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WorksheetsMB-AUDTH-SET B
Total questions: 38
Worksheet time: 19mins
Which one of the following best describes the assurance process?
Proving the accuracy of the books and records
Gathering evidence about specific and known assertions
Assisting management in the successful operations of the company
Assembling and filing tax returns and related supplemental information
Which of the following statements is correct?
RA 9298 provides for and governs the supervision, control, and regulation of the practice of Filipino professional accountants in the Philippines and abroad.
RA 9298 is aligned with the policy of the State to recognize accountants in revenue generation and development.
A CPA, though not a lawyer, can teach law subjects in the BSA program.
A person is deemed to be in public practice when he/she is involved in decision-making requiring professional knowledge in the science of accounting and the accounting aspects of finance and taxation or is employed in a position requiring a CPA.
When exercising professional judgment, this refers to the tendency of the CPA to use an initial piece of information as an anchor against which subsequent information is inadequately assessed.
Availability bias
Anchoring bias
Confirmation bias
Selective perception
Which of the following is least appropriately considered a condition or event that indicates that there could be substantial doubt about an entity's ability to continue as a going concern?
Issuance of bonds at the prevailing interest rate.
Uneconomic long-term commitments.
Arrearages in dividends.
An uninsured or underinsured catastrophe.
Statement I: If the auditor concludes that the identified or suspected non-compliance has a material effect on the financial statements and has not been adequately reflected in the financial statements, the auditor shall express a qualified opinion or disclaim an opinion on the financial statements. Statement II: If the auditor is precluded by management or those charged with governance from obtaining sufficient appropriate audit evidence to evaluate whether non-compliance that may be material to the financial statements has, or is likely to have, occurred, the auditor shall express a qualified opinion or adverse opinion on the financial statements based on a limitation on the scope of the audit.
Only statement I is true.
Only statement II is true.
Both statements are true.
Both statements are false.
Which of the following statements is true with respect to the concept of independence when an auditor prepares and audits those financial statements for a client?
The auditor is not independent.
The auditor is independent if he or she can maintain professional detachment.
The auditor can audit the financial statements only if the audit process does not culminate in expressing an opinion on the financial statements.
The auditor cannot audit the financial statements since a lack of integrity exists.
An auditor plans to apply substantive tests to the details of asset and liability accounts as of an interim date rather than as of the statement of financial position (SFP) date. The auditor should be aware that this practice:
Eliminates the use of certain statistical sampling methods that would otherwise be available.
Presumes that the auditor will reperform the tests as of the SFP date.
Should be especially considered when there are rapidly changing economic conditions.
Potentially increases the risk that errors that exist at the SFP date will not be detected.
Analytical procedures are required at the planning stage of all audits and as:
Tests of control
Substantive procedures
A part of the final overall review
Computer generated procedures
Which of the following best describes why auditors are concerned with detecting related party transactions?
The financial statements must often be adjusted for the effects of material related party transactions.
Material related party transactions must be disclosed in the notes to the financial statements.
The substance of related party transactions will differ from their form.
In a related party transaction, one party can exercise significant influence over the other party.
An auditor should request that management provide written representations regarding uncorrected misstatements in the financial statements that state:
The individual and cumulative differences between the auditor's point estimates and the recorded amounts for uncorrected misstatements.
Management's acceptance of responsibility for the auditor's opinion, if modified due to the uncorrected misstatements.
Whether management believes that the effects of uncorrected misstatements are immaterial, individually and in the aggregate, to the financial statements as a whole.
Management's rationale for not correcting misstatements noted during the course of the audit.
Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should not be accepted?
There are significant related party transactions that management claims occurred in the ordinary course of business.
Internal control activities requiring the segregation of duties are subject to management override.
Management continues to employ an inefficient system of information technology to record financial transactions.
It is unlikely that sufficient evidence is available to support an opinion on the financial statements.
When a company has changed auditors:
The successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about the client before the engagement is accepted; the predecessor has no responsibility to initiate this contact, even when aware of matters bearing on the integrity of management.
The predecessor must respond fully to all inquiries made by the successor auditor.
The successor must discuss with the predecessor auditor matters bearing on the engagement before accepting the engagement.
The successor may choose not to attempt any communication with the predecessor auditor.
Tests for unrecorded assets typically involve tracing from:
Source documents to recorded journal entries.
Source documents to observations.
Recorded journal entries to documents.
Recorded journal entries to observations.
Which statement is correct concerning the relevance of various types of controls to a financial statement audit?
An auditor may ordinarily ignore the consideration of controls when using a substantive audit approach.
Controls over the reliability of financial reporting are ordinarily most directly relevant to an audit, but other controls may also be relevant.
Controls over safeguarding assets and liabilities are of primary importance, while controls over the reliability of financial reporting may also be relevant.
All controls are ordinarily relevant to an audit.
Under which circumstance is it likely that the extent of substantive procedures will be expanded beyond that anticipated in the audit plan?
The auditors have determined that controls have been implemented (placed in operation) but, in accordance with the audit plan, have performed no tests of controls.
Certain controls do not leave a trail of documentary evidence.
Deviation rates were greater than zero and approached anticipated levels.
The operating effectiveness of certain controls was found to be less than expected, although no material misstatements were identified.
For effective internal control, which functions should not be assigned to the company's accounting department?
Reconciling accounting records with existing assets
Recording financial transactions
Signing payroll checks
Preparing financial reports
Which of the following would the auditors consider a weakness in an IT system?
Operators have access to terminals.
Programmers are allowed access to the file library.
A data control group handles reprocessing of exceptions detected by the computer.
More than one employee is present when the computer facility is in use.
When designing the physical layout of a data processing center, which of the following would be least likely to be a necessary control that is considered?
Design of controls to restrict access
Adequate physical layout space for the operating system
Inclusions of an adequate power supply system with surge protection
Consideration of risks related to other uses of electricity in the area
Which of the following applications of sampling to test controls is most appropriate?
Testing a sample of customer orders for evidence of credit approval.
Testing a sample of controls to determine segregation of duties between inventory control and sales processing duties.
Testing a sample of accounts receivable confirmations.
Testing a sample of the budget center directors' allocation of annual budget to sales units.
If a subsequent event occurs after the report date but prior to the release date of an audit report, resulting in management's revision of the financial statements, then the auditor may do any of the following, except:
Maintain the original date of the report and state that the opinion is limited to the financial statements as they existed prior to the subsequent event.
Perform audit procedures necessary to obtain assurance about the revised financial statements.
Include an additional date in the audit report that is limited to the revision to the financial statements.
Revise the date of the audit report to reflect the necessity of additional audit procedures.
An internal control questionnaire indicates that an approved receiving report is required to accompany every check request for payment of merchandise. Which of the following procedures provides the best evidence of operating effectiveness?
Select and examine receiving reports and test whether the related canceled checks are dated no earlier than the receiving reports.
Select and examine receiving reports and test whether the related canceled checks are dated no later than the receiving reports.
Select and examine canceled checks and test whether the related receiving reports are dated no earlier than the checks.
Select and examine canceled checks and test whether the related receiving reports are dated no later than the checks.
Which of the following might indicate possible overstatement in depreciation expense in the prior and current years?
The company has many fully depreciated assets that are still in records as they are still being used by the company.
The company experiences excessive recurring losses on retirement of equipment.
The company has large purchases of equipment at the beginning of each year.
The company changed depreciation method from straight-line to the declining balance method for the current year as a result of a change in the asset’s use
Which of the following would be least likely to diminish the validity of evidence obtained through the confirmation of accounts receivable?
The confirmations are sent on the client's letterhead.
The confirmations are mailed to customers by the internal auditors.
The client's mailroom personnel closely monitor and inspect confirmations during mailing.
The return address on the envelope used to send the confirmation request is that of the client.
A receiving department compares inventory items received with copies of purchase orders. The purchase orders list the vendor’s name and do not list the quantities of the material ordered. Using the purchase orders, the receiving department is most likely to detect:
Deliveries for which no purchase order was issued.
Unapproved sales orders.
Partial deliveries.
Deliveries of inferior quality than what was expected.
A 'bill and hold' scheme is most likely to include:
Shipment of items to a customer beyond what the customer has ordered.
Recording as sales items that the company retains as of year-end.
Billing of items that customers hold for future revenue production purposes.
Selling items at substantial discounts near year-end.
Which of the following procedures would an auditor most likely perform while evaluating audit findings at the conclusion of an audit?
Obtain assurance from the entity's attorney that all material litigation has been disclosed in the financial statements.
Verify the clerical accuracy of the entity's proof of cash and its bank cutoff statement.
Determine whether reportable conditions have been corrected.
Develop an estimate of the total likely misstatement.
When a practitioner examines projected financial statements, the practitioner's report should include a separate paragraph that:
Describes the limitations on the usefulness of the presentation.
Provides an explanation of the differences between an examination and a review.
States that the accountant is responsible for events and circumstances for a period not exceeding one year after the report's date.
Disclaims an opinion on whether the assumptions provide a reasonable basis for the projection.
Which of the following shall be included in the firm’s response to circumstances indicating an engagement team omitted a required audit procedure or the report may be inappropriate?
I - Respond appropriately to relevant professional standards and applicable legal and regulatory requirements.
II - When the report is considered inappropriate, consider the implications and take appropriate action, but avoid obtaining legal advice.
Statement I: An engagement quality review is an objective evaluation of the significant judgments made by the engagement team, and the conclusions reached thereon, performed by the engagement quality reviewer and completed on or after the date of the engagement report. Statement II: The engagement quality reviewer may be an employee of the firm.
Only statement I is true.
Only statement II is true.
Both statements are true.
Both statements are false.
Statement I: It may be appropriate for the engagement team, in the context of the firm’s policies or procedures, to consult outside the firm where the firm lacks appropriate internal resources. Statement II: The engagement team are not allowed to seek for advisory services provided by firms, professional and regulatory bodies or commercial organizations that provide relevant quality control services.
Only statement I is true.
Only statement II is true.
Both statements are true.
Both statements are false.
An auditor determines that the management integrity is high, the risk of account misstatements is low, and the client’s information system is reliable. Which of the following conclusions can be reached regarding the need to perform direct tests of account balances?
Direct tests should be limited to material account balances, and the extent of testing should be sufficient to corroborate the auditor’s assessment of low risk.
Direct tests of account balances are not needed.
Direct tests of account balances are necessary if audit risk was set at a low level but are not necessary if audit risk was set at a high level.
Direct tests should be performed on all account balances to independently verify the correctness of the financial statements.
When a client declines to disclose essential information in the financial statements or notes, the auditor of the financial statements should:
Provide the information in the audit report, if practicable, and qualify the opinion because of a limitation on the scope of the audit.
Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from acceptable financial reporting framework.
Issue a disclaimer of opinion because the client has interfered with the auditor's function of assessing the adequacy of disclosure.
Issue an unqualified opinion, but inform the reader by including the omitted information in the audit report.
The management of Stanley Corporation has decided not to account for a material transaction in accordance with the provisions of a recent statement of the FRSC. They have set forth their reasons in note 'R' of the financial statements, which clearly demonstrates that due to unusual circumstances, the financial statements would otherwise have been misleading. The auditors' report on the financial statements will probably contain a(an):
Qualified opinion.
Unqualified opinion.
Adverse opinion.
The auditors' report on the financial statements will probably contain a(an):
Qualified opinion.
Unqualified opinion.
Adverse opinion.
Disclaimer opinion.
Statement I: The auditor shall not express an unmodified opinion on a single FS of a complete set of FS if the auditor has expressed an adverse opinion or disclaimed an opinion on the complete set of FS as a whole. Statement II: Expressing an unmodified opinion on a single FS which came from a complete set of FS that was given an adverse opinion or disclaimer of opinion is allowed only if such an unmodified opinion is published separately from the auditor’s report containing the adverse opinion or disclaimer of opinion.
Only statement I is true.
Only statement II is true.
Both statements are true.
Both statements are false.
Which of the following audit procedures would the auditor mostly likely include in his substantive testing audit program for auditing trade and other current liabilities?
Sending confirmation letters to suppliers with outstanding balances as at the end of the year.
Vouching entries several days after the balance sheet date in the cash disbursements journal to supporting documents.
Vouching entries several days before the balance sheet date in the purchases journal or voucher register to supporting documents.
Sending confirmation letters to suppliers with significant account balances as at the end of the year.
Which of the following is correct?
The auditor renders cash count primarily to gather evidence regarding the completeness assertion over cash.
Checks accommodated by the petty cash fund are acceptable valid support to the custodian’s accountability whether the said checks are cashable or not as of the count date.
Customer collections checks are acceptable valid support to the custodian’s accountability whether the said checks are depositable or not to the bank as of the count date.
Cash count shortage arises when the acceptable valid support to the accountability exceeds the supposed custodian’s accountability.
Which of the following statements is not typical of property, plant and equipment as compared to most current asset accounts?
A property, plant and equipment cut-off near year-end has more significant effect on net income
Relatively few transactions occur in property, plant and equipment during the year
Auditors normally elect direct substantive testing rather than test of controls in auditing property, plant and equipment accounts.
Property, plant and equipment accounts typically has higher peso value.
