Multiple-Choice Quiz on SRC Rule B) Only the Chief Financial Officer needs

68 (As Amended) to sign the Statement of Management’s

Responsibility.
1. Which entities are required to file C) The Board of Directors reviews and
financial statements under SRC Rule approves the financial statements before
68? submission.
A) All corporations registered with the D) Financial statements can be prepared
SEC solely by the external auditor.
B) Stock corporations with paid-up capital
stock of P50,000.00 or more Answer: C
C) Non-stock corporations regardless of
assets or receipts
D) Sole proprietorships
5. What is the maximum period before a
Answer: B registration statement becomes effective
when financial information should be
current?
A) 135 days
2. What financial reporting framework B) 90 days
should large and/or publicly- C) 225 days
accountable entities use? D) 315 days
A) Philippine Financial Reporting
Standards (PFRS) Answer: A
B) Philippine Financial Reporting
Standards for SMEs (PFRS for SMEs)
C) Income tax basis
D) Accounting standards in effect as of 6. How long is the rotation period for
December 31, 2004 external auditors for regulated entities?
A) Every 3 years
Answer: A B) Every 4 years
C) Every 5 years with a 2-year cooling-off
period
D) Every 6 years
3. How often should financial statements
be presented in comparative form? Answer: C
A) Every year for the past 5 years
B) For at least the two most recent fiscal
years
C) Only for the most recent fiscal year 7. What percentage of error in the
D) Whenever requested by shareholders financial statements qualifies as
material under SRC Rule 68?
Answer: B A) 1%
B) 3%
C) 5%
D) 10%
4. Which statement correctly describes
the responsibility for financial Answer: C
statements?
A) The SEC is responsible for preparing
financial statements.
PART I: GENERAL FINANCIAL REPORTING A) Large entities
REQUIREMENTS B) SMEs
C) Micro entities
1. Under SRC Rule 68, which of the D) Publicly accountable entities
following conditions would NOT require
a non-stock corporation to file financial Answer: C
statements?
A) Gross annual receipts of P150,000.00
B) Total assets of P400,000.00
C) Total assets of P600,000.00 5. When an SME breaches the
D) Gross annual receipts of P90,000.00 quantitative thresholds at year-end but
the event is not “significant and
Answer: D continuing,” what happens?
A) Immediate transition to a new reporting
framework
B) Continuation with the same financial
2. Which accounting body’s reporting framework
pronouncements take precedence if C) Immediate liquidation
there is a conflict in financial reporting D) Restatement of prior period financial
interpretations? statements
A) Philippine Financial Reporting
Standards Council Answer: B
B) International Accounting Standards
Board
C) Bangko Sentral ng Pilipinas PART II: ADDITIONAL REQUIREMENTS FOR
D) Securities and Exchange Commission ISSUERS OF SECURITIES TO THE PUBLIC
(SEC)
6. What consequence applies when a
Answer: D company’s financial statements receive
a qualified opinion due to scope
limitation imposed by management?
A) Imposition of penalties by the SEC
3. What best describes 'gross negligence' B) Acceptance of financial statements
under SRC Rule 68? without penalties
A) A minor error with minimal financial C) Requirement to file an exemption
impact request
B) A reckless disregard of due care in D) No action required if scope limitation is
complying with auditing standards minor
C) Failure to sign the Statement of
Management’s Responsibility Answer: A
D) Omission of material information from
financial statements

Answer: B 7. For initial public offerings, interim

financial statements must be:
A) Unaudited but reviewed by an internal
auditor
4. Which entity classification allows the B) Audited by a Group A accredited
use of accounting standards in effect as independent auditor
of December 31, 2004? C) Condensed summaries without detailed
disclosures D) Subsidiary’s equity exceeding 15% of
D) Audited only for companies with assets consolidated total equity
exceeding P500 Million
Answer: B
Answer: B

DISCLOSURE AND REPORTING

REQUIREMENTS
8. What is required when a significant
subsidiary generates losses, but the 11. If a listed company offers additional
parent and other subsidiaries do not? securities, which of the following
A) Include the subsidiary’s losses in schedules is MANDATORY?
consolidated income computations A) Statement of Financial Position
B) Exclude the subsidiary’s losses from B) Schedule of proceeds utilization with
consolidated income computations balance disclosures
C) Reclassify the subsidiary as an C) Organizational Chart
independent entity D) Schedule of Financial Soundness
D) Adjust only if losses exceed 15% of Indicators
consolidated total assets
Answer: B
Answer: B

INTERIM AND PRO FORMA FINANCIAL 12. What is required when an entity
INFORMATION disposes of a significant business
segment?
9. Pro forma financial statements must A) Restate the prior period's financial
include adjustments for: statements
A) All historical transactions, regardless of B) Provide pro forma financial
materiality information reflecting the disposal
B) Transactions whose effects are material C) No additional reporting if the disposal
and recurring is disclosed in the annual report
C) Non-recurring transactions with D) Adjust retained earnings retrospectively
immaterial effects
D) Only future projections without Answer: B
historical adjustments

Answer: B
13. How long does an accredited
auditing firm’s accreditation remain
valid without renewal?
10. What defines the significance of a A) 1 year
business combination under SRC Rule B) 2 years
68? C) 3 years
A) Subsidiary’s income exceeding 5% of D) 5 years
consolidated income
B) Total assets exceeding 10% of Answer: C
consolidated total assets
C) Parent company’s total liabilities
exceeding 20%
14. Which SEC requirement applies to
auditors of Group B regulated entities?
A) Accreditation under Group A 18. What ratio threshold qualifies an
B) Accreditation that allows auditing of entity as 'large' under SRC Rule 68?
Groups B, C, and D companies A) Total assets over P350 Million or
C) Accreditation renewed every five years liabilities over P250 Million
D) Certification of compliance with B) Total assets over P3 Million
international audit standards only C) Total liabilities over P100 Million
D) Total equity over P500 Million
Answer: B
Answer: A

15. What defines 'material information'

under SRC Rule 68? 19. What percentage breach in
A) Information that influences economic consolidated total assets or liabilities is
decisions of users considered “significant” for SMEs?
B) Data related solely to taxation policies A) 10%
C) Information only relevant to internal B) 15%
management use C) 20%
D) Financial data with less than 1% impact D) 25%
on consolidated income
Answer: C
Answer: A

20. What is the cooling-off period

16. In what situation must a listed required after the 5-year rotation of an
company submit a map showing independent auditor?
relationships among the company and A) 1 year
its subsidiaries? B) 2 years
A) When preparing financial soundness C) 3 years
indicators D) 5 years
B) When part of a conglomerate
C) Only during IPO filing Answer: B
D) Upon acquisition of a new subsidiary
NEWLY ADDED CHALLENGING QUESTIONS
Answer: B
4. Which schedule must accompany
audited financial statements of non-
stock, non-profit organizations?
17. How soon should regulated entities A) Detailed schedule of donations
report losses exceeding 10% of total received
consolidated assets? B) Sworn statement on fund sources and
A) Within 10 business days applications signed by the President and
B) Within 5 business days Treasurer
C) Within 30 business days C) Schedule of program-related expenses
D) Immediately upon discovery D) Statement of fund balances

Answer: B Answer: B
 A) When the combined assets exceed 15%
of the registrant’s total consolidated assets
5. When must financial statements for B) If the combination affects more than
an initial public offering (IPO) be 10% of total revenues
updated? C) When it significantly changes the
A) If the financial information is older registrant’s financial position or results of
than 135 days operations
B) When the company’s market D) Only for cross-border transactions
capitalization exceeds P1 billion
C) If more than six months have passed Answer: C
since the end of the fiscal year
D) Only upon SEC request

Answer: A 9. What audit opinion results in

automatic disqualification of financial
statements for SEC purposes?
A) Qualified opinion due to scope
6. Which of the following indicates a limitation
significant deficiency in internal control B) Adverse opinion
under SRC Rule 68? C) Disclaimer of opinion
A) Typographical errors in the notes to the D) Both B and C
financial statements
B) Repeated late submissions of annual Answer: D
financial statements
C) Lack of documented internal audit
procedures for key business cycles
D) Incomplete disclosure of related-party 10. Which financial soundness indicator
transactions primarily assesses liquidity risk?
A) Debt-to-equity ratio
Answer: C B) Current ratio
C) Return on assets
D) Earnings per share

7. What period is required for Answer: B

comparative financial statements for
companies applying for registration
under SRC Rule 68?
A) The most recent fiscal year only 11. How soon must interim financial
B) Three most recent fiscal years statements be submitted for companies
C) At least two most recent fiscal years with publicly traded securities?
D) The current and immediately preceding A) Within 30 days after the end of the
quarter interim period
B) Within 45 days after the end of the
Answer: C interim period
C) Within 60 days after the end of the
interim period
D) Within 90 days after the end of the
8. In the case of a business combination, interim period
when is pro forma financial information
considered necessary? Answer: B
 adequately disclosed?
A) Adverse opinion
12. Which of the following B) Disclaimer of opinion
circumstances requires reissuance of C) Qualified opinion
financial statements? D) Unmodified opinion with emphasis of
A) Discovery of a material error affecting matter paragraph
prior years
B) Reclassification of assets with no effect Answer: D
on profit or loss
C) Typographical correction in the notes PART I: GENERAL PROVISIONS AND
section FINANCIAL REPORTING REQUIREMENTS
D) Minor adjustments due to rounding off
figures 1. Under SRC Rule 68, which of the
following conditions would NOT require
Answer: A a non-stock corporation to file financial
statements?
A) Gross annual receipts of P150,000.00
B) Total assets of P400,000.00
13. What is the SEC-mandated cooling- C) Total assets of P600,000.00
off period after the maximum 5-year D) Gross annual receipts of P90,000.00
engagement of an external auditor?
A) 1 year Answer: D
B) 2 years
C) 3 years 2. Which accounting body’s
D) 5 years pronouncements take precedence if
there is a conflict in financial reporting
Answer: B interpretations?
A) Philippine Financial Reporting
Standards Council
B) International Accounting Standards
14. What constitutes a significant Board
subsidiary under SRC Rule 68 for C) Bangko Sentral ng Pilipinas
consolidation purposes? D) Securities and Exchange Commission
A) Subsidiary with total assets exceeding (SEC)
10% of total consolidated assets
B) Subsidiary generating net income Answer: D
exceeding 15% of consolidated net income
C) Subsidiary with liabilities exceeding 3. What best describes 'gross negligence'
5% of consolidated total liabilities under SRC Rule 68?
D) Subsidiary whose revenues contribute A) A minor error with minimal financial
more than 20% to total consolidated impact
revenue B) A reckless disregard of due care in
complying with auditing standards
Answer: A C) Failure to sign the Statement of
Management’s Responsibility
D) Omission of material information from
financial statements
15. What form of opinion must auditors
provide when material uncertainties Answer: B
related to going concern exist but are
4. Which entities are required to C) Disclaimer of opinion
prepare consolidated financial D) Both B and C
statements?
A) All registered corporations Answer: D
B) Entities with subsidiaries, if significant
C) Only publicly listed companies 9. What must auditors include when
D) Sole proprietorships significant going concern issues are
disclosed?
Answer: B A) Disclaimer of opinion
B) Emphasis of matter paragraph
5. What is the threshold for material C) Adverse opinion
misstatements affecting financial D) Qualified opinion
statements?
A) 3% of total assets Answer: B
B) 5% of consolidated net income
C) 10% of total equity 10. Which group requires SEC
D) 5% of total consolidated revenue accreditation for auditors?
A) Group A entities only
Answer: B B) Group B and C entities
C) All regulated entities
D) Group D entities only
PART II: AUDIT AND ACCREDITATION
REQUIREMENTS Answer: C

6. How long is the maximum

engagement period for external auditors PART III: PRO FORMA AND INTERIM
of regulated entities? FINANCIAL INFORMATION
A) 3 years
B) 4 years 11. When must pro forma financial
C) 5 years with a 2-year cooling-off period statements be presented?
D) 6 years A) During mergers and acquisitions
B) When disposing of significant business
Answer: C segments
C) For initial public offerings
7. What defines a 'significant D) All of the above
subsidiary' under SRC Rule 68?
A) Subsidiary with investments exceeding Answer: D
10% of consolidated assets
B) Subsidiary generating over 10% of 12. Pro forma financial statements
consolidated net income should include:
C) Both A and B A) Condensed balance sheet
D) None of the above B) Statements of income
C) Explanatory notes
Answer: C D) All of the above

8. What audit opinion is automatically Answer: D

disqualified for SEC purposes?
A) Qualified opinion due to scope 13. Interim financial reports must be
limitation submitted within how many days after
B) Adverse opinion the end of the period?
A) 30 days Answer: D
B) 45 days
C) 60 days 18. What defines material information
D) 90 days for SEC reporting purposes?
A) Information that influences users’
Answer: B economic decisions
B) Financial data affecting less than 1% of
14. What defines the significance of a consolidated revenue
business combination under SRC Rule C) Data related solely to taxation policies
68? D) Information relevant only to internal
A) Total assets exceeding 10% of management
consolidated total assets
B) Subsidiary’s equity exceeding 15% of Answer: A
consolidated equity
C) Combined revenue exceeding 20% of 19. How soon must losses exceeding
consolidated revenue 10% of total consolidated assets be
D) All of the above reported?
A) Within 10 business days
Answer: A B) Within 5 business days
C) Within 30 business days
15. What is the reporting requirement D) Immediately upon discovery
for foundations regarding fund sources?
A) Sworn statement signed by President Answer: B
and Treasurer
B) Auditor’s report on fund utilization 20. How often must large entities submit
C) Schedule of restricted and unrestricted schedules showing adoption of PFRS
funds standards?
D) Statement of financial position A) Annually
B) Quarterly
Answer: A C) Every two years
D) Only upon SEC request

PART IV: DISCLOSURE REQUIREMENTS Answer: A

AND COMPLIANCE
PART I: GENERAL PROVISIONS AND
16. Which financial soundness indicator REPORTING REQUIREMENTS
primarily measures profitability?
A) Current ratio 1. What is the main objective of SRC
B) Return on equity Rule 68?
C) Debt-to-equity ratio A) To regulate trading in the stock market
D) Earnings per share B) To prescribe the financial reporting
requirements for entities registered with
Answer: B the SEC
C) To monitor corporate mergers
17. What schedule must accompany D) To regulate foreign investments
financial statements during an IPO?
A) Proceeds utilization schedule Answer: B
B) Organizational chart
C) Financial soundness indicators schedule
D) All of the above
2. Who is responsible for the PART II: AUDIT REQUIREMENTS AND
preparation and fair presentation of ACCREDITATION
financial statements?
A) External auditor 6. How often should the external auditor
B) Chief Executive Officer and Chief be rotated for publicly accountable
Financial Officer entities?
C) Board of Directors only A) Every year
D) Securities and Exchange Commission B) Every 3 years
C) Every 5 years with a 2-year cooling-off
Answer: B period
D) Every 6 years

Answer: C
3. What is the required financial
reporting framework for large and
publicly accountable entities?
A) PFRS 7. What is required when an auditor
B) PFRS for SMEs issues a qualified opinion due to scope
C) Income tax basis limitation?
D) Cash basis A) Resubmission of financial statements
B) Filing an exemption request
Answer: A C) SEC-imposed penalties
D) Immediate auditor rotation

Answer: C
4. How long should comparative
financial statements cover?
A) The most recent fiscal year only
B) At least two most recent fiscal years 8. What audit opinion leads to
C) Five years of financial data automatic disqualification of financial
D) Three most recent fiscal years statements?
A) Qualified opinion due to tax issues
Answer: B B) Adverse opinion
C) Disclaimer of opinion
D) Both B and C

5. Which entities are required to submit Answer: D

audited financial statements?
A) All SEC-registered entities
B) Large entities and publicly accountable
entities 9. Who must sign the Statement of
C) Sole proprietorships only Management’s Responsibility?
D) Micro entities only A) President and Treasurer
B) Chief Executive Officer and Chief
Answer: B Financial Officer
C) Board Chairman only
D) Corporate Secretary

Answer: B
 Answer: A

10. What defines a 'significant

subsidiary' for consolidation purposes?
A) Subsidiary with investments exceeding 14. What is included in pro forma
10% of consolidated assets statements?
B) Subsidiary generating 10% of A) Condensed balance sheet
consolidated net income B) Statements of income
C) Both A and B C) Explanatory notes
D) Neither A nor B D) All of the above

Answer: C Answer: D

PART III: PRO FORMA AND INTERIM PART IV: DISCLOSURE REQUIREMENTS
REPORTING
15. What document is required for
11. When are pro forma financial foundations with respect to fund
statements required? sources?
A) Mergers A) Auditor’s report
B) Acquisitions B) Sworn statement signed by President
C) Disposal of significant business and Treasurer
segments C) Schedule of fund utilization
D) All of the above D) Statement of financial position

Answer: D Answer: B

PART I: GENERAL PRINCIPLES AND

APPLICATION
12. How soon must interim financial
statements be submitted after the end of 1. What governs the preparation and
the period? submission of financial statements for
A) 30 days SEC-registered entities?
B) 45 days A) SRC Rule 65
C) 60 days B) SRC Rule 68
D) 90 days C) Corporation Code
D) Investment Company Act
Answer: B
Answer: B

2. What primary factor determines the

13. What is the maximum age of financial reporting framework an entity
financial statements allowed for should follow?
registration statements to become A) Type of industry
effective? B) Size and public accountability of the
A) 135 days entity
B) 90 days C) Location of headquarters
C) 225 days D) Length of business operations
D) 180 days
Answer: B are adequately disclosed
B) When there is a qualified opinion
3. Which entities are considered C) In case of management fraud
publicly accountable under Rule 68? D) For minor financial misstatements
A) Entities holding assets in a fiduciary
capacity Answer: A
B) Large non-stock, non-profit
organizations 8. What must accompany audited
C) Small private corporations financial statements of foundations?
D) Sole proprietorships A) Organizational chart
B) Sworn statement signed by the
Answer: A President and Treasurer
C) Detailed income statements
4. What is the primary objective of D) List of members
requiring financial statement audits?
A) To ensure accurate tax filing Answer: B
B) To provide assurance that financial
statements are free from material 9. How many years of comparative
misstatement financial information are typically
C) To increase market share required?
D) To comply with labor laws A) 1 year
B) 2 years
Answer: B C) 4 years
D) 5 years
5. Who accredits external auditors
auditing publicly accountable entities? Answer: B
A) Bureau of Internal Revenue
B) Board of Investments 10. What audit opinion would lead to
C) Securities and Exchange Commission automatic disqualification of financial
D) Philippine Stock Exchange statements?
A) Unqualified opinion
Answer: C B) Qualified opinion
C) Disclaimer of opinion
D) Comparative opinion
PART II: AUDIT AND REPORTING
REQUIREMENTS Answer: C

6. How long is the cooling-off period

after the maximum engagement period PART III: FINANCIAL REPORTING
for an external auditor? FRAMEWORKS
A) 1 year
B) 2 years 11. Which framework is used for SMEs
C) 3 years under Rule 68?
D) 4 years A) PFRS
B) IFRS
Answer: B C) PFRS for SMEs
D) Tax basis
7. When is an emphasis of matter
paragraph required in an audit report? Answer: C
A) When significant going concern issues
12. What happens if an SME breaches Answer: D
quantitative thresholds temporarily?
A) Immediate framework transition 17. How soon must interim financial
B) Continue with the same reporting statements be submitted after the end of
framework the reporting period?
C) Restatement of prior periods A) 30 days
D) Filing of exemption with the SEC B) 45 days
C) 90 days
Answer: B D) 120 days

13. What financial statement shows cash Answer: B

inflows and outflows?
A) Balance Sheet 18. What documents must be included
B) Income Statement in pro forma statements?
C) Statement of Cash Flows A) Adjusted balance sheet
D) Statement of Changes in Equity B) Adjusted income statement
C) Notes explaining adjustments
Answer: C D) All of the above

14. When must financial statements for Answer: D

an IPO be updated?
A) If older than 135 days 19. What ratio measures an entity’s
B) After one fiscal year liquidity?
C) Immediately before listing A) Current ratio
D) After auditor rotation B) Return on assets
C) Debt-to-equity ratio
Answer: A D) Earnings per share

15. What defines a significant subsidiary Answer: A

for reporting purposes?
A) Investment exceeding 5% of total 20. What schedule is mandatory during
assets an IPO?
B) Generating 10% of consolidated net A) Schedule of proceeds utilization
income B) Organizational chart
C) Either A or B C) Financial soundness indicators
D) Neither A nor B D) All of the above

Answer: C Answer: D

PART I: GENERAL PRINCIPLES AND

PART IV: PRO FORMA AND INTERIM APPLICATION
FINANCIAL REPORTING
1. What governs the preparation and
16. What triggers the requirement for submission of financial statements for
pro forma financial information? SEC-registered entities?
A) Mergers A) SRC Rule 65
B) Acquisitions B) SRC Rule 68
C) Disposal of major business segments C) Corporation Code
D) All of the above D) Investment Company Act
Answer: B for an external auditor?
A) 1 year
2. What primary factor determines the B) 2 years
financial reporting framework an entity C) 3 years
should follow? D) 4 years
A) Type of industry
B) Size and public accountability of the Answer: B
entity
C) Location of headquarters 7. When is an emphasis of matter
D) Length of business operations paragraph required in an audit report?
A) When significant going concern issues
Answer: B are adequately disclosed
B) When there is a qualified opinion
3. Which entities are considered C) In case of management fraud
publicly accountable under Rule 68? D) For minor financial misstatements
A) Entities holding assets in a fiduciary
capacity Answer: A
B) Large non-stock, non-profit
organizations 8. What must accompany audited
C) Small private corporations financial statements of foundations?
D) Sole proprietorships A) Organizational chart
B) Sworn statement signed by the
Answer: A President and Treasurer
C) Detailed income statements
4. What is the primary objective of D) List of members
requiring financial statement audits?
A) To ensure accurate tax filing Answer: B
B) To provide assurance that financial
statements are free from material 9. How many years of comparative
misstatement financial information are typically
C) To increase market share required?
D) To comply with labor laws A) 1 year
B) 2 years
Answer: B C) 4 years
D) 5 years
5. Who accredits external auditors
auditing publicly accountable entities? Answer: B
A) Bureau of Internal Revenue
B) Board of Investments 10. What audit opinion would lead to
C) Securities and Exchange Commission automatic disqualification of financial
D) Philippine Stock Exchange statements?
A) Unqualified opinion
Answer: C B) Qualified opinion
C) Disclaimer of opinion
D) Comparative opinion
PART II: AUDIT AND REPORTING
REQUIREMENTS Answer: C

6. How long is the cooling-off period

after the maximum engagement period
PART III: DETAILED AUDITOR B) Retrospective application of accounting
RESPONSIBILITIES AND SEC COMPLIANCE policies
DEADLINES C) Disclosure of related party transactions
D) Revaluation of property, plant, and
21. What should an auditor do upon equipment
discovering material fraud during an
audit? Answer: B
A) Ignore if not related to financial
reporting
B) Report immediately to management PART IV: ADVANCED REPORTING
and those charged with governance FRAMEWORKS AND PRO FORMA
C) Submit findings directly to the SEC DISCLOSURES
D) Complete the audit without
modifications 26. Which reporting standard applies to
micro-entities?
Answer: B A) PFRS
B) PFRS for SMEs
22. What is the SEC’s deadline for filing C) Cash basis accounting
annual financial statements? D) Simplified accounting standards
A) Within 60 days after fiscal year-end
B) Within 90 days after fiscal year-end Answer: D
C) Within 120 days after fiscal year-end
D) Within 180 days after fiscal year-end 27. What threshold defines a significant
subsidiary?
Answer: B A) 5% of total consolidated assets
B) 10% of total consolidated revenue
23. When should pro forma financial C) Either A or B
statements be updated? D) Neither A nor B
A) Quarterly
B) Upon completion of significant Answer: C
transactions
C) Only during an IPO 28. How soon must pro forma
D) Every five years statements reflect material
transactions?
Answer: B A) Within 15 business days
B) Within 30 business days
24. What defines a material deficiency C) Within 45 business days
in internal controls? D) Immediately upon completion
A) Minor errors in reporting
B) Failure of key personnel to sign Answer: D
responsibility statements
C) Omissions that could impact users' 29. What does an auditor’s emphasis of
decisions matter paragraph signify?
D) Lack of internal audit functions A) A correction to previous audit findings
B) Attention to an important disclosure
Answer: C C) Indication of financial misstatement
D) A legal requirement for listed
25. Which financial statement companies
adjustment requires SEC approval?
A) Reclassification of assets Answer: B
30. What is required when consolidating B) To provide assurance that financial
subsidiaries with varying fiscal years? statements are free from material
A) Adjust all subsidiaries to the parent’s misstatement
reporting date C) To increase market share
B) Use the subsidiary’s reporting date D) To comply with labor laws
without adjustments
C) Align fiscal years within a three-month Answer: B
period
D) No consolidation needed 5. Who accredits external auditors
auditing publicly accountable entities?
Answer: A A) Bureau of Internal Revenue
B) Board of Investments
PART I: GENERAL PRINCIPLES AND C) Securities and Exchange Commission
APPLICATION D) Philippine Stock Exchange

1. What governs the preparation and Answer: C

submission of financial statements for
SEC-registered entities?
A) SRC Rule 65 PART II: AUDIT AND REPORTING
B) SRC Rule 68 REQUIREMENTS
C) Corporation Code
D) Investment Company Act 6. How long is the cooling-off period
after the maximum engagement period
Answer: B for an external auditor?
A) 1 year
2. What primary factor determines the B) 2 years
financial reporting framework an entity C) 3 years
should follow? D) 4 years
A) Type of industry
B) Size and public accountability of the Answer: B
entity
C) Location of headquarters 7. When is an emphasis of matter
D) Length of business operations paragraph required in an audit report?
A) When significant going concern issues
Answer: B are adequately disclosed
B) When there is a qualified opinion
3. Which entities are considered C) In case of management fraud
publicly accountable under Rule 68? D) For minor financial misstatements
A) Entities holding assets in a fiduciary
capacity Answer: A
B) Large non-stock, non-profit
organizations 8. What must accompany audited
C) Small private corporations financial statements of foundations?
D) Sole proprietorships A) Organizational chart
B) Sworn statement signed by the
Answer: A President and Treasurer
C) Detailed income statements
4. What is the primary objective of D) List of members
requiring financial statement audits?
A) To ensure accurate tax filing Answer: B
9. How many years of comparative B) Upon completion of significant
financial information are typically transactions
required? C) Only during an IPO
A) 1 year D) Every five years
B) 2 years
C) 4 years Answer: B
D) 5 years
14. What defines a material deficiency
Answer: B in internal controls?
A) Minor errors in reporting
10. What audit opinion would lead to B) Failure of key personnel to sign
automatic disqualification of financial responsibility statements
statements? C) Omissions that could impact users'
A) Unqualified opinion decisions
B) Qualified opinion D) Lack of internal audit functions
C) Disclaimer of opinion
D) Comparative opinion Answer: C

Answer: C 15. Which financial statement

adjustment requires SEC approval?
A) Reclassification of assets
PART III: DETAILED AUDITOR B) Retrospective application of accounting
RESPONSIBILITIES AND SEC COMPLIANCE policies
DEADLINES C) Disclosure of related party transactions
D) Revaluation of property, plant, and
11. What should an auditor do upon equipment
discovering material fraud during an
audit? Answer: B
A) Ignore if not related to financial
reporting
B) Report immediately to management PART IV: ADVANCED REPORTING
and those charged with governance FRAMEWORKS AND PRO FORMA
C) Submit findings directly to the SEC DISCLOSURES
D) Complete the audit without
modifications 16. Which reporting standard applies to
micro-entities?
Answer: B A) PFRS
B) PFRS for SMEs
12. What is the SEC’s deadline for filing C) Cash basis accounting
annual financial statements? D) Simplified accounting standards
A) Within 60 days after fiscal year-end
B) Within 90 days after fiscal year-end Answer: D
C) Within 120 days after fiscal year-end
D) Within 180 days after fiscal year-end 17. What threshold defines a significant
subsidiary?
Answer: B A) 5% of total consolidated assets
B) 10% of total consolidated revenue
13. When should pro forma financial C) Either A or B
statements be updated? D) Neither A nor B
A) Quarterly
Answer: C consolidated financial statements?
A) PFRS
18. How soon must pro forma B) Tax basis
statements reflect material C) IFRS
transactions? D) Cash basis accounting
A) Within 15 business days
B) Within 30 business days Answer: A
C) Within 45 business days
D) Immediately upon completion 33. When must interim financial reports
be filed by publicly accountable
Answer: D entities?
A) 15 days after the period-end
19. What does an auditor’s emphasis of B) 30 days after the period-end
matter paragraph signify? C) 45 days after the period-end
A) A correction to previous audit findings D) 60 days after the period-end
B) Attention to an important disclosure
C) Indication of financial misstatement Answer: C
D) A legal requirement for listed
companies 34. What scenario requires an SEC-
approved pro forma statement?
Answer: B A) Change in accounting policy
B) Business merger
20. What is required when consolidating C) Loss of significant customer contracts
subsidiaries with varying fiscal years? D) Regular annual audit
A) Adjust all subsidiaries to the parent’s
reporting date Answer: B
B) Use the subsidiary’s reporting date
without adjustments 35. How should negative amounts be
C) Align fiscal years within a three-month presented in financial statements?
period A) Italicized
D) No consolidation needed B) Enclosed in brackets
C) Highlighted in bold
Answer: A D) Underlined

Answer: B
PART V: FINAL COMPLEX AUDIT AND
REPORTING SCENARIOS 36. What defines 'material information'
under SEC reporting?
31. What type of audit opinion indicates A) Information affecting more than 5% of
the financial statements are free from consolidated revenue
material misstatements? B) Data that influences stakeholders'
A) Qualified opinion economic decisions
B) Disclaimer of opinion C) Notes about management’s opinion
C) Unmodified opinion D) Disclosures related only to tax filings
D) Adverse opinion
Answer: B
Answer: C
37. Which ratio is considered a financial
32. What reporting framework is used soundness indicator?
when a parent company prepares A) Earnings per share
B) Return on equity Answer: B
C) Current ratio
D) All of the above 42. Under SRC Rule 68, when are
consolidated financial statements
Answer: D required?
A) Only when the parent has majority
38. Who is responsible for reviewing the ownership
auditor's work for SEC compliance? B) When the parent controls the subsidiary
A) SEC’s Enforcement and Investor regardless of ownership percentage
Protection Department C) Only for publicly listed companies
B) Board of Investments D) When requested by the SEC
C) Philippine Stock Exchange
D) BIR Tax Authority Answer: B

Answer: A 43. What condition triggers mandatory

pro forma disclosures in registration
39. What triggers mandatory disclosure statements?
of related-party transactions? A) Minor equity investments
A) Transactions exceeding 1% of total B) Business acquisitions affecting 10% or
assets more of consolidated assets
B) Any transaction that could influence C) Foreign currency translation differences
financial decisions D) Annual income fluctuations
C) Transactions only involving
shareholders Answer: B
D) Sales of fixed assets
44. What defines an auditor's
Answer: B independence breach?
A) Accepting a token gift from the client
40. When are pro forma adjustments B) Holding shares in the audited company
required in financial statements? C) Consulting on tax-related issues
A) After minor operational changes D) Providing industry benchmarking
B) After significant restructuring or advice
acquisitions
C) Only during IPOs Answer: B
D) In annual tax returns
45. What financial ratio primarily
Answer: B measures solvency?
A) Debt-to-equity ratio
PART V: FINAL COMPLEX AUDIT AND B) Current ratio
REPORTING SCENARIOS (QUESTIONS 41– C) Gross profit margin
50) D) Return on equity

41. What is the maximum time frame Answer: A

for interim financial statements to
remain valid for SEC filing purposes? 46. What document must disclose
A) 90 days material related-party transactions?
B) 135 days A) Statement of Changes in Equity
C) 180 days B) Notes to Financial Statements
D) 225 days C) Auditor’s Report
D) General Information Sheet
Answer: B PART VI: SECTOR-SPECIFIC REPORTING
OBLIGATIONS
47. What is the SEC penalty for late
filing of audited financial statements? 51. What additional disclosure is
A) Monetary fine based on total assets required for banks under SRC Rule 68?
B) Suspension of trading activities A) Loan loss provisions
C) Fixed penalty per day of delay B) Breakdown of interest income
D) Revocation of SEC registration C) Capital adequacy ratios
D) All of the above
Answer: C
Answer: D
48. Who must review the financial
soundness indicators before SEC 52. Which financial framework do
submission? insurance companies typically follow?
A) Internal auditors A) PFRS for SMEs
B) The Board of Directors B) PFRS
C) Chief Financial Officer only C) Income Tax Basis
D) SEC’s Financial Analysis Unit D) IFRS for SMEs

Answer: B Answer: B

49. When are segmental financial 53. For investment companies, what
reports required? must be disclosed regarding portfolio
A) When revenue exceeds 5% of total assets?
income A) Asset turnover ratio
B) For businesses operating in multiple B) Fair value hierarchy levels
geographic locations C) Gross profit margins
C) When required by international D) Tax incentives received
investors
D) Only during mergers and acquisitions Answer: B

Answer: B 54. What unique reporting applies to

foreign-owned entities?
50. What is the primary consequence of A) Currency translation adjustments
non-compliance with SRC Rule 68 B) Disclosure of parent company controls
reporting requirements? C) Compliance with local financial
A) Suspension of board member duties reporting frameworks
B) Monetary fines and possible revocation D) All of the above
of SEC registration
C) Immediate disqualification from public Answer: D
listing
D) Reclassification as a non-reporting
entity PART VII: ADVANCED AUDIT SCENARIOS
AND REPORTING
Answer: B
55. When an entity undergoes
liquidation, which financial statement
becomes critical?
A) Statement of Financial Position
B) Liquidation basis financial statements C) Suspension of company registration
C) Statement of Cash Flows D) No penalty for delays under 90 days
D) Statement of Retained Earnings
Answer: B
Answer: B
60. How can an entity apply for an
56. What adjustment is required in the exemption from specific provisions of
event of a spin-off? Rule 68?
A) Restatement of prior period financial A) File an Exemption Request Form
statements (ERF) with supporting documentation
B) No adjustments are needed B) Verbal confirmation with SEC
C) Disclosure of spin-off impact only in representative
notes C) Automatic exemption if under SME
D) Prospective adjustments to equity category
D) Exemptions are not allowed under any
Answer: A circumstances

57. Which audit procedure is essential Answer: A

when ownership changes significantly?
A) Confirming related-party transactions 61. What SEC body reviews exemption
B) Evaluating continuity of control applications?
C) Testing internal controls over new A) Corporate Governance Department
ownership processes B) Financial Reporting and Compliance
D) All of the above Division
C) Enforcement and Investor Protection
Answer: D Department
D) External Audits Committee
58. What financial reporting standard
applies when control over a subsidiary Answer: B
is lost?
A) Continue consolidation 62. What defines a 'significant delay'
B) Deconsolidation and recognition of that triggers SEC enforcement actions?
gain or loss A) 15 days post-deadline
C) No reporting action required B) 30 days post-deadline
D) Only disclose in management C) 45 days post-deadline
commentary D) 60 days post-deadline

Answer: B Answer: C

PART VIII: SEC PROCEDURAL PART IX: PENALTIES BASED ON SEVERITY

REQUIREMENTS AND PENALTIES
63. What penalty applies if financial
59. What is the consequence of filing statements are falsified?
financial statements 60 days after the A) Permanent revocation of SEC
SEC deadline? registration
A) Written warning B) Administrative fines only
B) Fixed monetary penalty per day C) Suspension for six months
delayed D) Re-audit by SEC-accredited auditors
Answer: A 68. What is required for interim
financial statements in terms of
64. When can trading activities be disclosure?
suspended by the SEC? A) Only summary balance sheet
A) Non-submission of annual reports B) Complete set of financial statements
B) Adverse audit opinions without C) Condensed statements with selected
corrective action explanatory notes
C) Material fraud affecting shareholders D) No disclosure if audited annually
D) All of the above
Answer: C
Answer: D
69. Which entity requires quarterly
65. What penalty applies for repeated financial reporting under Rule 68?
late submissions? A) All SMEs
A) Incremental fines B) Publicly listed entities
B) Probationary SEC registration C) Sole proprietorships
C) Public reprimand D) Non-stock, non-profit organizations
D) Immediate trading halt
Answer: B
Answer: A
70. What is the reporting requirement
66. Under what circumstance can SEC for discontinued operations?
registration be reinstated after A) Disclose separately in income
revocation? statements
A) After two fiscal years B) Include as part of continuing operations
B) Submission of all compliance C) Only note disclosures are required
documents and payment of penalties D) No reporting unless restructured
C) Recommendation from external
auditors Answer: A
D) Automatic after three years

Answer: B

PART X: MISCELLANEOUS ADVANCED

DISCLOSURE REQUIREMENTS

67. What should be disclosed for

material subsequent events?
A) Adjustment to financial statements if
conditions existed at the reporting date
B) Only notes disclosure if conditions did
not exist at reporting date
C) Both A and B depending on the nature
of the event
D) No disclosure is necessary

Answer: C
ESSAY frameworks and may also need to address
currency translation adjustments. Unique
GENERAL PROVISIONS AND REPORTING challenges include reconciling Philippine
FRAMEWORKS standards with those of the parent
company's jurisdiction and disclosing the
1. Discuss the significance of SRC Rule 68 extent of foreign ownership and control.
in the context of financial reporting for
publicly accountable entities. How does
this rule ensure transparency and investor AUDIT REQUIREMENTS AND
protection? ACCREDITATION
Answer: SRC Rule 68 provides a
standardized framework for financial 4. Analyze the importance of auditor
reporting that ensures consistency, independence as required by SRC Rule 68.
reliability, and transparency. It requires What are the potential consequences of an
publicly accountable entities to follow independence breach?
Philippine Financial Reporting Standards Answer: Auditor independence ensures
(PFRS), which enhances comparability for unbiased financial reporting. A breach
investors. Transparency is achieved could lead to unreliable audit opinions,
through comprehensive disclosure investor mistrust, SEC sanctions, and
requirements, while investor protection is potential revocation of auditor
ensured by mandating audits conducted by accreditation.
accredited auditors, thereby minimizing
the risk of financial misrepresentation.

5. Discuss the SEC's accreditation process

for auditors of publicly accountable
2. Explain the differences between PFRS entities. Why is this process critical?
and PFRS for SMEs. In what scenarios Answer: Accreditation ensures auditors
would an entity be required to transition possess the necessary qualifications and
between these frameworks under Rule 68? adhere to high ethical standards. This
Answer: PFRS applies to large and process is crucial for maintaining audit
publicly accountable entities, providing quality and protecting public interest.
detailed guidelines for complex
transactions. PFRS for SMEs is a
simplified version, suitable for smaller
businesses with no public accountability. 6. Evaluate the impact of the mandatory
An entity must transition from PFRS for auditor rotation policy. How does it
SMEs to full PFRS when it becomes enhance audit quality?
publicly accountable or exceeds Answer: The mandatory rotation after five
quantitative thresholds set by the SEC. years prevents familiarity threats,
encourages fresh perspectives, and reduces
the risk of complacency in audit
procedures.
3. Describe how SRC Rule 68 addresses
the financial reporting requirements of
foreign-owned corporations operating in
PRO FORMA AND INTERIM REPORTING
the Philippines. What unique challenges
do these entities face?
7. Explain the role of pro forma financial
Answer: Foreign-owned corporations
statements in corporate transactions.
must comply with Philippine reporting
Answer: Pro forma statements illustrate ensuring these critical sectors maintain
the potential financial impact of mergers, transparency and stakeholder trust.
acquisitions, or disposals, helping
stakeholders understand future financial
positions and performance.
12. Evaluate reporting obligations of non-
stock, non-profit organizations.
Answer: These obligations promote
8. Discuss the SEC’s requirements for accountability by ensuring funds are used
interim financial reporting. How do these for their intended purposes, preventing
requirements affect investor decisions? misuse.
Answer: Interim reports provide updated
financial information between annual
reports, enabling investors to make timely ADVANCED REPORTING AND AUDIT
and informed decisions based on the latest SCENARIOS
financial health indicators.
13. Explain the preparation of liquidation
basis financial statements.
DISCLOSURE REQUIREMENTS AND Answer: These statements reflect the
PENALTIES estimated realizable value of assets, crucial
for creditors and stakeholders during
9. Analyze the importance of disclosing liquidation.
related-party transactions.
Answer: Such disclosures prevent
conflicts of interest, promote transparency,
and ensure stakeholders are aware of 14. Discuss audit considerations during
transactions that could influence decision- significant ownership changes.
making. Answer: Auditors must assess the
continuity of control and its impact on
consolidated financial statements.

10. Discuss the penalties for non-

compliance. Which is most effective?
Answer: Penalties include fines, trading 15. Assess the implications of losing
suspensions, and revocation of SEC control over a subsidiary.
registration. The threat of registration Answer: Deconsolidation is required, with
revocation is most effective as it can halt gains or losses recognized in the income
operations. statement, impacting equity and asset
valuations.

SECTOR-SPECIFIC REPORTING
OBLIGATIONS SEC PROCEDURAL REQUIREMENTS AND
EXEMPTIONS
11. Discuss the additional reporting
requirements for banks and insurance 16. Explain SEC’s procedure for granting
companies. exemptions.
Answer: These include disclosures on Answer: Entities must submit an
liquidity, solvency, and risk exposures, Exemption Request Form with
justifications, reviewed by the SEC’s
Financial Reporting and Compliance
Division.

17. Analyze SEC's role in compliance

monitoring.
Answer: The SEC conducts audits,
reviews filings, and imposes penalties to
ensure adherence to reporting standards.

18. Discuss financial soundness indicators

in assessing business health.
Answer: These ratios (e.g., liquidity,
solvency) help stakeholders evaluate
operational efficiency and financial
stability.

19. Evaluate SEC enforcement actions in

fraud cases.
Answer: Strict enforcement, including
penalties and registration revocation,
deters fraudulent activities, enhancing
investor confidence.