AUD THEO SECOND EVAL

a. 1st statement is True ; 2nd statement is False

1st Statement - The auditor should communicate audit matters of governance interest arising from the audit of financial statements with those charged with governance of an entity. 2nd statement - The auditor should determine the relevant persons who are charged with governance and with whom audit matters of governance interest are not communicated. a. 1st statement is True ; 2nd statement is False b. 1st statement is False ; 2nd statement is True c. Both statements are True d. Both statements are False

c. both statements are true

1st statement - It is in the interests of the firm to manage the firm overall and each individual audit such that the Code of Professional Ethics for CPAs is followed at all times. 2nd statement - It is in the interests of the firm to manage the firm overall and each individual audit such that the Philippine Auditing Standards (PSAs) are followed at all times. a. 1st statement is true ; 2nd statement is false b. 1st statement is false; 2nd statement is true c. both statements are true d. both statements are false

a. 1st statement is true ; 2nd statement is false

1st statement - On recurring audits, the auditor should consider whether circumstances require the terms of the engagement to be revised and whether there is a need to remind the client of the existing terms of engagement. 2nd statement - The auditor should send a new engagement letter each year to an established client. a. 1st statement is true ; 2nd statement is false b. 1st statement is false ; 2nd statement is true c. Both statements are true. d. Both statements are false.

c. Both statements are true.

1st statement - The auditor and the client should agree on the terms of the engagement. Such an agreement may be in the form of audit engagement letter or other suitable form of contract. 2nd statement - Even in those countries where the scope of the audit is established by law, an engagement letter may be informative for the client. a. 1st statement is true ; 2nd statement is false b. 1st statement is false ; 2nd statement is true c. Both statements are true. d. Both statements are false.

a. 1st statement is True ; 2nd statement is False

1st statement - The auditor is not and cannot be held responsible for the prevention of fraud and error. 2nd statement - Annual audits may be carried out which may not; however, act as deterrent. a. 1st statement is True ; 2nd statement is False b. 1st statement is False ; 2nd statement is True c. Both statements are True d. Both statements are False

c. Both statements are True

1st statement - The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit. 2nd statement - The auditor should record in the working papers information on planning the audit work, the nature, timing and extent of the audit procedures performed, the results thereof, and the conclusions drawn from the audit evidence obtained. a. 1st statement is True ; 2nd statement is False b. 1st statement is False ; 2nd statement is True c. Both statements are True d. Both statements are False

d. Both statements are False

1st statement - The responsibility for the prevention and detection of fraud and error rests with the auditor through implementation of accounting and internal control systems. 2nd statement - The accounting and internal control systems eliminate the possibility of fraud and error. a. 1st statement is True ; 2nd statement is False b. 1st statement is False ; 2nd statement is True c. Both statements are True d. Both statements are False

d. All statements are correct.

1st statement - Where the terms of the engagement are changed, the auditor and the client should agree on the new terms. 2nd statement - The auditor should not agree to a change of engagement when there is no reasonable justification for doing so. 3rd statement - If the auditor is unable to agree to a change of the engagement and is not permitted to continue the original engagement, the auditor should withdraw and consider whether there is any obligation, either contractual or otherwise, to report to other parties, such as the board of directors or shareholders, the circumstances necessitating the withdrawal. a. 1st and 2nd statements are correct; 3rd statement is incorrect. b. 1st and 3rd statements are correct; 2nd statement is incorrect. c. 2nd and 3rd statements are correct; 1st statement is incorrect. d. All statements are correct.

a. 1st statement is True ; 2nd statement is False

1st statement - Working papers are the property of the auditor. 2nd statement - Although portions of or extracts from the working papers maybe made available to the entity at the discretion of the auditor, they may be substitute for the entity's accounting records. a. 1st statement is True ; 2nd statement is False b. 1st statement is False; 2nd statement is True c. Both statements are True d. Both statements are False

d. To minimize the likelihood of association with clients whose management lacks integrity.

A CPA establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies and procedures is a. To lessen the exposure to litigation resulting from failure to detect irregularities in client's financial statements. b. To enable the auditor to attest to the integrity or reliability of a client. c. To comply with the quality control standards established by regulatory bodies. d. To minimize the likelihood of association with clients whose management lacks integrity.

d. Quality control.

A CPA firm evaluates its personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm's adherence to which of the following prescribed standards: a. Professional ethics. b. Supervision and review. c. Accounting and review services. d. Quality control.

b. Reviewing engagement working papers and reports.

A CPA firm should establish procedures for conducting and supervising work at all organizational levels to provide reasonable assurance that the work performed meets the firm's standards of quality. To achieve this goal, the firm most likely would establish procedures for a. Evaluating prospective and continuing client relationships. b. Reviewing engagement working papers and reports. c. Requiring personnel to adhere to the applicable independence rules. d. Maintaining personnel files containing documentation related to the evaluation of personnel.

a. Quality control.

A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether individuals increased degrees of responsibility. This is evidence of the CPA firm's adherence to prescribed standards of a. Quality control. b. Due professional care. c. Supervision and review. d. Fieldwork.

b. System of quality control

A basic objective of a CPA firm is to provide professional services to conform with professional standards. Reasonable assurance of achieving this basic objective is provided through a. Continuing professional education b. System of quality control c. Compliance with generally accepted reporting standards. d. System of peer review.

d. Continue the engagement, since the Code of Ethics requires started engagements to be finished regardless of subsequent developments and information

A firm has obtained information that would have caused it to decline an engagement had the information been available earlier. Actions available to the auditor include the following, except: a. Reporting the information and its implications to the person(s) who appointed the CPA b. Withdraw from the engagement c. Withdraw from both the engagement and the client relationship d. Continue the engagement, since the Code of Ethics requires started engagements to be finished regardless of subsequent developments and information

c. Independence.

A firm of CPAs may use policies and procedures such as notifying professional personnel as to the names of audit clients having publicly held securities and confirming periodically with such personnel that prohibited relations do not exist. This is done to achieve effective quality control in which of the following areas? a. Acceptance and continuance of clients. b. Assigning personnel to engagement. c. Independence. d. Inspection.

b. misappropriation of cash

A kind of fraud committed by making entry of fictitious payments or failure to enter receipts is a. misappropriation of goods b. misappropriation of cash c. falsification of accounts d. lapping

d. Document the details of the disagreement and the basis of resolution.

A major difference of opinion concerning an accounting issue has risen between an assistant on an audit engagement and the auditor with final responsibility for the engagement. If after the consultation, the assistant believes it necessary to disassociate himself from the resolution of the matter, both the auditor and his assistant must a. Refer the matter to the firm's peer review committee. b. Inform management of the nature of disagreement. c. Inform the company's audit committee of the nature of disagreement. d. Document the details of the disagreement and the basis of resolution.

d. Monitoring

A process comprising an ongoing consideration and evaluation of the firm's system of quality control, including a periodic inspection of a selection of completed engagements, designed to enable the firm to obtain reasonable assurance that its system of quality control is operating effectively. a. Inspection b. Engagement quality control reviewer c. Quality review d. Monitoring

c. "Hot" review

A review undertaken by a more experienced member of the audit firm to ensure that the work has been performed in accordance with the audit plan and that the conclusions expressed are consistent with the results of the works performed: a. Peer review b. Post audit review c. "Hot" review d. Audit review

a. Working trial balance.

A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final amount that will appear in the financial statements, is referred to as a a. Working trial balance. b. Lead schedule. c. Summarizing schedule d. Supporting schedule

b. Lead schedule.

A schedule set up to combine similar general ledger accounts, the total of which appears on the working trial balance as a single amount, is referred to as a a. Supporting schedule. b. Lead schedule. c. Corroborating schedule d. Reconciling schedule

No, Yes

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's Engagement letter, Working papers

d. An illegal act

A violation of laws or governmental regulations by the audited entity or its management or employees acting on behalf of the entity is called a. An error b. Fraud c. Fraudulent financial reporting d. An illegal act

d. Employees and partners of another CPA firm.

ABC & Co., a large international CPA firm, is to have an "external peer review". The peer review will most likely be performed by a. Employees and partners of ABC & Co. who are not associated with the particular audits being reviewed. b. Audit review staff of the Securities and Exchange Commission. c. Audit review staff of the PICPA. d. Employees and partners of another CPA firm.

b. Engagement letter.

According to PSA 210, the auditor and the client should agree on the terms of engagement. The agreed terms would need to be recorded in a(n) a. Memorandum to be placed in the permanent section of the working papers. b. Engagement letter. c. Client representation letter. d. Comfort letter.

d. Support the client's financial statements..

According to PSA 230 Redrafted "Documentation", working papers do not a. Assist in the planning and performance of the audit. b. Assist in the supervision and review of the audit work. c. Record the audit evidence resulting from the audit work performed to support an auditor's opinion. d. Support the client's financial statements..

b. Management is dominated by one person or a small group and there is no effective oversight board or committee.

According to PSA 250, "Consideration of Laws and Regulations in an Audit of Financial Statements", the following are indications that noncompliance may have occurred, except a. Investigation by government departments or payment of fines or penalties. b. Management is dominated by one person or a small group and there is no effective oversight board or committee. c. Unauthorized transactions or improperly recorded transactions. d. Purchasing at prices significantly above or below market price.

a. The fair presentation of the financial statements in conformity with applicable reporting framework.

After the fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up working paper review. This second review actually focuses on a. The fair presentation of the financial statements in conformity with applicable reporting framework. b. Fraud involving the client's management and its employees c. The materiality of the adjusting entries proposed by the audit staff d. The communication of internal control weaknesses to the client's audit committee

d. Analyses of share capital and other owners' equity accounts.

Although the quantity and content of audit working papers vary with each particular engagement, an auditor's permanent files most likely include a. Schedules that support the current year's adjusting entries. b. Prior years' accounts receivable confirmations that were classified as exceptions. c. Documentation indicating that the audit work was adequately planned and supervised. d. Analyses of share capital and other owners' equity accounts.

b. Professional skepticism

An attitude that includes a questioning mind and a critical assessment of audit evidence is referred to as: a. Due professional care b. Professional skepticism c. Reasonable assurance d. Supervision

d. Philippine Standards on Auditing.

An audit involves ascertaining the degree of correspondence between assertions and established criteria. In the case of financial statement audit, which of the following is not a valid criterion? a. Accounting standards generally accepted in the Philippines. b. International Accounting Standards. c. Applicable financial reporting framework. d. Philippine Standards on Auditing.

a. The preparation of financial statements in accordance with relevant pronouncements issued by the AASC

An audit is conducted on the premise that management and, where appropriate, those charged with governance, have acknowledged and understand that they have responsibilities that are fundamental to the conduct of an audit in accordance with PSAs. Which of the following is not one of those responsibilities? a. The preparation of financial statements in accordance with relevant pronouncements issued by the AASC b. The establishment and maintenance of an adequate internal control system that is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error c. To provide the auditor with access to all information that is relevant to the preparation of the financial statements such as records, documentation, and other matters d. To provide the auditor with unrestricted access to persons within the entity from which the auditor determines it necessary to obtain audit evidence

a. Express an opinion as to the fairness of Toyota's financial statements.

An audit of financial statements of Toyota Corp. is being conducted by an external auditor. The external auditor is expected to a. Express an opinion as to the fairness of Toyota's financial statements. b. Express an opinion as to the attractiveness of Toyota for investment purposes. c. Certify the correctness of Toyota's financial statements. d. Examine all evidence supporting Toyota's financial statements.

a. errors, irregularities and those illegal acts with a direct effect on financial statements amounts.

An audit should be designed to achieve reasonable assurance of detecting material a. errors, irregularities and those illegal acts with a direct effect on financial statements amounts. b. errors and irregularities. c. errors d. errors, irregularities and illegal acts

a. Current file of working papers.

An audit working paper that shows the detailed evidence and procedures regarding the balance in the accumulated depreciation account in the year under audit will be found in the a. Current file of working papers. b. Permanent file of working papers. c. Other information working papers in the current file. d. Planning memorandum in the current file.

d. Client refuses to accept the auditor's report as modified for the illegal act.

An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor should withdraw from the engagement if a. Auditor is precluded from obtaining sufficient competent evidence about the illegal act. b. Illegal act has an effect on the financial statements that is both material and direct. c. Auditor cannot reasonably estimate the effect of the illegal act on the financial statements. d. Client refuses to accept the auditor's report as modified for the illegal act.

b. Qualified opinion or an adverse opinion.

An auditor concludes that a client's illegal act, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Depending on the materiality of the effect on the financial statements, the auditor should express either a(n) a. Adverse opinion or a disclaimer of opinion. b. Qualified opinion or an adverse opinion. c. Disclaimer of opinion or an unqualified opinion with a separate explanatory paragraph. d. Unqualified opinion with a separate explanatory paragraph or a qualified opinion.

c. Reclassifications and adjustments

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for a. Cash flow increases and decreases b. Audit objectives and assertions c. Reclassifications and adjustments d. Reconciliations and tickmarks

c. Plan and perform the engagement with an attitude of professional skepticism.

An auditor should recognize that the application of auditing procedures may produce evidential matter indicating the possibility of errors or irregularities and therefore should a. Design audit tests to detect unrecorded transactions. b. Extend the work to audit most recorded transactions and records of an entity. c. Plan and perform the engagement with an attitude of professional skepticism. d. Not depend on internal accounting control features that are designed to prevent or detect errors or irregularities.

b. Obtain a knowledge of matters that relate to the nature of the entity's business

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

b. The client does not take the remedial action that the auditor considers necessary.

An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements, most likely would withdraw from the engagement if a. The illegal act is a violation of generally accepted accounting principles. b. The client does not take the remedial action that the auditor considers necessary. c. The illegal act was committed during a prior year that was not audited. d. The auditor has already assessed control risk at the maximum level.

b. Successor auditor

An auditor who has been invited to submit a proposal for an audit engagement is a a. Predecessor auditor b. Successor auditor c. Principal auditor d. Interim auditor

b. Successor auditor.

An auditor who has been invited to submit a proposal for an audit engagement is a a. Predecessor auditor. b. Successor auditor. c. Principal auditor. d. Interim auditor.

a. Client's schedules were prepared.

An auditor's working papers will ordinarily be least likely to include documentation showing how the a. Client's schedules were prepared. b. Engagement was planned. c. Understanding of the client's internal control was obtained and control risk was assessed. d. Unusual matters were resolved.

YES, YES, YES

An engagement letter should ordinarily include information on the objectives of the engagement and CPA's Client's Limitations of Responsibilities Responsibilities Engagement

c. Details of procedures that will be performed.

An engagement letter would not normally include a. Billing arrangements. b. Arrangements concerning client's assistance. c. Details of procedures that will be performed. d. Expectation of receiving a representation letter from management.

b. For all audits of financial statements of listed entities

An engagement quality control review is required to be performed: a. Immediately after the re-assessment of control risk b. For all audits of financial statements of listed entities c. For all types of audits, regardless of the subject matter of the engagement d. At engagement completion after the report is issued

b. error of commission

An error in which an item is posted to the wrong personal account, or the incorrect calculation of an amount constituting an original entry is an a. error of omission b. error of commission c. error of principle d. counter-balancing error

c. The investors and creditors.

An expectation of the public is that the auditor will recognize that the primary users of audit services are: a. The employees. b. The Securities and Exchange Commission. c. The investors and creditors. d. The board of directors.

c. Three years

An inspection cycle ordinarily spans no more than: a. One year b. Two years c. Three years d. Four years

c. CPA investment in client securities

Arrangements concerning with which of the following are least likely to be included in the engagement letter? a. A predecessor auditor b. Fees and billing c. CPA investment in client securities d. Other services to be provided in addition to the audit

a. Provides evidence of the auditor's compliance with generally accepted auditing standards.

Audit documentation (working papers) a. Provides evidence of the auditor's compliance with generally accepted auditing standards. b. Is a record to be used as a basis for the following year's engagement. c. Includes an analysis of the client's marketing strategies. d. Is a client-owned record of conclusions reached by the auditors.

b. Show that the accounting records agree or reconcile with the financial statements.

Audit documentation (working papers) should a. Be considered the primary support for the financial statements being audited. b. Show that the accounting records agree or reconcile with the financial statements. c. Evaluate management's performance against company goals for the year under audit. d. Be provided to the client upon request.

a. Audit documentation should include superseded drafts of working papers and financial statements.

Audit documentation is the record of audit procedures performed, relevant audit evidence, and the auditor's conclusions. Which of the following statements concerning audit documentation is incorrect? a. Audit documentation should include superseded drafts of working papers and financial statements. b. Audit documentation prepared after the performance of the audit work is likely to be less accurate than documentation prepared at the time such work is performed. c. Audit documentation may include abstracts or copies of the entity's records such as significant and specific contracts and agreements d. Audit documentation is not a substitute for the entity's accounting records.

d. Identification of the audit team members

Audit engagement letters generally include reference to the following except a. Objective of the audit of financial statements b. Management's responsibility for the financial statements c. Scope of the audit d. Identification of the audit team members

d. Identification of the audit team members.

Audit engagement letters generally include reference to the following except a. Objective of the audit of financial statements. b. Management's responsibility for the financial statements. c. Scope of the audit. d. Identification of the audit team members.

d. All of the following may be suffered by the firm

Audit firms are subject to many risks when they carry out an audit assignment. As a result of this, the firm may suffer: a. Action through the courts so that damages are payable. b. Loss of client. c. Adverse publicity and loss of reputation. d. All of the following may be suffered by the firm

a. Permit cross-referencing and simplify supervisory review.

Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to a. Permit cross-referencing and simplify supervisory review. b. Support the audit report. c. Eliminate the need for follow-up reviews. d. Determine that working papers adequately support findings, conclusions, and reports

c. Be submitted to the client to support the financial statements and to provide evidence of the audit work performed.

Audit working papers should not a. Include any client-prepared papers or documents other than those prepared by the CPA or his assistant. b. Be kept by the CPA after review and completion of the audit except for items required for the income tax return or the permanent file. c. Be submitted to the client to support the financial statements and to provide evidence of the audit work performed. d. Be themselves be expected to provide sufficient support for the auditor's opinion.

d. Enable them to reach conclusions about the fairness of the financial statements.

Auditors accumulate evidence to: a. Defend themselves in the event of a lawsuit. b. Justify the conclusions they have otherwise reached. c. Satisfy the requirements of the Securities and Exchange Commission. d. Enable them to reach conclusions about the fairness of the financial statements.

a. Yes Yes Yes

Audits of financial statements are designed to obtain assurance of detecting misstatements due to Errors Fraudulent Financial Reporting Misappropriation of Assets a. Yes Yes Yes b. Yes Yes No c. Yes No Yes d. No Yes No

d. Disagreements the predecessor had with the client concerning auditing procedures and accounting principles.

Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding a. The predecessor's assessments of inherent risk and judgment about materiality. b. The predecessor's evaluation of matters of continuing accounting significance. c. The degree of cooperation the predecessor received concerning the inquiry of client's lawyer. d. Disagreements the predecessor had with the client concerning auditing procedures and accounting principles.

d. Understanding as to the reasons for the change of auditors

Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's a. Awareness of the consistency in the application of generally accepted accounting principles between periods b. Evaluation of all matters of continuing accounting significance c. Opinion of any subsequent events occurring since the predecessor's audit report was issued d. Understanding as to the reasons for the change of auditors

a. Make inquiries of the predecessor auditor after obtaining the consent of the prospective client

Before accepting an engagement to audit a new client, an auditor is required to a. Make inquiries of the predecessor auditor after obtaining the consent of the prospective client b. Obtain the prospective client's signature to the engagement letter c. Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan d. Discuss the management representation letter with the prospective client's audit committee

b. No Yes

Before performing any audit procedures, the auditor and the client should agree on the of type opinion to be expressed Terms of engagement a, Yes Yes b. No Yes c. Yes No d. No No

c. Enhances the credibility of the financial statements.

By providing high level of assurance on audit reports on financial statements, the auditor a. Guarantees the fair presentation of the financial statements. b. Confirms the accuracy of the financial statements. c. Enhances the credibility of the financial statements. d. Assures the readers that fraudulent activities of employees have been detected.

d. Quality control.

CPA firm evaluates its personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm's adherence to which of the following prescribed standards: a. Professional ethics. b. Supervision and review. c. Accounting and review services. d. Quality control.

b. kiting

Coverage of shortage in one bank account by means of an unrecorded check drawn on another bank account is known as: a. lapping b. kiting c. reconciling d. adjusting

a. Used in every financial statement audit.

Documentation is a form of evidence a. Used in every financial statement audit. b. Used in most financial statement audit. c. Used on the rare occasions when it is both readily available and less costly than other procedures. d. Used when nothing is available that is more competent

c. Management representation letter.

During the annual audit of Ajax Corp., a publicly held company, Jones, CPA , a continuing auditor determined that illegal political contributions had been made during each of the past seven years, including the year under audit. Jones notified the board of directors about the illegal contributions, but they refused to take any action because the amounts were immaterial to the financial statements. Jones should reconsider the intended degree of reliance to be placed on the a. Letter of audit inquiry to the client's attorney. b. Prior year's audit programs. c. Management representation letter. d. Preliminary judgment about materiality levels

d. Provide a working paper indexing system that shows the relationship between findings, conclusions, and the related facts

During the working paper review, an audit supervisor finds that the auditor's reported findings are not adequately cross-referenced to supporting documentation. The supervisor will most likely instruct the auditor to a. Prepare a working paper to indicate that the full scope of the audit was carried out b. Familiarize himself with the sequence of working papers so that he will be able to answer questions about the conclusions stated in the report c. Eliminate any cross-references to other working papers since the system is unclear d. Provide a working paper indexing system that shows the relationship between findings, conclusions, and the related facts

d. Before the commencement of the engagement.

Engagement letter that documents and confirms the auditor's acceptance of the engagement would normally be sent to the client. a. Before the auditor report is issued. b. After the audit report is issued. c. At the end of the fieldwork. d. Before the commencement of the engagement.

d. Provide a written record of the agreement with the client as to services to be provided.

Engagement letters are widely used in practice for professional engagements of all types. The primary purpose of the engagement letter is to a. Remind management that the primary responsibility for the financial statements rests with management. b. Satisfy the requirements of the CPA's liability insurance policy. c. Provide a starting point for the auditor's preparation of the preliminary audit program. d. Provide a written record of the agreement with the client as to services to be provided.

b. manipulation, falsification or alteration of records and documents.

Error include all of the following except: a. misapplication of accounting policies b. manipulation, falsification or alteration of records and documents. c. mathematical or clerical mistakes in the underlying records and accounting data d. oversight of accounting policies

d. None of the above

Examples of changes in the nature of an audit engagement include the following except: a. A change in circumstances b. A misunderstanding as to the nature of an audit c. A restriction on the scope of the engagement, whether imposed by management or caused by circumstances d. None of the above

c. Transfer Miss Myra to another engagement to reduce to risk of non-compliance with the independence requirement.

FHV and Company has just completed its annual independence review. Francis, the partner incharge for independence, is reviewing a completed copy of the independence declaration form and noticed that Miss Myra, an audit manager declared that her husband was newly hired as a controller of a Company where Miss Myra is the engagement manager. As partner-in-charge for independence what is the best course of action to take in the situation? a. Discuss the matter with Miss Myra and the engagement partner and ensure that all work done by Miss Myra is properly reviewed by the engagement partner. b. Assigned an Engagement Quality Control Reviewer to ensure that all judgment made by Miss Myra are reviewed and ensure she remains objective. c. Transfer Miss Myra to another engagement to reduce to risk of non-compliance with the independence requirement. d. Discuss the matter with management and those charged with governance and if they agree to continue with Miss Myra as audit manager, then should continue managing the engagement.

d. None of the following

Factors to consider when designing quality control procedures include all of the following except a. Size of the practice b. Organization of the practice c. Cost-benefit considerations d. None of the following

a. Reduce the cost of capital.

Financial statement audits: a. Reduce the cost of capital. b. Report on the compliance with laws and regulations. c. Assess management's efficiency. d. Overlook information risk.

b. no yes yes yes

Financial statements need to be prepared in accordance with one or combination of: Philippine Standards on Auditing Philippine Accounting Standards Other Authoritative or Comprehensive Financial Reporting Framework Philippine Financial Reporting Standard a. yes yes yes yes b. no yes yes yes c. no yes no yes d. yes no no no

d. That the client has informed the predecessor auditor of his appointment as the new auditor

For initial engagements, the auditor should obtain sufficient appropriate audit evidence for the following, except a. That the opening balances do not contain misstatement that materiality affect the current period's financial statements b. That the prior period's closing balances have been correctly brought forward to the current period, or, when appropriate, have been restated c. That appropriate accounting policies are consistently applied or changes in accounting policies have been properly accounted for or adequately disclosed d. That the client has informed the predecessor auditor of his appointment as the new auditor

c. For the statutory period within which legal action may be brought against the independent CPA.

For what minimum period should audit working papers be retained by the independent CPA? a. For the period during which the entity remains a client of the independent CPA. b. For the period during which an auditor-client relationship exists but not more than six (6) years. c. For the statutory period within which legal action may be brought against the independent CPA. d. For as long as the CPA is in public practice.

c. mathematical or clerical mistakes in the underlying records and accounting data.

Fraud include all of the following except: a. recording of transactions without substance b. suppression or omission of the effects of transactions from records or documents c. mathematical or clerical mistakes in the underlying records and accounting data. d. misappropriation of assets

c. Sale or assignment of fictitious or misrepresented assets.

Fraud may be perpetrated with the intent to benefit a company. Which of the following is an example of such a fraud? a. Acceptance of bribes or kickbacks by a purchasing agent. AT Quizzer 6 Consideration of Fraud in Audit of 7 b. Claims submitted for services or goods not actually provided to the company. c. Sale or assignment of fictitious or misrepresented assets. d. Diversion by an employee or outsider of a transaction that would normally generate profits for the company.

c. A qualified or adverse opinion should be issued.

If necessary, the financial statements should be revised for material fraud or a. An unqualified or qualified opinion should be issued. b. A disclaimer of opinion or an adverse opinion should be issued. c. A qualified or adverse opinion should be issued. d. An unqualified opinion or a disclaimer of opinion should be issued.

b. Discuss the matter with a level of management where fraud might have occurred.

If the auditor has determined that there may be fraud that may have material effect on the financial statements, all of the following should be done except a. Consider the implications for other aspects of the audit. b. Discuss the matter with a level of management where fraud might have occurred. c. Try to obtain evidence to determine whether the fraud is material and what its effect will be on the financial statements. d. If appropriate, suggest that the client consult with legal counsel on matters of law.

d. qualified or a disclaimer of opinion

If the auditor is precluded by the entity from obtaining sufficient appropriate audit evidence to evaluate whether noncompliance that may be material to the financial statement has, or is likely to have occurred, the auditor should express a. unqualified or disclaimer of opinion b. qualified or adverse opinion c. disclaimer of opinion or adverse d. qualified or a disclaimer of opinion

b. unlikely

If there is fraud involving the collusion of several employees that includes the falsification of documents, the chance that such a fraud would be uncovered in a normal audit is a. zero b. unlikely c. 50 - 50 d. very high

c. Direct and material

Illegal acts may be a. Indirect and immaterial b. Direct and immaterial c. Direct and material d. All of the above

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

In an internal audit, the audit supervisor determines that working papers are complete a. When satisfied that the audit objectives have been met and the working papers support the conclusions. b. When working papers refer to the steps outlined in the audit program. c. Only after the auditor who prepared the working papers has signed and dated them. d. When proper cross-references to other working papers are noted.

b. Greater for management fraud because of management's ability to override existing internal controls.

In comparing management fraud with employee fraud, the auditor's risk of failing to discover the fraud is a. Greater for employee fraud because of the higher crime rate among blue collar workers. b. Greater for management fraud because of management's ability to override existing internal controls. c. Greater for employee fraud because of the larger number of employees in the organization. d. Greater for management fraud because managers are inherently smarter than employees.

c. Stockholders, creditors and the investing public.

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

a. The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation.

In general, which of the following statements is correct with respect to ownership, possession, or access to working papers prepared by a CPA firm in connection with an audit? a. The working papers may be obtained by third parties where they appear to be relevant to issues raised in litigation. b. The working papers are subject to the privileged communication rule which, in a majority of jurisdictions, prevents third-party access to the working papers. c. The working papers are the property of the client after the client pays the fees. d. The working papers must be retained by the CPA firm for a period of ten years.

c. Assurance of auditor's independence.

In making arrangements for an audit, there should be a clear understanding between the auditor and the client as to the following except: a. The type of audit to be performed. b. Terms of settlement for audit services. c. Assurance of auditor's independence. d. Official to whom audit report shall be addressed

c. Quality of management's business decisions.

In performing a financial statement audit, which of the following would an auditor least likely consider? a. Internal control. b. Compliance with GAAP. c. Quality of management's business decisions. d. Fairness of the financial statements amounts.

d. I, II, III

In performing an acceptance and continuance procedures for a newly accepted engagement, Justine, a new partner in the Firm should obtain information relating to: I. The integrity of the clients management II. Independence of the firm III. Competency to serve the client appropriately a. I and II only b. II and III only c. I and III only d. I, II, III

c. Independence.

In pursuing a CPA firm's quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control objective would this be most likely to satisfy? a. Professional relationship. b. Supervision. c. Independence. d. Advancement.

c. Make inquiries of previous auditors.

In pursuing quality control objectives with respect to acceptance of a client, a CPA firm is likely to a. Make inquiries of the proposed client's legal counsel. b. Review financial statements of the proposed client. c. Make inquiries of previous auditors. d. Review the personnel practices of the proposed client

a. Inspection

In relation to completed engagements, these are procedures designed to provide evidence of compliance by engagement teams with firm's quality control policies and procedures. a. Inspection b. Quality control c. Monitoring d. Engagement quality control reviewer

b. Permanent audit file.

In the case of recurring audits, some working papers files may be classified as audit files which are updated with new information of continuing importance. This type of audit file is known as: a. Current audit file. b. Permanent audit file. c. Electronic audit file. d. Planning memorandum file

c. Identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered.

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 a. Point out to the responsible client officials the errors made by various company personnel. b. Summarize the adjustments that must be made before the company can prepare and submit its income tax returns. c. Identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered. d. Summarize the errors made by the company so that corrections can be made after the audited financial statements are released.

c. Advise the shareholders of the client enterprise regarding the fraud.

In the regular audit of ABC Company, Mr. X, CPA, discovered a material fraud being perpetrated by the cashier. What do you expect most of Mr. X to do? a. Report the incident to the Securities and Exchange Commission. b. Communicate the existence and details of the fraud to the audit committee of the board of directors and to at least one managerial level higher than the position occupied by the fraudster. c. Advise the shareholders of the client enterprise regarding the fraud. d. Make an extensive

d. A statement that the methods or assumptions to be used are not inconsistent with those used by the client

In using the work of a specialist, an understanding should exist among the auditor, the client, and the specialist as to the nature of the work to be performed by the specialist. Preferably, the understanding should be documented and would include all of the following except a. The objectives and scope of the specialist's work b. The specialist's representations as to his relationship, if any, to the client c. The specialist's understanding of the auditor's corroborative use of the specialist's findings in relation to the representations in the financial statements d. A statement that the methods or assumptions to be used are not inconsistent with those used by the client

c. Engagement letter

It documents and confirms the auditor's acceptance of the appointment, the objective and scope of the audit, the extent of the auditor's responsibilities to the client and the form of any reports. a. Representation letter b. Management letter c. Engagement letter d. Comfort letter

c. abstraction of bank funds

It is any illegal misappropriation of bank accounts. Thus, a teller who pockets a portion of his receipts with intent to defraud the bank for the day is guilty of a. kiting on bank funds b. embezzlement c. abstraction of bank funds d. lapping of bank funds

a. Reasonable None

Jones, CPA, is auditing the financial statements of ABC Retailing, Inc. What assurance does Jones provide that the audit will detect either direct-effect illegal acts that are material to ABC's financial statements or illegal acts that have a material but indirect effect on the financial statements? Direct-Effect Illegal Acts Indirect-Effect Illegal Acts a. Reasonable None b. Reasonable Reasonable c. Limited None d. Limited Reasonable

c. Accept the engagement and acquire the necessary competence or consult with established authorities

Lions Inc. has engaged the services of Mr. Reyes, CPA, to make a project study on the expanded food vending operations of the corporation with the corresponding staffing and compensation package for its executive staff. Reyes, however, has primarily auditing expertise and only in general merchandising operations. Mr. Reyes may properly a. Accept the engagement and carry it out consistent with generally accepted auditing standards b. Accept the engagement but exercise due professional care c. Accept the engagement and acquire the necessary competence or consult with established authorities d. Decline the engagement for lack of experience or competence in an entirely new line of specialization

c. Recent change of middle management and rank and file organization structure.

On recurring audits, the auditor may decide not to send a new engagement letter each period. In which of the following situations will there be no need to send a new letter? a. Revision or special terms of the engagement. b. Significant change in nature or size of the client's business. c. Recent change of middle management and rank and file organization structure. d. Indications of misunderstanding of the objective and scope of the audit.

c. Recent change of middle management and rank and file organization structure

On recurring audits, the auditor may decide not to send a new engagement letter each period. In which of the following situations will there be no need to send a new letter? a. Revision or special terms of the engagement b. Significant change in nature or size of the client's business c. Recent change of middle management and rank and file organization structure d. Indications of misunderstanding of the objective and scope of the audit

a. engagement letter

One means of informing the client that the auditor is not responsible for the discovery of fraud is the a. engagement letter b. representation letter c. responsibility letter d. client letter

d. Improve audit efficiency.

Ordinarily, the audit may use schedules, analyses and other documentation prepared by entity personnel in order to: a. Lessen auditor's responsibility. b. Eliminate the need to apply any audit procedures on verifying their correctness. c. Emphasize that the responsibility on financial statements rests with the client management. d. Improve audit efficiency.

b. Corroborate the evidence with other supporting documentation whenever possible.

Professional skepticism dictates that when management makes statement to the auditors, the auditors should a. Disregard the statement because it ranks low of the evidence quality scale. b. Corroborate the evidence with other supporting documentation whenever possible. c. Require that the statement be put in writing. d. Believe the statement in order to maintain the professional client-auditor relationship.

c. Neither honest nor dishonest.

Professional skepticism requires the auditor assume that management is a. Honest, in the absence of fraud risk factors. b. Dishonest until completion of audit tests. c. Neither honest nor dishonest. d. Offering reasonable assurance of honesty.

c. Sub-contracting work to other practices

Quality control in audit firms, both at the firm level and at the level of a specific audit is essential to all audit firms. Methods of quality control in large firms include all of the following except a. Peer reviews b. Use of technical manuals c. Sub-contracting work to other practices d. Training

b. significant deficiencies in the design or operation of the internal control system.

Reportable conditions are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent a. material irregularities or illegal acts perpetrated by high-level management. b. significant deficiencies in the design or operation of the internal control system. c. flagrant violations of the entity's documented conflict-of-interest policies. d. intentional attempts by client personnel to limit the scope of the auditor's field work.

b. more, less

Review responsibilities are determined on the basis that ______ experienced team members, review the work of ______ experienced team members a. more, more b. more, less c. less, more d. less, less

b. Qualifying a report unnecessarily.

Risk audit firms are subject to when they carry out an audit assignment. a. Giving an unqualified report when a qualified one was required. b. Qualifying a report unnecessarily. c. Being negligent such that loss is caused to the client or third party. d. All of the above

a. Yes Yes

Should an auditor communicate the following matters to an audit committee of a public entity? Significant Audit Adjustments Recorded by the Entity Management's Consultation With Other Accountants About Significant Accounting Matters a. Yes Yes b. Yes No c. No Yes d. No No

a. Efficiently

Standardized working papers are often used, chiefly because they allow working papers to be prepared more a. Efficiently b. Professionally c. Neatly d. Accurately

a. Tracking the progress of the engagement

Supervision includes: a. Tracking the progress of the engagement b. Considering the capabilities and competence of individual members of client personnel c. Addressing all issues arising during the engagement and modifying the planned approach appropriately d. Identifying maters for consultation or consideration by less experienced engagement team members during the engagement

c. Is associated with financial statements.

The Philippine Standards on Auditing (PSAs) require that a report be issued whenever a CPA firm a. Performs an audit. b. Is engaged to perform any services of any nature. c. Is associated with financial statements. d. Does SEC regulated work.

a. Hiring the auditor.

The audit committee of the board of directors of a company is responsible for: a. Hiring the auditor. b. Preparing the financial statements. c. The audit working papers. d. Independence and obtaining evidence.

b. Philippine Standards on Auditing.

The audit of historical financial statements should be conducted by the CPA professionals in accordance with a. Generally accepted accounting principles. b. Philippine Standards on Auditing. c. The auditor's judgment. d. The audit program.

a. A special application of the scientific method of inquiry.

The audit process is a. A special application of the scientific method of inquiry. b. Regulated by PICPA. c. The only service a CPA is allowed to perform by law. d. Performed only by CPAs.

d. Lead schedule

The audit working paper that reflects the major components of an amount reported in the financial statements is the a. Interbank transfer schedule b. Carryforward schedule c. Supporting schedule d. Lead schedule

a. Substantive tests

The auditor faces a risk that the examination will not detect material errors that could occur in the accounting process. In regard to minimizing this risk, the auditor primarily relies on a. Substantive tests b. Compliance tests c. Internal control d. Statistical analysis

b. Not more than 60 days after the date of the auditor's report.

The auditor is required to complete the administrative process of assembling the final audit file on a timely basis after the date of the auditor's report. The time limit within which to complete the assembly of the audit file is ordinarily a. Not more than 30 days after the date of the auditor's report. b. Not more than 60 days after the date of the auditor's report. c. Not more than 90 days after the end of the entity's reporting period. d. Not more than 60 days after the date the entity's financial statements are authorized for issue.

c. Both I and II

The auditor may accept or continue an audit engagement only when the basis upon which it is to be performed has been agreed, through I. Establishing whether the preconditions for an audit are present II. Confirming that there is a common understanding between the auditor and management, and where appropriate, those charged with governance of the terms of the audit engagement a. I only b. II only c. Both I and II d. Neither I nor II

d. Both I and II

The auditor shall undertake which of the following activities prior to starting an initial audit? I. Performing procedures required by PSA 220 (Quality Control for an Auditor of Financial Statements) regarding the acceptance of the client relationship and the specific audit engagement II. Communicating with the predecessor auditor, where there has been a change of auditors, in compliance with relevant ethical requirements a. I only b. II only c. Either I or II d. Both I and II

a. Design the audit to provide reasonable assurance of detecting the act.

The auditor should assess the risk that illegal acts may have a material and direct effect on financial statements. Based on that assessment, the auditor should a. Design the audit to provide reasonable assurance of detecting the act. b. Design the audit to provide absolute assurance of detecting the act because of its nature. c. Design the audit in the usual way because of the small likelihood of detecting illegal acts. d. Design the audit in the usual way because illegal acts are outside the scope of the audit.

d. The amount of past contact and dialogue the auditor has with those charged with governance.

The auditor's communication with those charged with governance may be made orally or in writing. The auditor's decision whether to communicate orally or in writing is affected by factors except: a. The nature, sensitivity and significance of the audit matters of governance interest to be communicated. b. The arrangements made with respect to periodic meetings or reporting of audit matters of governance interest. c. The size, operating structure, legal structure and communications processes of the entity being audited. d. The amount of past contact and dialogue the auditor has with those charged with governance.

b. The engagement letter.

The auditor's understanding with a client as to the scope and nature of services to be provided is usually documented in: a. The preliminary planning memorandum. b. The engagement letter. c. Communications with the audit committee d. The audit report

a. professional skepticism

The auditor, in his plan for an examination in accordance with generally accepted auditing standards, being influenced by the possibility of material errors will therefore conduct the examination with an attitude of a. professional skepticism b. subjective mistrust c. objective indifference d. professional responsiveness

c. A copy of the financial statements

The current file of the auditor's working papers generally should include a. A flowchart of the internal controls. b. Copies of bond and note indentures. c. A copy of the financial statements d. Organization charts

b. Can affect legal responsibilities to the client.

The engagement letter a. Does affect the CPA firm's responsibility to external users of audited financial statements. b. Can affect legal responsibilities to the client. c. Can be used to alter the auditor's responsibilities under generally accepted auditing standards. d. Is useful only if it is an engagement, but has no effect for review or compilation services.

d. All seven of the above stated items.

The engagement letter will do one, some, or all of the following: 1. State whether the CPA will perform audit, review, or compilation services. 2. State whether the CPA will perform tax or management advisory or other services. 3. State any restriction to be imposed on the CPA's work. 4. Identify deadlines for completing the work. 5. State the amount and type of work to be done by client's personnel in generating auditor's work papers. 6. State the CPA's fees for the engagement. 7. Inform the client that the CPA does not have responsibility for detecting fraud The engagement letter will do a. Numbers 1, 2, 4 and 6. b. Numbers 1, 2, 3 4 and 6. c. Numbers 1, 3, 5 and 7. d. All seven of the above stated items.

d. Every three years

The firm should communicate the results of the monitoring of its quality control system to engagement partners and other appropriate individuals within the firm at least: a. Every six months b. Every twelve months c. Every two years d. Every three years

d. The firm's decision

The firm should establish policies and procedures requiring appropriate documentation to provide evidence of the operation of each element of its system of quality control. How such matters are documented is based on: a. PSQC1 b. PSA 220 c. Philippine Audit Practice Statements d. The firm's decision

No, No, No, No

The following factors affect the nature, timing and extent of an audit firm's quality control policies and procedures, except: Size and nature of practice Geographic dispersion Organization Appropriate cost/benefit Considerations

c. Work experience and coaching by less experienced staff

The following methods are most likely to develop capabilities and competence, except: a. Professional education b. Continuing professional development, including training c. Work experience and coaching by less experienced staff d. Self-study modules on professional accounting and auditing literature

b. The scope of the audit, excluding reference to applicable legislation, regulations, or pronouncements of professional bodies to which the auditor adheres.

The form and content of the audit engagement letters may vary for each client, but they would generally include reference to except: a. Management's responsibility for all the financial statements. b. The scope of the audit, excluding reference to applicable legislation, regulations, or pronouncements of professional bodies to which the auditor adheres. c. The form of any reports or any communication of results of engagement. d. Unrestricted access to whatever records, documentation and other information requested in connection with the audit.

a. Management's responsibility for all the financial statements

The form and content of the audit engagement letters may vary for each client, but they would generally include reference to: a. Management's responsibility for all the financial statements b. Restricted access to whatever records, documentation and other information requested in connection with the audit. c. The fact that 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 avoidable risk that even some material misstatements may remain undiscovered. d. The type of opinion that may be given out by the auditor.

b. Type of opinion to be rendered by the auditor

The form and content of working papers are affected by matters such as the following except: a. Nature of the engagement b. Type of opinion to be rendered by the auditor c. Nature and complexity of the business d. Needs in the particular circumstances for the direction, supervision and review of work performed by assistants.

c. Involves the objective examination of and reporting on management prepared information.

The independent audit is important to readers of financial statements because it a. Determines the future stewardship of the management of the company whose financial statements are audited. b. Measures and communicates financial and business data involved in financial statements. c. Involves the objective examination of and reporting on management prepared information. d. Reports on the accuracy of all information in the financial statements.

a. One engagement for each engagement partner over an inspection cycle

The inspection of a selection of completed engagements is ordinarily performed on a cyclical basis. Engagements selected for inspection include at least: a. One engagement for each engagement partner over an inspection cycle b. Two engagements for each engagement partner over an inspection cycle c. One engagement for each firm over an inspection cycle d. Two engagements for each firm over an inspection cycle

b. Better organize the working papers

The main advantage of property indexed working papers is to a. Reduce the size of the file b. Better organize the working papers c. Allow division of labor within the audit team d. Facilitate the efficient use of audit staff

b. Illegal acts by clients often relate to operating aspects rather than accounting aspects.

The most likely explanation why the auditor's examination cannot reasonably be expected to bring all illegal acts by the client to the auditor's attention is that a. Illegal acts are perpetrated by management override of internal control. b. Illegal acts by clients often relate to operating aspects rather than accounting aspects. c. The client's internal control may be so strong that the auditor performs only minimal substantive testing. d. Illegal acts may be perpetrated by the only person in the client's organization with access to both assets and the accounting records.

Yes, Yes, Yes

The nature and extent of a CPA firm's quality control policies and procedures depend on: CPA firm's size Nature of CPA firm's practice Cost-benefit

d. All of the above

The nature of an audit engagement changes when there is a. A change in circumstances. b. A misunderstanding as to the nature of the audit. c. A restriction on the scope of the engagement, whether imposed by management or caused by circumstances. d. All of the above

b. Have the knowledge required to enable them to fulfill responsibilities assigned.

The objective of quality control mandates that a public accounting firm should establish policies and procedures for professional development which provide reasonable assurance that all entry-level personnel a. Prepare working papers which are standardized in form and content. b. Have the knowledge required to enable them to fulfill responsibilities assigned. c. Will advance within the organization. d. Develop specialties in specific areas of public accounting.

a. The fairness of the financial statements in all material respects.

The objective of the ordinary audit of financial statements is the expression of an opinion on:\ a. The fairness of the financial statements in all material respects. b. The accuracy of the financial statements. c. The accuracy of the annual report. d. The accuracy of the balance sheet and income statement.

a. A copy of the engagement letter.

The permanent file portion of the auditor's working papers generally should include a. A copy of the engagement letter. b. A copy of key customer confirmation. c. Names and addresses of audit staff personnel on the engagements. d. Time and expense reports.

d. Narrative descriptions of the client's internal control policies and procedures

The permanent file section of the working papers that is kept for each audit client most likely contains a. Review notes pertaining to questions and comments regarding the audit work performed b. A schedule of time spent on the engagement by each individual auditor c. Correspondence with the client's legal counsel concerning pending litigation d. Narrative descriptions of the client's internal control policies and procedures

d. Narrative descriptions of the client's accounting procedures and internal controls

The permanent file section of the working papers that is kept for each audit client most likely contains a. Review notes pertaining to questions and comments regarding the audit work performed. b. A schedule of time spent on the engagement by each individual auditor. c. Correspondence with the client's legal counsel concerning pending litigation. d. Narrative descriptions of the client's accounting procedures and internal controls

a. lapping

The practice of withholding receipts from customer(s) of one date and giving the customer(s) credit at a later date out of cash received from customer is known as: a. lapping b. kiting c. payroll padding d. window dressing

d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements

The primary purpose of an independent financial statement audit is to a. Provide a basis for assessing management's performance b. Comply with government regulatory requirements c. Assure management that the financial statements are unbiased and free from material error d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements

c. To provide increased assurance to users as to the fairness of the financial statements.

The primary reason for audit by an independent, external audit is a. To satisfy governmental regulatory requirements. b. To guarantee that there are no misstatements in the financial statements. c. To provide increased assurance to users as to the fairness of the financial statements. d. To ensure that any fraud will be discovered.

d. Provide reasonable assurance that staff personnel will have the knowledge required to enable them to fulfill responsibilities.

The primary reason why a CPA firm establishes quality control policies and procedures for professional development of staff accountants is to a. Comply with the continuing educational requirements imposed by various states for all staff accountants in CPA firms. b. Establish, in fact as well as appearance, that staff accountants are increasing their knowledge of accounting and auditing matters. c. Provide a forum for staff accountants to exchange their experiences and views concerning firm policies and procedures. d. Provide reasonable assurance that staff personnel will have the knowledge required to enable them to fulfill responsibilities.

d. both b and c

The primary responsibility for the prevention and diction of fraud and error rests with a. the auditor b. those charged with governance c. the management of the entity d. both b and c

c. Theft of inventories

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

a. Management incentive system based on operating income.

The risk of management of fraud increases in the presence of a. Management incentive system based on operating income. b. Improved internal control. c. Substantial increases in sales. d. Frequent changes in suppliers.

d. detection risk

The risk that an auditor's procedures will lead to the conclusion that a material error does exist in an account balance when, in fact, such error does exist, is referred to as: a. audit risk b. inherent risk c. control risk d. detection risk

c. Scope of services.

The single feature that most clearly distinguishes auditing, attestation and assurance is a. Type of service. b. Training required to perform the service. c. Scope of services. d. CPA's approach to the service.

a. I and II

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. a. I and II b. I only c. II only d. Neither I nor II

c. Audit procedures performed are approved in the professional standards

The work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the a. Auditor's system of quality control has been maintained at a high level. b. Results are consistent with the conclusions to be presented in the auditor's report. c. Audit procedures performed are approved in the professional standards. d. Audit has been performed by persons who have adequate technical training and proficiency as auditors.

d. Expectation gap

This is a gap that exists between what the public, especially users of financial statements, believe auditors do (or ought to do) and what the auditors actually do is known as: a. Auditor's gap b. User's gap c. Business gap d. Expectation gap

c. Noncompliance

This refers to acts of omission or commission by the entity being audited, either intentional or unintentional which are contrary to the prevailing laws and regulations. a. Error b. Fraud c. Noncompliance d. Defalcation

b. Misinterpretation by management of facts that existed when the financial statements were prepared.

Under PSA 240, which of the following would be classified as an error? a. Misappropriation of assets for the benefit of management. b. Misinterpretation by management of facts that existed when the financial statements were prepared. c. Preparation of records by employees to cover a fraudulent scheme. d. Intentional omission of the recording of a transaction to benefit a third party.

a. professional independence and objectivity

Under PSA 260, "Communications of Audit Matters With Those Charged with Governance", the effectiveness of communications is enhanced by developing a constructive working relationship between the auditor and those charged with governance. This relationship is developed while maintaining an attitude of a. professional independence and objectivity b. loyalty and objectivity c. professional independence and confidentiality d. objectivity and confidentiality

b. Working paper documentation may not contain readily observable details of calculations.

Using laptop computers in auditing may affect the methods used to review the work of staff assistants because a. Supervisory personnel may not have an understanding of the capabilities and limitations of computers. b. Working paper documentation may not contain readily observable details of calculations. c. The audit fieldwork standards for supervision may differ. d. Documenting the supervisory review may require assistance of management services personnel.

a. Technical qualifications and objectivity

What aspects are most important in determining the eligibility of engagement quality control reviewers? a. Technical qualifications and objectivity b. Integrity and objectivity c. Competence and independence d. All of these

d. Reasonable

What assurance does the auditor provide that errors, fraud and direct-effect illegal acts that are material to the financial statements will be detected? a. Negative b. Limited c. Absolute d. Reasonable

d. Reasonable Reasonable Reasonable

What assurance does the auditor provide that errors, irregularities and direct effect illegal acts that are material to the financial statements will be detected? Errors Direct Effect Irregularities Illegal Acts a.. Limited Negative Limited b. Limited Limited Reasonable c. Reasonable Limited Limited d. Reasonable Reasonable Reasonable

b. Intent

What differentiates fraud from an error? a. Materiality b. Intent c. Effect on financial statements d. Frequency of occurrence

c. Agenda sheet

What do you call the type of working paper where matters of importance are noted down for further verification? a. Summary sheet. b. Audit program. c. Agenda sheet d. Supporting schedules

b. Whether the results of the client's operating decisions are fairly presented in the financial statements.

When a CPA expresses an opinion on financial statements, his or her responsibilities extend to a. The underlying wisdom of the client's management decisions. b. Whether the results of the client's operating decisions are fairly presented in the financial statements. c. Active participation in the implementation of the advice given to the client. d. An ongoing responsibility for the client's solvency.

d. Number of reports to be prepared during the peak audit season

When a professional accountant is the auditor of a parent entity and also the auditor of its subsidiary, branch or division (component), which of the following factors need not be considered in deciding whether to send the separate engagement letter to the component? a. Who appoints the auditor of the component b. Whether a separate audit report is to be issued on the component c. Legal requirements d. Number of reports to be prepared during the peak audit season

d. Number of reports to be prepared during the peak audit season.

When a professional accountant is the auditor of a parent entity and also the auditor of its subsidiary, branch or division (component), which of the following factors need not be considered in deciding whether to send the separate engagement letter to the component? a. Who appoints the auditor of the component. b. Whether a separate audit report is to be issued on the component. c. Legal requirements. d. Number of reports to be prepared during the peak audit season.

c. Evaluate the effect on the financial statements.

When an auditor becomes aware of a possible illegal act by a client, the auditor should obtain understanding of the nature of the act to a. Increase the assessed level of control risk. b. Recommend remedial actions to the audit committee. c. Evaluate the effect on the financial statements. d. Determine the reliability of management's representations.

d. Decide whether the fraud, if in fact it should exist, might be of such a magnitude as to affect the auditor's report on the financial statements.

When an independent auditor's examination of financial statements discloses special circumstances that make the auditor suspect that material errors and irregularities may exist, the auditor's initial course of action should be to a. Recommend that the client pursue the suspected fraud to a conclusion that is agreeable to the auditor. b. Extend normal audit procedures in an attempt to detect the full extent of the suspected fraud. c. Reach an understanding with the proper client representative as to whether the auditor or client is to make the investigation necessary to determine if a fraud has in fact occurred. d. Decide whether the fraud, if in fact it should exist, might be of such a magnitude as to affect the auditor's report on the financial statements.

c. risk

When conducting an audit, errors that arouse suspicion of fraud should be given greater attention than other errors. This is an example of applying the criterion of a. reliability of evidence b. materiality c. risk d. dual-purpose testing

d. When the application of generally accepted auditing standards would have uncovered the fraud.

When is the auditor responsible for detecting fraud? a. When the fraud did not result from collusion. b. When third parties are likely to rely on the client's financial statements. c. When the client's system of internal control is judged by the auditor to be inadequate. d. When the application of generally accepted auditing standards would have uncovered the fraud.

c. refer the matter to the appropriate representatives of the clients with the recommendations that is to be pursued to a conclusion.

When the auditor's regular examination leading to an opinion on the financial statement discloses specific circumstances that make him suspect that fraud may exist and he concludes that the results of such fraud, if any, could not be so material as to affect his opinion, he should a. make a note in his working papers of the possibility of a fraud of immaterial amount so as to pursue the matter next year. b. reach an understanding with the client as to whether the auditor or the client, subject to auditor's review, is to make the investigation necessary to determine whether fraud has occurred and, if so, the amount thereof. c. refer the matter to the appropriate representatives of the clients with the recommendations that is to be pursued to a conclusion. d. immediately extend his audit procedures to determine if fraud has occurred and, if so, the amount thereof.

a. 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.

Whether the auditor has performed an audit in accordance with PSA is determined by a. 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. b. The absence of material misstatements c. The absence of material errors d. The Securities and Exchange Commission

c. I, III and IV only

Which of the following acts are considered fraud? I. Changing of records and documents II. Misinterpretation of facts. III. Misappropriation of assets IV. Recording of transactions without documentation V. Clerical mistakes a. III only b. I and II only c. I, III and IV only d. I, II, III, IV and V

c. Analysis of income statement accounts.

Which of the following analyses appearing in a predecessor's working papers is the successor auditor least likely to be interested in reviewing? a. Analysis of noncurrent balance sheet accounts. b. Analysis of current balance sheet accounts. c. Analysis of income statement accounts. d. Analysis of contingencies.

b. Factors whose presence often has been observed in circumstances where frauds have occurred.

Which of the following best describes what is meant by the term "fraud risk factor"? a. Factors whose presence indicates that the risk of fraud is high. b. Factors whose presence often has been observed in circumstances where frauds have occurred. c. Factors whose presence requires modifications of planned audit procedures. d. Reportable conditions identified during audit.

c. Management places substantial emphasis on meeting earnings projections.

Which of the following characteristics most likely would heighten an auditor's concern about risk of intentional manipulation of financial statements? a. Turnover of senior accounting personnel is low. b. Insiders recently purchased additional shares of the entity's stock. c. Management places substantial emphasis on meeting earnings projections. d. The rate of change in the entity's industry is slow.

c. Management places substantial emphasis on meeting earnings projection.

Which of the following characteristics most likely would heighten the auditor's concern about the risk of intentional manipulation of financial statements? a. Turnover of senior accounting personnel is low. b. Insiders recently purchased additional shares of the entity's stock. c. Management places substantial emphasis on meeting earnings projection. d. The rate of change in the entity's industry is slow.

d. All forms and directives used by the auditee department are included in the working papers.

Which of the following conditions constitutes inappropriate working paper preparation? a. Flowcharts are included in the working papers. b. Findings are cross-referenced to supporting documentation. c. Tick marks are explained in working papers. d. All forms and directives used by the auditee department are included in the working papers.

d. A client representation letter.

Which of the following documentation is required for an audit in accordance with PSA? a. An internal control questionnaire. b. A client engagement letter. c. A planning memorandum or checklist. d. A client representation letter.

d. Lead schedules

Which of the following eliminates voluminous details from the auditor's working trial balance by classifying and summarizing similar or related items? a. Account analyses b. Supporting schedules c. Control accounts d. Lead schedules

c. Ethical requirements

Which of the following factors do not influence the decision of the auditor to send a separate engagement letter to the parent entity and its component (subsidiary, branch or division) assuming the same auditor handles both entities? a. Legal requirements b. Degree of ownership by parent c. Ethical requirements d. Whether a separate audit report is to be issued on the component

a. Client's management.

Which of the following has the primary responsibility for the fairness of the representations made in the financial statements? a. Client's management. b. Audit committee. c. Independent auditor. d. Board of Accountancy

c. A preliminary meeting conference with the client to discuss fees, timing, client assistance and related issues.

Which of the following helps prevent misunderstandings during audit planning? a. Auditor involvement in the preparation of the client's financial records. b. Client involvement in determining specific audit planning issues. c. A preliminary meeting conference with the client to discuss fees, timing, client assistance and related issues. d. Involvement of the client's internal auditors in setting materiality levels and determining the scope of audit tests.

b. Accrual and billing of an improper amount of revenue under government contracts.

Which of the following illegal acts should an audit be designed to obtain reasonable assurance for detecting? a. Securities purchased by relatives of management based on knowledge of inside information. b. Accrual and billing of an improper amount of revenue under government contracts. c. Violations of anti trust laws. d. Price fixing

YES YES YES NO

Which of the following is (are) valid reasons why an auditor sends to his client an engagement letter? To avoid misunderstanding with respect to management To confirm the auditor's acceptance of the appointment To document the objective and scope of the audit To ensure CPA's compliance to PSA

d. Audit program

Which of the following is a basic tool used by the auditor to control the audit work and review the progress of the audit? a. Time and expense summary b. Engagement letter c. Progress flowcharts d. Audit program

d. Accounting services do not provide attestation.

Which of the following is a correct statement? a. An audit provides limited assurance by attesting to the fairness of the client's assertions. b. A review provides positive assurance by attesting the reliability of the client's assertions. c. Management consulting services provide attestation in all cases. d. Accounting services do not provide attestation.

a. Attestation standards cover attest engagements, other than those involving GAAP financial statements.

Which of the following is a difference between attestation standards and auditing standards? a. Attestation standards cover attest engagements, other than those involving GAAP financial statements. b. Attestation standards do not require independence in mental attitude. c. Auditing standards apply only to CPAs while attestation standards apply to all accountants. d. Attestation standards do not include standards of reporting.

d. The subsequent discovery that a material misstatement exists in the financial statements is evidence of inadequate planning, performance or judgment on the part of the auditor.

Which of the following is an incorrect statement? a. The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatement. b. The auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements. c. The auditor is not an insurer, and his or her report does not constitute a guarantee. d. The subsequent discovery that a material misstatement exists in the financial statements is evidence of inadequate planning, performance or judgment on the part of the auditor.

d. Aids in the professional development of the operating staff

Which of the following is an invalid description of why working papers are developed? a. Facilitates third-party reviews b. Aids in the planning, performance and review of audits c. Provides the principal evidential support for the auditor's report d. Aids in the professional development of the operating staff

a. Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved.

Which of the following is correct concerning requirements about auditor communications about fraud? a. Fraud that involves senior management should be reported directly to the audit committee regardless of the amount involved. b. Fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission. c. Fraud with a material effect on the financial statements should ordinarily be disclosed by the auditor through use of an "emphasis of a matter" paragraph added to the audit report. d. The auditor has no responsibility to disclose fraud outside the entity under any circumstances.

b. Those risk factors identified and the auditor's response to them should be documented.

Which of the following is correct concerning the required documentation in the working papers of the performance of the assessment of the risk of material misstatements due to fraud? a. All risk factors considered should be documented and the response to each documented. b. Those risk factors identified and the auditor's response to them should be documented. c. The major categories of risk factors must be identified, but the particular responses to risk factors identified need not be documented. d. No specific documentation is required.

d. Susceptibility of assets to misappropriation

Which of the following is least likely a category of fraud risk factors that relate to misstatements, resulting from fraudulent financial reporting? a. Management's characteristics and influence over the control environment. b. Industry conditions c. Operating characteristics and financial stability d. Susceptibility of assets to misappropriation

d. All of the above are key issues.

Which of the following is not a key issue which need to agreed by the auditor and the client as part of the "terms of engagement"? a. Expectation gap b. Issues of risk assessment c. Use of experts d. All of the above are key issues.

b. Entity personnel alter accounting records from which financial statements are prepared.

Which of the following is not an example of an error? a. Entity personnel make mistakes in gathering or processing accounting data from which a financial statements are prepared. b. Entity personnel alter accounting records from which financial statements are prepared. c. Entity personnel overlook or misinterpret facts, causing accounting estimates to be incorrect. d. Entity personnel make mistakes in the application of accounting principles.

b. Entity personnel make mistakes in the application of accounting principles.

Which of the following is not an example of fraud? a. Entity personnel falsify accounting records. b. Entity personnel make mistakes in the application of accounting principles. c. Entity personnel intentionally omit transactions. d. Entity personnel intentionally misapply accounting principles.

b. Review and approval of audit plan by the partner in charge of the engagement just prior to signing the auditor's report.

Which of the following is not an example of quality control procedure likely to be used by a public accounting firm to meet its professional responsibilities to clients? a. Completion of independence questionnaires by all partners and employees. b. Review and approval of audit plan by the partner in charge of the engagement just prior to signing the auditor's report. c. Evaluating professional staff after the conclusion of each engagement. d. Evaluating its integrity of management for each new audit client

c. Copy of the internal audit's audit program.

Which of the following is not generally included in the working papers file? a. An indication as to who performed the audit procedures and when they were performed. b. Documentation of the auditor's understanding of the accounting and internal control systems. c. Copy of the internal audit's audit program. d. Analyses of significant ratios and trends.

b. The auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to draw reasonable conclusion.

Which of the following is not one of the general principles governing the audit of financial statements? a. The auditor should plan and perform the audit with an attitude of professional skepticism. b. The auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to draw reasonable conclusion. c. The auditor should conduct the audit in accordance with PSA. d. The auditor should comply with the Philippine Code of Professional Ethics.

c. The fact that most audit evidence is persuasive rather than conclusive in nature.

Which of the following is one of the limitations of an audit? a. The possibility that management may prevent the auditor from performing the necessary audit procedures. b. The likelihood that the auditor may not be able to detect material misstatements in the financial statements because the auditor is engaged only after the client's year-end. c. The fact that most audit evidence is persuasive rather than conclusive in nature. d. The risk that

a. Substitute for the entity's accounting records.

Which of the following is the least required of the audit working papers? a. Substitute for the entity's accounting records. b. Confidentiality of information included in the working papers. c. Safe custody of the working papers. d. Retention for a period sufficient to meet the needs of the practice.

d. The manner in which exceptions and unusual matters disclosed by the auditor's procedures were resolved or treated

Which of the following is usually included or shown in the auditor's working papers? a. The procedures used by the auditor to verify the personal financial status of members of the client's management team b. Analyses that are designed to be a part of, or a substitute for, the client's accounting records c. Excerpts from authoritative pronouncements that support the underlying generally accepted accounting principles used in preparing the financial statements d. The manner in which exceptions and unusual matters disclosed by the auditor's procedures were resolved or treated

b. The process used by management in formulating sensitive accounting estimates.

Which of the following matters is an auditor required to communicate to the entity's audit committee? a. The basis for assessing control risk below the maximum. b. The process used by management in formulating sensitive accounting estimates. c. The auditor's preliminary judgments about materiality levels. d. The justification for performing substantive procedures at interim dates

a. Management's responsibility for the entity's compliance with laws and regulations.

Which of the following matters is generally included in an auditor's engagement letter? a. Management's responsibility for the entity's compliance with laws and regulations. b. The factors to be considered in setting preliminary judgments about materiality. c. Management's vicarious liability for illegal acts committed by its employees. d. The auditor's responsibility to search for significant internal control deficiencies.

c. Material error, material fraud and certain illegal acts.

Which of the following most accurately summarizes what is meant by the term "material misstatement"? a. Fraud and direct-effect illegal acts b. Fraud involving senior management and material fraud. c. Material error, material fraud and certain illegal acts. d. Material error and material illegal acts.

b. Analytical procedures

Which of the following ordinarily is designed to detect possible material peso errors on the financial statements? a. Control testing b. Analytical procedures c. Computer controls d. Post-audit working paper review

d. The auditor's opinion is not an assurance as to the future viability of the entity as well as the effectiveness and efficiency with which management has conducted the affairs of the entity.

Which of the following statements about independent financial statement audit is correct? a. The audit of financial statements relieves management of its responsibilities for the financial statements. b. An audit is designed to provide limited assurance that the financial statements taken as a whole are free from material misstatement. c. The procedures required to conduct an audit in accordance with psas should be determined by the client who engaged the services of the auditor. d. The auditor's opinion is not an assurance as to the future viability of the entity as well as the effectiveness and efficiency with which management has conducted the affairs of the entity.

b. The auditor should document his understanding of the client's internal control which is to be used to plan the audit

Which of the following statements about working papers is correct? a. Working papers are not permitted to be used as a reference source by the client b. The auditor should document his understanding of the client's internal control which is to be used to plan the audit c. Working papers may be regarded as a substitute for the client's accounting records d. When reporting on comparative financial statements, the independent auditor may discard working papers after two years

d. The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements, and design the audit to provide reasonable assurance of detecting material errors and fraud.

Which of the following statements best describes an auditor's responsibility to detect errors and fraud? a. The auditor should study and evaluate the client's internal control and design the audit to provide reasonable assurance of detecting all errors and fraud. b. The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements, and determine whether the necessary internal controls are prescribed and are being followed satisfactorily. c. The auditor should consider the types of errors and fraud that could occur, and determine whether the necessary internal controls are prescribed and are being followed. d. The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements, and design the audit to provide reasonable assurance of detecting material errors and fraud.

d. The auditor should assess the risk that errors and irregularities may cause the financial statements to contain material misstatements, and design the audit to provide reasonable assurance of detecting material errors and irregularities.

Which of the following statements best describes an auditor's responsibility to detect errors and irregularities? a. The auditor should study and evaluate the client's internal control system, and design the audit to provide reasonable assurance of detecting all errors and irregularities. b. The auditor should assess the risk that errors and irregularities may cause the financial statements to contain material misstatements, and determine whether the necessary internal control procedures have been prescribed and are being followed satisfactorily. c. The auditor should consider the types of errors and irregularities that could occur, and determine whether the necessary internal control procedures have been prescribed and are being followed. d. The auditor should assess the risk that errors and irregularities may cause the financial statements to contain material misstatements, and design the audit to provide reasonable assurance of detecting material errors and irregularities.

a. An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and irregularities.

Which of the following statements concerning illegal acts by clients is correct? a. An auditor's responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and irregularities. b. An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect illegal acts that have an indirect but material effect on the financial statements. c. An auditor considers illegal acts from the perspective of the reliability of management's representation rather than their relation to audit objectives derived from financial statement assertions. d. An auditor has no responsibility to detect illegal acts by clients that have an indirect effect on the financial statements.

a. Audit procedures that are effective for detecting an unintentional misstatement may be ineffective for an intentional misstatement that is concealed through collusion.

Which of the following statements describes why a properly designed and executed audit may not detect a material fraud? a. Audit procedures that are effective for detecting an unintentional misstatement may be ineffective for an intentional misstatement that is concealed through collusion. b. An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning material fraud. c. The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional errors in the financial statements. d. The auditor did not consider factors influencing audit risk for account balances that have pervasive effects on the financial statements taken as a whole.

a. Audit procedures that are effective for detecting an unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion.

Which of the following statements describes why a properly designed and executed audit may not detect material fraud? a. Audit procedures that are effective for detecting an unintentional misstatements may be ineffective for an intentional misstatement that is concealed through collusion. b. An audit is designed to provide reasonable assurance of detecting material errors, but there is no similar responsibility concerning material fraud. c. The factors considered in assessing control risk indicated an increased risk of intentional misstatements, but only a low risk of unintentional errors in the financial statements. d. The auditor did not consider factors influencing audit risk for account balances that have pervasive effects on the financial statements taken as a whole.

a. This communication should include disagreements with management about significant

Which of the following statements is correct concerning an auditor's required communication with an entity's audit committee? a. This communication should include disagreements with management about significant audit adjustments, whether or not satisfactorily resolved. b. If matters are communicated orally, it is necessary to repeat the communication of recurring matters each year. c. If matters are communicated in writing, the report is required to be distributed to both the audit committee and management. d. This communication is required to occur before the auditor's report on the financial statements is issued.

a. The audit firm owns the audit documentation

Which of the following statements is correct with respect to ownership of audit documentation? a. The audit firm owns the audit documentation b. The audit client owns the audit documentation c. The audit client and audit firm have joint ownership of the audit documentation d. The law is not explicit with respect to the ownership of audit documentation

d. The examination by CPAs of a CPA firm's auditing practices to ascertain compliance with its quality control system is known as a peer review.

Which of the following statements is incorrect? a. Quality controls are the policies and procedures adopted by a firm in all its audit work. b. Personnel of an auditing firm are presumed to know all the firm's general quality control policies and procedures and need not be communicated to them whenever they are sent out for audit engagements. c. Quality control policies are objectives and goals, while quality control procedures are steps to be taken to accomplish the policies adopted. d. The examination by CPAs of a CPA firm's auditing practices to ascertain compliance with its quality control system is known as a peer review.

b. An auditor may draft an entity's financial statements based on information from management's accounting system.

Which of the following statements is true concerning an auditor's responsibilities regarding financial statements? a. Making suggestions that are adopted about the form and content of an entity's financial statements impairs auditor's independence. b. An auditor may draft an entity's financial statements based on information from management's accounting system. c. The fair presentation of audited financial statements in conformity with GAAP is an implicit part of the auditor's responsibilities. d. An auditor's responsibilit

b. Errors in the financial statements require adjustment of the client's accounting records.

Which of the following statements is true? a. Errors in the financial statements can be ignored because they are intentional. b. Errors in the financial statements require adjustment of the client's accounting records. c. Fraud requires attention of the auditor, but errors do not. d. Fraud has serious implications only because of their monetary effect on the financial statements.

a. The auditor's responsibilities to detect errors and fraud in client's financial statements are basically the same.

Which of the following statements is true? a. The auditor's responsibilities to detect errors and fraud in client's financial statements are basically the same. b. The auditor has a greater responsibility to detect errors in client's financial statements than to detect fraud in client's financial statements. c. The auditor has responsibility to detect errors in client's financial statements but no responsibility to detect fraud. d. The auditor has responsibility to detect fraud in client's financial statements but no responsibility to detect errors.

d. An auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements.

Which of the following statements reflects an auditor's responsibility for detecting errors and fraud? a. An auditor is responsible for detecting employee errors and simple fraud, but not for discovering fraud involving employee collusion or management override. b. An auditor should plan the audit to detect errors and fraud that are caused by departures from GAAP. c. An auditor is not responsible for detecting errors and fraud unless the application of GAAS would result in such detection. d. An auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements.

d. PSA 220 prescribes all the procedures to implement each quality control policy applicable to auditing firms.

Which of the following statements regarding quality control policies and procedures is incorrect? a. Quality control policies and procedures should be implemented at both the level of the audit firm and on an individual audit. b. The audit firm should implement quality control policies and procedures designed to ensure that all audits are conducted in accordance with PSAs or relevant national standards or practices. c. Quality control policies are objectives and goals while quality control procedures are steps to be taken to accomplish the policies adopted. d. PSA 220 prescribes all the procedures to implement each quality control policy applicable to auditing firms.

d. "After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement."

Which of the following statements would least likely appear in an auditor's engagement letter? a. "Fees for our services are based on regular per diem rates, plus travel and other out-of-pocket expenses." b. "During the course of our audit, we may observe opportunities for economy in, or improved controls over your operations." c. "Our engagement is subject to the risk that material misstatements of fraud, if they exist, will not be detected." d. "After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement."

c. Recent changes in senior management, board of directors or ownership.

Which of the following will not necessarily lead the client to request for the auditor to change the engagement to one which provides a lower level of assurance? a. Restrictions on the scope of engagement, whether imposed by management or caused by circumstances. b. Misunderstanding as to the nature of the audit or related service originally requested. c. Recent changes in senior management, board of directors or ownership. d. Change in circumstances affecting the need for the service

c. Recent changes in senior management, board of directors or ownership

Which of the following will not necessarily lead the client to request for the auditor to change the engagement to one which provides a lower level of assurance? a. Restrictions on the scope of the engagement, whether imposed by management or caused by circumstances b. Misunderstanding as to the nature of an audit or related service originally requested c. Recent changes in senior management, board of directors or ownership d. Change in circumstances affecting the need for the service

a. A copy of a long-term bond indenture

Which of the following working papers would one normally expect to find in the permanent file? a. A copy of a long-term bond indenture b. The working trial balance c. An analysis of additions and disposals relating to marketable securities d. A workpaper analyzing customer replies to confirmation requests

a. Determining that the entity's management lacks integrity.

Which of the following would most likely cause a CPA not to accept an audit engagement? a. Determining that the entity's management lacks integrity. b. The inability to perform audit procedures prior to year end. c. Determining that the entity's internal control is weak. d. Appointment after the close of the fiscal year.

b. The downsizing of business and financial markets.

Which of the following would not represent one of the primary problems that would lead to the demand for independent audits of a company's financial statements? a. Management bias in preparing financial statements. b. The downsizing of business and financial markets. c. The complexity of transactions affecting financial statements. d. The remoteness of the user from the organization and thus the inability of the user to directly obtain financial information from the company.

a. An expert providing a written communication as the product of the engagement.

Which one of the following is an example of management expectation for independent auditors? a. An expert providing a written communication as the product of the engagement. b. Individuals who perform day-to-day accounting functions on behalf of the company. c. An active participant in management decision making. d. An internal source of expertise on financial and other matters.

b. Complexity of making economic decisions.

Which one of the following is not among the conditions that give rise to a demand by external users for independent audits of financial statements? a. Remoteness of users. b. Complexity of making economic decisions. c. Potential conflict of interest between users and preparers of the statements. d. Consequence for making decisions.

b. The successor auditors should obtain permission from the prospective client to contact the predecessor auditors

Which statement is correct relating to a potential successor auditor's responsibility for communicating with the predecessor auditors in connection with a prospective new audit client? a. The successor auditors have no responsibility to contact the predecessor auditors b. The successor auditors should obtain permission from the prospective client to contact the predecessor auditors c. The successor auditors should contact the predecessors regardless of whether the prospective client authorizes contact d. The successor auditors need not contact the predecessors if the successors are aware of all available relevant facts

c. Advise the client to file a corrected return regardless of whether or not the error resulted in an overstatement of tax.

While performing tax services for a new client, the CPA discovered a material error in a previously filed tax return prepared by another CPA. In such case, he should: a. Prepare an affidavit with respect to the error. b. Recommend compensating for the prior year's error in the current year's tax return where such action will mitigate the client's cost and inconvenience. c. Advise the client to file a corrected return regardless of whether or not the error resulted in an overstatement of tax. d. Inform the BIR of the error

d. Engagement partner

Who is responsible for forming a conclusion on compliance with independence requirements that apply to the audit engagements? a. Audit staff b. Audit supervisor c. Engagement manager d. Engagement partner

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

Why does an auditor document audit evidence? a. To comply with the requirements of gathering all available evidence. b. To provide client reference for all account balances and correcting entries. c. To support audit opinion and to provide evidence that the audit was carried out in accordance with PSA. d. To document all records of misstatements noted in the financial statements.

c. Knowledge required to fulfill assigned responsibilities and to progress within the firm.

Within the context of quality control, the primary purpose of continuing professional education and training activities, is to enable a CPA firm to provide personnel within the firm with a. Technical training that assures proficiency as an auditor. b. Professional education that is required in order to perform with due professional care. c. Knowledge required to fulfill assigned responsibilities and to progress within the firm. d. Knowledge required in order to perform a peer review

c. Designed to meet the circumstances of the particular engagement.

Working papers that record the procedures used by the auditor to gather evidence should be a. Considered the primary support for the financial statements being audited. b. Viewed as the connecting link between the books of accounts and the financial statements. c. Designed to meet the circumstances of the particular engagement. d. Destroyed when the audited entity ceases to be a client.

a. Current audit files

Working papers which contain information relating primarily to the audit of a single period. a. Current audit files b. Permanent audit files c. Financial reporting files d. Correspondence files

a. The client's financial statements may be materially false and misleading.

information risk refers to the risk that a. The client's financial statements may be materially false and misleading. b. The auditor may express an unqualified opinion on financial statements that are materially misstated. c. The client may not be able to remain in business. d. Errors and frauds would not be detected by the auditor's procedures.

c. Fraudulent financial reporting

ntentional or reckless conduct, whether act or omission, that results in materially misleading financial statements is called: a. An error b. Fraud c. Fraudulent financial reporting d. An illegal act