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A.
Evidence
B. Assurance Report
C. Criteria
0. Two Party Relationship
12. In the element responsible party, what engagement is the responsible party is responsible
for the subject
matter only?
A.
Assertion -based engagement
C. Direct reporting engagement
B.
Positive assurance engagement
0. Negative assurance engagement
13. In the element responsible party, what engagement is the responsible party is responsible
for the subject
1
matter information, and may be responsible for the subject matter?
A.
Assertion -based engagement
C. Direct reporting engagement
B.
Positive assurance engagement
D. Negative assurance engagement
14. Which of the following is not a characteristic of suitable criteria?
A.
Completeness
C. Understandability
B.
Verifiability
D. Neutrality
15. Subject matter, and subject matter information, of an assurance engagement can take many
form such as:
A.
financial and Non financial Performance
C. Physical Characteristics
B.
Behavior
D. All of the Above
16. In Evidence,
is the measure of the quality of evidence; that is, its relevance and reliability.
A.
Sufficiency
B. Appropriateness
C. Soundness
0. Useiulness
17. In Evidence,
is the measure of quantity.
4.
Sufficiency
B. Appropriateness
C. Soundness
D. Usefulness
18.is relevant in determining the nature,,timing and extent of evidence -gathering procedures.
A.
Materiality
B. Engagement Risk
C. Subject Matter Information
D. Subject Matter
AUDiTiNG THEORY
(Multiple Choice) Please write your answer before the number
1.The AA --_,C was created by Professional Regulation Conicai,sion up
Ule recorenendation of to assist the BOA in the establishment and promulgatiou of auditing
standards in
,A
B. !:IIISC
C... BOA
0_ PRC
E. No
of the above
2.Philippine Standards on Quality Control (PSQCs) are to be applied for services falling
under what standards?
A.PSAs
B. PSREs
C. PSAEs
0. PSRSs
E. All of the above
3.are to be applied in assurance engagements dealing with subject matters other than
historical
financial information.
A.
PSAs
B. PSREs
C. PSAEs
D. PSFISs
A.
Only IV
B. Both II & IV
C. II, Ut & IV
D. None
8.The objective is a reduction in assurance engagement risk to an acceptably low level in the
circumstances of
the engagement, as the basis of a positive form of expression of the practitioner's conclusion'
A.
I
B. It
C. III
D. IV
9.The objective is a reduction in assurance engagement risk to a level that is acceptable in the
circumstances
of the engagement but where the risk is greater than for a reasonable assurance engagement, as
the basis
for a negative form of expression of practitioner's conclusion.
A.
I
B. II
C. III
D. IV
10.
Whii..h Is not a fundamental ethical princlphn set out in Part A of Code of Ethics?
A.. Integrity
B. Confidentiality
C. Objectivity
D. Independence
7.
The preliminary judgement
iy.ent about materiality and the amount of
audit
e.4./idence accumulated are
related.
a.Direct,
b.
le, orectly
inversely
g.
In developing 'verall audit plan for a new client, factor not to be considered is
a.
Mate
oty levels
T
e
elient's business, including the structure of the organization and accounting system
used
The amount of estimated audit fee
The audit risks of procedures to be performed to achieve audit objectives
9. Tne au0.teleam gathers information about a new client's business and industry in order to
An understanding of the client's internal control system for financial reporting
An understanding of how economic events and transactions affect the company's financial
statements
C.
Information about engagement risk
d.
Information regarding whether the company is engaging in financial statement fraud
10. Each of the following may be relevant to an auditor when obtaining knowledge about the
client's business and industry except
a.
ncussion with people within or outside the entity
Reading publications related to the industry
of the entity's premises
performing tests of control
formance materiality" is the term used to indicate materiality at the:
Balance sheet level
c. income statement level
Account balance level
d. company -wide level
12.In plan
g the audit, the auditor should assess materiality at two levels
3. )
he preliminary level and the final level
.(.1e.
The company level and the divisional level
e.
The account balance level and the detailed item level
Cci
The financial statement level and the account balance level
i
developing theepreliminary level of materiality in an audit, the auditor will
)
Look to audit standards for specific materiality guidelines
Increase the level of materiality if fraud is suspected
.
Rely primarily on professional judgment to determine the materiality level
.
Use the same materiality level as that used for different clients in the same industry
ept of materiality
14.: if
an auditor establishes a relatively high level of materiality, then the auditor will:
a.
Accumulate more evidence than if a lower level had been set
Accumulate less evidence than if a lower level had been set
c.
Accumulate approximately the same evidence as would be the case were materiality lower
d.
Accumulate wa41
determined amount of evidence
15. The rela
nship between materiality and risk is ordinarib
a.
ect
c inverse
b.
Parallel
d. none
16. Which opthe following is the primary basis used to deci
materiality for a profit oriented entity?
a. }it sales
c,
) net income before tax
.
Net assets
d. all of the above
17. The concept
a.
.p,
plies only to publicly held firms
Has greater application to the standards of reporting than the other generally
accepted
auditing standards
c. Requires that relatively more effort be directed to those assertions that are more
susceptible to misstatement
(7.
Requires the auditor to make judgments as to whether misstatements affect the fairness of
the financial statements.
18. All else b
g equal, as the level of materiality decreases, die amount of evidence required will:
a.
(3
f-riain the same
Decrease
Change in an unpredictable fashion
increase
19. Which of t
flowing would an auditor most likely use in determining the auditor's preliminary
jildgme
about materiality?
anticipated sample size of the planned substantive test
The entity's annualized interim financial statements.
cT
The results of the internal control questionnaire.
d,
The conWmts of the management representation letter.
f the following is not correct?
Chapter 5:
Audit Pimming
Dr. Feiomino S. Belinario
C\
/fiis involves developing an overall strategy for the expected conduct and scope of the
examinations; the nature, extent, and timing of which vary with the size and complexity, and
x perience with and knowledge of the entity
L1.
Audit planning
o.Audit procedure
c.Audit prograce"
d.Audil,w6ifing papers
2. audit planning involves four matters. Which of the following is not one of these?
!.
Develop an overall audit strategy
Request that bank balances be confirmed
A
I
Schedule engagement staff and audit specialists
Ad.
identify the client's reason for the audit
3. A CPA is conducting the first examination of a client's financial statements. The CPA hopes
to reduce the audit work by consulting with the predecessor auditor and reviewing the
predecessor's working papers. This procedure is
a.
Acceptable if the client and the predecessor auditor agree to it
h.
Acceptable if the CPA refers in the audit report to reliance upon the predecessor auditor's
work.
j
Required if the CPA is to render an unmodified opinion.
Unacceptable becausetheCPAshouldbringanindependentviewpointtoanew
Engagemen
4.Early appointment of the independent auditor will enable:
.
A
more thorough examination to be performed
A proper study and evaluation of internal control to be performed
ifficient competent evidential matter to be obtained
A more efficien examination to be planned
hich
5-which of following procedures would a CPA ordinarily perform diking audit planning?;
Obtain understanding of the client's business and industry
Review the client's b
lk reconciliation
C.
Obtain client's rpfsentation letter
d.
Review an
aluate client's internal control
6.In planning the audit engagement, the auditor should consider each of the following except:
Matters relating to the entity's business and the industries in which it operates
The entity's accounting policies and procedures
C.
Anticipated levels of control risk and materiality
The kind of opinion that is likely to be expressed
/7
AUDITING THEORY
MWJA1 fPnkQ Mar
The Auditor's Responsibility
A1,
Audits of financial statements are deigned to obtain assurance of detecting misstatement due to
Errors Yes
Fraudulent financial reporting Yes
Misappropriation of assets Yes
B2. Which of the following procedures would assist the auditor in identifying noncompliance with laws
and
regulations?
..
a.
Inquiring from the client's lawyers ,/
ivbf.,c,t-A,,
b7Inspecting correspondence with relevant regulatory agencies'
0
Inquire of management concerning entity's policies and procedures regarding compliance with
laws and regulations
Discuss with the client management the policies or procedures adopted for identifying,
evaluating, and accounting for litigation, claims and assessments.
Whichof the following is an "error" as distinguished from "fraud"?
a.Embezzlement of company's fund
b.Window dressing
C
c)Clerical mistakes in the processing of transactions mor
\
\-ti
Lapping
e.
A4
-a
Fraudulent financial reporting is often called
a.Management fraud
,b.Defalcation
c.Misappropriation of assets
d.Employee fraud
-C5A-the managementresponsibiaytosdetect and prevent frz
a
!ICI
arm
F,
rror is accomplished by
n a.
Implementing adequate quality control system 1
7
1
_b.
Having an annual audit of financial statements
(,c)
Implementing adequate accounting and internal control system /
d.
ls
j
j
presentation letter to_the auditore,
D6,.-' Which of the following statements about fraud or error is incorrect?
a.
The auditor is not and cannot be held responsible for the prevention of fraud and error
b.
The responsibility for the prevention and detection of fraud and error rests with management
c.
The auditor should plan perform the audit with an attitude of professional skepticism,
p,frc
recognizing that conditions or events may be found that fraud or error may existl"
2
.d.
The likelihood of detecting fraud is ordinarily higher than that of detecting error
7.When performing afinancial statement audit,auditors are required to explicitly a_ss_the risk of material
misstatement due to
Errors
Fraud
Noncompliance
Business risk
8. If theclient refuses to accept an audit report that is qualified due to noncompliance with
laws and
regulations, the auditor should:
a. Withdraw from the engagement and indicate the reasons to the audit committee in writing
Issue an adverse opinion if
the management agrees
to fully disclose the matter
../C.
Withdraw from the engagement and indicate the reason to the SEC or other regulatory body
in
writing
d.
Issue a disclaimer of opinion instead -171,
9.Which of the following terms relates to the embezzlin
of receipts?
----/
( .a)
Manipulation
b
Misrepresentation X.
C.Misappropriation
ix
10aMisapplicatiomp Which of the following conditions would least likely indicate the
occurrence of
no
mpiiance?
.-Zi.
investigation by government agencies
c.
Purchasing a real property for a price that is significantly higher than the seller's book value
tOtkg1)
d.
Existence of an accounting system which fails to provide an adequate audit trail or sufficient
evidence
_
11. Most noncompliance affect the financial statements:
a.
Directly
I3
Only indirectly
Both directly and indirectlykk
-d
Materially if direct; immaterially if indirect
12. What is an auditor's responsibility who discovers that management is involved in a
potentially
immaterial fraud?
.a-. Report the fraud to the audit committee
b.
Report the fraud to the SEC
akvve, --, Report the fraud to a level of management at least one below those involved in the fraud
Determine that the amounts involved are immaterial, and if so, there is no reporting
responsibility
13. Which of the following conditions or events increases the risk okerror or fraud?
\
Management is dominated by several individuals
There are frequent changes of auditors or legal counsel"
There is a significantly low turnover of senior accounting personnel
The entity does not correct internal control deficiencies that it knows about
14. The auditor's evaluation of the likelihood of material employee fraud is normally done
initially as part of:
Test of controls
b.
Test of transactions
Understanding the entity's internal control
d.
The assessmant_of whether to accept the audit engagement
15. Fraudulent financial reporting is most likely to be committed by whom?
a.
me emproyees of th
ity
de members of the entity's board of directors
WV/ Entity's management
The entity's auditors
16 Which of the following is most likely to be an overall response to fraud risks identified in
an audit?
Supervise members of the audit team less closely and rely more upon judgment
Use less predictable audit procedures
Only use certified public accountants on the engagement
Place increased
emphasis
on the audit of objective transactions rather that subjective
transactions
17 If the auditor is precluded by the entity from obtaining evidence to evaluate whether fraud
or error that
may be material to the financial statements has occurred, the auditor should issue a report that
contains
a.
An adverse opinion
b.
An unmodified opinion
Either qualified or adverse opinion
Either qualified opinion or a disclaimer of opinion
18 The level of assurance provided by an audit
Reasonable assurance
ja:
Moderate assurance
c.
Absolute assurance
Negative assurance
19 which of the following is most likely to be a response to the auditor's assessment that the
risk of
ial misstatement due to fraud for the existencepf inventory is high?
Observe test counts of inventory at certain locations on an unannounced basis
.
Perform analytical procedures rather than taking test counts
c.
Request that inventories be counted prior to year end
ji
Request that inventory counts at the various locations be counted on different dates so as to
allow the same auditor to be present a
20 Which of the following circumstances is not an indication of possible noncom
pli
Payment for unspecified services to corzultants, related parties, or government employees
c.
Purchasing at prices significantly above or below market price
d.
Payment for goods or services to the country from which the goods or services originated
21Generally the decision to notify parties outside the client's organization regarding
noncompliance with
la
id regulations is the responsibility of the
Independent auditor
b.
Client's legal counsel
c.
Management
d,
Internal auditors
22,when the auditor becomes aware of information concerning a possible instance of
noncompliance, the
auditor should
a.
Notify the regulatory agencies
4. Which of the following best describes what is meant by generally acceted auditing 3andards?
a.Audit objecti:=es E,e3erally determined on audit enpgement5.
Acts to be performed by the auditor
c.Measures of the quality the au.Ttor's perfcrmance
d.
Procedure_s-kitie used te.
evidence to support financial statemei tts,
5. requirements for training, independence and due professional care ,ere included in which..;roup of
generaPy accepted '3uditing standards?
a.
Fieldwork
General
c.Reportin3
d.Quality Cop..trol
6.the standard of due aud't care
require'. We
auditnr to
a.make perfect judgment in all cases.
b.Ensure thaL the financial statements are free from error.
c.Possess skills dearly above the average for the profession
1,Apply judgment in a conscientious manner, carefully weighing the relevant factors before
Reaching decision.
-
7. Ihe third standard Of field work states the sufficient competent evidential matter may in part be
obtained through the following methods except
Inspection
.
Observation
C.
Confirmation,
Reconciliatior.
8. Whiie performing a'xiit servic2s for their clients, professional accountants have a duty to provide a
level of care whichis
Reasonable
Greater than average
c.
Superior
d.
Guaranteed to he tree from error
9. The objective of consistency standard is tc provide assurance that
a. there are no varie.ions in the format and preseritatioil of financial statemens,
Substanciolly different ti ans
ctions and events are not accounted for on an identical basis.
c.
The auditor is coniulted before material charges are ,rade in the application of accounting.
principles.
.pr.
The comparability of fine.rcial statements bet keen periods in not materially affected by changes
in accocnting principles without disclosure.
10. The fourth generally accepted auditing standard of reporting requires an auditor to render a report
whenever an auditor's name is associated with financial statements. The overaj
ui pose of the fc.irth
standard of reporting is to require that reports:
State that thu examination of financial statements has been cc iiductec' in accoriance with
generally accepted auditing standards.,
b.
Indicate the character of the auditor's examination and the degree of
responsibility ass imed oy
the auditc,:.
c.
Imply thet the auditcr iF inde.peildent in rr ind as well as in appearar ce wit'l respect to the
financial statements unoer
d.
Express whether the accounting priftiples used in preparing the frianc;alstetemcnts have been
applied consistently ir the period under examination.
11. pronouncements issued by AASC may be in the fcrm of
Yes lahat
1.2. An auditor need not abide with a specific requirement of PSA if the at...dh.or b?leves that
The amount is insignificant.
b.
The requirement of the PSA is impractical to perform.
c.
The requirement of the PS, is impossible to perform.
Any of the given three clioices is correct.
v:7...luat'on expert.
b,
Profe:;sional education that is required in order to perform with due profe.;Eional car2
Direction
Professional development
Advancement
.
21. In connection with the element of engagement performance, n CPA firm's system of quality control
should or '
arily provide that all personnel
a.Have the kncwledge required to enable them to fulfill responsibiPties :issigned.
k.Review and test coinpliance with the firm's quality control policies and procedures.
Seek assistance from persons having appropriate levels of knowledge, judgment and authority
Appropriately maintain independence when providing assurance service;.
22. In connection with the element of monitoring, a CPA firm's
a.A file of :Tiinutes of staff meetings.
b.Updated personnel files
Documentaticn to demonstrate compliance with its policies and procedures.
d.Documentation to demonstrate compliance with pee: review directives.
23. It involves a study or appraisal by the board or its duly autho
-,zed ...eprasentntives, of tne ouality nf
aud'
linancial statements through an evaluation of the quality control meastire.s insti
.
aited by the
PA firm to ascertain cc mpliance with ethical and technical stendards of public practice.
a. Qtuality review
b.Peer review
c.Compliance audit
d.external audit
24. Which of the following is responsible for establishing auditing standards that will become generally
accepted in the,liPpines?
asecurities arid Exchange Commission
b Financial Reporting Standards Council
c.Commission on Pudit
d Auditing and Assurance Standards Council
25. A body created to conduct an oversight of the quality of audit of financi-i.1 statements by rev:ewing
the firms quality control is known as
a Quality Review Committee (QRC)
b.Educational Training Committee (ETC)
c.Financial Reporting Standards Council (FRSC)
d.Auditing and Assurznce Service Council (AASC)
Financial Audit
Internal audit
An independent appraisal :ictivity within an organization for the review of accounting,
financial and other operations as a basis for service to management.
Complete Audit
Auditor is given unre.iiricted scope as to the work which ne is to perform.
Vouching Audit
Involves examination or "vouching" of doeuments as weli as investigation of transactions to form a
representative proportion of the whole.
Continuous Audit
One in which the auditor vIsits a client frequently during a fiscal period and at the
time of his visit brings up to date all audit work since his preceding visit.
Detailed Audit
Involves the examination in detail of all transactions and records.
Test Audit
Involves the tests of selected records and transactions sufficient to obtain an opinion
as to the overall reliabili'y of the transactions and records.
Management Audit
A comprehensive and constructive examination of a company's organizational structure, plans,
objectives, means of operations and use of human and physical facilities.
-
Partial Audit
Auditor is instructed to carry out particular work only and is restricted as to his
powers of inquiry or examination.
System-Based Audit
One which emphasizes On investigating the system of internal control and its operation, backed
by test to substantiate the accuracy and reliability of the records.
Interim Audit
One that is conducted to cover a certain time or up to a certain data within a financial
period.
Analyze
To identify and c!assiiy items for further study; to resolve into elements or parts in
relation to the whole or one another.
Foot
To verify the accuracy of vertical subtotals and totals; to add a column.
Lapping
Withholding of current cash receipts without entry being made in the books until a
subsequent cash receipt is received from which the cashier pays the previously withheld
amount.
A symbol utilized oy auditors for the purpose of indicating the nature of the work
performed or cross-referencing data found in separate paces on the working paper.
Profession
Occupation based upon specialized intellectual study and training the purpose of
Which to supply skilled si,q vices or advice to others for a definite fee or salary.
Negative Confirmation
Direct communication with the debtors about the amount of the receivable where he
is asked to respond only if he disagrees with the information.
Long form Audit Report
business to safeguard its assets, check the accuracy and reliability of its accounting
data, promote operational efficiency and encourage adherence to prescribed managerial
policies.
Kiting
Cverstatement of cash by recording a deposit without a corresponding record of the
withdrawal at year-end.
Fraud
Extend
To multiply.
Audit techniques
Basic methods or ways of obtaining audit evidence; tools which the auditor uses to
gather facie needed to ,iupport his opinion.
Compare
To observe similarities and differences between similar items such as In account
From one.year to the next.
.,-
which he has, made and expressos the opinion which he has formed in respect of the
financiaLstaiements.
Audit Procedure
Acts.performee in the ccnduct of the audit.
Subsequent events which do not have direct effect on financial statements of the
prior year but their effect may be such that disclosure is advisable; they do not require
adjusting.entries.
Materiality
Successor auditor
An auditor whc has accepted or has been invited to make a proposal for an engagement.
Reconcile
To establish agreen ant between separate sources of information.
Statistical Sampling
A methodology based on the mathematical theury el probabilities which iniicate that a moderately
large number of items selectee in accordance with known generally available and prescribed
procedures from a large mass will 5e almost certain to ophtain the characteristics of the large mass.
Piecemeal opinion
Opinion on specific.. hems
transaction walkthrough
Involves selection of a transaction, its documentation followed horn beginning to end tracing such
through th'.-3 complete authorization, execution and recording process.
Vouch
To prove accuracy of accounting entries by tracing to supporting documents.
Trace
To follow a transaction through the steps of the system.
Substantive Error
Errors which involve the correctness of peso amounts or the adequacy of informative
disclosures-in the financial,itatements
Relative Risk
Uncertainty regarding the occurrence of an undesirab:e event;
in auditing, more rigorous and extensive work shou;d be performed on certain types of transactions
and records wilich are more susceptible to errors and irregularities than others.
Subsequent Events
Events or transactions that occur between the balance 3heet date and the auditor's
report date that have a inateridl effect on the financial statements, and that may require
The auditor -writes down in paragraph form the results olf his review of existing
internal cotitrols.
Positive Confirmation
Direct communication with the debtor about the amcunt of the receivable where he is
asked to respond whether or not the information is correct.
Engagement letter
Communication that documents and confirms the auditor's acceptance of the
appointment, outlines the objectives and scope of the audit, outlines the extent cf the
auditor responsibility to the client, and indicates the form of any reports to be issued by
the auditor:
Count
To enumerate a characteristics, such as the number of items in the inventory.
Cut-off statement
A bank statement for the first 8-10 business days after year end.
Check
Opinion that the financiul statements do not present fairly the financial position or
results of operations in cot IfOirlthy with generally accepted accounting principles.
Audit Program
A step-by-step plan of audit procedures to be carried out by the auditor in verifying
financial statements items or in making tests of transactions.
Auditing
Part of the auditor's examination performed before the year-end closing date cif the
period under audit.
Independence
Personal quality of being able to maintain an unassailable impartiality in the performance -of the
CPA's work.
Principal Auditor
The auditor who is considered to have performed the major portion a:. the examination as evidenced
by such things as the materiality of the portion he examined
and his knowledge of the overall financial statements.
Non-Accounting group
Subsequent events not likely to require disclosure in the financial statements nor
adjusting entries.
Predecessor Auditor
An auditorAAO has resigned or whose services have been terminated by the client.
Operational Auditing
Audit generally performed by internal auditors to evaluate the effectiveness and
efficiency of various accounting processes.
Population/Universe
The field -of entries or documents from which the sampling is to be made.
Secret reverse
Deliberate attempt to a less favorable financial position ano/or operating
results-Than is actually the case.
Review
To study critically records, documents, transaction, events or procedures.
Verify
To prove accuracy of numbers or existence of assets by examination or comparison
with standards or refer encr, to facts.
Unqualified Opinion
Opinion in which the CPA states without reservation that the financial statements
"fairly presenr financial position and operating results in accordance with generally
accepted accounting principles wh]ch have been applied on the basis consistent with
that of the preceding year.
Special report
An audjt feport with woi dir ig other than that used for short or long -form report.
Qualified opinion
Opinions in which the independent auditor states his belief that the financial statements as
whole are fairly presented, except as to certain items on which he reserves his opinion, or takes
exception.
Internal check
Sound practices in the performance of duties and functions incorporated into the
system to provide the ineans whereby the integrity of authorizations, recordings,' and custody
of assets may ba rQasonably assured.
Inspect
To scrutinize, to investigate or critically examine a document or an asset.
Cut-off
Dividing -point between two accounting periods.
Cross foot
Tove rify the accuracy of horizontal subtotal and totals.
Audit evidence
Any available kern of fact or assertion of fact which tends to persuade the auditor's
mind that the propositions or representations in the financial statements under audit are
either true or false.
Application control
Specific' tasks pen'ornecl by EDP that provides reasonable assurance that the recording,
processing and reporting of data are pr.)perly performed.