2. The following statements relate to assurance engagements. Choose the

incorrect statements.

1) The objective of an assurance engagement is for a professional

accountant to evaluate or measure a subject matter that is the

responsibility of another party against suitable criteria, and to

express a conclusion that provides the intended user with a level of

assurance about the subject matter.

2) Assurance engagements performed by professional accountants are

intended to enhance the credibility of information about a subject

matter.

3) Assurance engagements involve two parties: a professional accountant

and an intended user.

4) The subject matter of an assurance engagement is limited to

historical or prospective financial information.

5) The intended user in an assurance engagement is the person or class

of persons for whom the professional accountant prepares the report

for a specific use or purpose.

3. Inquiries of the predecessor auditor prior to acceptance of the

engagement should include specific questions regarding:

I. disagreements with management as to accounting principles and

auditing procedures

II. the integrity of management

4. A CPA should not decide NOT to accept a new client for an audit

engagement if:

I. the CPA lacks an understanding of the client’s industry and

accounting principles prior to acceptance

II. the client’s management has unusually high turnover

5. Which statement is incorrect regarding an engagement to perform agreed-

upon procedures?

6. Which of the following procedures would an auditor likely perform in

the planning stage of a financial statement audit?

I. Obtaining a signed engagement letter from the client’s

management

II. Examining documents to detect violations of laws and

regulations having a material effect on the financial

statements.

7. Which of the following procedures is likely to be performed in the

planning stage of the audit?

I. Determining the extent of involvement of specialists and

internal auditors

II. External confirmation of client accounts receivables

8. Internal auditing is considered to be part of an organization's:

9. All of the following are correct regarding an auditor’s understanding

with a potential client prior to beginning an audit EXCEPT:

10. Which of the following will cause the auditor to assess inherent risk

as high?

I. Complex transactions with third parties are discovered.

II. No related-party transactions are discovered.

III. Management relies heavily on estimates in the financial

statements.

11. Which of the following is correct?

I. Control risk is not part of overall audit risk, although it is

assessed by the auditor.

II. Detection risk is part of overall audit risk, but it is not

assessed by the auditor.

12. The need for independent audits of financial statements can be

attributed to all of the following conditions except:

13. Control risk is:

I. influenced by the amount of work or other testing performed by

the independent auditor

II. mitigated by good internal controls

14. On the basis of audit evidence gathered and evaluated, an auditor

decides to increase the assessed level of control risk, and therefore

the risk of material misstatement, from that originally planned. To

achieve an overall audit risk level that is substantially the same as

planned audit risk level, the auditor would:

15. If a company incorrectly applies an accounting principle to a

significant transaction, and the misstatement was other than

intentional, which of the following could describe the misstatement?

I. Error

II. Fraud

16. 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?

17. Management’s ability to foresee problems and take steps in advance to

prevent problems is known as:

I. control environment

II. control activities

18. The component of internal control that refers to adequate physical

safeguards and segregation of duties is known as:

I. control environment

II. risk assessment

III. control activities

19. In the internal control stage, an independent auditor searches for

control activities to:

I. determine whether the opportunities to allow any person to both

perpetrate and conceal fraud are minimized

II. determine whether procedures and records concerning the

safeguarding of assets are reliable

20. An auditor gains an understanding of the client’s attempt to keep

internal controls up to date. This ongoing process of keeping

controls effective:

I. refers to the monitoring component of internal control

II. is often performed by the internal audit function

21. After gaining and documenting an understanding of the components of

internal control, the auditor should make a preliminary assessment of

control risk. If the auditor’s investigation indicates that internal

control is weak, the auditor should:

I. use the combined (or reliance) approach for further audit

procedures

II. emphasize substantive testing rather than test of controls

22. An auditor is performing tests of controls in hopes of assessing

control risk to be less than high in order to reduce overall audit

testing. After obtaining an understanding of the design of an

individual system, the auditor should:

I. seek to identify specific control activities within that system

that would reduce control risk if they are operating

effectively and efficiently, as intended

II. analyze and confirm

23. The reporting company records sales revenue and accounts receivable

near the end of the year because a sales order has been received.

However, the earnings process will not be complete until next period.

Which assertion is affected in the current year?

I. Occurrence

II. Existence

24. Prior to shipping, a copy of the sales order is:

I. sent to the billings department to verify that the shipment is

going to an approved customer who is not over any credit limit

II. sent to the billings department to enable the billings

department to prepare a bill of lading

25. If the objective of an auditor’s test of details is to detect a

possible understatement of sales, the auditor most likely would trace

transactions from the:

26. Which assertion is being most directly addressed when an auditor

selects a sample of sales invoices and compares it to the subsequent

journal entries recorded in the sales journal?

27. Which of the following requires a CPA firm providing audit and attest

services to adopt a system of quality control?

I. PICPA

II. BIR

28. Which of the following elements of quality control encompasses

criteria for recruitment and hiring compensation and advancement?

29. Who normally performs the following functions?

I. Sends the cash confirmation requests to the bank

II. Concludes that the audit engagement team is independent from

the client?

30. Which is/are normally first granted to the professional accountant

after obtaining a minimum of three years meaningful experience?

I. Certificate of Registration

II. Certificate of Accreditation to Practice Public Accounting

III. PRC ID

31. With regard to the elements of quality control at the firm, the

category known as leadership responsibilities is essential because:

I. the firm’s leadership bears the ultimate responsibility for the

firm’s quality control systems

II. the firm must be able to perform the engagement within the

reporting deadlines

32. A CPA firm that fails to maintain quality control standards:

I. has not necessarily violated PSAs

II. may still be incompliance with professional standards with

respect to individual audit engagements.

33. Which is the appropriate confirmation type for each situation?

I. The risk of material misstatement for the existence of

receivables is high

II. The account is composed of a small number of subsidiary

accounts with high monetary values

34. Would an auditor normally confirm the accounts payables?

35. Which assertion is directly related to the auditor selecting an

inventory item from the accounting records and searching for it in

the warehouse during count observation?

1. Which of the following statements is NOT true regarding the auditor’s

responsibility for subsequent events?

2. If the auditor believes that a client’s financial statements need to be

revised to reflect a subsequent event and management does not make the

revision, the auditor should express which type of opinion?

3. Which of the following is NOT a primary function of audit working

papers?

4. Which of the following is correct concerning related-party transactions?

I. The audit procedures directed toward identifying related-party

transactions should include considering whether transactions

are occurring but are not given proper accounting recognition.

II.An auditor should substantiate that related-party transactions

were consummated on terms equivalent to those that prevail in

arm’s-length transactions.

5. Which type of subsequent event requires consideration by management and

evaluation by the auditor?

1. I.Subsequent events that have a

   direct effect on the financial

   statements and require

   adjustment.

2. II. Subsequent events that have no

   direct effect on the financial

   statements but for which

   disclosure is considered.

6. When should auditors generally assess a client’s ability to continue as

a going concern?

7. Which of the following procedures and methods are important in assessing a

company’s ability to continue as a going concern?

I. Discussions with management

regarding future plans related to

sales activities, cost controls,

and marketing efforts.

II.Reviewing quarter on the internal

control questionnaire specifically

asking the client to evaluate the

ability to continue.

8. Which of the following is NOT one of the interrelated elements of

quality control at the firm?

9. In an audit of financial statement, the entity’s management is

responsible for:

I. establishing, maintaining, and monitoring the entity’s

internal controls

II. considering whether those controls are operating as intended

10. According to PSA 210, this refers to the use by management of an

acceptable financial reporting framework in the preparation of the

financial statements and the agreement of management and, where

appropriate, those charged with governance to the premise on which an

audit is conducted.

11. The predecessor auditor is required to respond to the request of

the successor auditor for information, but the response can be limited

to stating that no information will be provided when

12. When developing the overall strategy for the audit, the auditor

will

13. Fraud occurs when

14. What type of report is intended to meet the needs of a broad range

of users who need information and assurance about operating

effectiveness of controls at a service organization that affect the

security, availability, and processing integrity of the systems the

service organization uses to process users' data and the confidentiality

and privacy of the information processed by these systems?

15. Which of the following best explains the relationship between

general controls and application controls?

16. The most serious shortcoming of the haphazard sample selection

method is

17. Which of the following statements is correct when dealing with

sampling for exception rates?

18. You are preparing to issue a report on the compilation of

financial statements. Prior to issuing the report you should

19. When the subject matter information is provided to the

intended user in the assurance report, such engagement is

20. According to PSRS, the procedures employed in doing compilation

are:

21. Which one of the following is not a reason why the users of

financial statements desire for an independent assessment of the

financial statement presentation?

1. Complexity of transactions affecting the financial statements

2. Lack of criteria on which to base information

3. Remoteness of the user from the organization

22. The use of negative assurances in audit reports of historical

financial statements is

23. When an independent auditor expresses an unqualified opinion,

he asserts that:

1) He performed the audit in accordance with PSAs.

2) The company is a profitable and viable entity.

3) The financial statements examined are in conformity with GAAP.

4) The financial statements are accurate and free of errors.

24. If management is unwilling to rectify the other information to

resolve a material inconsistency with the audited financial statements

25. When a client refuses to include the statement of cash flows in

its financial statements because it believes that it is not a useful

document, the auditor’s opinion should be

26. Described below are situation which have arisen in one of your

audit clients for year-end June 30, 2020.

Mark owns a painting by a little known artist, Dambie, which cost ₱12,000

when it was purchased in 1984.

Following news reports that another painting by the same artist has just

sold at a prestigious art auction for ₱1,000,000, the directors have

increased the valuation of the existing painting to ₱1,015,240 (i.e. cost

plus ₱1,000,000) following a valuation from a reputable firm of art

experts. The excess over the cost has been taken to the Statement of

Comprehensive Income under the heading “Other Operating Income”. The

quantum of the adjustment comfortably exceeds engagement materiality for

the entity.

The most likely opinion that you will issue to Mark is a (an)?

27. Pantry Trading prepares comparative financial information. Audited

financial statements for the current year 2019 are presented with

audited financial statements for 2018 and 2017 and unaudited 2016

financial statements.

Auditor’s opinion for comparative financial statements covers

28. Evaluate the following statements:

I. Average of at least 75

II. Grades 65 and above in majority of subjects tested

Which of the above is/are correct requirement(s) to pass the licensure

examination for CPAs?

29. Evaluate the following statements:

I. Mastery of a skill

II. Commitment to self-interest

Which of the above is/are factors why accountancy is considered a

profession?

30. Evaluate the following sources of evidence for the existence of cash:

I. Bank statement given by the client to the auditor

II. Cash confirmation replies directly received by the auditor from

the bank

Which is true about their reliability?

31. Evaluate the following specific inventory count procedures as

regards the related assertions:

I. Auditor selects an inventory item from the warehouse then checks

if the item is in the count sheet and the accounting records

II. Auditor selects an inventory item from the count sheet and the

accounting records then physically locates the item inside the

warehouse

32. Evaluate the following specific inventory procedures as regards

the related assertions:

I. Auditor searches for potentially damaged and unsaleable inventory

items in the warehouse

II. Auditor inspects the subsequent selling prices of the inventory

and compares them with the cost

33. Classify the following provisions of the code of ethics:

I. Professional accountants must adhere to the fundamental ethical

principles

II. The auditor cannot serve as an underwriter of a PIE client

34. Evaluate the following services to be provided to a PIE audit client:

I. Valuing the CGU of the client prior to performing goodwill

impairment computations

II. Negotiating for the client as part of a recruiting service.

35. Evaluate whether the statements are true or false:

I. NOCLAR responsibilities are different considering whether the

client is a PIE or not

II. NOCLAR are intentional acts of commission only as they exclude

unintentional omissions