of the time that will be spent in executive the audit

procedures listed in the audit program. This provides a basis for
estimating audit fees and assists the auditor in assessing the efficiency
of the assistants.
Time Budget

. Risk in auditing means that the auditor except some level of uncertainty
in performing the audit function,  an effective auditor will
Recognize that the exists and with in an appropriate manner

. The development of a general strategy and a detailed approach for the

expected nature, timing, and extent of audit refers to The development
of a general strategy and a detailed approach for the expected nature,
timing, and extent of audit refers to
Planning
 . Which of the following statements is not correct about materiality?
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.

. An auditor decides to increase the assessed level of control risk from

that originally planned on the basis of audit evidence gathered and
evaluated. To achieve an overall audit risk level that is substantially the
same as the planned audit risk level, the auditor would
Decrease detection risk

. Which of the following is required documentation in an audit in

accordance with generally accepted auditing standards?
An audit program setting forth in detail the procedures necessary to
accomplish the engagement’s objectives.

. Which of the following would a successor auditor normally perform after

acceptance of an audit client?
Review of predecessor auditor working papers.

. The extent of planning will vary according to any of the following,

except:
The assessed level of control risk.

. The auditor should make a preliminary estimate of materiality to

determine the amount of evidence to accumulate.  There is a direct
relationship between materiality and evidence. This means more
evidence will be required for a high peso amount of materiality than for a
low peso amount.
False

. Which of the following is incorrect about the auditor's a risk assessment

procedures
The auditor should perform substantive procedures and test of controls
after the risk assessment procedures are performed

. The audit risk model consists of: AR = IR x CR x DR . The detection risk

is the dependent variable. What is the acceptable level of detection risk
if the assessed level of Inherent risk is High and the Control risk is Low?
Medium

. Which of the following is an engagement attribute for an audit of an

 .
entity that processes most of its financial data in electronic form without
any paper documentation?
Performance of audit tests on a continuous basis.

. Adequate planning of the audit work helps the auditor of accomplishing

the following objectives, except:
Gathering of all corroborating audit evidence.

. Which of the following statements is not wrong?

If control risk is assessed at maximum, the nature of related substantive
tests should be changed from less to more effective.

. Which of the following is not a distinguishing feature of risk-based

auditing?
Collecting and evaluating evidence.

. In considering materiality for planning purposes an auditor believes that

misstatements aggregating 100,000 pesos would have a material effect
on an entity's income statement but those misstatements would have to
aggregate 200,000 pesos to materially affect the balance sheet.
Ordinarily it would be appropriate to design auditing procedures that
would be expected to detect misstatements that aggregate
100,000 pesos

. The auditor should consider the nature, extent, and timing of the work to
be performed and should prepare a written audit program for every
audit. Which audit standard is most closely related to this requirement?
The work is to be adequately planned and assistants, if any, are to be
properly supervised.

Discuss the AUDIT RISK MODEL

Audit risk is wherein the auditor is unsure that he cannot detect any
misstatements that is why PSA provides the audit risk model to compute the audit
risk. Inherent risk is the susceptibility of account balances assuming that there is
no related internal control. It is an example of management risk and the auditor
has no control over. If the client is using benchmarking and it is somehow an out
layer where it can either has higher or lower performance, it automatically
concludes that there is have an inherent risk. There is have a direct relationship
between inherent risk and substantive procedure. If the level of inherent risk
increases, the auditor should design a more substantive procedure. The second
one is control risk and an example also of management risk. The risk that material
misstatements could occur would not be prevented or detected on a timely basis.
The auditor can see material misstatements while the internal control cannot
detect them. Control risk is related to the effectiveness of the client's internal
control. Just like the inherent trisk, control risk has a direct relationship with the
substantive procedure. If the control risk increases, the auditor must provide more
substantive procedure. Lastly is the detection risk, it is the risk that the auditor
has control over. The risk is that the auditor may not detect material
misstatements during the substantive test. It is related to the effectiveness of the
auditor's substantive procedure. Detection risk is the opposite of the two
mentioned above, it is inversely related to the substantive test. If the level of
detection risk increases, the auditor should lessen the substantive procedure.

2003328@heroes1979.edu.ph

. After obtaining an understanding of a client’s controls, an auditor may

decide to omit tests of the controls. Which of the following in not
appropriate reason to omit tests of controls?
The controls appear adequate.

. Which of the following audit techniques most likely would provide an

auditor with the most assurance about the effectiveness of the
operation on an internal control procedure?
Observation of client personnel

. Before relying on the system of internal control, the auditor obtains a

reasonable degree of assurance that the internal control procedures are
in use and operating as planned. The auditor obtains this assurance by
performing planned

. 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
Not increase the extent of planned substantive tests

. Internal control procedures are not designed to provide reasonable

assurance that
Irregularities will be eliminated.

. Transaction authorization within an organization may be either specific

or general. An example of specific transaction authorization is the
Approval of a construction budget for a new warehouse

. The sequence of steps in gathering evidence as the basis of the

auditor’s opinion is
Documentation of control structure, tests of controls, and substantive tests
 . After considering internal control, an auditor might decide to
Increase the extent of substantive tests in areas where internal control is
weak

. To obtain an understanding of the relevant policies and procedures of

internal control, the auditor performs all of the following except:
Design substantive tests

. The auditor's review of the client's internal control is documented in

order to substantiate
Compliance with generally accepted auditing standards.

. The fundamental purpose of an internal control is to

provide reasonable assurance that the objectives of the organizations are
achieved

. The procedure of tracing a few transactions through the accounting

system to determine whether internal controls have been placed  in
operations is called
walk-through test

. Which of the following is not one of the components of an entity's

internal control
control risk

. In obtaining an understanding of an entity’s internal control structure, an

auditor is required to obtain knowledge about the 1. Operating
effectiveness of Design of policies | 2. Policies and procedures and
procedures
No Yes

. A consideration of internal control made during an audit is usually not

sufficient to express an opinion on an entity's controls because
Only those controls on which an auditor intends to rely are reviewed, tested,
and evaluated.

. As generally conceived, the “audit committee” of a publicly held

company should be made up of
Members of the board of directors who are not officers or employees.

. Internal control should provide reasonable (but not necessarily absolute)

assurance which means that:
 The cost of control activities should not exceed the benefits.

. A secondary purpose of the auditor's consideration of internal control is

to provide
A basis for constructive suggestions about improvements in internal control
structure.

. 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
Employees in the normal course of performing their assigned functions.

. When obtaining an understanding of an entity's control environment and

auditor should concentrate on the substance of management policies
and procedures rather than their form because
management may establish appropriate policies and procedures but not act
on them

. In an auditor’s consideration of internal control, the completion of a

questionnaire is most closely associated with which of the following?
Understanding the system

. Which of the following statements is an example of an inherent limitation

of internal control.
Errors may arise from mistakes in judgments.

. Which of the following is a responsibility that should not be assigned to

only one employee?
Access to securities in the company’s safe deposit box.

. Which of the following is the correct order for performing the auditing
procedures A through C below | A = Tests of Controls | B = Preparation
of a flowchart depicting the client’s internal control structure | C =
Substantive tests
BAC

. When an auditor assesses control risk below the maximum level, the
auditor is required to document the auditor’s 1. Basis for concluding that
control Understanding of the entity’s internal | 2. Risk is below the
maximum level control structure elements
Yes Yes

. Proper segregation of functional responsibilities calls for separation of

 .
the functions of
Authorization, custody, and recording.

. When considering internal control, the auditor’s primary concern is to

determine
The reliability of the accounting information system.

. Which of the following activities would be least likely to strengthen a

company’s internal control?
Maintaining insurance for fire and theft.

. Which of the following best describes an inherent limitation that should

be recognized by an auditor when considering the potential
effectiveness of an internal control structure
procedures whose effectiveness depends on segregation of duties can be
circumvented by collusion

. Of the following, the best statement of the CPA’s primary objective in

considering internal control is that the review is intended to provide
A basis for reliance on the system and determining the scope of other
auditing procedures.

. The reporting of accounting information plays a central role in the

regulation of business operations. Preventive controls are an integral
part of virtually all accounting processing systems, and much of the
information generated by the accounting system is used for preventive
control purposes. Which one of the following is not an essential element
of a sound preventive control system?
Implementation of state-of-the-art software and hardware.

. Most of today’s computer systems have hardware controls that are built
in by the computer manufacturer. Common hardware controls are
Duplicate circuitry, echo check, and dual reading

. The use of a header label in conjunction with magnetic tape is most

likely to prevent errors by the
Computer operator

. An auditor would most likely be concerned with which of the following

controls in a distributed data processing system?
Access controls

. Which of the following errors would be detected by batch controls?

 All of the above.

. Which of the following most likely represents a significant deficiency in

the internal control structure?
The systems programmer designs systems for computerized applications and
maintains output controls.

. Which of the following statements most likely represents a disadvantage

for an entity that keeps microcomputer-prepared data files rather than
manually prepared files?
It is usually easier for unauthorized persons to access and alter the files

. Some of the more important controls that relate to automated

accounting information systems are validity checks, limit checks, field
checks, and sign tests. These are classified as
Input validation routine controls

. Program documentation is a control designed primarily to ensure that

Programs are kept up to date and perform as intended.

. The computer process whereby data processing is performed

concurrently with a particular activity and the results are available soon
enough to influence the course of action being taken or the decision
being made is called:
On-line, real-time system

. In an automated payroll system, all employees in the finishing

department were paid the rate of P75 per hour when the authorized rate
was P70 per hour. Which of the following controls would have been most
effective in preventing such an error?
A limit test that compares the pay rates per department with the maximum
rate for all employees.

. Which of the following is not a major reason for maintaining an audit trail
for a computer system?
Analytical procedures

. Which of the following characteristics distinguishes computer

processing from manual processing?
Computer processing virtually eliminates the occurrence of computational
error normally associated with manual processing.

. Which of the following activities would most likely be performed in the

 .
Electronic Data Processing or EDP Department?
Conversion of information to machine-readable form.

. HiyangHiyaNaKoMagCopyPasteSaGoogle Co. uses a batch processing

method to process its sales transactions. Data on
HiyangHiyaNaKoMagCopyPasteSaGoogle Co.’s sales transaction tape
are electronically sorted by customer number and are subject to
programmed edit checks in preparing its invoices, sales journals, and
updated customer account balances. One of the direct outputs of the
creation of this tape most likely would be a
Report showing exceptions and control totals.

. A control procedure that could be used in an on-line system to provide

an immediate check on whether an account number has been entered
on a terminal accurately is a
Self-checking digit

. An on-line access control that checks whether the user’s code number
is authorized to initiate a specific type of transaction or inquiry is
referred to as
Compatibility test

. If a control total were computed on each of the following data items,

which would best be identified as a hash total for a payroll EDP
application?
Department numbers

. An auditor anticipates assessing control risk at a low level in a

computerized environment. Under these circumstances, on which of the
following procedures would the auditor initially focus?
General control procedures

. Compatibility tests are sometimes employed to determine whether an

acceptable user is allowed to proceed. In order to perform compatibility
tests, the system must maintain an access control matrix. The one item
that is not part of an access control matrix is a
Limit on the number of transaction inquiries that can be made by each user in
a specified time period.

. Which of the following methods of testing application controls utilizes a

generalized audit software package prepared by the auditors?
Parallel simulation
 . Which of the following is a computer test made to ascertain whether a
given characteristic belongs to the group?
Validity check

. Which of the following computer-assisted auditing techniques allows

fictitious and real transactions to be processed together without client
operating personnel being aware of the testing process?
Integrated test facility

. An employee in the receiving department keyed in a shipment from a

remote terminal and inadvertently omitted the purchase order number.
The best systems control to detect this error would be
Completeness test

. Misstatements in a batch computer system caused by incorrect

programs or data may not be detected immediately because
There are time delays in processing transactions in a batch system.

. Which of the following controls most likely would assure that an entity
can reconstruct its financial records?
Backup diskettes or tapes of files are stored away from originals.
 
. The possibility of erasing a large amount of information stored on
magnetic tape most likely would be reduced by the use of
File protection ring

. A control designed to catch errors at the point of data entry is

Self-checking digit

. Which one of the following input validation routines is not likely to be

appropriate in a real time operation?
Sequence check

. For the accounting system of AyokoMandaya Company, the amounts of

cash disbursements entered into an Electronic Data Processing or EDP
terminal are transmitted to the computer that immediately transmits the
amounts back to the terminal for display on the terminal screen. This
display enables the operator to
Verify the amount was entered accurately

. For control purposes, which of the following should be organizationally

segregated from the computer operations function?
 Employees in the normal course of performing their assigned functions.

. Which one of the following represents a lack of internal control in a

computer-based information system?
Both computer operators and programmers have unlimited access to the
programs and data files.

. The most critical aspect regarding separation of duties within

information systems is between
Programmers and computer operators

. Internal control is ineffective when computer department personnel

Originate changes in master file.

. Computer manufacturers are now installing software programs

permanently inside the computer as part of its main memory to provide
protection from erasure or loss if there is interrupted electrical power.
This concept is known as
Firmware

. Whether or not a real time program contains adequate controls is most

effectively determined by the use of
An integrated test facility

. An internal auditor noted the following points when conducting a

preliminary survey in connection with the audit of an EDP department.
Which of the following would be considered a safeguard in the control
system on which the auditor might rely?
The control group works with user organizations to correct rejected input.

. When EDP programs or files can be accessed from terminals, users

should be required to enter a(an)
Personal identification code

. Which of the following controls is a processing control designed to

ensure the reliability and accuracy of data processing? Limit test        
Yes Yes

. In an automated payroll processing environment, a department manager

substituted the time card for a terminated employee with a time card for
a fictitious employee. The fictitious employee had the same pay rate and
hours worked as the terminated employee. The best control technique to
detect this action using employee identification numbers would be a
 Hash total

. Which statement is incorrect regarding audit evidence?

The matter of difficulty or expense involved is a valid basis for omitting an
audit procedure for which there is no alternative.

. Which of the following is the best explanation of the difference, if any,

between audit objectives and audit procedures?
Audit objectives define specific desired accomplishments; audit procedures
provide the means of achieving audit objectives.

. The auditor is not always required to perform

Test of controls.

. This consists of checking the mathematical accuracy of documents or

records.
Recalculation

. Assertions about classes of transactions and events for the period under
audit least likely include
All assets, liabilities and equity interests that should have been recorded have
been recorded.

. Assuming a low assessed level of control risk, which of the following

audit procedures is least likely to be performed?
Search for unrecorded cash receipts.

. Which of the following is a false statement about audit objectives?

There should be a one-to-one relationship between audit objectives and
procedures.

. Which of the following procedures would provide the most reliable audit
evidence?
Inspection of bank statements obtained directly form the client’s financial
institution.
 
. The audit working paper that reflects the major components of an
amount reported in the financial statements is the
Lead schedule

. Audit working papers are indexed by means of reference numbers. The

primary purpose of indexing is to
Permit cross-referencing and simplify supervisory review.
 . Ordinarily, the audit may use schedules, analyses and other
documentation prepared by entity personnel in order to:
Improve audit efficiency.

. Assertion about account balances at period end which means assets,

liabilities, and equity interests are included in the financial statements at
appropriate amounts is
Valuation and allocation

. An auditor ordinarily uses a working trial balance resembling the

financial statements without footnotes, but containing columns for
Reclassifications and adjustments

. The auditor obtains audit evidence to draw reasonable conclusions on

which to base the audit opinion by performing audit procedures to:
All of the choices

. Which of the following analyses appearing in a predecessor’s working

papers is the successor auditor least likely to be interested in reviewing?
Analysis of income statement accounts.

. You have been assigned to audit the maintenance department of an

organization. Which of the following is likely to produce the least reliable
audit evidence?
Notes on discussions with mechanics in the maintenance operation

. Which of the following is not generally included in the working papers

file?
Copy of the internal audit’s audit program.

. Accuracy and valuation assertions about presentation and disclosure

means
Financial and other information are disclosed fairly and at appropriate
amounts.

. Which of the following audit procedures is used extensively throughout

the audit and often is complementary to performing other audit
procedures?
Inquiry

. The auditor uses assertions in assessing risks by considering the

different types of potential misstatements that may occur, and thereby
 .

designing audit procedures that are responsive to the assessed risks.

Assertions used by the auditor fall into the following categories: I.
Assertions about classes of transactions and events for the period under
audit. II. Assertions about account balances at the period end. III.
Assertions about presentation and disclosure.
I, II and III

. Before applying substantive tests to the details of asset accounts at an

interim date, an auditor should assess
The difficulty in controlling the incremental audit risk.

. Which of the following conditions constitutes inappropriate working

paper preparation?
All forms and directives used by the auditee department are included in the
working papers.

. The form and content of working papers are affected by matters such as
the: I. Nature of the engagement. II. Form of the auditor’s report. III.
Nature and complexity of the business. IV. Nature and condition of the
entity’s accounting and internal control systems. V. Needs in the
particular circumstances for direction, supervision and review of work
performed by assistants. VI. Specific audit methodology and technology
used in the course of the audit.
All of the above

. Which statement is incorrect regarding Inspection as an audit

procedure?
Inspection of tangible assets may provide reliable audit evidence with respect
to their existence and about the entity’s rights and obligations on the assets.

. Before applying principal substantive tests to the details of accounts at

an interim date prior to the balance sheet date, an auditor should
Consider whether the amounts of the year-end balances selected for interim
testing are reasonably predictable.

. Tests of controls are necessary

When the auditor’s risk assessment includes an expectation of the operating
effectiveness of controls.

. Which statement is incorrect regarding audit evidence?

Auditors are expected to address all information that may exist.

. The most reliable form of documentary evidence are those documents

 .
that are
Authorized by a responsible official

. Which of the following is the least required of the audit working papers?
Substitute for the entity’s accounting records.

. Observation
Consists of looking at a process or procedure being performed by others.

. Which of the following statements is incorrect regarding relevance of

audit evidence?
Obtaining audit evidence relating to a particular assertion is a substitute for
obtaining audit evidence regarding another assertion.

. Which of the following is usually included or shown in the auditor’s

working papers?
The manner in which exceptions and unusual matters disclosed by the
auditor’s procedures were resolved or treated

. If an auditor conducts an audit of financial statements in accordance

with generally accepted auditing standards, which of the following will
the auditor most likely detect?
Misposting of recorded transactions

. Although the quantity and content of audit working papers vary with
each particular engagement, an auditor’s permanent files most likely
include
Analyses of capital stock and other owners’ equity accounts.

. NakakahiyaMandaya Inc. has significant information that is transmitted,

processed, maintained, and accessed electronically. The auditor has
concluded that it is not possible to reduce detection risk to an
acceptable level by performing only substantive tests for a number of
financial statement assertions. The auditor’s alternative strategy is to
Perform tests of controls to gather evidential matter to use in assessing
control risk related to those assertions.

. Other information that the auditor may use as audit evidence least likely
includes
Adjustments to the financial statements that are not reflected in formal
journal entries.

. Which of the following is not a purpose of working papers?

 Support the client’s financial statements.

. The competence of evidence available to an auditor is least likely to be

affected by
The sampling method employed by the auditor to obtain a sample of such
evidence.

. Which of the following presumptions does not relate to the competence

of audit evidence?
An auditor’s opinion, to be economically useful, is formed within a reasonable
time and based on evidence obtained at a reasonable cost.

. Accounting records least likely include

Comparable data about competitors (benchmarking).

. Which statement is correct regarding the sufficiency and

appropriateness of audit evidence?
The quantity of audit evidence needed is affected by the risk of misstatement
(the greater the risk, the more audit evidence is likely to be required) and also by
the quality of such audit evidence (the higher the quality, the less may be
required).

. Which of the following generalizations in assessing the reliability of audit

evidence is incorrect?
Audit evidence that is generated internally is not affected by the
effectiveness of the controls imposed by the entity.

. Standardized working papers are often used, chiefly because they allow
working papers to be prepared more
Efficiently

. An auditor’s working papers will ordinarily be least likely to include

documentation showing how the
Client’s schedules were prepared.

. It means the materials prepared by and for, or obtained and retained by

the auditor in connection with the performance of the audit.
Documentation

. Which statement is incorrect regarding Inquiry?

Inquiry alone is sufficient to test the operating effectiveness of controls.
 
. Which of the following auditing procedures is ordinarily performed last?
 Obtaining a management representation letter.

. Why does an auditor document audit evidence?

To support audit opinion and to provide evidence that the audit was carried
out in accordance with PSA.

. In the course of the audit of financial statements for the purpose of

expressing an opinion thereon, the auditor will normally prepare a
schedule of unadjusted differences for which he did not propose
adjustment when they were uncovered. The primary purpose served by
this schedule is to
Identify the potential financial statement effects of errors or disputed items
that were considered immaterial when discovered.

. In an internal audit, the audit supervisor determines that working papers

are complete
When satisfied that the audit objectives have been met and the working
papers support the conclusions.