COMPREHENSIVE MATERIALS

AUDITING THEORY
FISRT EVALUASTION EXAM COVERAGE

1. The broad range of assurance engagements includes all, but which of the following?

1) Engagements intended to provide high or moderate levels of assurance.

2) Preparation of tax returns, though no conclusion is expressed.
3) Attest and direct reporting engagements.
4) Engagement to report externally, but not internally.
5) Engagements in the private and public sector.
6) Agreed-upon procedure engagement.

A. 2, 4, 5
B. 2, 4, 6
C. 2, 5, 6
D. 4, 6

2. Which statement does not accurately describe an assurance engagement?

A. The objective of an assurance engagement is for a professional accountant to evaluate or measure a
subject matter that is the responsibility of another party against identified suitable criteria, and to
express a conclusion that provides the intended user with a level of assurance about that subject
matter.
B. Not all engagements performed by professional accountants are assurance engagements.
C. A particular engagement, to be an assurance engagement, depends upon whether it exhibits all the
following elements: a two- party relationship, a subject matter, suitable criteria, and a conclusion.
D. An engagement in form of agreed-upon procedures result in the expression of factual findings.

3. Which of the following is not an element of an assurance engagement?

A. A subject matter.
B. Suitable criteria.
C. A conclusion.
D. A two-party relationship.

4. A draft of statement, studies or standards should be discussed by the Council en banc. How many
members of AASC are required to approve the draft for exposure?
A. Majority
B. Ten
C. Eight
D. Twelve

5. Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance to
an absolute level of assurance. In practice, the professional accountants cannot provide absolute
assurance because of the following, except:
A. The professional accountants employ testing process.
B. The internal control has its inherent limitations.
C. The use of judgment in gathering evidence and drawing conclusions based on that evidence.
D. The lack of expertise of the professional accountants in doing a systematic engagement process.

6. Why does a company choose to have an independent auditor report on its financial statements?
A. Independent auditors will always detect management fraud.
B. The company‟s management preparing the statements may have a vested interest in reporting certain
results.
C. Independent auditors guarantee the accuracy of the financial statements.
D. An independent audit is designed to search for deficiencies in the company's internal controls.

7. Which of the following criteria is unique to the independent auditor‟s attest function?
A. general competence.
B. familiarity with the particular industry in which each client operates.
C. due professional care.
D. independence.
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8. Which of the following best describes the main reason why the independent auditors report on an entity's
financial statements?
A. A management fraud may exist, and it is likely to be detected by independent auditors.
B. The management that prepares the statements and the persons who use the statements may have
conflicting interests.
C. Misstated account balances may be corrected as a result of an independent audit work.
D. The management that prepares the statements may have overlooked a poorly designed system of
internal control

9. Information risk refers to the risk that

A. the client's financial statements may be materially false and misleading.
B. the auditor may express an unqualified opinion on financial statements that are materially misstated.
C. the client entity may not be able to remain in business.
D. errors and frauds would not be detected by the auditor's procedures.

10. Which of the following types of audit uses laws and regulations as its criteria?
A. Operational audit
B. Financial statement audit
C. Compliance audit
D. Financial audit

11. Which of the following types of auditing is performed most commonly by CPAs on a contractual basis?
A. Internal auditing
B. Government auditing
C. BSP bank audit
D. External auditing

12. The primary goal of the CPA in performing the attest function is to
A. detect fraud.
B. examine individual transactions so that the auditor may certify as to their validity.
C. determine whether the client's assertions as embodied in the financial statements are fairly stated.
D. assure the consistent application of correct accounting procedures.

13. In performing attestation services, a CPA will normally:

A. improve the quality of information, or its context, for better use of the decision makers.
B. recommend how to use the information.
C. perform market analyses and cost estimates.
D. states a conclusion about a written assertion.

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

15. Which of the following pertains to the reliability of audit evidence?

A. The independence of the source of evidence.
B. The expertise level of the auditor who obtains the evidence.
C. Whether the audit client uses a manual or computerized accounting system.
D. The quantity of the evidence obtained.

16. The audit committee of the board of directors of a company is responsible for:
A. hiring the auditor.
B. preparing the financial statements.
C. the audit workpapers.
D. independence and obtaining evidence.

17. Which of the following statements is true concerning a compliance audit?

A. Compliance audits are only performed by government auditors.

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 B. Risks such as inherent risk, control risk, and detection risk are not appropriate in the planning and
performance of a compliance audit.
C. Materiality is difficult to measure in a compliance audit.
D. A report on compliance can only include negative assurance.

18. Audits of financial statements include an expression of a conclusion about which of the following financial
statement characteristics?
A. Governance.
B. Reliability.
C. Relevance.
D. Timeliness.

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

20. Assurance services involve all the following except:

A. improving the quality of information for decision purposes.
B. improving the quality of the decision model used.
C. improving the relevance of information.
D. implementing a system that improves the processing of information.

21. Which of the following is the broadest and most inclusive concept?
A. Audits of financial statements.
B. Internal control audit.
C. Assurance services.
D. Compilation services.

22. Which of the following is a correct statement?

A. An audit provides limited assurance by attesting to the fairness of the client‟s assertions.
B. A review provides positive assurance by attesting the reliability of the client‟s assertions.
C. Management consulting services provide attestation in all cases.
D. Accounting services do not provide attestation.

23. Unlike consulting services, assurance services:

A. make recommendation to management
B. report on how to use information
C. report on the quality of information
D. are two-party contracts.

24. Financial statements audits:

A. reduce the cost of capital
B. report on compliance with laws and regulations
C. assess management„s efficiency
D. overlook information risk

25. .An operational audit differs in many ways from an audit of financial statements. Which of the following is
the best example of one of these differences?
A. The usual audit of financial statements covers the four basic statements, whereas the operational audit
is usually limited to either the balance sheet or the income statement
B. The boundaries of an operational audit are often drawn from an organization chart and are not limited
to a single accounting period
C. Operational audits do not ordinarily result in the preparation of a report
D. The operational audit deals with pre-tax income

26. The review of a company's financial statements by a CPA firm:

A. Is substantially less in scope of procedures than an audit
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 B. Requires detailed analysis of the major accounts
C. Is of similar scope as an audit and adds similar credibility to the statements
D. Culminates in issuance of a report expressing the CPA's opinion as to the fairness of the statements

27. When performing an engagement to review a nonpublic entity's financial statements, an accountant most
likely would:
A. Obtain an understanding of the entity's internal control.
B. Limit the distribution of the accountant's report.
C. Confirm a sample of significant accounts receivable balances.
D. Ask about actions taken at board of directors' meetings.

28. The primary purpose of an independent audit of financial statements is to

A. provide a basis for assessing management‟s performance.
B. comply with laws and regulations.
C. assure management that the financial statements are unbiased and free from material misstatements.
D. provide users with an unbiased opinion about the fairness of information presented in the financial
statements.

29. Which of the following statements best describes a review service?

A. A review engagement focuses on providing assurance on the assertions contained in the financial
statements of a public company.
B. A review engagement focuses on providing assurance on the internal controls of a public company.
C. A review engagement focuses on providing limited assurance on financial statements of a private
company.
D. A review engagement focuses on providing advice in a three-party contract.

30. Professional skepticism dictates that when management makes a statement to the auditors, the auditors
should
A. disregard the statement because it ranks low of the evidence quality scale.
B. corroborate the evidence with other supporting documentation whenever possible.
C. require that the statement be put in writing.
D. believe on the statement in order to maintain the professional client-auditor relationship.

31. Which of the following is not a requisite in applying for the CPA licensure examinations?
A. Natural-born citizen of the Philippines
B. Good moral character
C. Holder of the degree of Bachelor of Science in Accountancy
D. Has not been convicted of any criminal offense involving moral turpitude

32. Which of the following is incorrect?

A. Candidates who obtain a rating of 75% and in at least four subjects shall receive a conditional credit
for the subjects passed.
B. To successfully pass the licensure examination, the candidates should obtain a general weighted
average of at least 75% with no rating lower than 65% in any subject.
C. Conditional candidates shall take an examination in the conditional subject(s) within two years from
the preceding examination.
D. Candidates who failed in three complete examinations must enroll in refresher course consisting of
twenty-four units of the subjects given in the licensure examination.

33. Which of the following is one of the reasons for not issuing a certificate of registration to a successful
examinee? The individual:
A. Is of unsound mind.
B. Had been guilty of immoral and dishonorable conduct.
C. Had been convicted by a court of a criminal offense involving moral turpitude.
D. All of the given choices

34. A CPA whose certificate of registration has been revoked:

A. Can no longer be reinstated.

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 B. Is automatically reinstated as a CPA by the PRC after two years if he has acted in an exemplary
manner.
C. May be reinstated by the Professional Regulation Commission after two years if he has acted in an
exemplary manner.
D. May be reinstated as a CPA by the Board of Accountancy after two year if he has acted in an
exemplary manner.

35. The Philippine Accountancy Act of 2004 provides that all working papers made during an audit shall be
the property of the auditor. These working papers shall include the following, except:
A. Working papers prepared by the CPA and his staff.
B. Analysis and schedule prepared and submitted to the auditor by his client‟s staff.
C. Excerpts or copies of documents furnished to the auditor.
D. Any report submitted by the auditor to his client.

36. Who are required to apply for accreditation with the Professional Regulation Commission is the applicant
is a partnership of Professional Accountants?
A. Managing partner only
B. All partners only
C. Partners and staff members
D. None of them

37. Which of the following is not one of the function of the Board of Accountancy as specifically provided
under RA 9298?
A. To determine and prescribe minimum requirements leading to the admission of candidates to the CPA
examination.
B. To investigate violations of the Accountancy Law and the rules and regulations promulgated thereunder.
C. To perform visitorial powers or review professional work of accounting practitioners in a general or
random basis.
D. After due process, to suspend, revoke, or reissue certificates of registration for causes provided for by
law by the rules and regulations promulgated therefor.

38. The Accountancy Law provided that a CPA certificate may be suspended or revoked ongrounds except
A. Immoral or dishonorable conduct.
B. Gross negligence or incompetence in the practice of profession.
C. Refusal to accept an audit engagement with a government corporation.
D. Conduct discreditable to the accounting profession.

39. Under the IRR of RA 9298, if a partner in a two-member partnership dies, the surviving partner may
continue to practice as an individual under the existing firm title which includes the deceased partner‟s
name
A. For a period of time not to exceed five years.
B. For a period of time not to exceed two years.
C. Indefinitely.
D. Until the partnership payout to the deceased partner‟s estate is terminated.

40. Which of the following is required for a partnership for public accountancy practice?
A. At least one of the partners must be a CPA.
B. All partners must be PICPA members.
C. All partners must be CPAs.
D. Firm name must contain names of partners only.

41. The following statements relate to RA 9298. Which statement is true?

A. The Professional Regulation Commission has the authority to remove any member of the Board of
Accountancy for negligence, incompetence, or any other just cause.
B. Insanity is not a ground for proceeding against a CPA.
C. A person shall be considered to be in the professional practice of accounting if, as an officer in a private
enterprise, he makes decisions requiring professional accounting knowledge.
D. After three years, subject to certain conditions, the Board of Accountancy may order the reinstatement
of a CPA whose certificate of registration has been revoked.

42. Examples of circumstances that may create self-review threat least likely include
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 A. preparation of original data used to generate financial statements or preparation of other records that
are the subject matter of the assurance engagement.
B. a member of the assurance team being, or having recently been, an employee of the assurance client in
a position to exert direct and significant influence over the subject matter of the assurance
engagement.
C. performing services for an assurance client that directly affect the subject matter of the assurance
engagement.
D. potential employment with an assurance client.

43. Family and personal relationships between a member of the assurance team and a director, an officer or
certain employees, depending on their role, of the assurance client, least likely create
A. self-interest threat.
B. self-review threat.
C. intimidation threat.
D. familiarity threat.

44. A director, an officer or an employee of the assurance client in a position to exert direct and significant
influence over the subject matter of the assurance engagement has been a member of the assurance team
or partner of the firm. This situation least likely create
A. self-interest threat.
B. advocacy threat.
C. intimidation threat.
D. familiarity threat.

45. A former officer, director or employee of the assurance client serves as a member of the assurance team.
This situation will least likely create
A. self-interest threat.
B. self-review threat.
C. intimidation threat.
D. familiarity threat.

46. A CPA-lawyer, acting as a legal counsel to one of his audit client, is an example of
A. Self-interest threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat

47. Which of the following is not likely a threat to independence?

A. Acting as an advocate on behalf of an assurance client in litigation or in resolving disputes with third
parties.
B. Long association of a senior member of the assurance team with the assurance client.
C. Threat of replacement over a disagreement with the application of an accounting principle.
D. Owning immaterial indirect financial interest in an audit client.

48. Occurs when, by virtue of a close relationship with an assurance client, its directors, officers or
employees, a firm or a member of the assurance team becomes too sympathetic to the client‟s interests.
A. Self-interest threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat

49. Examples of circumstances that may create familiarity threat least likely include
A. a member of the assurance team having an immediate family member or close family member who is
a director or officer of the assurance client.
B. a member of the assurance team having an immediate family member or close family member who, as
an employee of the assurance client, is in a position to exert direct and significant influence over the
subject matter of the assurance engagement.
C. a former partner of the firm being a director, officer of the assurance client or an employee in a
position to exert direct and significant influence over the subject matter of the assurance engagement.
D. dealing in, or being a promoter of, share or other securities in an assurance client.

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49. The Code of Professional Conduct would be violated if a member accepted a fee for services and the fee
was
A. fixed by a public authority.
B. based on a price quotation submitted in competitive bidding.
C. based on the result of judicial proceedings.
D. payable after a specified finding was attained.

50. In the marketing and promotion of themselves and their work, professional accountants should:
A. Not use means which brings the profession into disrepute.
B. Not make exaggerated claims for the services they are able to offer, the qualifications they possess, or
experience they have gained.
C. Not denigrate the work of other accountants.
D. All of the above.

51. Which of the following is incorrect regarding independence?

A. Independence consists of independence of mind and independence in appearance.

B. Independence of mind is the state of mind that permits the provision of an opinion without being
affected by influences that compromise professional judgment, allowing an individual to act with
integrity, and exercise objectivity and professional skepticism.
C. Independence in appearance is the avoidance of facts and circumstances that are so significant a
reasonable and informed third party, having knowledge of all relevant information, including any
safeguards applied, would reasonably conclude a firm's or a member of the assurance team‟s integrity,
objectivity or professional skepticism had been compromised.
D. Independence is a combination of impartiality, intellectual honesty and a freedom from conflicts of
interest.

52. The network firms are required to be independent of the client

A. for assurance engagements provided to an audit client.

B. for assurance engagements provided to clients that are not audit clients, when the report is not
expressly restricted for use by identified users.
C. for assurance engagements provided to clients that are not audit clients, when the assurance report is
expressly restricted for use by identified users.
D. All of the given choices

53. For assurance engagements provided to an audit client, the following should be independent of the client:

A B C D
 The members of the
assurance team Yes Yes Yes Yes
 The firm Yes Yes No No
 Network firms Yes No No Yes

54. When the safeguards available are insufficient to eliminate the threats to independence or to reduce them to
an acceptable level, or when a firm chooses not to eliminate the activities or interest creating the threat, the
only course of action available will be the
A. Issuance of an adverse opinion.
B. Issuance of qualified opinion or disclaimer of opinion.
C. Issuance of unqualified opinion with explanatory paragraph.
D. Refusal to perform, or withdrawal from, the assurance engagement.

55. Reasonable assurance means:

A. Gathering of all available corroborating evidence for the auditor to conclude that there are no material
misstatements in the financial statements, taken as a whole.
B. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements,
taken as a whole, are free from any misstatements.
C. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements are
free of material unintentional misstatements.
D. Gathering of the audit evidence necessary for the auditor to conclude that there are no material
misstatements in the financial statements, taken as a whole.
56. Practitioner‟s independence:
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 A. minimizes risk.
B. helps achieve public confidence
C. defends against professional liability
D. achieves compliance with the standards of fieldwork.

57. If the client refuses to accept an audit report that is qualified due to a known existence of noncompliance
to laws and regulations, the auditor should:
A. Issue an adverse opinion if management agrees to fully disclose the matter.
B. Withdraw from the engagement and communicate the reasons to the audit committee in writing.
C. Withdraw from the engagement and communicate the reasons to the Securities and Exchange
Commission or other regulatory body in writing.
D. Issue an unqualified opinion if management agrees to fully disclose the matter.

58. Which of the following is not required by the Generally Accepted Auditing Standard that states that due
professional care is to be exercised in the performance of the audit?
A. Observance of the standards of field work and reporting.
B. Critical review of the audit work performed at every level of supervision.
C. Degree of skill commonly possessed by others in the profession.
D. Responsibility for losses because of errors of judgment.

59. Which of the following is incorrect regarding engagement period?

A. The period of the engagement starts when the assurance team begins to perform assurance services and
ends when the assurance report is issued, except when the assurance engagement is of a recurring
nature.
B. If the assurance engagement is expected to recur, the period of the assurance engagement ends with
the notification by either party that the professional relationship has terminated or the issuance of the
final assurance report, whichever is earlier.
C. In the case of an audit engagement, the engagement period includes the period covered by the financial
statements reported on by the firm.
D. When an entity becomes an audit client during or after the period covered by the financial statements
that the firm will report on, the firm should consider whether any threats to independence may be
created by previous services provided to the audit client.

60. If a member of the assurance team, or their immediate family member, has a direct financial interest, or a
material indirect financial interest, in the assurance client, the self-interest threat created would be so
significant the only safeguards available to eliminate the threat or reduce it to an acceptable level would be
to (choose the incorrect one)

A. dispose of the direct financial interest prior to the individual becoming a member of the assurance
team.
B. dispose of the indirect financial interest in total prior to the individual becoming a member of the
assurance team.
C. dispose of a sufficient amount of the indirect financial interest so that the remaining interest is no
longer material prior to the individual becoming a member of the assurance team.
D. limit the participation of the member of the assurance team.

61. If a member of the assurance team, or their immediate family member receives, by way of, for example, an
inheritance, gift or, as a result of a merger, a direct financial interest or a material indirect financial interest
in the assurance client, a self-interest threat would be created. The following safeguards should be applied
to eliminate the threat or reduce it to an acceptable level:
A. Disposing of the financial interest at the earliest practical date.
B. Removing the member of the assurance team from the assurance engagement.
C. Either a or b
D. Neither a nor b

62. When a member of the assurance team knows that his or her close family member has a direct financial
interest or a material indirect financial interest in the assurance client, a self-interest threat may be created.
Safeguards least likely include:

A. The close family member disposing of all or a sufficient portion of the financial interest at the earliest
practical date.
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 A. Discussing the matter with those charged with governance, such as the audit committee.
B. Involving a professional accountant who took part in the assurance engagement to review the work
done by the member of the assurance team with the close family relationship or otherwise advise as
necessary.
C. Removing the individual from the assurance engagement.

63. Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance to
an absolute level of assurance. In practice, the professional accountants cannot provide absolute
assurance because of the following, except:
A. The professional accountants employ testing process.
B. The internal control has its inherent limitations.
C. The use of judgment in gathering evidence and drawing conclusions based on that evidence.
D. The lack of expertise of the professional accountants in doing a systematic engagement process.

64. Which is not true of the intended user?

A. The intended user is the person or class of persons for whom the professional accountant prepares the
report for a specific use or purpose.
B. The intended user(s) is (are) always limited to the addressee of the professional accountant‟s report.
C. The responsible party may also be one of the intended users.
D. The intended user(s) may not be the addressee of the professional accountant‟s report.

65. Which of the following is least likely a subject matter of an assurance engagement?
A. Data.
B. Systems and processes.
C. Compliance with regulations.
D. Degree of loyalty of employees to their employer.

66. The exercise of due professional care requires that an auditor

A. Examine all available corroborating evidence.
B. Critically review the judgment exercised at every level of supervision.
C. Reduce control risk below the maximum.
D. Attain the proper balance of professional experience and formal education.

67. Which of the following best describes the reference to the expression “taken as a whole” in the fourth
generally accepted auditing standard of reporting?
A. It applies only to a complete set of financial statements.
B. It applies equally to each item in each financial statement.
C. It applies equally to each material item in each financial statement.
D. It applies equally to a complete set of financial statements and to each individual financial statement.

68. An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is
referred to as a(n):
A. Peer Review Engagement
B. Quality Control Engagement
C. Quality Assurance Engagement
D. Attestation Engagement

69. Attestation risk is limited to a low level in which of the following engagement(s)?
A. Both examinations and reviews
B. Examinations, but not reviews
C. Reviews, but not examinations
D. Neither examinations nor reviews

70. .An operational audit differs in many ways from an audit of financial statements. Which of the following is
the best example of one of these differences?
A. The usual audit of financial statements covers the four basic statements, whereas the operational audit
is usually limited to either the balance sheet or the income statement
B. The boundaries of an operational audit are often drawn from an organization chart and are not limited
to a single accounting period
C. Operational audits do not ordinarily result in the preparation of a report
D. The operational audit deals with pre-tax income

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71. The review of a company's financial statements by a CPA firm:
A. Is substantially less in scope of procedures than an audit
B. Requires detailed analysis of the major accounts
C. Is of similar scope as an audit and adds similar credibility to the statements
D. Culminates in issuance of a report expressing the CPA's opinion as to the fairness of the statements

72. When performing an engagement to review a nonpublic entity's financial statements, an accountant most
likely would:
A. Obtain an understanding of the entity's internal control.
B. Limit the distribution of the accountant's report.
C. Confirm a sample of significant accounts receivable balances.
D. Ask about actions taken at board of directors' meetings.

73. Which of the following services may a CPA perform in carrying out a consulting service for a client?

I. Analysis of the client‟s accounting system

II. Review of the client‟s proposed business plan
III. Preparation of information for obtaining financing

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

74. Which of the following describes how the objective of a review of financial statements differs from the
objective of a compilation engagement?
A. The primary objective of a review engagement is to test the completeness of the financial statements
prepared, but a compilation tests for reasonableness.
B. The primary objective of a review engagement is to provide positive assurance that the financial
statements are fairly presented, but a compilation provides no such assurance.
C. In a review engagement, accountants provide limited assurance, but a compilation expresses no
assurance.
D. In a review engagement, accountants provide reasonable or positive assurance that the financial
statements are fairly presented, but a compilation provides limited assurance.

75. Which of the following factors most likely would cause a CPA to decline a new audit engagement?
A. The CPA does not understand the entity's operations and industry.
B. Management acknowledges that the entity has had recurring operating losses.
C. The CPA is unable to review the predecessor auditor's working papers.
D. Management is unwilling to permit inquiry of its legal counsel.

TRUE OR FALSE

1. The only accredited professional organization of CPAs in the Philippines being referred to by RA 9298
is the Philippine Institute of Certified Public Accountants.TRUE
2. The Professional Board of Accountancy elects a vice-chairman from among its members for a term of
three (3) years.FALSE
3. All members of the Professional Board of Accountancy must be CPAs with at least 10 years of work
experience in any scope of practice of accountancy and can only serve in the Board for at most twelve
(12) years.TRUE
4. More seats for CPAs in public practice are allocated in AASC than in FRSC. TRUE
5. For a candidate to be considered as successfully passed the CPALE, he or she must obtain an average of
at 75% with no grade below 65% in any of the six given subjects.TRUE
6. The Code of Ethics for Professional Accountants in the Philippines is an adaptation of the Code of
Ethics for Professional Accountants being promulgated by IFAC.TRUE
7. Part B of Code of Ethics for Professional Accountants is intended solely for CPAs in public
practice.TRUE
8. Objectivity and integrity are among the fundamental principles of Code of Ethics for Professional
Accountants which apply only to CPAs in public practice and CPAs in government.FALSE
9. Advocacy threat applies only toCPAs in public practice. FALSE

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10. When the professional accountant determines that appropriate safeguards are not available or cannot be
applied to eliminate the threats or reduce them to an acceptable level, the professional accountant shall
eliminate the circumstance or relationship creating the threats or decline or terminate the audit
engagement.TRUE

11. A pervasive characteristic of a CPA‟s role in consulting services engagement is that of being an
independent practitioner. (FALSE)
12. The independent audit is important to readers of financial statements because it determines the future
stewardship of the management of the company whose financial statements are audited. (FALSE)
13. The practice of compilation is being regulated by the Professional Board of Accountancy. (TRUE)
14. An independent audit aids in the communication of economic data because the audit lends credibility to
the financial statements. (TRUE)
15. The Commission on Audit derives its mandate from the Constitution.(TRUE)
16. The major reason an independent auditor gathers audit evidence is to evaluate internal control system.
(FALSE)
17. The primary responsibility for the adequacy of disclosure in the financial statements and accompanying
notes rests with the audit partner assigned to the engagement. (FALSE)
18. A CPA firm‟s primary purpose for performing non-audit services is to provide advice and technical
assistance that will enable a client to conduct its business more effectively. (TRUE)
19. DHKS Corp. maintains a large full-time internal audit staff that reports directly to the chief accountant.
Audit reports prepared by the internal auditors indicate that the system is functioning as it should and
that the accounting records are reliable. In this case, the independent auditor may rely on the work
performed by the internal audit staff. (TRUE)
20. In operational auditing, the reviews are not limited to accounting. (TRUE)
21. A practitioner (professional accountant) in performance of any kind of engagement shall be independent
from the management. (FALSE)
22. The practitioner in performing an assurance engagement is required to use the work of the internal
auditor to reduce the extent of audit procedures planned and provide a basis for testing internal control.
FALSE)
23. The AASC and the FRSC are organizations created by the Professional Regulation Commission to help
the Board of Accountancy in adopting, issuing and interpreting standards for reporting and auditing.
FALSE)
24. In client selection, the practitioner will consider the size and complexity of the business but not the
management integrity. FALSE)
25. In understanding the client‟s business and environment, the practitioner shall consider the entity‟s
internal control. (TRUE)
26. The firms should establish policies and procedures designed to provide it with reasonable assurance that
the firm and its personnel comply with relevant ethical requirements. (TRUE)
27. CPAs with SEC accreditation are required to observe non-rendition of prohibited services to audit
clients. TRUE
28. CPAs with SEC Group A accreditation can audit Group B clients but not the other way around. TRUE
29. PFRS are the principles auditors follow when conducting an audit, while GAAS are the standards for
presentation of financial statements and underlying transactions. (FALSE)
30. A CPA, while performing an audit, strives to achieve independence in appearance in order to maintain
public confidence in the profession. TRUE
31. Under the cycle approach to segmenting an audit, transactions recorded in different journals should
never be combined with the general ledger balances that result from those transactions. FALSE
32. Under the cycle approach, the only accounts that have two or more cycles associated with them are cash
and accounts receivable. FALSE
33. Although auditors need to consider the interrelationships between cycles, they typically treat cycles
independently to the extent practical to manage complex audits effectively. TRUE
34. When examining the relationships of the five cycles and general cash, the cycles have no beginning or
end except at the origin or final disposition of the company. TRUE
35. When an auditor is determining what information to include in the notes to the financial statements
relating to bonds payable, he is concerned with the transaction-related audit objectives. FALSE
36. It is generally impractical for the auditor to obtain complete assurance about the correctness of each
class of transactions. TRUE
37. The auditor's audit objectives follow and are closely related to management assertions. TRUE
38. The audit objective of posting and summarization is associated with the management assertion of
accuracy. TRUE
39. If a sale was for a valid shipment, but the amount of the sales invoice was calculated incorrectly, the
accuracy objective was violated. TRUE
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40. The transaction-related audit objective that deals with whether recorded transactions have actually
occurred is the completeness objective. FALSE
41. Audit evidence refers to all information used by the auditor in arriving at the conclusions on which the
audit opinion is based. (TRUE)
42. Audit evidence includes the information contained in the accounting records underlying the financial
statements and other information. (TRUE)
43. Audit evidence is cumulative in nature. (TRUE)
44. Auditors are expected to address all information that may exist. (FALSE)
45. Sufficiency is the measure of the quality of audit evidence. (FALSE)
46. Appropriateness is the measure of the quantity of audit evidence; that is, its relevance and its reliability
in providing support for, or detecting misstatements in, the classes of transactions, account balances, and
disclosures and related assertions. (FALSE)
47. The quantity of audit evidence needed is affected by the risk of misstatement (the greater the risk, the
more audit evidence is likely to be required). (TRUE)
48. Merely obtaining more audit evidence may compensate for its poor quality. (FALSE)
49. Obtaining audit evidence relating to a particular assertion is a substitute for obtaining audit evidence
regarding another assertion. (FALSE)
50. The persuasiveness of an evidence is a function of its sufficiency and appropriateness. (TRUE)

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