TOTAL 30 QUESTIONS

PPT

1..The risk that the information presented may be materially false and misleading is referred to
as the

A. Business risk

B. Client risk

C. Information risk

D. Risk assessment

2.The single feature that most clearly distinguishes auditing, attestation, and assurance is

A. Type of service

B. CPA's approach to the service

C. Scope of services

D. Training required to perform the service

3.Which of the following criteria is unique to the independent auditor's attest function?

A. General competence

B. Familiarity with the particular industry of each client

C. Due professional care

D. Independence

4.The three types of attestation services are:

A. Audits, reviews, and compilations

B. Audits, compilations, and other attestation services

C. Audits, reviews, and other attestation services

D. Reviews, compilations, and other attestation services

5.Not all engagements performed by professional accountants are assurance engagements.

Other engagements frequently performed by professional accountants that are not assurance
engagements include the following, except

A. Agreed-upon procedures

B. Compilation of financial or other information

C. Management consulting

D. Examination of prospective financial information

6. Which of the following is not an assurance engagement?

A. Audit of prospective financial statements

B. Review of interim historical financial statements

C. Comprehensive audit

D. Preparation of tax returns that use estimates

TRUE OR FALSE
TRUE 1. Assurance services help enhance the reliability of financial information throughout the
capital markets.

TRUE 2. Assurance refers to the practitioner's contentment that the information made by an
entity is reliable

FALSE 3. Assurance services refer to engagements in which a practitioner expresses a

conclusion designed to enhance the degree of confidence of the practitioner about the outcome
of the evaluation of a subject matter.

FALSE 4. The practitioner must be independent of the responsible party and the public.

TRUE 5. The responsible party may not be from the same organization as the intended users
but may be one of the intended users.

FALSE 6. The intended users must have at least one responsible party to constitute an
assurance engagement.
1. Unlike consulting services, assurance services:

A. Make recommendations to management

B. Report on quality information

C. Report on how to use information

D. Are two-party contracts

2. Assurance engagements should exhibit the following elements, except:

A. A subject matter.

B. Suitable criteria.

C. Sufficient appropriate evidence.

D. Appropriate professional fees.

3. The subject matter of an assurance engagement may include

A. Financial information

B. Compliance with regulation

C. Internal controls

D. All of these

4. According to the framework for assurance engagement, the criteria must be

A. Sufficient and appropriate

B. Suitable and available to intended users

C. Sufficient or appropriate

D. Suitable or available to intended users

5. Which of the following is not suitable criteria in the context of audit?
A. IFRS

B. PFRS for SME

C. PSA

D. GAAP

6. The following cannot be a suitable criterion for an assurance engagement, except?

A. Practitioner's own expectations

B. Practitioner's judgment

C. Practitioner's experience

D. Agreement between the responsible party and the intended users

TRUE OR FALSE
FALSE 1. Sufficiency and appropriateness of evidence are interrelated factors and, as such, are
considered complements.

FALSE 2. The determination of materiality is a mathematical exercise that is a vital process in

planning the nature, timing, and extent of assurance engagement procedures.

FALSE 3. Inherent risk refers to the susceptibility of the subject matter information to
misstatements before consideration of controls.

FALSE 4 A practitioner may consider a procedure not applicable if it would entail a high level of
costs to the assurance service.

TRUE 5. The more the practitioner intends to exhibit the attitude of professional skepticism, the
more engagement procedures will be required.

TRUE 6. The more the practitioner intends to exhibit the attitude of professional skepticism, the
more engagement procedures will be required.
1 Characteristics of suitable criteria do not include

A. Neutrality

B. Understandability

C. Comparability

D. Relevance

2. Which of the following is not one of five elements exhibited by all assurance engagements?

A. The subject matter

B. A multi-party relationship involving a practitioner, a responsible party, those in charge with

governance, and the intended users

C. Suitable criteria

D. Evidence

3. According to the IAASB Glossary of terms, this refers to a professional accountant in public
practice
A. Auditor

B. Professional

C. Practitioner

D. Public accountant

4. Who is responsible for determining the nature, timing, extents of assurance

A. Practitioner

B. Practitioner and Responsible Party

C. Practitioner and Intended User

D. Practitioner, Responsible Party, and Intended User

5. The person or person who in a direct reporting engagement, is responsible for the subject
matter; or in an assertion-based engagement, is responsible for the subject matter information
(the assertion), and may be responsible for the subject matter.
A. General public

B. Audit committee

C. Responsible party

D. Intended users

6. Which of the following is an example of a formal criterion(a)?

I. Philippine Public Sector Accounting Standards

II. Number of times a committee meets in a year

A I only

B II only

C. Both I and II

D. Neither I nor II

FALSE 10. The criteria used to evaluate a subject matter must be included in any document
that contains the assurance report issued on such subject matter.

FALSE 11. Review reports are normally dated as of the client's balance sheet date.

FALSE 12. A review is an engagement in which the accountant undertakes to present, in the
form of financial statements, information that is the representation of management.

FALSE 13. A professional accountant must be independent to issue a compilation report.

TRUE 14. A professional accountant must be independent to issue a review report.

TRUE 15. The accountant is not required to obtain an understanding of the client's internal
control in a compilation engagement.

Jumbled Word Question (Fill in the blank)

Assurance engagement (or services) means an engagement in which a _______ expresses a

conclusion designed to enhance the degree of confidence of the intended users other than the
responsible party about the outcome of the evaluation or measurement of a subject matter
against criteria.
 1. ____ are representations made by an audit client, explicit or
otherwise, about economic actions and events.
Answer: Assertions
Choices: report, assertions, audit evidence

2. External audit benefits the public by lending ______ to the

items presented in the financial statements.
Answer: credibility
Choices: assurance, expertise, credibility

3. The ______'s opinion does not assure the future viability of

the audit client nor the efficiency and effectiveness of its
operations
Answer: auditor
Choices: Provider, auditor, manager

4. The _____ _______ must be adequately supported by records and

documents to be considered an appropriate subject matter.
Answer: Financial statements
Choices: audit report, financial statements, reliable information

5. An audit, when carried out, may act as a/an ______ for fraud
and error.
Answer: Deterrent
Choices: Evidence, review, deterrent

6. Auditors serve numerous parties, but most importantly

is the public, as exemplified by investors, creditors, and
other stakeholders.
Answer:TRUE

7. Providers of external audits and internal audits are both

independent of the management which allows them to perform
financial statements audits.
Answer:FALSE

8. The overall objective of the auditor in a financial

statements audit is to have an opinion on whether the
financial statements are prepared, in all material
respects, in accordance with the criteria.
Answer:FALSE
 9. The opinion to be expressed by the auditor must pertain
individually and separately to each financial statement
presented by management.
Answer:FALSE

10. The high demand for audits is present because it is

required by law.
Answer:FALSE

11. It is a risk that the auditor expresses an inappropriate

audit opinion when the financial statements are materially
misstated.

ANSWER: Audit Risk

12. It refers to any event or activity that will prevent the

entity from meeting its business objectives such as wealth and
profit maximization.

ANSWER: Business Risk

13. The risk that the information prepared and presented by the
entity contains misstatement.

ANSWER: Information Risk

14. The risk that an auditor reaches an incorrect conclusion

because the sample is not representative of the population.

ANSWER: Sampling Risk

15. It is the probability that financial statements are

materially misstated, due to failures in the controls used by a
business.

ANSWER: Control Risk

16. Which is incorrect regarding internal auditing?

a. It encompasses both financial and operational auditing.
b. An internal audit department reports to the audit
committee and senior management.
c. It aids primarily to management and those charged with
governance.
d. It can be performed only by internal auditors.
 17. The objective of the ordinary audit of financial statements
is the expression of an opinion on:
a. The fairness of the financial statements
b. The accuracy of the annual report
c. The accuracy of the financial statements
d. The balance sheet and income statement

18. The need for an independent audit arises due to the following
reasons. (Choose the expectation)
a. Expertise auditors
b. Competing interests
c. Remoteness of users
d. Complexity of decision making
19. Which is not a theoretical postulate framing an audit?
a. Financial data can be subjected to verification.
b. Long-term conflict between the auditor and client may
exist.
c. An audit benefits the public.
d. The auditor is independent of the client.

20. Which of the following types of audits is performed to

determine whether an entity’s financial statements are fairly
presented in conformity with generally accepted accounting
principles?
a. Operational audit
b. Compliance audit
c. Financial Statement audit
d. Performance audit

21. It refers to the audit procedures deemed necessary in the

circumstances to achieve the objective of the audit.

ANSWER: Scope of an audit

22. The auditor’s opinion

A. Enhances the credibility of the financial statements.

B. Is an assurance as to the future viability of the

entity.

C. Is an assurance as to the efficiency with which

management has conducted the affairs of the entity, but not
effectiveness.
 D. Certifies the correctness of the financial statements.

23. Inherent limitations of an audit arise due to the

auditor's exposure, control risks, and detection risks.

ANSWER: FALSE

24. Which of the following types of auditing is performed

most commonly by CPAs on a contractual basis.

A. Internal auditing

B. Government auditing

C. BIR auditing

D. External auditing

25. Depending on the magnitude of audit procedures, the level

of assurance provided by auditors ranges from high to
absolute levels.

ANSWER: FALSE

26. The word auditing comes from the Latin audire, which means:
a. To see
b. To test
c. To hear
d. To detect

27. Which of the following can be significantly affected by an

audit?
a. Business risk
b. Information risk
c. The risk-free interest rate
d. Inherent risk

28. The term that describes the role of persons entrusted with
the supervision, control and direction of an entity is
a. Management
b. Administration
c. Governance
 d. Government
29. To maximize independence, the director of internal auditing
should report to the
a. Audit committee
b. Controller
c. Chief finance officer
d. Director of information system

30. The predominant type of attestation service performed by CPAs

is
a. Audit
b. Review
c. Compilation
d. Management consulting

31. The risk that the client’s financial statements may be

materially false and misleading is referred to as the
A. Business Risk
B. Risk Assessment
C. Client Risk
D. Information Risk

32. The auditor communicates the results of his or her work

through the medium of the

A. Engagement Letter
B. Management Letter
C. Auditor Report
D. Financial Statements

33. Which of the following is/are correct?

Statement 1: The primary purpose of a compliance audit is to

determine whether the financial statements are prepared in
compliance with generally accepted accounting principles.

Statement 2: Results of compliance audits are typically

reported to someone within the organizational unit being audited
rather than to a broad spectrum of outside users.

A. Only statement 1 is correct

B. Only statement 2 is correct
 C. Both statements are correct
D. Both statements are incorrect

34. This involves the application of relevant training,

professional knowledge, skill, and experience commensurate with
the facts and circumstances, considering the nature and scope of
the particular professional activities and the interests and
relationships involved.

A. Professional Skepticism
B. Professional Mindset
C. Professional Judgment
D. Professional Accountant

35. The auditor’s judgment concerning the overall fairness of

the presentation of financial position, results of operation,
and changes in financial position is applied within the
framework of

A. Generally accepted accounting principles

B. Generally accepted accounting standards
C. Internal control
D. Information systems control
CHOOSE YOUR FIRST REPRESENTATIVE

3-3 MULTIPLE CHOICE

1. It is the act regulating the practice of accountancy in the Philippines,

appropriating funds therefor and for other purposes

A. RA 9298
B. PD 692
C. RA 10912
D. RA 8981

2. Competent, virtuous, productive and well-rounded professional accountants

are developed and nurtured through

I. Inviolable, honest, effective and credible licensure examinations

II. Regulatory measures, programs and activities

III. Penalties and fines

A. I only
B. II only
C. I and II only
D. I, II and III

3. Statement 1: The state recognizes the importance of accountants in nation

building and development. Statement 2: The state shall develop and nurture
competent, virtuous, productive and well-rounded professional accountants.
Statement 3: Professional growth and development of accountants are fostered
through credible licensure examinations and regulatory measures, programs and
activities.

A. True, True, True

B. True, False True
C. False, True, False
D. True, False, False
4. Which of the following is not considered a sector of the practice of
accountancy?

A. Education or academe
B. Government
C. Private accountancy
D. Commerce and industry

5. The objectives of RA 9298 include

I. The standardization and regulation of accounting education

II. The examination for registration of CPAs

III. The integration of the practice of accountancy

IV. The supervision, control, and regulation of the practice of accountancy

A. I, II and III
B. I, II and IV
C. II, III and IV
D. I, II, III and IV

6. This shall constitute in a person involved in decision making requiring

professional knowledge in the science of accounting, or when such employment
or position requires that the holder thereof must be a certified public
accountant.

A. Practice in the government

B. Practice in public accountancy
C. Practice in commerce and industry
D. Practice in academe or education

7. The area of practice of accountancy namely public accountancy, commerce

and industry, academe/education, and government.

A. Scope of practice
B. Sector
C. Areas
D. Fields of expertise
8. Positions in the private sector that require extensive financial reporting roles
and responsibilities shall be occupied by a CPA if the business has

A. Paid-up capital of at least 5M and/or annual revenue of at least 10M

B. Paid-up capital of at least 10M and/or annual revenue of at least 5M
C. Total assets of at least 10M and/or annual net income of at least 5M
D. Total assets of at least 5M and/or annual net income of at least 10M

9. Which of the following doesn't constitute as practice of public accountancy?

A. A partner or as a staff member in an accounting or auditing firm, holding out

himself/herself as one skilled in the knowledge, science and practice of
accounting, and as a qualified person to render professional services as a
certified public accountant

B. Offering or rendering activities that require expertise on the field of financial

reporting, auditing, taxation, management accounting business laws in exchange
for compensation

C. Preparation, signing, or certification for clients of reports of audit, balance

sheet, and other financial, accounting and related schedules; exhibits,
statements or reports which are to be used for publication or for credit
purposes, or to be filed with a court or government agency, or to be used for any
other purpose

D. Represents clients before government agencies on tax and other matters

related to accounting or renders professional assistance in matters relating to
accounting procedures and the recording and presentation of financial facts or
data

10.
Statement 1: The dean of the College of Accountancy that exclusively offers the
BSA Program must be a CPA.
Statement 2: The dean of the College of Business, Accountancy and Management
shall be a CPA.
Statement 3: The program chair of the BSA program must be a CPA.

A. True, True, True

B. True, False, True
C. False, True, True
D. True, False, False
11.
Statement 1: Only Certified Public Accountants are allowed to teach technically
related subjects in the BSA program.

Statement 2: Practice in the academe shall constitute in a person in an

educational institution which involve technically related subjects.

A. True, True
B. True, False
C. False, True
D. False, False

12. This shall constitute in a person who holds, or is appointed to, a position in an
accounting professional group in government or in a government- owned and/or
controlled corporation.

A. Practice in the government

B. Practice in public accountancy
C. Practice in commerce and industry
D. Practice in academe or education

13. The Professional Regulatory Board of Accountancy shall be composed of

A. Chairman and six members

B. Six members with a chairman
C. Seven members and a chairman
D. Seven members with a chairman

14. It is the regulatory body for the practice of accountancy in the Philippines.

A. Board of Accountancy
B. Public Company Accounting Oversight Board
C. Securities and Exchange Commission
D. Bangko Sentral ng Pilipinas

15. Statement 1: The vice-chairman shall preside in all meetings of the Board.
Statement 2: The majority of the members of BOA must be from the public
accountancy sector.

A. Only Statement 1 is correct

B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect
3-4 MULTIPLE CHOICE QUIZZERS

1. Which of the following correctly relates to the appointment process of the

members of the board?

I. The members are appointed by the President of the Philippines

II. The Commission submits 3 recommendees to the President based on a list of

nominees

III. 6 nominees for each position will be submitted by PICPA to the Commission

A. Only one statement is correct C. All statements are correct

B. Only two statements are correct D. All statements are incorrect

2. PICPA shall submit its Board member nominations with complete

documentation to PRC not later than —------ prior to the expiry of the term of the
incumbent chairman or member.

A. 30 DAYS
B. 60 DAYS
C. 90 DAYS
D. 120 DAYS

3. The vice-chairman of BOA shall have a term of

A. 1 year
B. 2 years
C. 3 years
D. 4 years

4. A member of the Board shall, at the time of his/her appointment, posses the
following qualifications, except

A. Must be a natural-born citizen and a resident of the Philippines

B. Must be a duly registered Certified Public Accountant with at least ten (10) years
of work experience in any scope of practice of accountancy.

C. Must be associated to at least one educational institution

D. Must be of good moral character and must not have been convicted of
crimes involving moral turpitude

5. Jamil, CPA was appointed as the BOA Chairman in 2022. After serving 1
complete term, in what year is he eligible for reappointment?

A. 2025
B. 2026
C. 2028
D. He is no longer eligible for reappointment.

9. Which of the following statements is/are correct?

A BOA shall be under the supervision of PRC.

B. All records of BOA, including exam questions and answer sheets, shall be
under the custody of PRC

C. BOA shall designate its own secretary

D. None of the above.

10. The administration and conduct of CPA licensure examinations shall be

facilitated in accordance with the rules and regulations set out in

A. RA 9298
B. RA 8981
C. RA 10912
D. RA 10968

11. Which of the following is not a qualification of applicants for the CPA licensure
examinations?
A. A natural born citizen and resident of the Philippines

B. Is of good moral character

C. Is a holder of the degree of Bachelor of Science in Accountancy conferred by a

school, college, academy or institute duly recognized and/or accredited by the
CHED

D. Has not been convicted of any criminal offense involving moral turpitude.

12. The following documents shall be submitted by applications of CPA licensure

examinations, except
A. Certificate of Live Birth
B. College diploma and transcript of records
C. National Bureau of Investigation clearance
D. Certificate of good moral character from an educational institution

13. Which of the following is not a subject in the CPA licensure examinations?

A. Advance Financial Accounting and Reporting

B. Business Law and Taxation
C Management Advisory Services
D. Auditing

3-5 MULTIPLE CHOICE QUIZZERS

1. BOA may revise the licensure examination subjects and syllabi

A. Every 2 years
B.Every 3 years
C. Every 5 years
D. As needed

2. As required by RA 9298, the Board shall submit to PRC the ratings obtained by
each candidate within

A 10 calendar days
B. 10 working days
C. 10 weeks
D. The period determined by BOA

3. Prior to entering the practice of the profession, successful candidates are

required to

A. Answer an evaluation form

B. Take an oath of profession
C. Teach accountancy courses in their alma mater
D. Take another set of CPA examinations

4. Evaluate the following

I. All successful candidates in the examination shall be required to take an oath
of profession

II. The oath shall be taken before any BOA member or government official
authorized by PRC or by law

III. An oath is not required for CPAs admitted in the practice of accountancy
under reciprocity or international agreements

A. Only one statement is correct C. All statements are correct

B. Only two statements are correct D. All statements are incorrect

5. Any candidate who fails in two (2) complete CPA Board Examinations shall A be
disqualified from taking another set of examinations unless he/she submits
evidence to the satisfaction of the Board that he/she enrolled in and completed

A. At least twenty-four (24) units of subject given in the licensure examinations

B. At least twenty-four (24) units of subject in the BSA program

C. A review course in any CPA review centers in the Philippines

D. Refresher course is no longer required

6. The certificate of registration of successful examinees

A. Shall be issued to every registrant and renewable every three years

B. Shall bear the signature of the President of the Philippines and the chairman
and members of the Board

C. Shall be stamped with the official CPA seal of the registrant

D. Shall remain in full force and effect until withdrawn, suspended or revoked

7. A Professional Identification Card shall be issued to every registrant

renewable every

A. 2 years C. 5 years
B.. 3 years D. 10 years

8. Whenever a CPA signs any document in connection with the practice of the
profession, (s)he is required to indicate the following, except
A Certificate of registration number
B.Date of issuance and validity of his identification card
C Tax identification number
D. Professional tax receipt number

9. Who has the power to suspend or revoke the practitioner's certificate of

registration and professional identification card?

A. PRC
B. BOA
C. PICPA
D. AASC

10. The Board shall not register and issue a certificate of registration and
professional identification card to any successful examinee who is

I. Convicted by a court of competent jurisdiction of a criminal offensE

involving moral turpitude
II. Convicted for a political offense
III. Any person of unsound mind

A. I and II
B. II and III
C. I and III
D. I, II and III

11. The certificate of registration of Juan, CPA was revoked by the Board as he was
convicted of a crime involving moral turpitude. When can the Boar reinstate the
validity of his certificate?

A. After he successfully passed another set of CPA board examination

B. After 2 years from the date of revocation
C. After 3 years from the date of revocation
D. He is no longer allowed to reinstate his certificate

12. A person is allowed to practice the accountancy profession if (s)he

I. Received a certificate of registration

II. Be issued a professional identification card
III. Issued a valid temporary/special permit

A. I and II
B. II and III
C. I and III
D. I, II and III

13. Certified public accountants registered at the time RA9298 took effect shall

A. Take a new set of CPA licensure examinations

B. Automatically be registered as CPAs

C. Renew their certificate of registration

D. Take an oath of profession

14. Which of the following is incorrect regarding meaningful experience?

A. At least two years as audit assistant and at least one year as auditor in charge
of audit engagement covering full audit functions

B. Teaching for at least three (3) trimesters or two (2) semesters subjects in
technically related subjects with a cumulative experience of at least 3 school
years

C. Significant involvement in general accounting, budgeting, tax administration,

internal auditing, liaison with the Commission on Audit or any other related
functions

D. Significant involvement in general accounting, budgeting, tax administration,

internal auditing, liaison with external auditors, representing his/her employer
before government agencies on tax and matters related to accounting or any
other related functions

15.
Statement 1: A certificate of registration shall be issued to certified public
accountants in public practice only upon showing that such registrant has
acquired a minimum of three (3) years meaningful experience.

Statement 2: The Securities and Exchange Commission shall not register any
corporation organized for the practice of public accountancy.

A. True, True
B. True, False
C. False, True
D. False, False

3-6 MULTIPLE CHOICE QUIZZERS

1. Statement 1: All working papers made by a CPA shall be treated confidential

and privileged and shall remain property of his/her client.

Statement 2: The workings papers shall be provided to the authorities if required

through a subpoena issued by any court, tribunal or government regulatory or
administrative body.

A True, True
B.. True, False
C. False, True
D. False, False

2. The one and only registered and accredited national professional organization
of registered and licensed certified public accountants.

A. ACPAPP
B. NACPAE
C. PICPA
D. JPIA

3. Evaluate the following statements.

I.. PICPA shall have a creditable plan to enlist into active membership within three
(3) years, at least a majority of the CPAs in the practice of accountancy

II. PICPA shall only have fifteen (15) national directors

III. PICPA is duly registered as a stock corporation or association by the Securities

and Exchange Commission (SEC)

A. Only one statement is correct C. All statements are correct

B. Only two statements are correct D. All statements are incorrect

4. The PICPA shall renew its Certificate of Accreditation once every

A. Year
B. 2 years
C. 3 years
D. 5 years

5. The following are grounds for the cancellation of the certificate of

accreditation of PICPA, except

A. It no longer serves the best interest of the CPAs

B. Failure to sustain membership of a significant portion of CPAs

C. It has not submitted the required audited financial statements

D. It served the best interest of professional accountants

6. Individual practitioners and partnerships engaged in the practice of public

accountancy shall register with PRC and BOA. The registration is required to be
renewed

A. Every 2 years
B. Every 3 years
C. Every 5 years\
D. The registration shall remain in full force and effect until withdrawn,
suspended or revoked
7. After becoming a sole proprietor, a partner surviving withdrawal of all the other
partners in a Partnership may continue to death or practice under the
Partnership name for

A. 1 year
B. 2 years
C. 3 years
D. Not allowed.

8. How many CPE credit units must be accumulated by a registered accounting

professional within the 3-year period starting 2019?

A. 60 credit units
B. 80 credit units
C. 100 credit units
D. 120 credit units

9. Which statement is correct regarding CPE (Continuing Professional Education)

requirements for renewal of professional license?

A. The total CPE credit units required for CPAs shall be sixty (60) units for three (3)
years provided that a minimum of fifteen (15) credit units shall be earned in each
year.

B. A registered professional shall be permanently exempted from CPE

requirements upon reaching the age of 65 years old.

C. A registered professional who is working abroad shall be temporarily exempted

from compliance with CPE requirement during his/her stay abroad, provided that
he/she has been out of the country for at least one (2) year immediately prior to
the date of renewal.

D. Senior citizens are not exempted from CPD requirements.

10. Which of the following describes masteral degree?

A. Shall refer to a graduate degree in accountancy, business or related field from

a recognized school, college or university.

B. Shall refer to a post graduate degree in accountancy, business or related field

from a recognized school, college or university.
C. Shall mean training or specialization at the postgraduate level for a minimum
period of one (1) week.

D. None of the above

11. As a participant, one credit hour of Continuing Professional Development

program, activity or source shall be equivalent to

A. 5 credit units
B. 3 credit units
C. 2 credit units
D. 1 credit unit

12. As a condition to register or renew the certificate of accreditation, BOA shall

require the applicant to undergo a

A. Inspection
B. Audit
C. Quality review
D. Practice review

13. Which of the following is correct regarding the Quality Review Committee?

I. Conduct quality review on applicants for registration to practice private

accountancy
II. Recommend the revocation of the certificate of registration and PIC of
applicants who has not observed the quality control measures
III. BOA may conduct the required quality review.

A. I and II
B. II and III
C. I and III
D. I, II and III

14. The death or disability of an individual CPA and dissolution or liquidation of a

firm or partnership shall be reported to BOA not later than

A. 10 days
B. 30 days
C. 60 days
D. 120 years

C
15. Statement 1: Only CPAs in academe/education shall abide by the
requirements, rules and regulations on continuing professional education (CPE).
Statement 2: A CPE council has been created to implement the CPE program.

A. True, True
B. True, False
C. False, True
D. False, False

3-7 MULTIPLE CHOICE QUIZZERS

1. Which of the following is an objective of the CPE program?

I. To provide and ensure the continuous education of a registered

professional with the latest trends in the profession

II. To raise and maintain the professional's capability for delivering

professional services To make the professional locally competitive

A. I and II
B. II and III
C. I and III
D. I, II and III

2. Which of the following is not a function of the Chairperson of the PRC CPE
council?

A. To preside council meetings

B. To submit annual reports
C. To issue certificate of registration to CPE providers
D. To prescribe the code of ethics for professional accountants

3. The PRC CPE Council may delegate the processing of applications and keeping
of all records for CPE providers and their respective programs and credit units
earned by each CPA to

A NACPAE
B. PICPA
C. ETC
D. CHED
4. Which of the following is a requirement to be accredited as a CPE provider?

I. .Must be a duly registered organization, firm, institution or agency, or a

professional of good standing and has never been convicted of a crime

II. Shall have an established mechanism and updated instructional materials

to carry out the CPE programs and activities

III. Shall have instructors, lecturers, trainers and resource speakers with good
moral character, technical competence, facilitation skills and are holders
of current CPA licenses.

A. I and II
B. II and III
C. I and III
D. I, II and III

5. Statement 1: CPE programs shall be relevant, related and limited to the practice
of the profession.

Statement 2: CPE programs shall upgrade and update knowledge and skills for
the practice of the profession brought about by modernization and
advancements in the profession.

A. True, True
B. True, False
C. False, True
D. False, False

6. The seal of licensed CPA shall bear the following, except

A. Registrant's name
B. Registration number
C. Title "CPA"
D. The word "independent"

7. Auditor's reports shall have the following, except

A. Stamp of the seal of the licensed CPA

B. Professional Tax Receipt number
C. Date/place of payment of professional tax
D. Tax Identification Number of the CPA
8.
Statement 1: Subjects or citizens of foreign countries may be allowed to practice
Accountancy in the Philippines.
Statement 2: A foreign CPA may practice accountancy in the Philippines if (s)he
can prove that his/her home country allows Filipino CPAs to practice
accountancy without limitation.

A. True, False
B. False, True
C. True, True
D. False, False

9. A special or temporary permit may be issued to foreign CPAs if

I. Called for consultation or for a specific purpose which is essential for the
development of the country
II. Engaged as professor, lecturer or critic in fields essential to accountancy
education in the Philippines
III. S(he) is an internationally recognized expert or with specialization inany
branch of accountancy
A. I and II
B. II and III
C. I and III
D. I, II and III

10. Upon conviction, violators of RA 9298 shall be punished by

A Fine of not less than 50,000 pesos or imprisonment for a period not exceeding
two (2) years or both
B. Fine not exceeding 50,000 pesos or imprisonment for a period not exceeding
two (2) years or both
C. Fine of at least 50,000 pesos or imprisonment for a period not less than two (2)
years or both
D. Fine not exceeding 50,000 pesos or imprisonment for a period not less than two
(2) years or both

11. Who has the primary duty to enforce RA 9298?

I. BOA
II. PRC

A. I only
B. II only
C. Both I and II
D. Neither I nor II
12. Who acts as the legal adviser of PRC and BOA in carrying out the provisions of
RA 9298?

A. Public Attorney's Office

B. Secretary of Justice
C. Integrated Bar of the Philippines
D. Philippine Bar Association

13. Which of the following does not have representation in the Financial Reporting
Standards Council (FRSC)?

A. Philippine Institute of CPAs

B. Bureau of Internal Revenue
C. Board of Investments
D. Board of Accountancy

14. Who appoints the members of the COA?

A. The commissioner of the Professional Regulatory Commission

B. The Chairman of the Professional Board of Accountancy
C. The President, with the concurrence of the Commission on Appointments
D. The Chairman of the Auditing and Assurance Standards Council

15. Which of the following is not one of the functions of ETC?

A. Determine a minimum standard curriculum for the study of accountancy to be

implemented in all schools offering accountancy as an undergraduate degree.

B. Establish teaching standards, including the qualifications of members of the

faculty of schools and colleges of accountancy.

C. Monitor the progress of the program on the study of accountancy and

undertaking measures for the attainment of a high quality of accountancy
education in the country.

D. Recommend to the Board the revocation of the Certificate of Registration and

the professional identification card of an individual CPA or firm including any of
their staff members who has not observed the quality control measures and who
has not complied with the standards of quality prescribed for the practice of
public accountancy.
tuesday next week dec 7 prelim exam ch 1, 2

1-1 true or false

T 1. Sufficiency and appropriateness of evidence are interrelated factors and, as such, are considered complements.
F 2. The determination of materiality is a mathematical exercise which is a vital process in planning the nature, timing
and extent of assurance engagement procedures.
T 3. Inherent risk refers to the susceptibility of the subject matter information to misstatements before consideration of
controls.
F 4. A practitioner may consider a procedure not applicable if it would entail high level of costs to the assurance service.
T 5. The more the practitioner intends to exhibit the attitude of professional skepticism, the more engagement
procedures will be required.
6. A practitioner is not expected to be an expert in the verification of authenticity of documentation of audit evidences.
T 7. Generally, evidence that is generated internally is more reliable than those from independent sources when the
related controls are effective.
F 8. Only limited procedures are performed by the practitioner on limited assurance engagements as a basis for a
negative form of conclusion.
T 9. Audits and reviews are assurance-based engagements as both the subject matter information and the
practitioner's assurance report are available to the intended users.
F 10. The three-party relationship still exists in non-assurance engagements which includes the practitioner, the
responsible party and the public.
T 11. IAASB sets high-quality international standards for assurance engagements and enhances quality control that
promote public confidence to the accountancy profession.
12. Engagement standards are issued to provide interpretative guidance and practical assistance to professional
accountants that promote good practice in performing assurance engagements.
T 13. The report issued on non-assurance engagements must be expressed in a negative form.
14. Procedures to be done in performing audits and reviews are exclusively determined by the auditor.
F 15. Only a moderate level of assurance is provided in management advisory services.

1-3 MULTIPLE CHOICE QUESTIONS

1. Assurance engagement

A. Is an engagement in which a practitioner is engaged to issue, or does issue, a written communication that expresses
a conclusion about the reliability of a written assertion that is the responsibility of another party.
B. is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic
actions and events to ascertain the degree of correspondence between those assertions and established criteria and
communicating the results to interested users.
C. Is an engagement in which the auditor provides a moderate level of assurance that the information subject to the
engagement is free of material misstatement.
D. Is an engagement intended to enhance the credibility of information about a subject matter by evaluating whether
the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the
information will meet the needs of an intended user.

2. Assurance services can be best described as

A. Engagement designed to enable an independent practitioner to express an opinion as to the fairness of historical
financial information.
B. Processes that measures and communicates financial data to intended users.
C Independent professional services intended to enhance the credibility of information to meet the needs of an
intended user.
D. Is broader than attestation but lesser in scope than audit.
3. Assurance engagement include the following, except
A. An engagement conducted to provide a high level of assurance that the subject matter conforms in all material
respects with identified suitable criteria.
B. An engagement conducted to provide a moderate level of assurance that the subject matter is plausible in the
circumstances.
C. An engagement in accordance with the Philippine Standard on Assurance Engagement(s) issued by the Auditing
and Assurance Standard Council as approved by the Board of Accountancy/Professional Regulation Commission.
D. An engagement to perform agreed-upon procedures.

4. The three types of attestation services are:

A. Audits, review, and compilations

B. Audits, compilations, and other attestation services
C. Reviews, compilations, and other attestation services
D. Audits, reviews, and other attestation services

5. Which of the following is not an assurance engagement?

A. Audit of prospective financial statements

B. Review of interim historical financial statements
C. Comprehensive audit
D. Preparation of tax returns that use estimates

6. The single feature that most clearly distinguishes auditing, attestation, and assurance is

A. Type of service
B. Scope of services
C. CPA's approach to the service
D. Training required to perform the service

7. Unlike consulting services, assurance services:

A. Make recommendations to management
B. Report on how to use information
C. Report on quality information
D. Are two-party contracts

8. All, except one, are elements of an assurance engagement.

A. Subject matter
B. Written report
C. Sufficient appropriate evidence
D. Independence

9. In a financial statement audit, which is not an element of assurance engagement?

A. Independent auditor, audit client management, audit client shareholders and/or directors
B. Philippine Standards on Auditing
C. Independent auditor's report
D. Financial statements and the assertions

10. Which of the following is not included in the three-party relationship in an assurance engagement?
A. Auditor
B. Practitioner
C. Responsible party
D. Intended users

11. Which of the following is not a suitable criterion in the context of audit?

A. PSA
B. IFRS
C. GAAP
D. PFRS for SME

12. Characteristics of suitable criteria do not include

A. Relevance
B. Neutrality
C/Comparability
D. Understandability

13. One of the elements of an assurance engagement is appropriate subject matter. For the subject matter to be
considered appropriate,
I. Should be identifiable, and capable of consistent evaluation or it measurement against the identified criteria.
II. Can be subjected to procedures for gathering sufficient appropriate evidence to support a reasonable assurance or
limited assurance conclusion, as appropriate

A. I only
B. Il only
C. Both I and II
D. Neither I nor II

14. "Subject matter information" as used in the Framework to Assurance Engagement shall mean

A. The subject which is to be measured against suitable criteria.

B. Outcome of the evaluation or measurement of a subject matter.
C. The assertion of the responsible party.
D. Any data relating to the subject matter to be measured against the criteria.

15. Which of the following can be subject matter?

A. Financial and non-financial performance or condition

B. Behavior
C. Physical characteristics (e.g. capacity)
D. All of the above can be subject matter

1-4 MULTIPLE CHOICE QUESTIONS

1. Criteria that are embodied in laws or regulations or issued by authorized bodies of expert are called

A. Legal criteria
B. Suitable criteria
C. established criteria
D. specifically-developed criteria
2. The measure of the quality of evidence

A. Appropriateness
B. Sufficiency
C. relevance
D. reliability

3. The measure of the quantity of evidence

A. Appropriateness
B. Sufficiency
C. Relevance
D. Reliability

4. It refers to the level of auditor's satisfaction as to the reliability of an assertion being made by one party for use by
another party.

a. Confidence level
B. Assurance level
C. Reliability level
D. tolerable level

5. Which of the following is not a component of engagement risk?

a. Control risk
b. Inherent risk
C. Business risk
D. Detection risk

6. The form of conclusion in an assurance engagement are

A. Positive and negative

B. High, medium; low
C. High and low
D. Reasonable and limited

7. The two levels of conclusion in an assurance engagement are

A. Positive and negative

B. High, medium; low
C. High and low
D. Reasonable and limited

8. These refers to assurance engagements in which the evaluation or measurement of the subject matter is performed
by the responsible party, and the subject matter information is in the form of an assertion by the responsible party that
is made available to the intended users.

A. Assertion-based engagement
B. Direct reporting engagement
C. Indirect reporting engagement
D. Reasonable assurance engagement
9. These refers to assurance engagements in which the practitioner either directly performs the evaluation or
measurement of the subject matter, or obtains a representation from the responsible party that has performed the
evaluation or measurement that is not available to the intended users in the assurance reports.

A. Assertion-based engagement
B. Direct reporting engagement
C. Indirect reporting engagement
D. Reasonable assurance engagement

10. Agreed-upon procedures engagement provides what level of assurance?

A. None
B. Absolute
C. High
D. Moderate

11. Practitioners who perform assurance engagements is governed by the following, except

A. The Framework to Assurance Engagements

B. Code of ethics for Professional Accountants in the Philippines
C. Philippine Standards on Quality Control
D. Philippine Financial Reporting Standards

12. An engagement conducted to provide: (a) a high level of assurance that the subject matter conforms in all material
respects with identified suitable criteria; or (b) a moderate level of assurance that the subject matter is plausible in the
circumstances.

A. Audit engagement
B. Review engagement
C. Reasonable assurance
D. Assurance engagement

13. Assurance service engagements:

A. Do not require independence

B. Require application of all attestation standards and GAAS
C. Are performed currently without professional standards
D. Do not require evidence

14. Which of the following may be under the scope of the Framework for Assurance Engagement?

A. Agreed-upon procedures engagements and compilation of financial and other information.

B. Preparation of tax returns where no conclusion conveying assurance is expressed.
C. Consulting (or advisory) engagements, such as management and tax consulting.
D. Preparation of tax returns where a conclusion conveying assurance is expressed.

15. Which of the following is incorrect regarding the "three-party relationship" element of assurance engagements?

A. Professional accountants are those persons who are members of an IFAC member body, which should be in public
practice.
B. The responsible party and the intended user will often be from separate organizations but need not be.
C. The responsible party is the person or persons, either as individuals or representatives of an entity, responsible for
the subject matter.
D. The intended user is the person or class of persons for whom the professional accountant prepares the report for a
specific use or purpose.

1-5 MULTIPLE CHOICE QUESTIONS

1. Which of the following is incorrect regarding the practitioner?

A. The term practitioner is broader than the term auditor.

B. The practitioner is governed by ethical requirements (i.e. professional competence) regarding the conduct of the
engagements.
C. The practitioner must be independent to the responsible party but not necessarily to the intended users.
D. The practitioner is responsible for determining the nature, timing or extent of procedures required by the
engagement.

2. Which is incorrect regarding the responsible party?

A. The responsible party and the intended party should not be from the same entity
B. The responsible party may be one of the intended users and may or may not be the engaging party
C. The responsible party ordinarily provides the practitioner with a written representation
D. The responsible party may be responsible for the subject matter information and may also be responsible for the
subject matter

3. The following relates to intended users, choose the exception:

A. Intended users are the person/s for whom the practitioner prepares the assurance report
B. Intended users may be identified by agreement between the practitioner and the responsible party or engaging party,
or by law
C Intended users may include either the practitioner or the responsible party.
D. In case of broad range of interests by the readers of assurance report, intended user may be limited to major
stockholders with significant and common interests.

4. The Framework of Philippine Standards on Auditing provides that financial statements needed to be prepared in
accordance with one, or a combination of the following, except:

A. Accounting standards generally accepted in the Philippines

B. Philippine Accounting Standards.
C. Another authoritative and comprehensive financial reporting framework designed for use in financial reporting and is
identified in the financial statements.
D. Accounting standards developed by the accountant of the business enterprise herself/ himself

5. The following cannot be a suitable criterion for an assurance engagement, except?

A. Practitioner's own expectations

B. Practitioner's judgment
C. Practitioner's experience
D. Agreement between the responsible party and the intended users

6. According to the framework for assurance engagement, the criteria must be

A. Sufficient and appropriate

B. Sufficient or appropriate
C. Suitable and available to intended users
D. Suitable or available to intended users

7. The following factors could affect the quantity and quality of available evidence that are attributable to the
circumstance of the engagement. Which is the exception?

A. The fact that the subject matter information is prospective.

B. The timing of the practitioner's appointment.
C. An entity's document retention policy.
D. Restriction imposed by the responsible party.

8. Which is incorrect concerning evidence?

A. The higher the risk of material misstatement is involved; the more is required.
B. The better the quality, the less is required.
C. The volume of evidence can compensate for its poor quality.
D. The reliability of evidence is influenced by its source and its nature.

9. Select the incorrect statement from the following generalization on the ed reliability of evidence.

A. Evidence is more reliable when it is obtained from independent sources outside the entity.
B. Evidence that is generated internally is more reliable when the related controls are effective. C. Evidence obtained
directly by the practitioner is more reliable than when obtained indirectly, even if the source is not competent.
D. Evidence provided by original documents is more reliable than evidence provided by photocopies or facsimiles.

10. Which is incorrect?

A. Consistent evidence obtained from nature is more reliable various sources or of different
B. It is generally more difficult to obtain assurance about subject matter information at a point in time than about subject
matter information covering a period of time.
C. When it cost prohibitive or difficult to obtain an evidence, the auditor may shift to obtain from other alternatives.
HITIUM
D. The practitioner considers the relationship between cost of obtaining the evidence and the usefulness of the
information.

11. Which is correct concerning the concept of professional skepticism

A. An assumption that the responsible party is dishonest

B. A critical assessment, with a questioning mind on the validity of evidence obtained
C. An assumption that responsible party is trustworthy
D. Disregarding contradicting information against several of consistent evidence

12. Which of the following statements is false regarding the consideration of materiality?

A. It is taken into consideration in the context of both qualitative and quantitative factors
B. It is a matter of professional judgment
C. It requires understanding and assessment of the factors that might influence the decision of the intended users
D. It is defined as a certain percentage (e.g., 5% of total asset, 1% of gross sales)

13. When the professional accountant has obtained sufficient appropriate evidence to conclude that the subject matter
conforms in all material respects with identified suitable criteria, he/she can provide
A. Moderate level of assurance
B. High level of assurance
C. Absolute assurance
D. No assurance

14. Which of the fundamental principles in the Code of Ethics are required in the performance of non-assurance
engagements?
1. Professional competence and due care
II. Independence
III. Confidentiality

A. I and II only
B. I and III only
C. II and III only
D. I, II and III

15. In an agreed-upon engagement, which of the following statements is incorrect?

A. Management, the auditor and any appropriate third-party user agree on the procedures to be performed.
B. Although procedures required are of an audit nature, independence is not required.
C. No assurance is rendered in the report.
D. The report is provided to a wide range of users for decision making.

1-6 MULTIPLE CHOICE QUESTIONS

1. Evidence more is reliable when it is obtained from

A. Internal sources within the entity

B. Independent sources outside of the entity
C. Internal sources outside of the entity
D. Independent sources inside the entity

2. Which of the following primarily refers to the relevance and reliability of evidence?

A. Sufficiency
C. Appropriateness
D. Suitability
B. Adequacy

3. A professional accountant is required to be independent in which of the following engagements?

1. Audit of historical financial information
II. Review of historical financial information
III. Agreed-Upon Procedures

A. I only
B. I and II only
€. II and III only
D. I, II, and III

4. Which of the following statements is/are correct?

1. Audit is an assurance engagement while review is not. *
II. More procedures are performed by a practitioner in a review than in an audit

A. I only
C. Both I and II
D. Neither I nor II

5. Which of the following is true about assurance services?

A. All assurance services are financial statement audits

B. An assurance engagement must have five fundamental elements
C. A fundamental element for an assurance engagement is engagement fee
D. A review of historical financial statements is not an assurance service

6. Which of the following statements is/are correct?

1. Responsible parties and intended users may be from the same entity.
ll. Responsible parties and intended users may be from the different entities.

A. I only
C. Both I and II
B. Il only
D. Neither I nor II

7. The is the outcome of the evaluation or measurement of a (an).

A. Subject matter; subject matter information

B. Subject matter information; subject matter
C. Subject matter; evidence
D. Evidence; subject matter

8. Classify the following subject matter:

I. Internal controls
II. Facility capacity

A. Physical characteristics, systems and processes

B. Systems and processes, physical characteristics
C. Behavior, physical characteristics
D. Physical characteristics, behavior

9. Which of the following statements is/are correct?

1. Reliability of evidence is influence by its source and nature
II. Generalizations about reliability of evidence can be made without exceptions

A. I only
C. Both I and II
D. Neither I nor II

10. Which of the following types of evidence is most reliable?

A. Original copy of the Omnibus Loan and Credit Agreement

B. Photocopy of the Omnibus Loan and Credit Agreement
C. Scanned copy of the Omnibus Loan and Credit Agreement
D. Faxed copy of the Omnibus Loan and Credit Agreement

11. ____is obtained from consistent evidence from different sources or of a different nature than from items or evidence
considered individually.

A More assurance
B. Less assurance
C. No assurance
D. Little assurance

12. Which of the following is an example of a formal criterion(a)?

1. Philippine Public Sector Accounting Standards
II. Number of times a committee meets in a year

C. Both I and II
A I only
B. Il only

13. Which refers to reliability of criteria?

A. Contribute to conclusions that assist decision making by users

B. Allow reasonably consistent evaluation or measurement of subject matter
C. Contribute to conclusions that are clear, comprehensive, subject to significantly different interpretations
D. Contribute to conclusions that are free from bias

14. Which is true about assurance engagement risk?

A. It is more specific than audit risk, since it encompasses audits, reviews and compilation.
B. It is wider in scope than audit risk, since it encompasses audits, reviews and other assurance engagements.
C. It is more specific than audit risk, since it encompasses audits, reviewsm and other assurance engagement.
D. It is wider in scope than audit risk, since it encompasses audits, reviews and compilations. and not

15. Evaluate the following statement as to (1) level of assurance and (2) form of conclusion:
"In our opinion internal control is effective, in all material respects, based on the COSO Framework."

A. (1) Positive; (2) Reasonable

C. (1) Negative; (2) Limited
B. (1) Reasonable; (2) Positive
D. (1) Absolute; (2) Positive

1-7 MULTIPLE CHOICE QUESTIONS

1. Which of the following statements is/are incorrect?

I. Financial statements audit are assurance services
II. Review of historical financial statements are assurance services

A. I only
C. Both I and II
B. Il only
D. Neither I nor II
2. Which of the following is a distinguishing characteristic of attest engagements over direct reporting engagements?

A. Assertions
B. Assurance
C. Written report
D. Independence of the practitioner

3. Who is responsible for determining the nature, timing, extents of assurance procedures?

A. Practitioner
B. Practitioner and Responsible Party
C. Practitioner and Intended User
D. Practitioner, Responsible Party, and Intended User

4. Which of the following statements is/are correct?

1. Whenever practical, the assurance report is addressed to all the intended users
II. In certain cases, intended users may be limited to major stakeholders with significant and common interests.
A. I only
B. Il only
C. Both I and II
D. Neither I nor II

5. Which of the following statements best describes the logical relationship among audits, attest engagements, and
assurance engagements?

A. All attest engagements are audits, but not all audits involve attestation.
B. All assurance engagements, including review, involve attestation.
C. An audit provides assurance, but does not involve attestation.
D. All audits are attest engagements, but not all attest engagements are audit.

6. Which of the following statements is incorrect?

A. Intended users refer to the person, persons, or class of persons for whom the practitioner prepares the assurance
report.a
B. Responsible party pertains to the person or persons who in a direct reporting engagement, is responsible for the
subject matter; or in an assertion-based engagement, is responsible for the subject matter information (the assertion),
and may be responsible for the subject matter.
C. Criteria represent the benchmarks used to evaluate or measure the sub matter, ding where relevant, benchmarks for
presentation and disclosure.
D. Assertions pertain to All information gathered by the practitioner in evaluating the subject matter against criteria, on
which the conclusion is

2-1 TRUE OR FALSE

T 1. Auditors serve numerous parties, but most importantly is the public, as exemplified by investors, creditors and
other stakeholders.
F 2. External auditors enhance credibility of information by helping the management in preparing the financial
statements and designing and implementing internal controls.
T 3. Assertions are representations made by an audit client, explicit or otherwise, about economic actions and events.
F 4. Providers of external audits and internal audits are both independent from the management which allows them to
perform financial statements audit.
F 5. The overall objective of the auditor in financial statements audit is to have an opinion on whether the financial
statements are prepared, in all material respects, in accordance with the criteria.
T 8. Financial statements should not favor one user over another, as such, the interest of the users must have no
conflicts.
T 9. External audit benefits the public by lending credibility to the items presented in the financial statements.
F 10. Financial information is more reliable when the internal controls of the are effective, as such, external auditors
also express an opinion over the effectiveness of these controls. entity

2-2 TRUE OR FALSE

F 1. The auditor is expected to detect both fraud and error during the course of performing external audits.
T 2. The financial statements must be adequately supported by records and documents to be considered an
appropriate subject matter.
T 3. The applicable financial reporting framework used as criteria in performing the audit is driven by the information
needs of its users.
T 4. The opinion to be expressed by the auditor depends on the materiality of non-compliance from the framework and
pervasiveness of the related effects of such non-compliance.
F 5. Depending on the magnitude of audit procedures, the level of assurance provided by auditors ranges from high to
absolute level.
6. The accumulation of persuasive evidences leads to the establishment of conclusive evidences in detecting material
misstatements.
F 7. Inherent limitations of an audit arise due to the auditor's exposure to inherent risks, control risks and detection
risks.
T 8. External audits provide value to organizations through reduction of information risk that may lead to lower cost of
capital.
F 9. The high demand for audit is present because it is required by law.
T 10. One of the ways to reduce information risk is to share such risk with the preparer of the information.
T 11. The auditor is not, and cannot, be held responsible for fraud and error.
F 12. The audit of financial statements relieves the management and/or those charged with governance of their
responsibilities with the financial statements.
T 13. An audit, when carried out, may act as a deterrent for fraud and error.
F 14. When the auditor is unable to gather sufficient appropriate evidence, he or she ordinarily selects between
qualified and adverse opinion.
F 15. An auditor may provide an absolute level of assurance in extremely rare circumstances.

2-3 MULTIPLE CHOICE QUIZZERS

1. Which of the following statements refers to the definition of auditing?

A. A service activity which function is to provide quantitative information primarily financial in nature about economic
entities that is intended to be useful in making economic decisions.
B. The art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and
events which are in part at least of a financial character and interpreting the results thereof.
C. The process of identifying, measuring and communicating economic information to permit informed judgment and
decisions by users of the information.
D. A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions
and events to ascertain the degree of correspondence between these assertions and established criteria and
communicating the results thereof.

2. Which of the following types of auditing is performed most commonly by CPAS on a contractual basis?

A. Internal auditing
B. Government auditing
C. BIR auditing
D. External auditing

3. This type of audit involves a review of an organization's procedures and methods for the purpose of evaluating
efficiency and effectiveness of operations, identifying areas for improvement, recommendations to improve
performance. and making

A. Financial statement audit

C. Compliance audiT
B. Operational audit
D. Internal audit

4. An objective of operational audit is to assess whether

A. Specific units of the entity are functioning effectively and efficiently

B. Financial statements fairly reflect the results of operations
C. An organization's procedures adhere to specific procedures, rules or regulations set by an authoritative body
D. Internal control structure is designed and implemented

5. An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is
classified as a(n):

A. Audit of financial statements.

B. Compliance audit.
C. Operational audit.
D. Production audit.

6. The internal auditing profession is believed to have advanced primarily as a consequence of

A. Increased interest by graduating students and experienced auditors

B. The limitation of external audit scope
C. Job qualification specifications that include added emphasis on background knowledge and skills
D. Increased complexity and sophistication of business operations

7. The internal audit staff has been asked to conduct audit of the purchasing department. Top management feels that
there have been some production bottlenecks recently because of out-of-stock situations. What is the primary objective
of the auditors in this assignment?

A. To appraise the economy with which resources are employed.

B. To review the means of safeguarding assets and verifying the existence of such assets.
C. To ascertain whether results are consistent with established objectives and whether operations are being carried out
as planned.
D. To review the reliability and integrity of financial and operating information.

8. Which is incorrect regarding internal auditing?

A. It encompasses both financial and operational auditing.

B. An internal audit department reports to the audit committee management. and senior
C. It provides assistance primarily to management and those charged with governance.
D. It can be performed only by internal auditors.

9.To operate effectively, an internal auditor must be independent of

A. the line functions of the organizations.
B. the employer-employee relationship which exists for other employees in the organization.
C. the entity.
D. all of the above.

10. The internal auditor typically reports directly to

A. The management of the company.

B. The audit committee and the management of the company.
C. The audit committee and the board of director.
D. The board of director and the external auditor.

11. Which of the following types of audit uses as its criteria laws and regulations

A. Operational audit
e. Compliance audit
B. Financial statement audit
D. Financial audit

12. Which of the following is both true for external financial statements auditor and an internal auditor?

A. They help the entity's employees to perform their functions effectively

B. The focus of the engagement is financial information only
C. They are required to be independent of the entity
D. They ultimately report their findings to the audit committee

13. These audits are similar in most respects.

A. Operational and compliance

C. Financial and compliance
B. Operational and government
D. Financial and operational

14. Which statement is correct regarding the relationship between internal auditing and the external auditor?

A. Some judgments relating to the audit of the financial statements are those of the internal auditor.
B. The external audit function's objectives vary according to management's requirements.
C. Certain aspects of internal auditing may be useful in determining the nature, timing and extent of external audit
procedures.
D. The external auditor is responsible for the audit opinion expressed, however that responsibility may be reduced by
any use made of internal auditing.

15. Which of the following terms best describe the audit of a taxpayer's return by a BIR auditor?

A. Operational audit
C. Compliance audit
B. Internal audit
D. Government audit
:

2-4 MULTIPLE CHOICE QUIZZERS

1. Audits of historical financial information are governed
I. Philippine Standards on Auditing
II. Philippine Standards on Assurance Engagements
III. Philippine Standards on Quality Control

A. I and II only
B. I and III only
C. II and III only
D. I, II and III

2. The predominant type of attestation service performed by CPAs is

A. Audit
C. Compilation
B. Review
D. Management consulting

3. Which of the following is an incorrect phrase?

A. Auditing is a systematic process.

B. Auditing objectively obtains and evaluates evidence.
e. Auditing evaluates evidence regarding assurance.
D. Auditing communicates results to interested users.

4. The word auditing comes from the Latin audire, which means:

A. To see
C. To detect
B. To hear
D. To test

5. Which of the following types of audits is performed to determine whether an entity's financial statements are fairly
stated in conformity with accepted accounting principles?

A. Operational audit
C. Compliance audit
D. Performance audit
B. Financial statement audit

6. The overall objectives of the auditor in conducting an audit of financial statements are
1. To obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether caused by fraud or error.
H. To report on the financial statements.
III. To obtain conclusive rather than persuasive evidence. IV. To detect all misstatements, whether due to fraud or error.

A. I and II only
B. II and IV only
C.1, II and III only
D. I, II, III and IV

7. An auditor's overall objective in a financial statement audit is to

A. Determine that all individual accounts and footnotes are fairly presented.
B. Employ the audit risk model.
C. Express an opinion on the fair presentation of the financial statements in accordance with generally accepted
accounting principles.
D. Detect all errors and fraud.

8. Which of the following best describes the objective of an audit of financial statements?

A. To express an opinion whether the financial statements are prepared in accordance with prescribed criteria.
B. To express an assurance as to the future viability of the entity whose financial statements are being audited.
C. To express an assurance about the management's efficiency or effectiveness in conducting the operations of entity.
D. To express an opinion whether the financial statements are prepared, in all material respect, in accordance with an
identified financial reporting framework.

9. It refers to the level of the auditor's satisfaction as to the reliability assertion being made by one party for the use by
another party.

A. Confidence Level
B. Reasonableness Level
C. Assurance Level
D. Tolerable Level

10. The auditor's opinion

A. Enhances the credibility of the financial statements.

B. Is an assurance as to the future viability of the entity.
C. Is an assurance as to the efficiency with which management has conducted the affairs of the entity, but not
effectiveness.
D. Certifies the correctness of the financial statements.

11. A difference between the amount, classification, presentation, or disclose of a reported financial statement item and
the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the
applicable financial reporting framework.

A. Non-compliance
B. Misstatement
C. Fraud
D. Error

12. Which does not describe the level of assurance provided in a financial statement audit?

A. High
C. Above average
D. Positive
B. Reasonable
13. Absolute assurance cannot be provided in an audit because of: (Choose the exception)
A. Human errors in judgment
B. The employment of test procedures
C. The need to obtain conclusive evidence
D. Limitations inherent in the client's internal controls
14. Which of the following statements does not properly describe a limitation of an audit?

A. Many financial statement assertions cannot be audited.

B. Many audit conclusions are made on the basis of examining a sample of evidence.
C. Some evidence supporting peso representations in the financial statements must be obtained by oral or written
representations of management.
D. Fatigue and carelessness can cause auditors to overlook pertinent evidence.

15. Absolute assurance is rare in practice due to limitations of assurance engagement. Which of the following does not
describe such limitation?

A. Use of selective testing

B. Inherent limitation of internal controls
C. The fact that most evidence are merely persuasive
D. The procedures applied to reasonable assurance engagement are usually comprehensive

2-5 MULTIPLE CHOICE QUIZZERS

1. Which of the following statements relating to elements of an audit engagement is incorrect?

A. Parties in an audit engagement only includes the auditor and the client's management.
B. The criteria used is the PFRS or IFRS.
C. The auditor shall obtain sufficient appropriate evidence which will be used as a basis in expressing an opinion.
D. The recipient of the audit report may be restricted.

2. Primary responsibility for the assertions in financial statements rests with the:

A. Audit partner assigned to the engagement

B. Senior auditor in charge of field work
C. Staff auditor who drafts the statements
D. Clients management

3. The term that describes the role of persons entrusted with the supervision, control and direction of an entity is

A. Management
B. Administration
C. Governance
D. Government

4. Which of the following describes the responsibility of the auditor?

A. Preparation and presentation of the financial statements in accordance with the applicable financial reporting
framework
B. Determining the scope of audit in accordance with PSAs and other applicable regulations of professional bodies
C. Prevention and detection of fraud and error
D. Use the audit report which contains the opinion expressed by the auditor

5. Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?

A. An auditor may not draft an entity's financial statements based on information from management's accounting
system.
B. The adoption of sound accounting policies is an implicit part of an auditor's responsibilities.
C. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.
D. Making suggestions that are adopted about an entity's internal control environment impairs an auditor's
independence.

6. Which of the following accurately depicts the auditor's responsibility with respect to Statements on Auditing
Standards?

A. The auditor is required to follow the guidance provided by the Standards, without exception.
B. The auditor is generally required to follow the guidance provided by Standards with which he or she is familiar, but
will not be held responsible for departing from provisions of which he or she was unaware.
C. The auditor is generally required to follow the guidance provided by the Standards, unless following such guidance
would result in an audit that is not cost-effective.
D. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any
departures.

7. Which of the following factors most likely would influence an auditor's determination of the auditability of an entity's
financial statements?

A. The complexity of the accounting system

B. The adequacy of the accounting records
C. The existence of related-party transactions
D. The operating effectiveness of control procedures

8. Which of the following presumptions is correct about the reliability of audit evidence?

A. Information obtained indirectly from outside sources is the most reliable evidential matter.
B. To be reliable, audit evidence should be conclusive rather than persuasive.
C. Reliability of audit evidence refers to the amount corroborative evidence obtained.
D. An effective internal control structure provides more assurance about the reliability of audit evidence.

9. Third-party users of the audit report expect the auditor to do all of the following except:

A. To evaluate measurements and disclosures made by management

B. To provide a biased evaluation of the FSs
C. To determine whether financial statements are presented in with GAAP
D. To gather sufficient evidence to support their opinion

10. Management of a company is responsible for

A. Hiring the auditor

B. Preparing the financial statements
C. The audit workpapers
D. Independence and obtaining evidence

11. The auditor's responsibility in an audit engagement is limited to:

A. Expression of an opinion on the FSs

B. Expression of an opinion on the FSS and adequacy of the notes to FSs
C. Opinion issued and fairness of presentation of FSS
D. Expression of opinion and inclusion of supplementary information, if necessary
12. Which of the following statements is not true regarding the appropriateness of audit evidence

A. Relevance is enhanced by an effective information system.

B. To be appropriate, evidence must be both valid and relevant.
C. Validity is related to the quality of the client's information system.
D. Relevance must always relate to audit objectives.

13. Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance to an
absolute assurance. In practice, professional accountants cannot provide absolute assurance because of the following,
except

A. Professional accountants employ testing process

B. The internal control has inherent limitations
C. The use of judgement in gathering evidence and drawing conclusions based on that evidence
D. The lack of expertise of professional accountants in doing a systematic engagement process

14. 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 included in financial statements
C. Involves the objective examination of and reporting on management prepared statements
D. Reports on the accuracy of all information in the financial statements

15. Which of the following statements is/are true?

Statement 1: In an audit of financial statements, the auditor may decide to eliminate audit sampling.
Statement 2: The auditor shall obtain conclusive evidence.
Statement 3: All throughout the audit, the auditor shall exercise professional judgment.

A. Only 1 statement is correct

B. Only 2 statements are correct
C. All statements are correct
D. All statements are incorrect

2-6 MULTIPLE CHOICE QUIZZERS

1. Which of the following statements is/are correct?

Statement 1: In performing compliance audits, a CPA issues a report on the degree of compliance with the criteria used
for the engagement (e.g. laws, rules or regulations set by the auditor).
Statement 2: Independent auditors are expected by management to be experts who actively participate in management
decision-making. Statement 3: A typical objective of an operational audit is for the auditor to determine whether the
financial statements fairly presents the entity's financial position, results of operations, and cash flows.

A. Only one statement is correct

C. All statements are correct
B. Only two statements are correct
D. All statements are incorrect

2. Auditors of the Commission on Audit perform the role of

A. Internal auditors.
C. Independent auditors.

B. Financial consultants.

D. Management accountants.

3. AAA Corp. has engaged a public accounting firm to issue a report on the accuracy of product quality specifications
included in trade sales agreements. This is an example of a (an):

A. Financial statement audit C. Compliance audit

B. Attestation service

D. Operational audit

4. A government auditor evaluates a disbursement to determine if it is necessary, excessive or extravagant in

accordance with existing rules and regulations. What kind of audit is he conducting?

Compliance audit

Yes

Economy audit

ABCD A.

B.

C.

No

Yes

No

Yes

Yes

D.

No

No

5. Operational audits generally have been conducted by internal and COA auditors, but may be performed by certified
public accountants. A primary purpose of an operational audit is to provide A. A measure of management performance
in meeting organizational

goals.
B. results of internal examinations of financial and accounting matters to a company's top-level management. C. Aid to
the independent auditor, who is conducting the examination of

the financial statements.

D. A means of assurance that internal accounting controls are functioning as planned.

Aim... Believe... Claim...

Page 63
6. Which of the following statements is/are correct?

Statement 1: The assumption underlying an audit of financial statements is that they will be used by different groups for
similar purposes. Statement 2: Information risk refers to the risk that the auditor may express

an unqualified opinion on the financial statements when in fact the financial statements are materially misstated.
Statement 3: The biases and motives of the information provider may be a

cause of information risk.

A. Only one statement is correct

C. All statements are correct

B. Only two statements are correct D. All statements are incorrect

7. Which of the following is a cause of information risk?

A. Voluminous data

B. Remoteness of the information.

C. Bias motives of the provider of information

D. Each of the above is a cause of information risk The need for an independent audit arises due to the following
reasons.

(Choose the expectation)

A. Expertise of auditors

B. Competing interests

C. Remoteness of users

D. Complexity of decision-making

Which of the following statements does not describe a condition that creates

9. a demand for auditing?

A. Conflict between an information preparer and a user can result in biased information.
B. Information can have substantial economic consequences for a decision

maker.

C. Expertise is often required for information preparation and verification.

D. Users can directly assess the quality of information.

10. Generally, as audit quality increases then

A. The cost of capital increases B. The cost of capital decreases

C. The cost of capital remains the same D. The cost of capital increases in an exponential rage

11. Which of the following is the best reason why audits are necessary? A. Several regulations require financial
statements to be audited

B. So that management and the auditor will share the responsibility for the financial statements

C. So that additional confidence is available to users of financial statements through the audit report

D. So that responsibility for the financial statements is transferred from management to the auditor

8.
12. Which of the following best describes the reason why an independent auditor reports on financial statements?

A. A poorly designed internal control system may be in existence. B. A management fraud may exist and it is more likely
to be detected by

independent auditors. C. Different interest may exist between the company preparing the

statements and the persons using the statements. D. A misstatement of account balances may exist and is generally
corrected

as the result of the independent auditor's work.

13. The need for an independent audit arises due to the following reasons. (Choose the expectation)

A. Expertise of auditors

B. Competing interests

C. Remoteness of users

D. Complexity of decision-making

14. The following may be considered as value-adding characteristics of an FS audit, except for:

A. Audit helps reduce information risk B. Audit reduces management's responsibility to prepare financial

statements
C. Audit may be used to deter inefficiency and fraud

D. Audit may be used to enhance systems of internal controls

15. As per SRC Rule 68, the following shall submit financial statements audited

by an independent CPA to the SEC, except

A. Stock corporations with total assets or total liabilities greater than or equal to Php 600,000

B. Nonstock corporations with assigned capital greater than or equal to Php

C. Branch offices/representative offices of stock foreign corporations with an assigned capital greater than or equal to
Php 1,000,000 D. Regional operating headquarters of foreign corporations with total revenues greater than or equal to
Php 1,000,000

2-7 MULTIPLE CHOICE QUIZZERS

1. In "auditing" accounting data, the concern is with A. Determining whether recorded information properly reflects the

economic events that occurred during the accounting period. B. Determining if fraud has occurred.

C. Determining if taxable income has been calculated correctly. D. Analyzing the financial information to be sure that it
complies with

government requirements.

9-3
3. Which attribute relating to assumptions would an auditor be concerned when evaluating reasonableness of a client’s
accounting estimate?
a. Consistency w/ prior periods
- In this option, hindi kasi inindicate kung ano dapat yung consistent. One of the assumptions is consistent
with historical patterns, ibig sabihin yung accounting policies should be applied consistently.
b. Susceptibility to bias page 355
- So the correct answer is susceptibility to bias because the auditor need to be concerned kapag may
possibility na may bias yung estimate and nasa page 355 po yung assumptions ng auditor which are..
- On page 355 po kasi, nakalist yung assumptions regarding the reasonableness, isa dyan yun not
susceptible to bias, therefore if there is susceptibility to bias regarding the estimate the auditor should be
concerned
c. Insensitivity to variations
- I think insensitivity to variation do not relate to the assumptions when evaluating reasonableness of acc
 estimate
- Obviously, this is not one of the assumptions to check the reasonableness of an accounting estimate
and hindi naman pwede na maging insensitive sa variations about the estimate kasi it should be
consistent sa pag estimate.
d. Similarity with industry guidelines
- It is not enough na similar lang with the industry guidelines, it should be consistent. That is why
susceptibility to bias is the best answer

9-7
8. Choose the type of audit evidence that is considered most persuasive
a. Prenumbered receiving report forms
- Allows a company to investigate if there are any documents missing
- If a form is not prenumbered, an order can be prepared, and the employee can then take the
money without ringing the order into the cash register, leaving no record of the sale.
b. Management representation letter
- Written by a company’s external auditors, signed by senior company management
- Attests to the accuracy of the f/s
c. Client calculate of cost of goods sold
d. Bank statements submitted by the client
The answer is letter D bank statements submitted by the client because as stated on page 331.... Although
yung bank statements nasa possession ng client, they originated outside of the client and it is the most
persuasive relative to other options kasi ang a,b, and c prepared by the entity. Page 331

5-1 TRUE OR FALSE

1. Audit effectiveness is the primary objective of the auditor in engagement planning which results to the utilization of
least amount of resources.F
2. Audit planning helps the auditor properly organize and manage the audit engagement. T
3. For recurring audits, members of the previous year's engagement team are advised to participate in the planning of
the current year audit.T
4. Audit planning helps in achieving effective and efficient audits which must be completed before the performance of
further audit procedures.F
5. The audit plan sets the scope, timing and direction of the audit which leads to the establishment of the overall audit
strategy.F
6. Risk assessment procedures enable the auditor to understand the entity and its environment and identify and assess
risks of material misstatement.T
7. Risk assessment procedures help in specifically identifying the applicable further audit procedures to respond to
identified risks.T
8. Inquiry consists of seeking both financial and non-financial information from knowledgeable persons within the
entity.F
9. Observation consists of looking at a process or audit procedure.F
10. Physical verification of the entity's premises and plant facilities is considered an inspection procedure.T

5-2 TRUE OR FALSE

1.Analytical procedures enable the auditor to conclude if the fluctuations and relationships in the entity's financial
information make sense.T
2. Preliminary analytical review is only required for new or unusual business transactions entered by the entity during
the period under audit.
3. Industry benchmarks or averages may be used to develop expectations regarding financial statements. T
4. Only planning and concluding analytical review are required to be performed in an audit.
5. Test of details obtains corroborative evidence for a particular assertion as compared to substantive analytical
procedures which doesn't.F
6. Materiality is an absolute concept as prescribed by the engagement standards.
7. Misstatements, including omissions, are considered to be material if individually they could reasonably be expected
to influence the economic decisions of users.F
8. The determination of materiality is a mathematical exercise with a prescribed formula that differs depending on the
industry of the entity.
9. The auditor should revise the overall materiality should he become aware of information during the audit that would
lead to a different amount.T
10. The identification and assessment of risks of material misstatements are both done at the financial statement and
assertion levels.
11. Detection risk is determined and controlled by the auditor.T
12. The results of preliminary engagement activities are also considered when establishing the overall audit strategy.
13. When the work of an expert is involved in the audit, the auditor's responsibility for the audit opinion is shared with
the expert.F
14. To comply with ethical requirements, the current year auditor shall communicate with the previous auditor for initial
engagements.
15. Establishing overall audit strategy and plan for audits of small entities need to be complex but not time consuming.F

5-3 MULTIPLE CHOICE QUIZZERS

1 Which of the following statements is/are correct?
Statement 1: The client should plan the audit work so that the audit will be performed in an effective manner.
Statement 2: The auditor should conduct the audit with an attitude of professional skepticism.
Statement 3: The auditor should develop and document an overall audit plan describing the scope and conduct of the
audit.

A. Only one statement is correct C. All statements are correct

B. Only two statements are correct D. All statements are incorrect

2. Adequate planning of the audit work helps the auditor of accomplishing the following objectives, except:

A. Gathering of all corroborating audit evidence.

B. Ensuring that appropriate attention is devoted to important areas of the audit.
C. Identifying the areas that need a service of an expert.
D. The audit work is completed efficiently.

3. The extent of planning will vary according to any of the following, except:

A. Size of the audit client.

B. Auditor's experience with the entity and knowledge of the business.
C. The nature and complexity of the audit engagement
D. The assessed level of control risk.

4. Which of the following statements is incorrect?

A. The auditor should plan the audit so that the engagement will be performed in an effective manner.
B. Planning an audit involves establishing the overall audit strategy for the engagement and developing the audit plan,
in order to reduce audit risk to an acceptably low level.
C. Planning involves the engagement partner and other key members of the engagement team to benefit from their
experience and insight and to enhance the effectiveness and efficiency of the planning process.
D. Planning is not a discrete phase of an audit, but rather a continual and iterative process that often begins shortly
after (or in connection with) the completion of the previous audit and continues until the finalization of the audit
program.
5. The auditors plan should
A B C D
Precede action Y N Y Y
Be static Y N N N
Be cost-beneficial Y Y Y N

6. Which of the following statements is/are correct?

Statement 1: Obtaining knowledge of the entity business is an important part of the planning the audit work
Statement 2: The auditor's knowledge of the entity's business assists in the identification of events, transactions and
practices which may have a material effect on the financial statements.

C. Both statements are correct

A Only statement 1 is correct
B Only statement 2 is correct
D. Both statements are incorrect

7. Which of the following statements is/are correct?

Statement 1: The overall audit plan and the audit program should not be revised during the course of the audit.
Statement 2: The auditor should develop and document an audit program setting out the nature, timing and extent of
planned audit procedures required to implement the overall audit plan.

A Only statement 1 is correct

Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

8. Which of the following statements is/are correct?

Statement 1: According to PSA 300, the auditor may discuss elements of planning with those charged with governance
and the entity's management
Statement 2: The audit plan sets the scope, timing and direction of the audit guides the development of the more
detailed overall audit strategy.
Statement 3: The overall audit strategy is more detailed than the audit plan and includes the nature, timing and extent
of audit procedures to be performed engagement team members to obtain sufficient appropriate audit evidence to
reduce audit risk to an acceptably low level.

A Only 1 statement is correct

C. All statements are correct
B. Only 2 statements are correct
D. All statements are incorrect

9. Which of the following is least likely considered by the CPA when he makes an overall audit plan?

A. Identification of complex accounting areas including those involving accounting estimates

B. The effect of information technology on the audit
C. The content of the representation letters
D. The nature and timing of reports and other communication with the entity that are expected under the engagement

10. In designing audit programs, an auditor should establish specific audit objectives that related primarily to the

A Selected audit techniques

B. timing of audit procedures
C. Financial statement assertions
D. Cost-benefit gathering evidence

11. Which of the following matters should be considered by the auditor in developing the overall audit strategy?

A. Important characteristics of the entity, its business, its financial performance and its reporting requirements including
changes since the date of the prior audit
B. Conditions requiring special attention, such as the existence of the related parties
C. The setting of materiality level for audit purposes
D. All of the above

12. The element of the audit planning process most likely to be agreed upon with the client before implementation of
the audit strategy is the determination of the

A. Evidence to be gathered to provide a sufficient basis for the auditor's opinion.

B. Procedures to be undertaken to discover litigation, claims, and assessments.
C. Pending legal matters to be included in the inquiry of the client's attorney.
D. Timing of inventory observation procedures to be performed.

13. Which of the following is most likely to require special planning considerations related to asset valuation?

A Inventory is comprised of diamond rings.

B. The client has recently purchased an expensive copy machine.
C. Assets costing less than P25,000 are expensed even when the expected life exceeds one year.
D. Accelerated depreciation methods are used for amortizing the costs of factory equipment.

14. The auditor should document the overall audit strategy and the audit plan, including significant changes made
during the audit engagement. Which of the following statements on documentation is incorrect?

A. Documentation of the overall audit strategy may be made in the form of a memorandum that contains key decisions
regarding the overall scope, timing and conduct of the audit.
B. The auditor may use standard audit programs or audit completion checklists, but such programs and checklists need
to be tailored to the particular client.
C. The auditor's documentation of any significant changes to the originally planned overall audit strategy and to the
detailed audit plan need not include the reasons for the significant changes. D. The form and extent of documentation
depend on such matters as the size and complexity of the entity, materiality, the extent of other documentation, and the
circumstances of the specific engagement.

15. In developing an overall audit strategy, an auditor should consider: precision limit.

A. Whether the allowance for sampling risk exceeds the achieved upper
B. Findings from substantive tests performed at interim dates.
C. Whether the inquiry of the client's attorney identifies any litigation, claims, or assessments not disclosed in the
financial statements.
D. Preliminary evaluations of materiality, audit risk, and internal control.

5-4 MULTIPLE CHOICE QUIZZERS

1. Assertions used by the auditor fall into the following categories, except:

A. Assertions about the faithful representations

B. Assertions about account balances at period end
C. Assertions about classes of transactions and events
D. Assertions about presentation and disclosure

2. This serves as the set of instructions to assistants involved in the audit and as a means to control and record the
proper execution of the work of the personnel involved in the service.

A. Audit procedures
C. Audit program
D. Audit risk model
B. Audit plan

3. The auditor should design the written audit program, so that:

A. All material transactions will be selected for substantive testing.

B. Substantive tests prior to the balance sheet date will be minimized.
C. The audit procedures selected will achieve specific audit objectives.
D. Each account balance will be tested under either tests of controls or tests of transactions.
4. Audit procedures may be classified as risk assessment procedures and further audit procedures. Which of the
following best describes risk assessment procedures?

A. These procedures test the operating effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
B. These procedures are used to detect material misstatements at the assertion level.
C. These are procedures for obtaining an understanding of the entity and its environment, including its internal control,
to assess the risks of material misstatement at the financial statement and assertion levels.
D. These procedures include tests of details of classes of transactions, account balances, and disclosures and
analytical procedures.

5. One of the primary uses of an audit program is to

A. Provide for a standardized approach to the audit engagement
B. Serve as a tool for planning, directing and controlling the audit work
C. Document an auditor's understanding of the internal control
D. Delineate the audit risk accepted by the auditor

6. The audit program should contain the following, except:

A. Audit objective
B. Time budget for the various audit areas
C. Set of planned audit procedures
D. The combined assessed level of inherent

7. The audit program should set out the

A B C D
Nature of procedures Y N Y Y
Timing of planned procedures Y N N N
Extent of planned procedures Y Y Y N

8. The audit program usually cannot be finalized until the

A. Consideration of the entity's internal control has been completed.

B. Engagement letter has been communicated to the audit committee.
C. Reportable conditions have been communicated to the audit committee.
D. Search for unrecorded liabilities has been performed and documented.
9. Which of the following is/are correct?
Statement 1: The auditor shall perform risk assessment procedures to provide a basis for the identification and
assessment of risk of material misstatement at financial statement and assertion levels.
Statement 2: Risk assessment procedures by themselves provide sufficient appropriate audit evidence on which to
base the opinion.

C. Both statements are correct

A. Only statement 1 is correct
B. Only statement 2 is correct
D. Both statements are incorrect

10. In performing an audit of financial statements, the auditor should obtain a sufficient knowledge of a client's business
and industry to

A. Develop an attitude of professional skepticism concerning management's financial statements assertions.

B. Make constructive suggestion concerning improvements causes the financial statements taken as a whole to be
materially misstated.
C. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be
materially misstated.
D. Understand the events and transactions that may have an effect on the client's financial statements.

11. The primary objective of procedures performed to obtain an understanding of the entity and its environment is to
provide an auditor with:

A. Audit evidence to use in assessing inherent risk.

B. A basis for issuing an opinion on the financial statements.
C. Knowledge necessary for risk assessment and audit planning.
D. An evaluation of the consistency of application of management's policies.

12. Which of the following procedures is not performed as a part of planning an audit engagement?

A. Reviewing working papers of the prior year

B. Performing analytical procedures
C. Designing an audit program
D. Test of controls

13. Which of the following procedures not normally performed as part of obtaining an understanding of the client's
environment?

A. Reading trade publications to gain a better understanding of the client's industry

B. Studying the internal controls over cash receipts and disbursements
C. Confirming customer accounts receivable for existence and valuation
D. Touring the client's facilities

14. Analytical procedures used in planning an audit should focus on

A. Reducing the scope of tests of controls and substantive tests.

B. Providing assurance that potential misstatements will be identified.
C. Enhancing the auditor's understanding of the client's business.
D. Assuming the adequacy of the available evidential matter.

15. Analytical procedures used in planning an audit should focus on identifying

A. Material weaknesses in the internal control system

B. The predictability of financial data from individual transactions
C. The various assertions that are embodied in the financial statements
D. Areas that may represent specific risks relevant to the audit

5-5 MULTIPLE CHOICE QUIZZERS

1. If the acceptable level of detection risk is determined to be at a low level, the auditor may
A. Plan the timing of substantive tests at year-end
B. Reduce substantive tests based on assessment misstatements
C. Eliminate assessed level of non-sampling risk
D. Lower assessed of control from maximum maximum

2. What is the usual relationship between control risk and detection risk?

A. Direct
B. Same
C. Indirect
D. No relationship

3.Performance materiality would be

A. Established after test of controls but before performance of substantive tests

B. Optional for audits of non-listed entities
C. Different for balance sheet and income statement accounts
D. Normally set at a lower level than financial statement materiality

4. Fraud is highly difficult to detect if it is due to

A. Overstatement of transactions
C. Intercompany transactions
B. Understatement of transactions
D. Fixed assets

5. Which of the following scenarios would be considered an error?

A. Override of controls that appear to be operating effectively

B. Misapplication by management of an accounting policy
C. Concealment of transactions by employees
D. Omission of a transaction to favor a third party

6. Which procedure is least likely to be an audit planning procedure?

A. Signing of the engagement letter

B. Development of the overall audit strategy
C. Development of audit programs
D. Performance of risk assessment

7. Audit plans are designed so that

A. The auditor's conclusions are supported by audit evidence gathered

B. Major audit procedures can be performed as at interim work
C. Inherent risk is assessed at a sufficiently low level
D. Management letter points can be shared to the client

8. An auditor should establish specific audit objectives relating to

A.Extent of audit procedures

b. Cost-benefit considerations
C. Assertions of financial statements
D. Performance of risk assessment procedures

9. the previous auditor to allow the review of previous audit For new audit clients, the incoming auditor requests the
client to authorize the previous auditor to allow the review of previous audit’s

Engagement Letter Audit Documentation Findings and Observations

A Y Y Y
B N Y Y
C N Y N
D Y N N

10. For continuing audit engagements, the auditor would most likely

A. Opt for a control reliance approach

B. Perform substantive analytical procedures
C. Review prior year audit documentation
D. Set the timing of procedures at year-end

11. In planning an audit, which of the following procedures would an auditor normally perform?

A. Sending of confirmation of transactions and balances to related parties

B. Comparison of anticipated performance to the financial statements
C. Obtaining the entity's inventory count sheet
D. Determination of sample sizes to examine occurrence of sales

12. Which of the following are considered further audit procedures?

Test of Controls Test of Details substantive analytical procedures

A YYY
B NYY
C YNN
D NYN

13. The audit plan would require a modification if

A. There is a key audit matter to be communicated in the auditor's report

B. Results of test of controls differ from initial assessment
C. A material misstatement has been identified in the accounts
D. The company has a share-based compensation plan

14. What is the purpose of obtaining knowledge about a new client's and its industry? business

A. To be able to extrapolate misstatements noted in samples to the whole population

B. To understand events and transactions affecting the client's financial statements
C. To detect fraudulent financial reporting
D. To obtain information about the latest internal controls in the industry

15. As the acceptable level of detection risk increases, the assurance provided by

A. Substantive tests should decrease

B. Substantive tests should increase
C. Test of controls should increase
D. Test of controls should decrease

5-6 MULTIPLE CHOICE QUIZZERS

1. The audit risk model is used primarily

A. For planning purposes in determining how much evidence to accumulate.

B. While doing tests of controls.
C. To determine the type of opinion to express.
D. To evaluate the evidence which has been gathered.

2. In performing analytical procedures, set the following procedures in proper order.

1. Calculate predictions and compare them to recorded amount
II. Develop an expectation
Ill. Define a significant difference
IV. Investigate significant difference

A. i, ii, iii, iv
B. ii, i, iii, iv
C. i, ii, iv, iii
D. ii, i, iv, iii

3. Which of the following results from analytical procedures might indicate inventory obsolescence?

A. A decline in inventory turnover

B. A decline in the gross margin ratio
C. A decline in days' sales in inventory
D. An increase in operating margin

4. Audit risk has three components: inherent risk, control risk and detection risk. Which of the following statements is
correct?
A. Detection risk is a function of the efficiency of an audit procedure.
B. . Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.
C. The risk that material misstatement will not prevent or detected on a timely basis by internal control can be reduced
to a zero by effective controls.
D. Levels of inherent risk, control risk and detection risk can be changed at

5. Inherent risk and control risk differ from detection risk in that inherent risk the discretion of the auditor. and control
risk are:

A. Elements of audit risk while detection risk is not.

B. Changes at the auditor's discretion while detection risk is not.
C. Considered at the individual account balance level while detection risk is
D. Functions of the client and its environment while detection risk is not.

6. There is an inverse relationship that exist between the acceptable level of detection risk and the

A. Risk of falling to discover material misstatement

B. Preliminary judgments about materiality levels
C. Assurance provided by substantive tests
D. Risk of misapplying audit process

7. 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 the planned audit risk level, the auditor would:

A. Increase inherent risk

C. Increase materiality levels
B. Decrease substantive testing
D. Decrease detection risk

8. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about
materiality?

A. The anticipated sample size of the planned substanti

ve tests.
B. The entity's annualized interim financial statements.
C. The results of the internal control questionnaire.one of th
D. The contents of the management representation letter.

9. Which of the following statements is not correct about materiality?

A. The concept of materiality recognizes that some matters are for fair presentation of financial statements in conformity
with GAAP, while other matters are not important. important
B. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that
could be material to any one of the financial statements.
C. Materiality judgments are made in light of surrounding circumstanced and necessarily involve both quantitative and
qualitative judgments.
D. An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person
who will rely on the financial statements.

10. In considering materiality for planning purposes, the auditor believes that misstatements aggregating P100,000
would have material effect on an entity's income statement, but that misstatements would have to aggregate P80,000
to materially affect the statement of financial position. Ordinarily, it would be appropriate to design auditing procedures
that would be expected to detect misstatements

A. P180,000 that aggregate;

C. P90,000
B. P100,000
D. P80,000

11. Which of the following statements concerning materiality thresholds in incorrect?

A. Materiality thresholds may change between the planning and review stages of the audit. These changes may be due
to quantitative and/or qualitative factors.
B. The smallest aggregate level of errors or fraud that could be considered material to any of the financial statements is
referred to as a materiality threshold.
C/ In general, the more misstatements the auditor expects, the higher should be the aggregate materiality threshold.
D. Aggregate materiality thresholds are a function of the auditor's preliminary judgment concerning audit risk.

12. In connection with the planning phase of an audit engagement, which of the following statements is always correct?

A. Final staffing decisions must be made prior to completion of the planning stage.
B. Observation of inventory count should be performed at year-end.
C. A portion of the audit of a continuing audit client can be performed at interim dates.
D. An engagement should not be accepted after the client's financial year end

13. A retailing entity uses the Internet to execute and record its purchase transactions. The entity's auditor recognizes
that the documentation of details of transactions will be retained for only a short period of time. To compensate for this
limitation, the auditor most likely would:
A. Compare a sample of paid vendors' invoices to the receiving records at year-end.
B. Plan for a large measure of tolerable misstatement in substantive tests.
C. Perform tests several times during the year, rather than only at year
D. Increase the sample of transactions to be selected for cutoff tests. end.

14. Which of the following procedures should be performed by the auditor prior
1. Perform procedures regarding the acceptance of the client relationship to starting an initial audit? and the specific
audit engagement.
11. Communicate with the previous auditor, of auditors, in compliance with relevant ethical requirements. where there
has been a change

A. I only
B. Il only
C. Both I and II
D. Neither I nor II

15. Which of the following activities should be performed by the auditor at the beginning of the current audit
engagement?
1. Perform procedures regarding the continuance of the client relationship and the specific audit engagement.
II. Evaluate compliance with the requirements of the Code of Ethics for Professional Accountants in the Philippines,
including independence.
III. Establish an understanding of

A. I and II only the terms of the engagement.

C. I and III only
B. II and III only
D. I, II, and III

6-1 TRUE OR FALSE

1.Internal control is effected by those charged with governance, management and other personnel.T
2. Most controls are directed at routine or standard transactions which impose a limitation affecting their effectiveness.
3. Accounting controls promote operational efficiency and adherence to managerial policies.F
4. All controls adopted by management of an entity to assist in achieving management's objectives must be considered
in the audit.
5. A common control is uniformly designed and is implemented consistently across a single entity or location or at
different entities or locations.T
6. Control environment is the basis on which an effective system of internal control is built and operated in an
organization.
7. The tone at the top regarding the relevance of internal control, includingF
8. The organizational structure also establishes the flow of information between levels in an entity. ethical requirements,
is established by management.
9. The auditor shall identify the business risks relevant to financial reporting objectives of the entity and decide on how
to manage those risks.F
10. Communication and information are vital in making all relevant parties understand internal control responsibilities
and

6-2 TRUE OR FALSE

1. Control activities are designed to detect risks at different levels of the organization to ensure the achievement of its
objectives.F
2. At least majority of the five components of internal control must be implemented and be operated effectively to
ensure attainment of objectives.
3. Segregation of duties over cash receipts and recording is an example of anentity-wide control,F
4. After assessing the inherent risk, the auditor may judge to proceed directly in performing substantive procedures
without consideration of internal control.
5. In order to test the controls, their design and implementation are being evaluated.F
6. Business process narratives, process maps, risk and control matrices aresome of the commonly used forms of
control documentation.
7. A gap in internal control may be identified through an effective internal control questionnaire which highlights
strengths and weaknesses of the system through a structured series of questions.T
8. If the results of inquiry of entity personnel show no changes in the entity's processes, the prior year documentation of
controls may be carried forward.
9. Test of controls are designed to obtain sufficient and appropriate evidence as to the operating effectiveness of
relevant controls.T
10. If an understanding of the design and implementation of a control is obtained, its operating effectiveness must
likewise be evaluated.
11. Inquiry alone is not enough to test the operating effectiveness of controls.T
12. If the control risk assessment is set at the maximum level, the auditor is required to document the basis for such
judgment.
13. A material weakness in internal controls is present when a deficiency or combination of deficiencies in internal
control is of sufficient importance to merit the attention of those charged with governance. F
14. If a significant deficiency in internal control has been identified, the auditor shall communicate those in writing to
management or to those
15. OBTAINING AN UNDERSTANDING AS TO THE DESIGN and implementation of controls would lead to a
conclusion as to their operating effectiveness. F
6-3 MULTIPLE CHOICE QUIZZERS

1. Effectiveness and efficiency of operations Reliability of financial reporting

A. Compliance with applicable laws and regulations A. Internal auditing

C. Business strategy
B. Internal control
D. Accounting process

2. Which of the following best describes an internal control system?

A. All the policies and procedures adopted by the management of an entity to assist in achieving management's
objective of ensuring, as far as practicable, orderly and efficient conduct of its business, including adherence to
management policies; safeguarding of assets; prevention and detection of fraud and error; accuracy and completeness
of the accounting records; and timely preparation of reliable financial information.
B. The series of tasks and records of an entity by which transactions are processed as a means of maintaining financial
records. Such systems identify, assemble, analyze, calculate, classify, record, summarize
and report transactions and other events.
C. This includes, but is not limited to, plan of organization and the procedures and records that are concerned with the
decision processes leading to management's authorization of transactions. It promotes operational efficiency and
adherence to managerial policies.
D. This comprises the plan of organization and the procedures and records that are concerned with the safeguarding of
assets and the reliability of financial records. It involves systems of authorization and approval controls over assets,
internal audit and all other financial matters.

3. Which of the following is not one of the essential concepts of internal controls?

A. It is a process
B. It is by those charged with governance, management, and other personnel in an
C. It is a means entity tool management to achieve the entity's
D. It can be expected to provide absolute assurance regarding that the used achievement of the entity's objectives

4. Internal control can only provide reasonable, not absolute, assurance of achieving entity control objectives. One of
the factors limiting the likelihood of achieving those objectives is that:

A. The auditor's primary responsibility is the detection of fraud.

B. The board of directors is active and independent.
C. The cost of internal control should not exceed its benefits.
D. Management monitors internal control.

5. Which of the following is an example of an inherent limitation in a client's internal control system?

A. The effectiveness of procedures depends on the segregation of employee duties.

B. Procedures are designed to assure the execution and recording of transactions in accordance with management's
authorization.
C. In the performance of most control procedures, there are possibilities of errors arising from mistakes in judgment.
D. Procedures for handling large numbers of transactions are processed by information technology (IT) equipment.
6. An internal control system that is working effectively

A. Eliminates risk and potential loss of to the entity

B. Cannot be circumvented by management
C. Reduces the need for management the review exception reports on a day-to-day basis
D. Is unaffected by changing circumstances and conditions encountered by the entity

7. Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an
entity's internal control?

a. Incompatible duties.
b.. Management override.
C. Mistakes in judgment.
D. Collusion among employees.

8. Which of the following statements best describes "control activities"?

A. The entity's process for identifying business risks relevant to financial reporting objectives and deciding about
actions to address those risks, and the results thereof.
B. The system for transferring information from transaction processing systems to the general ledger or the financial
reporting system.
C. Policies and procedures that help ensure that management directives are carried out.
D. This includes the governance and management functions and the attitudes, awareness, and actions of those
charged with governance and management concerning the entity's internal control and its importance

CHAPTER 7
7-3 MULTIPLE CHOICE QUIZZERS
1. The transaction cycles approach leads to efficient processing of large number of transactions because

A Transaction cycles are easier to computerize

B. A large number of transactions within a given cycle can be categorized into a relatively small number of distinct
types.
C The transaction cycle approach represents the natural order of business
D Transaction cycles are easy to understand

2. What is the major difference between the revenue and the expenditure cycle?

A The revenue cycle includes marketing activities, the expenditure cycle does not
B In the revenue cycle cash is received, in the expenditure cycle cash is paid out
C. The expenditure cycle includes paying employees.
D. The revenue cycle includes the activity of obtaining funds from investors

3. The business owners obtain financing from outside investors, which results in an inflow of cash into the company
This transaction is considered to be part of which cycle?

A The revenue cycle

B The payroll cycle
C The production cycle
D. The financing cycle

4. All transaction cycles feed information directly into the

A Governmental reports
B Financial statements
C Financing operations
D General ledger and reporting system

5. The overall objective in the audit of the sales and collection cycle is to evaluate whether

A The sales account and the accounts receivable account are free of errors
B. The sales account and the accounts receivable are free of material errors
C. The accounts balances affected by the cycle are fairly presented in accordance with GAAP
D. The sales account and the accounts receivable account are presented fairly in accordance with GAAP

6 Which of the following is not typically included in the sales and collection

A Bad debt expense

B Allowance for uncollectible accounts.
C Sales returns and allowances
D Cash credits from the cash disbursement journal

7 In considering internal control within the revenue/receipt cycle, what is the purpose of a transaction walk through?

A To assure that employees are performing assigned functions accurately

B To confirm the auditor's understanding of the internal control structure.
C. To select documents for detailed tests of controls
D To verify the results of the auditor's sampling plan.

8. Which among the following is a transaction document not found in the "revenue" cycle?

A Sales order
B Requisition form
C Bill of lading
D. Sales invoice

9 Which of the following is not normally considered a step in the credit sales functions?

A Accepting customer orders

C Approving credit
B Shipping the sales orders.
D. Acquiring goods to fill the order

10 Before goods are shipped on account, a properly authorized person must

A Prepare the sales invoice

B Approve the journal entry
C. Approve credit
D Verify that the unit price is accurate

11 To determine whether internal control operates effectively to minimize errors of failure to post invoices to the
customer's accounts ledger, the auditor would select a sample of transactions from the population represented by the
A Bill of lading file
B Sales invoice file
Customer order file
D Subsidiary customer accounts ledger

12. To test for unsupported entries in the ledger, the direction of audit testing should be from the

a. journal entries
B. ledger entries
C Original source documents
D Externally generated documents

13 Tracing copies of sales invoice to shipping documents provides evidence that

A Shipments were recorded as receivables

B Billed sales were shipped
C Shipments were billed
D Debits to accounts receivable were for sales shipped

14. Which of the following functions is not common to the expenditure/disbursement cycle?

A Resources are acquired from vendors in exchange for obligations to pay

B Obligations to vendors are paid
C Resources are held, used or transformed
D Resources are acquired from employees in exchange for obligations to pay

15 The primary audit objective regarding the purchasing of materials by the client is to

A Ascertain that materials paid for are on hand.

B Observe the annual physical count
C. Investigate the recording of unusual transactions regarding materials
D Determine the reliability of financial reporting by the purchasing function

7-4 MULTIPLE CHOICE QUIZZERS

1. To achieve good internal control, which department should perform the activities of matching shipping documents
with sales orders and preparing daily summaries?

A Billing department
B Shipping department
C Credit department
D Sales order department

2 Which of the following control procedures may prevent the failure to bill customers for some shipments?

A Each shipment should be supported by a pre-numbered sales that is accounted for

B Each sales order should be approved by authorized personnel invoice
C Sales journal entries should be reconciled to daily sales summaries
D Each sales invoice should be supported by a shipping document

3 In the event the customer failed to submit a remittance advice, who among the entity's personnel shall prepare a
remittance advice?

A Credit manager
B Sales manager
C Receptionist
D. Accounts receivable clerk

4. Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to
maximize sales volume at the expense of high bad debt write-offs?

A Employees responsible for authorizing bad debt write-offs are denied access to cash
B. Employees involved in the credit granting are separated from sales function
C Shipping documents and sales invoices are matched by an employee who does not have authority to write-off bad
debts.
D Subsidiary accounts receivable records are reconciled to the control. account by an employee independent of the
authorization of credit

5. To achieve control when there is no billing department, the billing function should be performed by the

A Accounting department
B. Shipping department
C Sales department
D. Credit and collection department

6. Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances
from the mail room?

A The cashier makes the daily deposit at a local bank

b The cashier prepares the daily deposit
C The cashier endorses the checks
D The cashier posts the receipts to the accounts receivable subsidiary ledger

7. Which of the following fraudulent activities most likely could be perpetrated due to lack of effective control in the
revenue cycle?

A The failure to prepare shipping documents may cause an overstatement of inventory balances.
B. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash.
C Fictitious transactions may be recorded that may cause an
D Claims received from customers for goods returned may be intentionally understatement of revenues and
overstatement of receivables

8. Assuming cash receipts from credit sales have been misappropriated, which of the following is likely to conceal the
misappropriation and unlikely to be detected? recorded in other customer's accounts

A Understating the sales journal

C Overstating the accounts receivable control account
Overstating the accounts receivable subsidiary ledger
D. Overstating the cash receipts journal

9. During the review of a small owner-managed company's internal control the auditor discovers that the accounts
receivable clerk approves the memas and has access to cash. Which of the following controls would offer this
deficiency?
8. Inquiry consists of seeking both financial and non-financial information from knowledgeable persons within the
entity.F
9. Observation consists of looking at a process or audit procedure.F
10. Physical verification of the entity's premises and plant facilities is considered an inspection procedure.T

5-2 TRUE OR FALSE

1.Analytical procedures enable the auditor to conclude if the fluctuations and relationships in the entity's financial
information make sense.T
2. Preliminary analytical review is only required for new or unusual business transactions entered by the entity du
the period under audit.
3. Industry benchmarks or averages may be used to develop expectations regarding financial statements. T
4. Only planning and concluding analytical review are required to be performed in an audit.

5. Test of details obtains corroborative evidence for a particular assertion as compared to substantive analytical
procedures which doesn t.F
6. Materiality is an absolute concept as prescribed by the engagement standards.
7. Misstatements, including omissions, are considered to be material if individually they could reasonably be expe
to influence the economic decisions of users.F
8. The determination of materiality is a mathematical exercise with a prescribed formula that differs depending on
industry of the entity.
9. The auditor should revise the overall materiality should he become aware of information during the audit that w
lead to a different amount.T
10. The identification and assessment of risks of material misstatements are both done at the financial statement
assertion levels.
11. Detection risk is determined and controlled by the auditor.T
12. The results of preliminary engagement activities are also considered when establishing the overall audit strate
13. When the work of an expert is involved in the audit, the auditor's responsibility for the audit opinion is shared w
the expert.F
14. To comply with ethical requirements, the current year auditor shall communicate with the previous auditor for
engagements.
15. Establishing overall audit strategy and plan for audits of small entities need to be complex but not time consum

5-3 MULTIPLE CHOICE QUIZZERS

1 Which of the following statements is/are correct?
Statement 1: The client should plan the audit work so that the audit will be performed in an effective manner.
Statement 2: The auditor should conduct the audit with an attitude of professional skepticism.
Statement 3: The auditor should develop and document an overall audit plan describing the scope and conduct of
audit.

A. Only one statement is correct C. All statements are correct

B. Only two statements are correct D. All statements are incorrect

2. Adequate planning of the audit work helps the auditor of accomplishing the following objectives, except:

A. Gathering of all corroborating audit evidence.

B. Ensuring that appropriate attention is devoted to important areas of the audit.
C. Identifying the areas that need a service of an expert.
D. The audit work is completed efficiently.

3. The extent of planning will vary according to any of the following, except:

A. Size of the audit client.

B. Auditor's experience with the entity and knowledge of the business.
C. The nature and complexity of the audit engagement
D. The assessed level of control risk.

4. Which of the following statements is incorrect?

A. The auditor should plan the audit so that the engagement will be performed in an effective manner.
B. Planning an audit involves establishing the overall audit strategy for the engagement and developing the audit
in order to reduce audit risk to an acceptably low level.
C. Planning involves the engagement partner and other key members of the engagement team to benefit from the
experience and insight and to enhance the effectiveness and efficiency of the planning process.
D. Planning is not a discrete phase of an audit, but rather a continual and iterative process that often begins short
after (or in connection with) the completion of the previous audit and continues until the finalization of the audit
program.
5. The auditors plan should
A B C D
Precede action Y N Y Y
Be static Y N N N
Be cost-beneficial Y Y Y N

6. Which of the following statements is/are correct?

Statement 1: Obtaining knowledge of the entity business is an important part of the planning the audit work
Statement 2: The auditor's knowledge of the entity's business assists in the identification of events, transactions a
practices which may have a material effect on the financial statements.

C. Both statements are correct

A Only statement 1 is correct
B Only statement 2 is correct
D. Both statements are incorrect
7. Which of the following statements is/are correct?
Statement 1: The overall audit plan and the audit program should not be revised during the course of the audit.
Statement 2: The auditor should develop and document an audit program setting out the nature, timing and exten
planned audit procedures required to implement the overall audit plan.

A Only statement 1 is correct

Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect

8. Which of the following statements is/are correct?

Statement 1: According to PSA 300, the auditor may discuss elements of planning with those charged with govern
and the entity's management
Statement 2: The audit plan sets the scope, timing and direction of the audit guides the development of the more
detailed overall audit strategy.
Statement 3: The overall audit strategy is more detailed than the audit plan and includes the nature, timing and ex
of audit procedures to be performed engagement team members to obtain sufficient appropriate audit evidence to
reduce audit risk to an acceptably low level.

A Only 1 statement is correct

C. All statements are correct
B. Only 2 statements are correct
D. All statements are incorrect

9. Which of the following is least likely considered by the CPA when he makes an overall audit plan?

A. Identification of complex accounting areas including those involving accounting estimates

B. The effect of information technology on the audit
C. The content of the representation letters
D. The nature and timing of reports and other communication with the entity that are expected under the engagem

10. In designing audit programs, an auditor should establish specific audit objectives that related primarily to the

A Selected audit techniques

B. timing of audit procedures
C. Financial statement assertions
D. Cost-benefit gathering evidence

11. Which of the following matters should be considered by the auditor in developing the overall audit strategy?

A. Important characteristics of the entity, its business, its financial performance and its reporting requirements inc
changes since the date of the prior audit
B. Conditions requiring special attention, such as the existence of the related parties
C. The setting of materiality level for audit purposes
D. All of the above

12. The element of the audit planning process most likely to be agreed upon with the client before implementation
the audit strategy is the determination of the

A. Evidence to be gathered to provide a sufficient basis for the auditor's opinion.

B. Procedures to be undertaken to discover litigation, claims, and assessments.
C. Pending legal matters to be included in the inquiry of the client's attorney.
D. Timing of inventory observation procedures to be performed.

13. Which of the following is most likely to require special planning considerations related to asset valuation?

A Inventory is comprised of diamond rings.

B. The client has recently purchased an expensive copy machine.
C. Assets costing less than P25,000 are expensed even when the expected life exceeds one year.
D. Accelerated depreciation methods are used for amortizing the costs of factory equipment.

14. The auditor should document the overall audit strategy and the audit plan, including significant changes made
during the audit engagement. Which of the following statements on documentation is incorrect?

A. Documentation of the overall audit strategy may be made in the form of a memorandum that contains key deci
regarding the overall scope, timing and conduct of the audit.
B. The auditor may use standard audit programs or audit completion checklists, but such programs and checklists
to be tailored to the particular client.
C. The auditor's documentation of any significant changes to the originally planned overall audit strategy and to th
detailed audit plan need not include the reasons for the significant changes. D. The form and extent of documenta
depend on such matters as the size and complexity of the entity, materiality, the extent of other documentation, an
circumstances of the specific engagement.

15. In developing an overall audit strategy, an auditor should consider: precision limit.

A. Whether the allowance for sampling risk exceeds the achieved upper
B. Findings from substantive tests performed at interim dates.
C. Whether the inquiry of the client's attorney identifies any litigation, claims, or assessments not disclosed in the
financial statements.
D. Preliminary evaluations of materiality, audit risk, and internal control.

5-4 MULTIPLE CHOICE QUIZZERS

1. Assertions used by the auditor fall into the following categories, except:

A. Assertions about the faithful representations

B. Assertions about account balances at period end
C. Assertions about classes of transactions and events
D. Assertions about presentation and disclosure

2. This serves as the set of instructions to assistants involved in the audit and as a means to control and record th
proper execution of the work of the personnel involved in the service.

A. Audit procedures
C. Audit program
D. Audit risk model
B. Audit plan

3. The auditor should design the written audit program, so that:

A. All material transactions will be selected for substantive testing.

B. Substantive tests prior to the balance sheet date will be minimized.
C. The audit procedures selected will achieve specific audit objectives.
D. Each account balance will be tested under either tests of controls or tests of transactions.
4. Audit procedures may be classified as risk assessment procedures and further audit procedures. Which of the
following best describes risk assessment procedures?

A. These procedures test the operating effectiveness of controls in preventing, or detecting and correcting, materi
misstatements at the assertion level.
B. These procedures are used to detect material misstatements at the assertion level.
C. These are procedures for obtaining an understanding of the entity and its environment, including its internal co
to assess the risks of material misstatement at the financial statement and assertion levels.
D. These procedures include tests of details of classes of transactions, account balances, and disclosures and
analytical procedures.

5. One of the primary uses of an audit program is to

A. Provide for a standardized approach to the audit engagement
B. Serve as a tool for planning, directing and controlling the audit work
C. Document an auditor's understanding of the internal control
D. Delineate the audit risk accepted by the auditor

6. The audit program should contain the following, except:

A. Audit objective
B. Time budget for the various audit areas
C. Set of planned audit procedures
D. The combined assessed level of inherent

7. The audit program should set out the

A B C D
Nature of procedures Y N Y Y
Timing of planned procedures Y N N N
Extent of planned procedures Y Y Y N

8. The audit program usually cannot be finalized until the

A. Consideration of the entity's internal control has been completed.

B. Engagement letter has been communicated to the audit committee.
C. Reportable conditions have been communicated to the audit committee.
D. Search for unrecorded liabilities has been performed and documented.

9. Which of the following is/are correct?

Statement 1: The auditor shall perform risk assessment procedures to provide a basis for the identification and
assessment of risk of material misstatement at financial statement and assertion levels.
Statement 2: Risk assessment procedures by themselves provide sufficient appropriate audit evidence on which t
base the opinion.

C. Both statements are correct

A. Only statement 1 is correct
B. Only statement 2 is correct
D. Both statements are incorrect
10. In performing an audit of financial statements, the auditor should obtain a sufficient knowledge of a client's bus
and industry to

A. Develop an attitude of professional skepticism concerning management's financial statements assertions.

B. Make constructive suggestion concerning improvements causes the financial statements taken as a whole to b
materially misstated.
C. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to
materially misstated.
D. Understand the events and transactions that may have an effect on the client's financial statements.

11. The primary objective of procedures performed to obtain an understanding of the entity and its environment is
provide an auditor with:

A. Audit evidence to use in assessing inherent risk.

B. A basis for issuing an opinion on the financial statements.
C. Knowledge necessary for risk assessment and audit planning.
D. An evaluation of the consistency of application of management's policies.

12. Which of the following procedures is not performed as a part of planning an audit engagement?

A. Reviewing working papers of the prior year

B. Performing analytical procedures
C. Designing an audit program
D. Test of controls

13. Which of the following procedures not normally performed as part of obtaining an understanding of the client's
environment?

A. Reading trade publications to gain a better understanding of the client's industry

B. Studying the internal controls over cash receipts and disbursements
C. Confirming customer accounts receivable for existence and valuation
D. Touring the client's facilities

14. Analytical procedures used in planning an audit should focus on

A. Reducing the scope of tests of controls and substantive tests.

B. Providing assurance that potential misstatements will be identified.
C. Enhancing the auditor's understanding of the client's business.
D. Assuming the adequacy of the available evidential matter.

15. Analytical procedures used in planning an audit should focus on identifying

A. Material weaknesses in the internal control system

B. The predictability of financial data from individual transactions
C. The various assertions that are embodied in the financial statements
D. Areas that may represent specific risks relevant to the audit

5-5 MULTIPLE CHOICE QUIZZERS

1. If the acceptable level of detection risk is determined to be at a low level, the auditor may
A. Plan the timing of substantive tests at year-end
B. Reduce substantive tests based on assessment misstatements
C. Eliminate assessed level of non-sampling risk
D. Lower assessed of control from maximum maximum

2. What is the usual relationship between control risk and detection risk?

A. Direct
B. Same
C. Indirect
D. No relationship

3.Performance materiality would be

A. Established after test of controls but before performance of substantive tests
B. Optional for audits of non-listed entities
C. Different for balance sheet and income statement accounts
D. Normally set at a lower level than financial statement materiality

4. Fraud is highly difficult to detect if it is due to

A. Overstatement of transactions
C. Intercompany transactions
B. Understatement of transactions
D. Fixed assets

5. Which of the following scenarios would be considered an error?

A. Override of controls that appear to be operating effectively

B. Misapplication by management of an accounting policy
C. Concealment of transactions by employees
D. Omission of a transaction to favor a third party

6. Which procedure is least likely to be an audit planning procedure?

A. Signing of the engagement letter

B. Development of the overall audit strategy
C. Development of audit programs
D. Performance of risk assessment

7. Audit plans are designed so that

A. The auditor's conclusions are supported by audit evidence gathered

B. Major audit procedures can be performed as at interim work
C. Inherent risk is assessed at a sufficiently low level
D. Management letter points can be shared to the client

8. An auditor should establish specific audit objectives relating to

A.Extent of audit procedures

b. Cost-benefit considerations
C. Assertions of financial statements
D. Performance of risk assessment procedures

9. the previous auditor to allow the review of previous audit For new audit clients, the incoming auditor requests th
client to authorize the previous auditor to allow the review of previous audit’s

Engagement Letter Audit Documentation Findings and Observations

A Y Y Y
B N Y Y
C N Y N
D Y N N

10. For continuing audit engagements, the auditor would most likely

A. Opt for a control reliance approach

B. Perform substantive analytical procedures
C. Review prior year audit documentation
D. Set the timing of procedures at year-end

11. In planning an audit, which of the following procedures would an auditor normally perform?

A. Sending of confirmation of transactions and balances to related parties

B. Comparison of anticipated performance to the financial statements
C. Obtaining the entity's inventory count sheet
D. Determination of sample sizes to examine occurrence of sales

12. Which of the following are considered further audit procedures?

Test of Controls Test of Details substantive analytical procedures

A YYY
B NYY
C YNN
D NYN

13. The audit plan would require a modification if

A. There is a key audit matter to be communicated in the auditor's report

B. Results of test of controls differ from initial assessment

C. A material misstatement has been identified in the accounts

D. The company has a share-based compensation plan

14. What is the purpose of obtaining knowledge about a new client's and its industry? business
A. To be able to extrapolate misstatements noted in samples to the whole population
B. To understand events and transactions affecting the client's financial statements
C. To detect fraudulent financial reporting
D. To obtain information about the latest internal controls in the industry

15. As the acceptable level of detection risk increases, the assurance provided by

A. Substantive tests should decrease

B. Substantive tests should increase
C. Test of controls should increase
D. Test of controls should decrease

5-6 MULTIPLE CHOICE QUIZZERS

1. The audit risk model is used primarily

A. For planning purposes in determining how much evidence to accumulate.

B. While doing tests of controls.
C. To determine the type of opinion to express.
D. To evaluate the evidence which has been gathered.

2. In performing analytical procedures, set the following procedures in proper order.

1. Calculate predictions and compare them to recorded amount
II. Develop an expectation
Ill. Define a significant difference
IV. Investigate significant difference

A. i, ii, iii, iv
B. ii, i, iii, iv
C. i, ii, iv, iii
D. ii, i, iv, iii

3. Which of the following results from analytical procedures might indicate inventory obsolescence?

A. A decline in inventory turnover

B. A decline in the gross margin ratio
C. A decline in days' sales in inventory
D. An increase in operating margin

4. Audit risk has three components: inherent risk, control risk and detection risk. Which of the following statement
correct?
A. Detection risk is a function of the efficiency of an audit procedure.
B. . Cash is more susceptible to theft than an inventory of coal because it has a greater inherent risk.
C. The risk that material misstatement will not prevent or detected on a timely basis by internal control can be red
to a zero by effective controls.
D. Levels of inherent risk, control risk and detection risk can be changed at

5. Inherent risk and control risk differ from detection risk in that inherent risk the discretion of the auditor. and cont
risk are:

A. Elements of audit risk while detection risk is not.

B. Changes at the auditor's discretion while detection risk is not.
C. Considered at the individual account balance level while detection risk is
D. Functions of the client and its environment while detection risk is not.

6. There is an inverse relationship that exist between the acceptable level of detection risk and the

A. Risk of falling to discover material misstatement

B. Preliminary judgments about materiality levels
C. Assurance provided by substantive tests
D. Risk of misapplying audit process

7. On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed level of co
risk, and therefore the risk of material misstatement, from that originally planned. To achieve an overall audit risk
that is substantially the same as the planned audit risk level, the auditor would:

A. Increase inherent risk

C. Increase materiality levels
B. Decrease substantive testing
D. Decrease detection risk

8. Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about
materiality?

A. The anticipated sample size of the planned substanti

ve tests.
B. The entity's annualized interim financial statements.
C. The results of the internal control questionnaire.one of th
D. The contents of the management representation letter.

9. Which of the following statements is not correct about materiality?

A. The concept of materiality recognizes that some matters are for fair presentation of financial statements in con
with GAAP, while other matters are not important. important
B. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements
could be material to any one of the financial statements.
C. Materiality judgments are made in light of surrounding circumstanced and necessarily involve both quantitative
qualitative judgments.
D. An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable p
who will rely on the financial statements.

10. In considering materiality for planning purposes, the auditor believes that misstatements aggregating P100,00
would have material effect on an entity's income statement, but that misstatements would have to aggregate P80
to materially affect the statement of financial position. Ordinarily, it would be appropriate to design auditing proced
that would be expected to detect misstatements

A. P180,000 that aggregate;

C. P90,000
B. P100,000
D. P80,000

11. Which of the following statements concerning materiality thresholds in incorrect?

A. Materiality thresholds may change between the planning and review stages of the audit. These changes may b
to quantitative and/or qualitative factors.
B. The smallest aggregate level of errors or fraud that could be considered material to any of the financial stateme
referred to as a materiality threshold.
C/ In general, the more misstatements the auditor expects, the higher should be the aggregate materiality thresho
D. Aggregate materiality thresholds are a function of the auditor's preliminary judgment concerning audit risk.

12. In connection with the planning phase of an audit engagement, which of the following statements is always co

A. Final staffing decisions must be made prior to completion of the planning stage.
B. Observation of inventory count should be performed at year-end.
C. A portion of the audit of a continuing audit client can be performed at interim dates.
D. An engagement should not be accepted after the client's financial year end

13. A retailing entity uses the Internet to execute and record its purchase transactions. The entity's auditor recogn
that the documentation of details of transactions will be retained for only a short period of time. To compensate fo
limitation, the auditor most likely would:
A. Compare a sample of paid vendors' invoices to the receiving records at year-end.
B. Plan for a large measure of tolerable misstatement in substantive tests.
C. Perform tests several times during the year, rather than only at year
D. Increase the sample of transactions to be selected for cutoff tests. end.

14. Which of the following procedures should be performed by the auditor prior
1. Perform procedures regarding the acceptance of the client relationship to starting an initial audit? and the spec
audit engagement.
11. Communicate with the previous auditor, of auditors, in compliance with relevant ethical requirements. where t
has been a change

A. I only
B. Il only
C. Both I and II
D. Neither I nor II

15. Which of the following activities should be performed by the auditor at the beginning of the current audit
engagement?
1. Perform procedures regarding the continuance of the client relationship and the specific audit engagement.
II. Evaluate compliance with the requirements of the Code of Ethics for Professional Accountants in the Philippine
including independence.
III. Establish an understanding of

A. I and II only the terms of the engagement.

C. I and III only
B. II and III only
D. I, II, and III

6-1 TRUE OR FALSE

1.Internal control is effected by those charged with governance, management and other personnel.T
2. Most controls are directed at routine or standard transactions which impose a limitation affecting their effectiven
3. Accounting controls promote operational efficiency and adherence to managerial policies.F
4. All controls adopted by management of an entity to assist in achieving management's objectives must be consi
in the audit.
5. A common control is uniformly designed and is implemented consistently across a single entity or location or at
different entities or locations.T
6. Control environment is the basis on which an effective system of internal control is built and operated in an
organization.
7. The tone at the top regarding the relevance of internal control, includingF
8. The organizational structure also establishes the flow of information between levels in an entity. ethical requirem
is established by management.
9. The auditor shall identify the business risks relevant to financial reporting objectives of the entity and decide on
to manage those risks.F
10. Communication and information are vital in making all relevant parties understand internal control responsibil
and

6-2 TRUE OR FALSE

1. Control activities are designed to detect risks at different levels of the organization to ensure the achievement o
objectives.F
2. At least majority of the five components of internal control must be implemented and be operated effectively to
ensure attainment of objectives.
3. Segregation of duties over cash receipts and recording is an example of anentity-wide control,F
4. After assessing the inherent risk, the auditor may judge to proceed directly in performing substantive procedure
without consideration of internal control.
5. In order to test the controls, their design and implementation are being evaluated.F
6. Business process narratives, process maps, risk and control matrices aresome of the commonly used forms of
control documentation.
7. A gap in internal control may be identified through an effective internal control questionnaire which highlights
strengths and weaknesses of the system through a structured series of questions.T
8. If the results of inquiry of entity personnel show no changes in the entity's processes, the prior year documenta
controls may be carried forward.
9. Test of controls are designed to obtain sufficient and appropriate evidence as to the operating effectiveness of
relevant controls.T
10. If an understanding of the design and implementation of a control is obtained, its operating effectiveness must
likewise be evaluated.
11. Inquiry alone is not enough to test the operating effectiveness of controls.T
12. If the control risk assessment is set at the maximum level, the auditor is required to document the basis for su
judgment.
13. A material weakness in internal controls is present when a deficiency or combination of deficiencies in interna
control is of sufficient importance to merit the attention of those charged with governance. F
14. If a significant deficiency in internal control has been identified, the auditor shall communicate those in writing
management or to those
15. OBTAINING AN UNDERSTANDING AS TO THE DESIGN and implementation of controls would lead to a
conclusion as to their operating effectiveness. F
6-3 MULTIPLE CHOICE QUIZZERS

1. Effectiveness and efficiency of operations Reliability of financial reporting

A. Compliance with applicable laws and regulations A. Internal auditing

C. Business strategy
B. Internal control
D. Accounting process

2. Which of the following best describes an internal control system?

A. All the policies and procedures adopted by the management of an entity to assist in achieving management's
objective of ensuring, as far as practicable, orderly and efficient conduct of its business, including adherence to
management policies; safeguarding of assets; prevention and detection of fraud and error; accuracy and complet
of the accounting records; and timely preparation of reliable financial information.
B. The series of tasks and records of an entity by which transactions are processed as a means of maintaining fin
records. Such systems identify, assemble, analyze, calculate, classify, record, summarize
and report transactions and other events.
C. This includes, but is not limited to, plan of organization and the procedures and records that are concerned wit
decision processes leading to management's authorization of transactions. It promotes operational efficiency and
adherence to managerial policies.
D. This comprises the plan of organization and the procedures and records that are concerned with the safeguard
assets and the reliability of financial records. It involves systems of authorization and approval controls over asse
internal audit and all other financial matters.

3. Which of the following is not one of the essential concepts of internal controls?

A. It is a process
B. It is by those charged with governance, management, and other personnel in an
C. It is a means entity tool management to achieve the entity's
D. It can be expected to provide absolute assurance regarding that the used achievement of the entity's objective

4. Internal control can only provide reasonable, not absolute, assurance of achieving entity control objectives. On
the factors limiting the likelihood of achieving those objectives is that:

A. The auditor's primary responsibility is the detection of fraud.

B. The board of directors is active and independent.
C. The cost of internal control should not exceed its benefits.
D. Management monitors internal control.

5. Which of the following is an example of an inherent limitation in a client's internal control system?

A. The effectiveness of procedures depends on the segregation of employee duties.

B. Procedures are designed to assure the execution and recording of transactions in accordance with manageme
authorization.
C. In the performance of most control procedures, there are possibilities of errors arising from mistakes in judgme
D. Procedures for handling large numbers of transactions are processed by information technology (IT) equipmen
6. An internal control system that is working effectively

A. Eliminates risk and potential loss of to the entity

B. Cannot be circumvented by management
C. Reduces the need for management the review exception reports on a day-to-day basis
D. Is unaffected by changing circumstances and conditions encountered by the entity

7. Which of the following most likely would not be considered an inherent limitation of the potential effectiveness o
entity's internal control?

a. Incompatible duties.
b.. Management override.
C. Mistakes in judgment.
D. Collusion among employees.

8. Which of the following statements best describes "control activities"?

A. The entity's process for identifying business risks relevant to financial reporting objectives and deciding about
actions to address those risks, and the results thereof.
B. The system for transferring information from transaction processing systems to the general ledger or the financ
reporting system.
C. Policies and procedures that help ensure that management directives are carried out.
D. This includes the governance and management functions and the attitudes, awareness, and actions of those
charged with governance and management concerning the entity's internal control and its importance

CHAPTER 7
7-3 MULTIPLE CHOICE QUIZZERS
1. The transaction cycles approach leads to efficient processing of large number of transactions because

A Transaction cycles are easier to computerize

B. A large number of transactions within a given cycle can be categorized into a relatively small number of distinc
types.
C The transaction cycle approach represents the natural order of business
D Transaction cycles are easy to understand

2. What is the major difference between the revenue and the expenditure cycle?

A The revenue cycle includes marketing activities, the expenditure cycle does not
B In the revenue cycle cash is received, in the expenditure cycle cash is paid out
C. The expenditure cycle includes paying employees.
D. The revenue cycle includes the activity of obtaining funds from investors

3. The business owners obtain financing from outside investors, which results in an inflow of cash into the compa
This transaction is considered to be part of which cycle?

A The revenue cycle

B The payroll cycle
C The production cycle
D. The financing cycle

4. All transaction cycles feed information directly into the

A Governmental reports
B Financial statements
C Financing operations
D General ledger and reporting system

5. The overall objective in the audit of the sales and collection cycle is to evaluate whether

A The sales account and the accounts receivable account are free of errors
B. The sales account and the accounts receivable are free of material errors
C. The accounts balances affected by the cycle are fairly presented in accordance with GAAP
D. The sales account and the accounts receivable account are presented fairly in accordance with GAAP

6 Which of the following is not typically included in the sales and collection

A Bad debt expense

B Allowance for uncollectible accounts.
C Sales returns and allowances
D Cash credits from the cash disbursement journal

7 In considering internal control within the revenue/receipt cycle, what is the purpose of a transaction walk throug

A To assure that employees are performing assigned functions accurately

B To confirm the auditor's understanding of the internal control structure.
C. To select documents for detailed tests of controls
D To verify the results of the auditor's sampling plan.

8. Which among the following is a transaction document not found in the "revenue" cycle?

A Sales order
B Requisition form
C Bill of lading
D. Sales invoice

9 Which of the following is not normally considered a step in the credit sales functions?

A Accepting customer orders

C Approving credit
B Shipping the sales orders.
D. Acquiring goods to fill the order

10 Before goods are shipped on account, a properly authorized person must

A Prepare the sales invoice

A Prepare the sales invoice
B Approve the journal entry
C. Approve credit
D Verify that the unit price is accurate

11 To determine whether internal control operates effectively to minimize errors of failure to post invoices to the
customer's accounts ledger, the auditor would select a sample of transactions from the population represented by

A Bill of lading file

B Sales invoice file
Customer order file
D Subsidiary customer accounts ledger

12. To test for unsupported entries in the ledger, the direction of audit testing should be from the