At.cdrill9_simulated-examination-diy.pdf

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AUDITING THEORY AT.CDrill9—Simulated Examination (DIY) The Practitioner’s Engagements 1. Which of the following services is the broadest and most inclusive? a. Audit c. Assurance b. Attestation d. Compliance 2.

Which one of the following is not a key attribute needed to perform assurance? a. Subject matter knowledge b. An assurance service provide and its independence c. Established criteria or standards d. Accounting skills

3.

Which of the following services would be most likely to be structured as an assurance engagement? a. Advocating a client’s position in tax matter. b. A consulting engagement to develop a new data base system for the revenue cycle. c. An engagement to issue a report addressing an entity’s compliance with requirements of specified laws. d. The compilation of a client’s forecast information.

Auditing: An Overview Auditing in General 4. The main objective of operations auditing is a. To verify fulfillment of plans and sound business requirements. b. To evaluate the integrity of accounting information. c. To measure and evaluate the effectiveness of controls. d. To produce results as desired or directed. 5.

What of the following is the criteria used in a compliance audit? a. Effectiveness and efficiency c. Company policies b. Rules and regulations d. Both B and C

F/S Audit 6. According to PSAs, because there are inherent limitations in an audit that affect the auditor’s ability to detect material misstatements, the auditor is a. A guarantor but not an insurer of the FSs b. An insurer but not a guarantor of the FSs c. Both a guarantor and an insurer of the FSs d. Neither a guarantor nor an insurer of the FSs 7.

Management of a company is responsible for a. Hiring the auditor b. Preparing the financial statements c. The audit workpapers d. Independence and obtaining evidence

8.

Which of the following most accurately defines professional skepticism as it is used in auditing standards? a. It either assumes management is honest or slightly dishonest, but neither all the time. b. It neither assumes that management is dishonest nor assumes unquestioned honesty. c. It assumes management is honest most of the time. d. It assumes that management is dishonest in only rare instances.

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L. R. CABARLES/J.M. D. MAGLINAO MAY 2020 9.

Which of the following is not a financial statement assertion relating to account balances? a. Completeness. c. Rights and obligations. b. Existence. d. Valuation and competence.

10. Which of the following is true concerning audit risk? a. Audit risk is a function of only inherent risk and control risk. b. Audit risk includes the risk that the auditor might express an opinion that the financial statements are materially misstated when they are not. c. Audit risk includes the auditor’s business risks, such as losses from litigation. d. Audit risk is a function of the risks of material misstatement and detection risk. Audit Evidence and Documentation: The Framework 11. Identify the nature of the evidential matter, (AR for accounting records, OI for other information) • Lawyer’s reply on status of legal cases • Minutes of board and stockholders meetings • Worksheets in support of cost allocations • Benchmarking • Invoices, paid checks, vouchers The following are the respective nature of evidential matter: a. OI, AR, OI, AR, AR c. OI, OI, AR, OI, AR b. AR, OI, AR, OI, AR d. AR, AR, OI, AR, AR 12. Reperformance a. Consists of looking at a process or procedure being performed by others. b. Consists of seeking information of knowledgeable persons, both financial and non-financial, throughout the entity or outside the party. c. Is the process of obtaining a representation of information or of an existing condition directly from a third party. d. Is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control. 13. Which statement is incorrect regarding inspection as an audit procedure? a. Inspection consists of examining records or documents or physical examination of assets. b. 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. c. Inspection of individual inventory items ordinarily accompanies the observation of inventory counting. d. Some documents represent direct audit evidence of the existence of an asset. 14. Which of the following is not a primary purpose of audit working papers? a. To coordinate the examination. b. To assist in preparation of the audit report. c. To support the financial statements. d. To provide evidence of the audit work performed.

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EXCEL PROFESSIONAL SERVICES, INC. 15. The permanent files included as part of audit documentation do not normally include: a. a copy of the current and prior years’ audit programs. b. copies of articles of incorporation, bylaws and contracts. c. information related to the understanding of internal control. d. results of analytical procedures from prior years. 16. Working papers prepared by a CPA in connection with an audit engagement are owned by the CPA, subject to certain limitations. The rationale for this rule is to a. Protect the working papers from being subpoenaed. b. Provide the basis for excluding admission of the working papers as evidence because of the privileged communication rule. c. Provide the CPA with evidence and documentation which may be helpful in the event of a lawsuit. d. Establish a continuity of relationship with the client whereby indiscriminate replacement of CPAs is discouraged. Performing Preliminary Engagement Activities 17. Which of the following factors most likely would cause a CPA to not accept a new audit engagement? a. The prospective client has fired its prior auditor. b. The CPA lacks a thorough understanding of the prospective client's operations and industry. c. The CPA is unable to review the predecessor auditor's working papers. d. The prospective client is unwilling to make financial records available to the CPA or is unwillingness to permit inquiry of its legal counsel. 18. Before accepting an engagement to audit a new client, a CPA is required to obtain a. A preliminary understanding of the prospective client’s industry and business. b. The prospective client’s signature to the engagement letter. c. An understanding of the prospective client’s control environment. d. A representation letter from the prospective client. 19. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor’s a. opinion of any subsequent events occurring since the predecessor’s audit report was issued b. understanding as to the reasons for the change of auditors c. awareness of the consistency in the application of GAAP between periods d. evaluation of all matters of continuing accounting significance 20. Before performing any audit procedures. The auditor and the client should agree on the

a. b. c. d.

Type of opinion to be expressed Yes No No Yes

Terms of the engagement Yes Yes Yes Yes

21. If the auditor believes that an understanding with the client has not been established, he or she should ordinarily a. Perform the audit with increased professional skepticism

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b. c. d.

Assess the control risk at the maximum level and perform a primarily substantive audit Decline to accept or perform the audit Modify the scope of the audit to reflect an increased risk of material misstatement due to fraud

Planning an Audit 22. Which of the following procedures would an auditor ordinarily perform during an audit planning? a. Review the client’s bank reconciliation b. Obtain client’s representation letter c. Obtain understanding of the client’s business and industry d. Review and evaluate client’s internal control 23. Which of the following procedures is not performed as a part of planning an audit engagement? a. Performing analytical procedures b. Reviewing the working papers of the prior year c. Designing an overall audit strategy and audit program/plan d. Testing of controls 24. A listing of all the things which the auditor will do to gather sufficient, competent evidence is the: a. Audit strategy c. Audit procedure b. Audit program d. Audit risk model Determining Materiality 25. When planning an examination, an auditor should a. Consider whether the extent of substantive tests may be reduced based on the results of the internal control questionnaire. b. Make preliminary judgments about materiality levels for audit purposes. c. Conclude whether changes in compliance with prescribed control procedures justifies reliance on them d. Prepare a preliminary draft of the management representation letter. 26. Since materiality is relative, it is necessary to have bases for establishing whether misstatements are material. Normally, the most common base for deciding materiality is: a. Net income before taxes c. Working capital b. Net income after taxes d. Total assets 27. Only the amount of misstatements considered in assessing materiality.

need

to

be

Both the amount and nature of misstatements need to be considered in assessing materiality. a. True, True c. False, False b. False, True d. True, False Understanding the Entity and its Environment 28. Of the following procedures, which is not considered part of “obtaining an understanding of the client’s environment?” a. Examining trade publications to gain a better understanding of the client's industry. b. Confirming customer accounts receivable for existence and valuation. c. Touring the client's manufacturing and warehousing facilities to gain a clearer understanding of operations. d. Studying the internal controls over cash receipts and disbursements.

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EXCEL PROFESSIONAL SERVICES, INC. 29. Analytical procedures are used for the following purposes except a. To assist the auditor in planning the nature, timing and extent of other auditing procedures. b. As a substantive test to obtain evidential matter about a particular assertion related to account balances or classes of transactions. c. As an overall review of financial information in the final review stage of the audit. d. To evaluate the effectiveness of the client’s internal control. Understanding the Entity’s Internal Control 30. The following are the components of the internal control, except a. Risk assessment process b. Monitoring c. Control activities d. Control risk 31. Management philosophy and operating style most likely would have a significant influence on an entity's control environment when a. The internal auditor reports directly to management. b. Management is dominated by one individual. c. Accurate management job descriptions delineate specific duties. d. The audit committee actively oversees the financial reporting process. 32. Incompatible duties most likely would not be considered an inherent limitation of the potential effectiveness of an entity’s internal control. Mistakes in judgment most likely would not be considered an inherent limitation of the potential effectiveness of an entity’s internal control. Collusion among employees most likely would not be considered an inherent limitation of the potential effectiveness of an entity’s internal control. a. first statement is not correct; the second and third statements are correct. b. all above statements are correct. c. first statement is correct; the second and third statements are not correct. d. second statement is correct; the first and third statements are not correct. 33. The performance of walkthroughs provides the auditor with primary evidence to Evaluate the Confirm whether controls effectiveness of the have been placed in design of controls operation a. Yes Yes b. Yes No c. No Yes d. No No Internal Control—Transaction Cycles 34. The most effective control to prevent unbilled and unrecorded shipments of finished goods is to a. Require all outgoing shipments to be accompanied by a prenumbered shipping order and bill of lading (signed by the carrier). Forward a copy of these documents to accounting, to be placed in an open file awaiting receipt of the customer invoice copy. b. Forward a copy of the shipping order and bill of lading to billing. c. Implement a policy that prevents sales invoices from being mailed to customers in the absence of a

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d.

properly approved shipping order and bill of lading signed by the carrier. Forward a copy a the signed bill of lading to the stores manager.

35. The accounts payable department generally should a. Cancel supporting documentation after a cash payment is mailed b. Approve the price and quantity of each purchase requisition c. Assure that the quantity ordered is omitted from the receiving department’s copy of the purchase order d. Agree the vendor’s invoice with the receiving report and purchase order 36. With regard to the physical count of inventory, necessary control procedures include: a. proper instructions for the physical count. b. independent third-party verification of the counts. c. third-party reconciliations of the physical counts with perpetual inventory master files. d. counting the inventory only on the year-end date. 37. In meeting the control objective of safeguarding of assets, which department should be responsible for Distribution of Custody of paychecks unclaimed paychecks a. Treasurer Treasurer b. Payroll Treasurer c. Treasurer Payroll d. Payroll Payroll 38. Responsibility for the issuance of new notes payable should be vested in the: a. board of directors. b. purchasing department. c. accounting department. d. accounts payable department. 39. It should ordinarily be unnecessary to examine supporting documentation for each addition to property, plant, and equipment, but it is customary to verify: a. all large transactions. b. all unusual transactions. c. a representative sample of typical additions. d. all three of the above. Identifying and Assessing ROMM 40. Inherent risk is _______ related to detection risk and _______ related to the amount of audit evidence. a. directly, inversely c. inversely, inversely b. directly, directly d. inversely, directly 41. An auditor assesses control risk because it a. Is relevant to the auditor's understanding of the control environment. b. Provides assurance that the auditor's materiality levels are appropriate. c. Indicates to the auditor where inherent risk may be the greatest. d. Affects the level of detection risk that the auditor may accept. 42. In an audit of a company’s financial statements, the auditors identify significant risks. These risks often a. Involve routine, high-volume transactions. b. Do not require special audit attention. c. Involve items with lower levels of inherent risk. d. Involve judgmental matters.

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EXCEL PROFESSIONAL SERVICES, INC. Responding to Assessed Risks 43. Shown below (1 through 5) are the five types of tests which auditors use to determine whether financial statements are fairly stated. Which three are substantive tests? 1. procedures to obtain an understanding of internal control 2. tests of controls 3. tests of transactions 4. analytical procedures 5. tests of details of balances a. 1, 2, and 3. c. 2, 3, and 5. b. 3, 4, and 5. d. 2, 3, and 4. 44. The extent of procedures is affected mostly by which of the following factors? a. the sheer volume of procedures to be applied by the auditor. b. the time of year in which the client takes a physical inventory in the warehouse. c. the auditor's judgment that misstatements are probable in certain balances. d. the availability of the client's staff at or near the balance sheet date. Determining the Extent of Testing 45. Which of the following best illustrates the concept of sampling risk? a. A randomly chosen sample may not be representative of the population as a whole on the characteristic of interest. b. An auditor may select audit procedures that are not appropriate to achieve the specific objective. c. An auditor may fail to recognize errors in the documents examined for the chosen sample. d. The documents related to the chosen sample may not be available for inspection. 46. In assessing sampling risk, the risk of assessing control risk too high (under reliance) and risk of incorrect rejection relate to the a. Efficiency of the audit. b. Effectiveness of the audit. c. Selection of the sample. d. Audit quality controls. 47. An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods a. Can more easily convert the sample into a dualpurpose test useful for substantive testing. b. Eliminate the need to use judgment in determining appropriate sample sizes. c. Afford greater assurance than a nonstatistical sample of equal size. d. Provide an objective basis for quantitatively evaluating sample risk. 48. One cause of nonsampling risk is: a. ineffective use of audit procedures. b. testing less than the entire population. c. use of extensive tests of controls. d. the possibility that a properly-selected sample still may not be representative. 49. To determine the sample size for a test of control, an auditor should consider the tolerable rate of deviation, the allowable risk of assessing control risk too low, and the a. Expected deviation rate b. Upper precision limit c. Risk of incorrect acceptance d. Risk of incorrect rejection

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50. An auditor who uses statistical sampling for attributes in testing internal controls should increase the assessed level of control risk (CR is high) when the a. Sample rate of deviation is less than the expected rate of deviation used in planning the sample. b. Tolerable rate less the allowance for sampling risk exceeds the sample rate of deviation. c. Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate. d. Sample rate of deviation plus the allowance for sampling risk equals the tolerable rate. 51. Which of the following methods of sample selection are acceptable when using statistical sampling in an audit of financial statements? a. Haphazard selection only b. Random selection, systematic selection, and haphazard sampling only c. Random selection and systematic selection only d. Random selection only 52. In applying variables sampling, an auditor attempts to a. Estimate a qualitative characteristic of interest b. Determine various rates of occurrence for specified attributes c. Discover at least one instance of a critical error d. Predict monetary population value within a range of precision 53. The advantage of systematic sample selection is that: a. it is easy to use. b. there is limited possibility of it being biased. c. it is unnecessary to determine if the population is arranged randomly. d. it automatically selects items material to the financial statements. 54. The process which requires the calculation of an interval and then selects the items based on the size of the interval is: a. statistical sampling. b. random sample selection. c. systematic sample selection. d. computerized sample selection. Considering Fraud and Error, and NOCLAR Fraud and Error 55. Which statement is (are) incorrect regarding fraud? a. Auditors make legal determinations of whether fraud has actually occurred b. Fraud involving one or more members of management or those charged with governance is referred to as “employee fraud” c. Fraud involving only employees of the entity is referred to as “management fraud” d. All of the above 56. Fraudulent financial reporting is often called: a. management fraud. c. defalcation. b. theft of assets. d. embezzlement. 57. In general, material fraud following are most difficult a. Cashier. b. Internal auditor.

perpetrated by which of the to detect? c. Keypunch operator. d. Controller.

58. The most difficult type of misstatement to detect is fraud based on a. The overrecording of transactions. b. The nonrecording of transactions. c. Recorded transactions in subsidiaries or incorrect postings of recorded transactions. d. Related-party receivables.

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EXCEL PROFESSIONAL SERVICES, INC. 59. The primary responsibility for the prevention and detection of fraud and error rests with. a. Auditor c. TCWG b. Management d. Both b and c 60. Which of the following is not a category of fraud risk factors (whose presence often has been observed in circumstances where frauds have occurred) in relation to misstatements arising from misappropriation of assets and fraudulent financial reporting? a. Attitudes/Rationalizations c. Opportunities b. Pressures/Incentives d. Controls 61. The following are examples of circumstances that may indicate the possibility that the financial statements may contain a material misstatement resulting from fraud, except a. Fewer responses to confirmations than anticipated or a greater number of responses than anticipated. b. Large numbers of debit entries and other adjustments made to accounts receivable records. c. Missing inventory or physical assets of significant magnitude. d. Unusual discrepancies between the entity's records and confirmation replies. 62. Which of the following could indicate that the risk of fraud and other irregularities perpetrated by senior management is higher than normal? a. There are very few related party transactions. b. The auditor has not audited this client before. c. Management turnover is unusually high. d. The auditor discovers a GAAP departure during the audit. 63. Which of the following risks of fraud should ordinarily be presumed on a financial statement audit by the audit team? a. Chief financial officer misappropriation of funds. b. Misapplication of revenue recognition principles. c. Management's inappropriate use of reserves. d. Lack of expenses related to stock options. 64. Which of the following is least likely to be required on an audit in accordance with PSAs? a. Test appropriateness of journal entries and adjustment. b. Review accounting estimates for biases. c. Evaluate the business rationale for significant unusual transactions. d. Make a legal determination of whether fraud has occurred. 65. What is the best method an auditor may use to detect fraud in the financial statements of clients? a. Use professional skepticism. b. Understand and properly apply Generally Accepted Accounting Standards. c. Brainstorm with the client to find the types of fraud occurring. d. Actively search for all errors in the financial statements. 66. The most effective way to prevent and deter fraud is to: a. implement programs and controls that are based on core values embraced by the company. b. hire highly ethical employees. c. communicate expectations to all employees on an annual basis. d. terminate employees who are suspected of committing fraud.

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NOCLAR 67. When the auditor becomes aware of information concerning a possible noncompliance to laws or regulations, the auditor should appropriately: a. Obtain an understanding of the nature of the act and the circumstances in which it has occurred, and evaluate the possible effect on the financial statements. b. Discuss his suspicion with the management. c. Ask management to determine whether a violation is really committed. d. Consult with the entity’s legal counsel as to what appropriate action the auditor should do. 68. Most illegal acts affect the financial statements: a. directly. b. only indirectly. c. both directly and indirectly. d. materially if direct; immaterially if indirect. 69. The following are conditions that non-compliance may have occurred, except a. Payments for unspecified services or loans to consultants, related parties, employees or government employees b. Existence of an accounting system which fails, whether by design or by accident, to provide an adequate audit trail or sufficient evidence. c. Unusual payments in cash, purchases in the form of cashiers’ cheques payable to bearer or transfers to numbered bank accounts. d. Sales commissions or agent's fees that appear reasonable in relation to those ordinarily paid by the entity or in its industry or to the services actually received. Considering Work of Other Practitioners 70. If the independent auditors decide that the work performed by the internal auditor may have a bearing on their own procedures, they should consider the internal auditor's a. Competence and objectivity. b. Efficiency and experience. c. Independence and review skills. d. Training and supervisory skills. 71. During an audit, the auditor may need the assistance of an expert in obtaining sufficient appropriate evidence. A common example is a. Determining the sufficiency and appropriateness of evidential matter obtained. b. Evaluating the potential financial statements effect of an employee fraud. c. Evaluating the integrity of management. d. Determination of amounts using actuarial computations. Considering Certain F/S Items 72. Which of the following is true concerning the audit of the cash account? a. A recommended audit step in the audit of cash accounts is to verify all adjusting entries and yearend accruals. b. There are no disclosure requirements for the cash account, since the amount is already stated at its fair market value. c. Valuation is only an issue if there is a foreign currency account. d. The most important assertion for the cash account is accuracy.

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EXCEL PROFESSIONAL SERVICES, INC. 73. Which of the following statements about confirmations that traditionally been used to verify bank balances and accounts receivable is true? a. Confirmations are expensive and so are often not used. b. Confirmations may inconvenience those asked to supply them, but they are widely used. c. Confirmations are sometimes not reliable and so auditors use them only as necessary and properly controlled. d. Confirmations are required for several balance sheet accounts but no income statement accounts. 74. On the last day of the fiscal year, the cash disbursements clerk drew a company check on bank A and deposited the check in the company account in bank B to cover a previous theft of cash. The disbursement has not been recorded. The auditor will best detect this form of kiting by: a. examining the composition of deposits in both bank A and bank B subsequent to year-end. b. examining paid checks returned with the bank statement of the next account period after yearend. c. preparing, from the cash disbursements records, a summary of bank transfers for one week prior to and subsequent to year-end. d. comparing the detail of cash receipts as shown by the client’s cash receipts records with the detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year-end. 75. The cashier of Brooke Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the Company's out-of-town bank. How would the auditor discover this manipulation? a. Confirming all December 31 bank balances b. Counting the cash working fund at the close of business on December 31 c. Preparing independent bank reconciliations as of December 31 d. Preparing and detail testing a bank transfer schedule 76. An auditor is examining accounts receivable. What is the most competent type of evidence in this situation? a. Interviewing the personnel who record accounts receivable. b. Verifying that postings to the receivable account from journals have been made. c. Receipt by the auditor of a positive confirmation. d. No response received for a request for a negative confirmation. 77. An auditor concluded that no excessive costs for idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory, including presentation and disclosure and a. Valuation. c. Existence. b. Completeness. d. Rights. 78. Which of the following statements relates to the ownership assertion? a. Inventory listings are accurately included in the inventory accounts. b. Inventory excludes items billed to customers. c. Inventory is properly classified as a current asset. d. Inventory is properly stated at cost.

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79. Which of the following audit procedures would provide the least reliable evidence that the client has legal title to inventories? a. Confirmation of inventories at locations outside the client’s facilities b. Analytical review of inventory balances compared to purchasing and sales activities c. Observation of physical inventory counts d. Examination of paid vendor’s invoices 80. An auditor would be least likely to use confirmations in connection with the examination of: a. inventories. b. long-term debt. c. property, plant, and equipment. d. stockholders’ equity. 81. In evaluating the reasonableness of an entity's accounting estimates, an auditor normally would be concerned about assumptions that are a. Susceptible to bias. b. Consistent with prior periods. c. Insensitive to variations. d. Similar to industry guidelines. 82. Which of the following statements is correct concerning related-party transactions? a. In the absence of evidence to the contrary, related-party transactions should be assumed to be outside the ordinary course of business. b. An auditor should determine whether a particular transaction would have occurred if the parties had not been related. c. An auditor should substantiate that related-party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions. d. The audit procedures directed toward identifying related-party transactions should include considering whether transactions are occurring, but are not being given proper accounting recognition. 83. The auditor should carry out procedures in order to become aware of any litigation and claims involving the entity which may have a material effect on the financial statements. Such procedures least likely include a. Making appropriate inquiries of management including obtaining representations. b. Reviewing board minutes and correspondence with the entity’s lawyers. c. Examining interest expense accounts. d. Using any information obtained regarding the entity’s business including information obtained from discussions with any in-house legal department. 84. Which of the following statements extracted from a client's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification? a. "I believe that the possible liability to the company is nominal in amount." b. "I believe that the action can be settled for less than the damages claimed." c. "I believe that the plaintiff's case against the company is without merit." d. "I believe that the company will be able to defend this action successfully."

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EXCEL PROFESSIONAL SERVICES, INC. 85. If the auditor concludes that there may be a going concern problem, the auditor should do which of the following? a. withdraw from the engagement. b. issue a qualified or adverse opinion. c. identify and assess management's plan to overcome the problem. d. communicate this fact with management one level above the controller. Completing the Audit and Considering Post-audit Responsibilities 86. If the balance sheet of a company is dated December 31, 2018, the audit report is dated February 8, 2019, and both are released on February 15, 2019, this indicates that the auditor has searched for subsequent events that occurred up to: a. December 31, 2018. c. February 8, 2019. b. January 1, 2019. d. February 15, 2019. 87. Which one of the following is not a key condition indicating doubt regarding an entity's ability to continue as a going-concern? a. Adverse key financial ratios. b. Employee strike that halts operations for several months. c. Company has not paid dividends to date. d. Default on bank debt. 88. It is an accepted practice for external auditors to request letter of representation from their clients. A principal purpose of a letter of representation form the client is to a. Discharge the auditor from legal liability of his examination. b. Confirm in writing management’s approval of limitations on the scope of audit. c. Serve as an introduction to company’s personnel and authorization to examine the records. d. Remind management for its primary responsibility for financial statements. 89. Which of the following matters would an auditor most likely include in a management representation letter? a. Communications with the audit committee concerning weaknesses in internal control. b. The completeness and availability of minutes of stockholders' and directors' meetings. c. Plans to acquire or merge with other entities in the subsequent year. d. Management's acknowledgment of its responsibility for the detection of employee fraud. Forming the Auditor's Opinion and Report Contents 90. PSAs require the auditor to communicate all management frauds and illegal acts to the audit committee: a. only if the act is immaterial. b. only if the act is material. c. only if the act is highly material. d. regardless of materiality. 91. If the audit team encounters difficulties in performing an audit, such matters must be communicated to which party? a. the SEC b. the audit committee c. management d. the PCAOB 92. Which of the following statements is incorrect? a. Because of inadequate disclosures of material information, an auditor most likely would issue a

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b. c. d.

disclaimer of opinion. A material departure from PFRS results in either a qualified or adverse opinion. A client’s refusal to furnish written representations generally results in a disclaimer of opinion. The omission of a statement of cash flows may result in a qualified opinion.

93. An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph a. Is considered an “except for” qualification of the opinion. b. Violates PSAs if this information is already disclosed in notes to the financial statements. c. Necessitates a revision of the opinion paragraph to include the phrase “with the foregoing explanation”. d. Is appropriate and would not negate the unqualified opinion. 94. Which of the following statements with respect to comparative financial statements is true? a. The auditor’s report must always refer to each period for which financial statements are presented. b. The auditor’s report must refer to each period for which financial statements are presented and on which an audit opinion is expressed. c. The auditor’s report must refer to each period for which financial statements are presented only when the comparative period was audited by another auditor. d. The auditor’s report must refer to both the current and comparative figures for non-listed entities, but refers only to the current year figures for listed entities. 95. The expression of a qualified opinion means that the financial statements, taken as a whole, in all material respects, are a. materially misstated. b. materially misleading. c. present fairly. d. do not present fairly. Performing and Reporting on Specialized Audit Engagements 96. CPAs issue several types of “special audit reports.” Which of the following circumstances would not require the issuance of a special audit report? a. The client’s financial statements are prepared using the cash basis. b. The client’s financial statements are prepared using the accrual basis. c. The CPA has been retained to audit only the current assets. d. The CPA has been retained to review the internal control system, not the financial statements. 97. An auditor's special report on financial statements prepared in conformity with the cash basis of accounting should include a separate explanatory paragraph that a. Justifies the reasons for departing from generally accepted accounting principles. b. States whether the financial statements are fairly presented in conformity with another comprehensive basis of accounting. c. Refers to the note to the financial statements that describes the basis of accounting.

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EXCEL PROFESSIONAL SERVICES, INC. d.

Explains how the results of operations differ from financial statements prepared in conformity with generally accepted accounting principles.

Performing Review and Other Assurance Engagements 98. Which of the following procedures is not included in a review engagement on a nonpublic entity? a. Inquiries of management. b. Inquiries regarding events subsequent to the balance sheet date. c. Any procedures designed to identify relationships among data that appear to be unusual. d. A study and evaluation of internal control structure. 99. Which of the following would be associated with a review engagement? a. Substantive and compliance testing b. Notice to reader report c. Conformity with GAAP and GAAS d. Negative assurance 100. Which of the following is a prospective financial statement for general use upon which an accountant may appropriately report? a. Financial projection c. Pro forma FSs b. Partial presentation d. Financial forecasts Performing Related Services Engagements 101. An accountant’s report of factual findings is a form of report that is most likely to be issued in conjunction with which of the following engagements a CPA may perform for a client? a. Engagement to perform agreed-upon procedures b. Attest engagement c. Assurance engagement d. Compilation engagement 102. a. b.

An accountant who is not independent may issue a Compilation report. c. Comfort letter. Review report. d. Qualified opinion.

Professional Standards, Quality Control, and Professional Liabilities 103. The least important evidence of a public accounting firm's evaluation of its system of quality controls would concern the firm's policies and procedures with respect to a. Employment (hiring). b. Confidentiality of audit engagements. c. Assigning personnel to audit engagements. d. Determination of audit fees. 104. Reviewing and coaching the work of less experienced team members should be performed by ______ experienced engagement team members. a. Less b. More c. Equally d. None of the above 105. An engagement quality control review is normally done by the: a. The engagement partner b. The chief technical partner of the office conducting the audit c. A partner not otherwise assigned to the engagement d. The engagement manager

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Code of Ethics for Professional Accountants 106. The underlying reason for a code of professional conduct for any profession is: a. the need for public confidence in the quality of service of the profession. b. that it provides a safeguard to keep unscrupulous people out. c. that it is required by federal legislation. d. that it allows licensing agencies to have a yardstick to measure deficient behavior. 107. Society has attached a special meaning to the term “professional.” A professional is: a. someone who has passed a qualifying exam to enter the job market. b. a person who is expected to conduct himself or herself at a higher level than the requirements of society’s laws or regulations. c. any person who receives pay for the services performed. d. someone who has both an education in the trade and on-the-job experience received under an experienced supervisor. 108. A challenge associated with the Ethical Principles stated in the Code of Professional Conduct is: a. the emphasis on positive activities. b. that they identify ideal conduct. c. the difficulty of enforcing principles, or general ideals. d. that there are too many to remember. 109. In order to achieve the objectives of the accountancy profession, professional accountants have to observe a number of prerequisites or fundamental principles. The fundamental principles include the following, except a. Professional behavior c. Independence b. Confidentiality d. Objectivity 110. The principle of integrity imposes an obligation on professional accountants to a. Comply with relevant laws and regulations b. Avoid any action that may bring discredit to the profession c. Both a and b d. Neither a nor b 111. The principle of objectivity imposes which of the following obligations on professional accountants? a. To maintain professional knowledge and skill at the level required to ensure that clients or employers receive competent professional advice b. To refrain from disclosing confidential information obtained as a result of professional and business relationships c. To comply with relevant laws and regulations and avoid any situation that may bring discredit to the profession d. Not to compromise professional or business judgment because of bias, conflict of interest or undue influence of others 112. the a. b. c.

Confidential client information may be disclosed in following circumstances, except When disclosure is authorized. When disclosure is required by law. When the relationship between the client and the auditor ceases. d. When there is a professional duty or right to disclose.

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EXCEL PROFESSIONAL SERVICES, INC. 113. Based on the Code of Ethics for Professional Accountants, threats to compliance with fundamental principles arise from all of the following except: a. Self interest. c. Advocacy. b. The audit relationship. d. Intimidation. 114. Which of the following is an example of a safeguard implemented by the client that might mitigate a threat to compliance with fundamental principles? a. Required continuing education for all attest engagement team members. b. An effective corporate governance structure. c. Required second partner review of an attest engagement. d. Management selection of the CPA firm. 115. Using the same lead engagement partner on an audit over a prolonged period may most likely create a. Self-interest threat c. Intimidation threat b. Self-review threat d. Familiarity threat 116. Examples of circumstances that may create familiarity threat include I. A member of the assurance team having an immediate family member or close family member who is a director or officer of the assurance client. II. Dealing in, or being a promoter of, share or other securities in an assurance client. III. Threat of replacement over a disagreement with the application of an accounting principle. IV. Potential employment with an assurance client. V. Long association of a senior member of the assurance team with the assurance client. a. I, IV and V only b. II and V only c. II, III and IV only d. I and V only 117. Occurs when a professional accountant promotes a position or opinion to the point that subsequent objectivity may be compromised a. Self-interest threat c. Advocacy threat b. Self-review threat d. Familiarity threat 118. There are fundamental principles that the professional accountant has to observe when performing assurance engagements. The requirement of which principle is of particular importance in an assurance engagement in ensuring that the conclusion of the professional accountant has value to the intended user? a. Integrity c. Confidentiality b. Professional competence d. Objectivity 119. In which of the following may confidential information not be disclosed? a. To comply with the quality review of a member body or professional body b. To submit evidence in the course of legal proceedings c. Acquiring information in the course performing professional services and use that information for personal advantages d. When consent to disclose information is given by the client

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120. When performing a review engagement, the following should be independent of the client a. b. c. d. The members of the Yes Yes Yes Yes assurance team The firm Yes Yes No No Network firms Yes No No Yes 121. Which of the following is a “self review” threat to engagement team member’s compliance with fundamental principles? a. An engagement team member has a spouse that serves as CFO of the attest client. b. A second partner review is required on all attest engagements. c. An engagement team member prepares invoices for the attest client. d. An engagement team member has a direct financial interest in the attest client. 122. Which of the following is a misunderstanding created by the use of the word “independence?” a. A person exercising professional judgment should be free from all economic, financial and other relationships. b. Possessing the ability to act with integrity and objectivity. c. Independence precludes relationships that may appear to impair objectivity in rendering assurance services. d. Possessing the ability to express a conclusion without being affected by influences that compromise professional judgment. 123. When CPAs are able to maintain their actual independence, it is referred to as independence in: a. conduct. c. fact. b. appearance. d. total. 124. CPAs are required to act with integrity and objectivity for which of the following engagements? a. tax preparation b. financial statement review services c. financial statement audits d. all engagements 125. For which of the following professional services must CPAs be independent? a. Management advisory services. b. Audits of financial statements. c. Preparation of tax returns. d. All three of the above. Setting-Up a Public Accounting Practice 126. The Accountancy Law provided that a CPA certificate may be suspended or revoked on grounds except a. Immoral or dishonorable conduct. b. Gross negligence or incompetence in the practice of profession. c. Refusal to accept an audit engagement with a government corporation. d. Conduct discreditable to the accounting profession 127. Which of the following is not included in the seal used by a CPA? a. Professional tax receipt number b. Name of the CPA c. Registration number d. The title “CPA”

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EXCEL PROFESSIONAL SERVICES, INC. 128. Who has the power to suspend or remove any member of the Board of Accountancy? a. The President of the Philippines b. The Chairman of the PRC c. The Chairman of the FRSC d. The Chairman of the AASC 129. An applicant for the CPA licensure examination should meet the following requisites, except a. A Filipino citizen b. Of good moral character c. A holder of the degree of Bachelor of Science in Accountancy d. Has not been convicted of any crime. 130. A CPA shall not practice under a firm name that includes or indicates the following except a. Fictitious name b. Specialization c. Misleading as to the type of the organization d. Name(s) of past partner(s) in the firm name of successor partnership 131. Are the following CPAs required to comply with the requirements on continuing professional education? a b c d CPAs in Public Accountancy Yes Yes Yes Yes CPAs in Commerce and Yes Yes No No Industry CPAs in Education/Academe Yes Yes Yes No CPAs in Government Yes No Yes No 132. a. b. c. d.

A person whose CPA certificate has been revoked can no longer be reinstated as a CPA. is automatically reinstated as a CPA by the PRC after two years if he has acted in an exemplary manner. may be reinstated as a CPA by the PRC after two years if he has acted in an exemplary manner may be reinstated as a CPA by the Board of Accountancy after two years if he has acted in an exemplary manner.

133. The following statements relate to CPA examination ratings. Which of the following is incorrect? a. To pass the examination, candidates should obtain a general weighted average of 75% and above, with no rating in any subject less than 65%. b. Candidates who obtain a rating of 75% and above in at least four subjects shall receive a conditional credit for the subjects passed. c. Candidates who failed in four complete examinations shall no longer be allowed to take the examinations the fifth time. d. Conditioned candidates shall take an examination in the remaining subjects within two years from the preceding examination. 134. The Board, subject to the approval of the Commission, may revise or exclude any of the subjects and their syllabi, and add new ones as the need arises. Provided that the change shall not be more often than every a. 2 years c. 4 years b. 3 years d. 5 years 135. The following statements relate to RA 9298 and its IRRs. Which statement(s) is (are) true? I. A meaningful experience shall be considered as satisfactory compliance if it is earned in Public Practice and shall include at least one year as audit assistant and at least two years as auditor in charge of the audit engagement covering full audit functions of significant clients. II. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register with the BOA and the PRC. If the application for registration of AB and Co., CPAs was approved on August 30, 2018, its registration will expire on September 30, 2020. a. I and II c. II only b. I only d. Neither I nor II J - done - J

Answers: 1. 11. 21. 31. 41. 51. 61. 71. 81. 91. 101. 111. 121. 131.

C C C B D C B D A B A D C A

2. 12. 22. 32. 42. 52. 62. 72. 82. 92. 102. 112. 122. 132.

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D D C C D D C C D A A C A D

3. 13. 23. 33. 43. 53. 63. 73. 83. 93. 103. 113. 123. 133.

C B D A B A B B C D D B C C

4. 14. 24. 34. 44. 54. 64. 74. 84. 94. 104. 114. 124. 134.

A C B A C C D B B B B B D B

5. 15. 25. 35. 45. 55. 65. 75. 85. 95. 105. 115. 125. 135.

D A B D A D A D C C C D B B

6. 16. 26. 36. 46. 56. 66. 76. 86. 96. 106. 116. 126.

D C A D A A A C C B A D C

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7. 17. 27. 37. 47. 57. 67. 77. 87. 97. 107. 117. 127.

B D B A D D A A C C B C A

8. 18. 28. 38. 48. 58. 68. 78. 88. 98. 108. 118. 128.

B A B A A B B B D D C D A

9. 19. 29. 39. 49. 59. 69. 79. 89. 99. 109. 119. 129.

D B D D A D D B B D C C D

10. 20. 30. 40. 50. 60. 70. 80. 90. 100. 110. 120. 130.

D B D D C D A C D D D B D

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