Quality Control

1. Generally Accepted Auditing Standards (GAAS) and Philippine Standards on

Auditing (PSA)should be looked upon by practitioners as: *

 Benchmark to be used on all audits, reviews, and compilations.

 Minimum standards of performance which must be achieved on each audit engagement.
 Ideals to work towards, but which are not achievable
 Maximum standards which denote excellent work.

2. Which of the following statements is incorrect? *

 The auditor’s report must state whether GAAP was consistently followed from the prior
period to the current period.
 The auditor’s report must imply whether the client has provided adequate disclosure on
the financial statements and in the accompanying notes.
 The auditor’s report must express an opinion on the financial statements taken as a
whole, or explain why there is no opinion provided.
 The auditor’s report must state whether the financial statements were prepared with
GAAP.

3. The firm is to be staffed by personnel who have attained and maintained the
technical standards and professional competence required to enable them to fulfill
their responsibilities with due care is the objective of what quality control policy? *

 Professional Requirements
 Skills and Competence
 Delegation
 Assignment

4. Which one of the following relates to delegation objective of quality control? *

 The firms create a group that provides technical training to audit staff.
 Whenever necessary, consultation within or outside the firm is to occur with those who
have appropriate expertise.
 There is to be a sufficient direction, supervision, and review of work at all levels to provide
reasonable assurance that the work performed meets appropriate standards of quality .
 Assignment of work to the more qualified personnel.
5. In pursuing its quality control objectives with respect to assigning personnel to
engagements, a public accounting firm may use policies and procedures such as *

 Assigning a number of employees to each engagement in excess of the number required

so as not to overburden the staff and interfere with the quality of the audit work
performed.
 Rotating employees from assignment to assignment on a random basis to aid in the staff
training effort.
 Allowing staff to select the assignments of their choice to promote better client
relationships.
 Requiring timely identification of the staffing requirements of specific engagements so that
enough qualified personnel can be made available.

6. In connection with the element of professional development, a CPA firm’s system of

quality control should ordinarily provide that all personnel *

 Have the knowledge required to enable them to fulfill responsibilities assigned.

 Possess judgment, motivation, and adequate experience.
 Demonstrate compliance with peer review directives.
 Seek assistance from persons having appropriate levels of knowledge, judgment, and
authority.

7. It involves informing assistants of their responsibilities and the objectives of the

procedures they have to perform: *

 Monitoring
 Consultation
 Directing
 Supervision

8. The standard of due audit care requires the auditor to *

 Possess skills clearly above the average for the profession.

 Make perfect judgment decisions in all cases.
 Apply judgment in a conscientious manner, carefully weighing the relevant factors before
reaching a decision.
 Ensure that the financial statements are free from error.
9. A basic objective of a CPA firm is to provide professional services that conform with
professional standards. Reasonable assurance of achieving this basic objective is
provided through *

 Continuing professional education.

 A system of peer review.
 A system of quality controls.
 Compliance with generally accepted reporting standards.

10. An auditor who accepts an audit engagement and does not possess the industry
expertise of the business entity, should *

 Refer a substantial portion of the audit to another CPA who will act as the principal
auditor.
 First inform management that an unqualified opinion cannot be issued.
 Engage financial experts familiar with the nature of the business entity.
 Obtain a knowledge of matters that relate to the nature of the entity's business.

11. The fourth standard of reporting requires the auditor’s report to contain either an
expression of opinion regarding the financial statements taken as a whole or an
assertion to the effect that an opinion cannot be expressed. The objective of the fourth
standard is to prevent *

 Restrictions on the scope of the examination, whether imposed by the client or by the
inability to obtain evidence.
 Misinterpretations regarding the degree of responsibility the auditor is assuming
 An auditor from reporting on one basic financial statement and not the others.
 An auditor from expressing different opinions on each of the basic financial statements.

12. Which of the following is not likely a quality control procedure on consultation? *

 Assigns an appropriate person or persons to be responsible for assigning personnel to

audits.
 Designates individuals as specialists to serve as authoritative sources and define their
authority in consultative situations.
 Identifies areas and specialized situations where consultation is required and encourage
personnel to consult with or in use authoritative sources on other complex matters.
 Specifies the extent of documentation to be provided for the result of consultation in those
areas and specialized situations where consultation is required.
13. Which of the following best describes what is meant by Generally Accepted
Auditing Standards? *

 Procedure to be used to gather evidence to support financial statements.

 Rules acknowledged by the accounting profession because of their universal compliance.
 Pronouncements issued by the Auditing Standards and Practices Council.
 Measures of the quality of the auditor’s performance

14. Which of the following is not an element of professional requirements as

prescribed by Quality Control Policies for an audit firm? *

 Prudence
 Independence
 Integrity
 Confidentiality

15. A CPA, while performing an audit, strives to achieve independence in appearance

in order to *

 Comply with the generally accepted standards of field work

 Reduce risk and liability.
 Maintain public confidence in the profession.
 Become independent in fact.

16. The general standards stress the importance of *

 The personal qualities which the auditor should have

 Evidence accumulation
 Communicating the auditor’s finding to the reader
 All of these

17. Monitoring, as an element of quality control policies of a firm, requires: *

 Identify the right personnel to be assigned in an audit engagement.

 Ensuring that personnel are sufficiently directed, supervised and their work being
reviewed adequately.
 Designates individuals as specialists to serve as authoritative sources and define their
authority in consultative situations.
 Providing reasonable assurance that the firm’s other quality control policies and
procedures are effectively operating.
18. Within the context of quality control, the primary purpose of continuing professional
education and training activities, is to enable a CPA firm to provide personnel within
the firm with: *

 Knowledge required in order to perform a peer review.

 Professional education that is required in order to perform with due professional care.
 Technical training that assures proficiency as an auditor.
 Knowledge required to fulfill assigned responsibilities and to progress within the firm.

19. Competence as a certified public accountant includes all of the following except *

 Having the technical qualifications to perform an engagement.

 Possessing the ability to supervise and evaluate the quality of staff work.
 Warranting the infallibility of the work performed.
 Consulting others if additional technical information is needed.

20. What is the overriding reason why the auditor considers the professional
competence of assistants whom the work will be delegated? *

 All the audit assistants assigned to an engagement must be independent in appearance.

 To lessen the working paper preparation.
 To have reasonable assurance that such work will be performed with due care by the
audit assistant.
 To eliminate audit risk.
Auditor's Responsibility (Fraud and Error)

1.Which of the following should the auditor likely to do when the application of planned
audit procedures indicates the possible existence of fraud or error? *

 The auditor should resign in order to avoid legal responsibility.

 He should discuss the matter with the person whom he believes is involved with the
irregularities.
 He should consider the potential effect on the financial statements.
 He should refer the suspected fraud or error to the internal auditor.

2. The following are examples of error, except *

 A mistake in gathering or processing data from which financial statements are prepared.
 A mistake in the application of accounting principles relating to measurement, recognition,
classification, presentation, or disclosure.
 An incorrect accounting estimate arising from oversight or misinterpretation of facts.
 Misrepresentation in the financial statements of events, transactions or other significant
information.

3. Which of the following statements describes why a properly designed and executed
audit may not detect a material fraud? *

 Audit procedures that are effective for detecting an unintentional misstatement may be
ineffective for an intentional misstatement that is concealed through collusion.
 An audit is designed to provide reasonable assurance of detecting material errors, but
there is no similar responsibility concerning material fraud.
 The auditor did not consider factors influencing audit risk for account balances that have
pervasive effects on the financial statements taken as a whole.
 The factors considered in assessing control risk indicated an increased risk of intentional
misstatements, but only a low risk of unintentional errors in the financial statements.

4. The risk of not detecting a material misstatement resulting from fraud is higher than
the risk of not detecting a material misstatement resulting from error because *

 The auditor is responsible to detect errors but not fraud.

 The effect of fraudulent act is likely omitted in the accounting records.
 Fraud is ordinarily accompanied by acts specifically designed to conceal its existence.
 Fraud is always a result of connivance between or among employees.
5. Fraud risk factors relating to management’s characteristics and influence over the
control environment *

 Involve the economic and regulatory environment in which the entity operates.
 Involve the lack of controls designed to prevent or detect misappropriation of assets.
 Pertain to the nature and complexity of the entity and its transactions, the entity’s financial
condition, and its profitability.
 Pertain to management’s abilities, pressures, style, and attitude relating to internal control
and the financial reporting process.

6. Examples of fraud risk factors relating to susceptibility of assets to misappropriation

include the following, except *

 Lack of appropriate management oversight.

 Easily convertible assets, such as bearer bonds, diamonds or computer chips.
 Inventory characteristics, such as small size combined with high value and high demand.
 Large amounts of cash on hand or processed.

7. The primary responsibility for the prevention and detection of fraud and error rests
with *

 The management and those charged with governance

 The auditor.
 Those charged with governance.
 The management of an entity.

8. Which of the following best describes what is meant by the term “fraud risk
factor”? *

 Reportable conditions identified during an audit.

 Factors whose presence indicates that the risk of fraud is high.
 Factors whose presence requires modifications of planned audit procedures.
 Factors whose presence often has been observed in circumstances where frauds have
occurred.

9. When planning and performing audit procedures and evaluating and reporting the
results thereof, the auditor should *

 Consider the risk of misstatements in the financial statements resulting from fraud or
error.
 Search for fraud that would have a material effect and for errors that would have either
material or immaterial effect on the financial statements.
  Search for errors that would have a material effect and for fraud that would have either
material or immaterial effect on the financial statements.
 Consider the risk of material misstatements in the financial statements resulting from
fraud or error.

10. Which of the following is least likely a category of fraud risk factors that relate to
misstatements resulting from fraudulent financial reporting? *

 Industry conditions.
 Operating characteristics and financial stability.
 Susceptibility of assets to misappropriation.
 Management’s characteristics and influence over the control environment.

11. The following are examples of fraud risk factors relating to industry conditions,
except *

 A high degree of competition or market saturation, accompanied by declining margins.

 There is a high turnover of management, counsel or board members.
 Rapid changes in the industry, such as high vulnerability to rapidly changing technology
or rapid product obsolescence.
 A declining industry with increasing business failures and significant declines in customer
demand.

12. Whether the auditor has performed an audit in accordance with PSAs is
determined by *

 The adequacy of the audit procedures performed in the circumstances and the suitability
of the auditor’s report based on the result of these procedures.
 The absence of material misstatements.
 The Securities and Exchange Commission.
 The absence of material errors.

13. Which statement is incorrect regarding the auditor’s responsibility to consider fraud
and error in an audit of financial statements? *

 The auditor is not and cannot be held responsible for the prevention of fraud and error.
 In planning the audit, the auditor should discuss with other members of the audit team the
susceptibility of the entity to material misstatements in the financial statements resulting
from fraud or error.
 The auditor should design test of controls to reduce to an acceptably low level the risk
that misstatements resulting from fraud and error that are material to the financial
statements taken as a whole will not be detected.
 When the auditor encounters circumstances that may indicate that there is a material
misstatement in the financial statements resulting from fraud or error, the auditor should
 perform procedures to determine whether the financial statements are materially
misstated.

14.The term “fraud” refers to an intentional act by one or more individuals among
management, those charged with governance, employees, or third parties, involving
the use of deception to obtain an unjust or illegal advantage. Which statement is
correct regarding fraud? *

 Misstatement of the financial statements may not be the objective of some frauds.
 Fraud involving one or more members of management or those charged with governance
is referred to as “employee fraud”.
 Auditors make legal determinations of whether fraud has actually occurred.
 Fraud involving only employees of the entity is referred to as “management fraud”.

15.In comparing management fraud with employee fraud, the auditor’s risk of failing to
discover the fraud is *

 Greater for employee fraud because of the higher crime rate among blue collar workers.
 Greater for employee fraud because of the larger number of employees in the
organization.
 Greater for management fraud because of management’s ability to override existing
internal controls.
 Greater for management fraud because managers are inherently smarter than employees.

16. Which of the following circumstances most likely indicate the possibility of fraud or
error? *

 Management engages in frank communication with appropriate third parties, such as

regulators and bankers.
 Conservative application of accounting principles.
 Evidence of an unduly lavish lifestyle by officers or employees.
 Minimal differences from expectations disclosed by analytical procedures.

17. The auditor may encounter circumstances that, individually or in combination,

indicate the possibility that the financial statements may contain a material
misstatement resulting from fraud or error. These circumstances include the following,
except *

 Unrealistic time deadlines for audit completion imposed by management.

 Information provided unwillingly or after unreasonable delay.
 Conflicting or unsatisfactory evidence provided by management or employees.
 Transactions recorded in accordance with management’s general or specific
authorization.
18. Which of the following illustrates a perceived opportunity to commit fraud? *

 Management is under pressure, from sources outside or inside the entity, to achieve an
expected (and perhaps unrealistic) earnings target.
 Individuals are living beyond their means.
 All of the above.
 An individual believes internal control could be circumvented because the individual is in a
position of trust or has knowledge of specific weaknesses in the internal control system.

19. When planning the audit, which of the following is least likely a purpose of the
auditor’s inquiries of management? *

 To determine extent of authentication of documentation.

 To determine whether management has discovered any material errors.
 To obtain an understanding of management’s assessment of the risk that the financial
statements may be materially misstated as a result of fraud.
 To obtain knowledge of management’s understanding regarding the accounting and
internal control systems in place to prevent and detect error.

20. Fraudulent financial reporting involves intentional misstatements or omissions of

amounts or disclosures in financial statements to deceive financial statement users.
Fraudulent financial reporting least likely involve *

 Embezzling receipts, stealing physical or intangible assets, or causing an entity to pay for
goods and services not received.
 Misrepresentation in, or intentional omission from, the financial statements of events,
transactions or other significant information.
 Deception such as manipulation, falsification, or alteration of accounting records or
supporting documents from which the financial statements are prepared.
 Intentional misapplication of accounting principles relating to measurement, recognition,
classification, presentation, or disclosure.
Auditor's Responsibility (Non-Compliance)
*Required

1. Which of the following is incorrect about the auditor’s responsibility of evaluating

noncompliance by the entity to laws and regulations? *

 Noncompliance includes personal misconduct of entity management or employers though

they are unrelated to the entity’s business activities.
 Detection of noncompliance, regardless of materiality, requires considerations of the
implications for the integrity of management or employees.
 An audit cannot be expected to detect noncompliance with all laws and regulations.
 Noncompliance refers to acts of omission or commission by the entity being audited which
are contrary to prevailing laws or regulations.

2. Which of the following circumstances regarding the entity’s noncompliance to laws

or regulations may cause the auditor to resign from an engagement? *

 When the disclosure of the effect of noncompliance to legal authority is necessary.

 The auditor is unable to determine whether noncompliance has occurred.
 If the auditor concludes that the noncompliance has a material effect on the financial
statements and has not been properly reflected in the financial statements.
 When the entity does not take remedial action that he considers necessary in the
circumstances even when the noncompliance is not material to financial statements.

3. What is expected of auditor in determining noncompliance by an entity to existing

laws and regulations? *

 The auditor’s training, experience and understanding of the entity and its industry cannot
provide a basis for recognition that some acts coming to the auditor’s attention may
constitute noncompliance with laws and regulations.
 The determination as to whether a particular act constitutes or is likely to constitute
noncompliance is generally based on the understanding of the auditor but ultimately can
only be determined by an expert who is qualified to practice law.
 Whether an act constitutes noncompliance is a legal determination that is ordinarily within
the auditor’s professional competence.
 In order to plan the audit, the auditor should obtain a general understanding of the legal
and regulatory framework applicable to the entity and the industry and how the entity is
complying with the framework.
4. When the auditor becomes aware of information concerning a possible
noncompliance to laws or regulations, the auditor should appropriately: *

 Obtain an understanding of the nature of the act and the circumstances in which it has
occurred, and evaluate the possible effect on the financial statements.
 Discuss his suspicion with the management.
 Consult with the entity’s legal counsel as to what appropriate action the auditor should do.
 Ask management to determine whether a violation is really committed.

5. Examples of the type of information that may come to the auditor's attention that
may indicate that noncompliance with laws or regulations has occurred least likely
include *

 Sales commissions or agent's fees that appear reasonable in relation to those ordinarily
paid by the entity or in its industry or to the services actually received.
 Unusual transactions with companies registered in tax havens.
 Investigation by government departments or payment of fines or penalties.
 Media comment.

6. If an auditor believes a client may have committed illegal acts, which of the
following actions should the auditor take? *

 Extend auditing procedures to determine whether the suspected illegal acts have a
material effect on the financial statements.
 Notify each member of the audit committee of the board of directors about the nature of
the acts and request that they advise an approach to be taken by the auditor.
 Consult with the client’s counsel and the auditor’s counsel to determine how the
suspected illegal acts will be communicated to stockholders.
 Make inquiries of the client’s management and obtain an understanding of the
circumstances underlying the acts and of other evidence to determine the effects of the
acts on the financial statements.

7. The most likely explanation why the auditor’s examination cannot reasonably be
expected to bring all illegal acts by the client to the auditor’s attention is that *

 Illegal acts are perpetrated by management override of internal accounting controls

 Illegal acts may be perpetrated by the only person in the client’s organization with access
to both assets and the accounting records.
 Illegal acts by clients often relate to operating aspects rather than accounting aspects .
 The client’s system of internal accounting control may be so strong that the auditor
performs only minimal substantive testing.
8. If the auditor suspects that members of senior management, including members of
the board of directors, are involved in noncompliance to laws as regulations, and he
believes his report may not be acted upon, he would: *

 Do nothing.
 Consider seeking legal advice.
 Make special investigation in order to fully determine the extent of client’s noncompliance.
 Issue a disclaimer of opinion.

9. An audit client’s board of directors and audit committee refused to take action about
an immaterial illegal act that was brought to their attention by the auditor. Because of
their failure to act, the auditor withdrew from the engagement. The auditor’s decision
to withdraw was primarily due to doubt concerning *

 Reliance on management’s representation.

 Compliance with the laws.
 Inadequate financial statement disclosures.
 Scope limitations resulting from the inaction.

10. When an auditor becomes aware of a possible illegal act by a client, the auditor
should obtain an understanding of the nature of the act to *

 Evaluate the effect on the financial statements.

 Recommend remedial actions to the audit committee.
 Determine the reliability of management’s representations.
 Increase the assessed level of control risk.
OVERVIEW OF AUDITING

1. Which of the following is responsible for an entity’s financial statements? *

 The entity’s board of directors

 The entity’s internal auditors
 The entity’s management
 The entity’s audit committee

2. An audit can have a significant effect on *

 The risk-free interest rate

 Information Risk
 All of these
 Business Risk

3. Which one of the following is more difficult to evaluate objectively? *

 Presentation of financial statements in accordance with generally accepted accounting

principles.
 Compliance with government regulations.
 Efficiency and effectiveness of operations.
 All three of the above are equally difficult

4. A financial statement audit: *

 Assures that fraud had been detected.

 Guarantees that financial statements are presented fairly.
 Confirms that financial statement assertion is accurate.
 Lends credibility to the financial statements.

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

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

6. Which of the following least likely limits the auditor’s ability to detect material
misstatement? *

 The inherent limitations of any accounting and internal control system.

 Most audit evidences are conclusive rather than being persuasive.
 Audit is based on testing
 Audit procedures that are effective in detecting ordinary misstatements are ineffective in
detecting intentional misstatements.

7. Which of the following statements is not a distinction between independent auditing

and internal auditing? *

 Independent auditors represent third party users external to the auditee entity, whereas
internal auditors report directly to management.
 Although independent auditors strive for both validity and relevance of evidence, internal
auditors are concerned almost exclusively with validity.
 The internal auditor's span of coverage goes beyond financial auditing to encompass
operational and performance auditing.
 Internal auditors are employees of the auditee, whereas independent auditors are
independent contractors.

8.The framework for auditing and related services as addressed by PSA excludes *

 Compilation
 Agreed upon procedure
 Review
 Tax services

9. The best statement of the responsibility of the auditor with respect to audited
financial statement is: *

 The auditor’s responsibility is confined to his expression of opinion about the audited
financial statements.
 The responsibility over the financial statement rests with the management and the auditor
assumes responsibility with respect to the notes of financial statements.
 The auditor is responsible only to his unqualified opinion but not for any other type of
opinion.
  The audit of the financial statements relieves management of its responsibilities

10. 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. *

 Assurance level
 Reasonableness level
 Tolerable level
 Confidence level

11. The expertise that distinguishes auditors from accountants is in the *

 Ability to interpret generally accepted accounting principles.

 Accumulation and interpretation of evidence.
 Ability to interpret ASC Statements.
 Requirement to possess education beyond the Bachelor’s degree.

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

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

13. The three types of attestation services are: *

 Audits, review, and compilations

 Audits, reviews, and other attestation services
 Reviews, compilations, and other attestation services
 Audits, compilations, and other attestation services

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

 All of the above

 The entity
 The employer-employee relationship which exists for other employees in the organization
 The line functions of the organizations

15. Assurance engagement *

  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.
 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.
 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.
 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

16. Which of the following is an appraisal activity established within an entity as a

service to the entity? *

 Compliance auditing
 Financial auditing
 External auditing
 Internal auditing

17. Which of the following types of audit uses as its criteria laws and regulations? *

 Operational audit
 Financial statement audit
 Financial audit
 Compliance audit

18. An operational audit is designed to *

 Assess the presentation of management’s financial statements in accordance with

generally accepted accounting principles
 Determine whether the audit committee of the board of directors is effectively discharging
its responsibility to oversee management’s operations
 Determine whether management has complied with applicable laws and regulations
 Assess the efficiency and effectiveness of management’s operating procedures

19.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 or she can provide what level of assurance? *

 High
 None
 Absolute
  Moderate

20.Any services in which the CPA firm issues a written communication that express a
conclusion with respect to the reliability of a written assertion that is the responsibility
of another party is a (n) *

 Attestation service
 Accounting and bookkeeping service
 Tax service
 Management advisory service

21. As used in auditing, which of the following statements best describes

"assertions"? *

 Assertions are the representations of management as to the fairness of the financial

statements
 Assertions are the auditor's findings to be communicated in the audit report.
 Assertions are the representations of management as to the reliability of the information
system
 Assertions are found only in the footnotes to the financial statements.

22. The primary goal of the CPA in performing the attest function is to *
1 point

 Examine individual transactions so that the auditor may certify as to their validity
 Determine whether the client's assertions are fairly stated
 Assure the consistent application of correct accounting procedures
 Detect fraud

23. Which of the following is an incorrect phrase? *

 Auditing is a systematic process.

 Auditing subjectively obtains and evaluates evidence.
 Auditing communicates results to interested users.
 Auditing evaluates evidence regarding assertions.

24. Because an examination in accordance with generally accepted auditing standards

is influenced by the possibility of material errors, the auditor should conduct the
examination with an attitude of *

 Professional responsiveness
 Conservative advocacy
 Objective judgment
  Professional skepticism

25. The criteria for evaluating quantitative information vary. For example, in the audit
of historical financial statements by CPA firms, the criteria are usually *

 Regulations of the Securities and Exchange Commission.

 Generally accepted auditing standards.
 Generally accepted accounting principles.
 Regulations of the Internal Revenue Service.

26. The auditor communicates the results of his or her work through the medium of
the *

 Financial statements
 Engagement letter
 Management letter
 Audit report

27. Users of financial statements demand independent audit because *

 Management may not be objective in reporting.

 Management relies on the auditor to improve internal control.
 Users demand assurance that fraud does not exist
 Users expect auditors to correct management errors.

28. A review of any part of an organization’s procedures and methods for the purpose
of evaluating efficiency and effectiveness is classified as a (n) *

 Operational audit
 Compliance audit
 Audit of financial statements
 Production audit

29. Which of the following best describes why an independent auditor reports on
financial statements? *

 Independent auditors are likely to detect fraud

 Competing interests may exist between management and the users of the statements
 Ineffective internal controls may exist.
 Misstated account balances are generally corrected by an independent audit.

30.Which of the following is not primary category of attestation report? *

  Compilation report
 Review report
 Special audit report based on a basis of accounting other than generally accepted
accounting principles
 Audit report

Auditing (Ma’am Tammie’s quiz)

1. Which of the following does not pertain to the standards of fieldwork? *

 Adequate planning and supervision.

 Obtaining sufficient competent evidential matter.
 Proper study and evaluation of internal control as a basis for reliance thereon.
 Technical training and proficiency.
 
2. Audit standard requires an auditor to: *

 Perform procedures that are designed to detect all instances of fraud.

 Provide reasonable assurance that the financial statements are not materially misstated.
 Issue an unmodified opinion only when the auditor is satisfied that no instances of fraud
have occurred.
 Design the audit program to meet financial statement users’ expectations concerning
fraud.

 
3. The Philippine Standards on Auditing issued by the Auditing and Assurance
Standards Council: *

 are interpretations of generally accepted auditing standards.

 are the criteria used in evaluating the fair presentation of the financial statements.
 are interpretations of generally accepted accounting principles.
 are optional guidelines which an auditor may choose to follow or not to follow when
conducting an audit.

 
4. The auditor is not liable to his client for *
  Negligence
 Fraud
 Dishonesty
 Errors in application of judgment
 

5. An auditor need not abide with a specific requirement of PSA if the auditor believes
that: *

 The amount is insignificant.

 The requirement of the PSA is impractical to perform.
 The requirement of the PSA is impossible to perform.
 Any of the given three choices is correct.
 
6. The auditor’s best defense when material misstatements are not uncovered is to
have conducted the audit: *

 in accordance with PSA.

 as effectively as reasonably possible.
 in a timely manner.
 only after an adequate investigation of the management team.

 
7. Which of the following quality control policies and procedures does not relate to
human resources and assignment? *

 Emphasize independence of mental attitude in training programs and in supervision and

review of the audits.
 Monitor the effectiveness of recruiting programs.
 Identify criteria which will be considered in evaluating individual performance and
expected proficiency.
 Identify on a timely basis the staffing requirements of specific audits.

 8. Professional skepticism requires that an auditor assumes that management is *

 Honest, in the absence of fraud risk factors

 Dishonest until completion of audit tests
  Neither honest nor dishonest
 Offering reasonable assurance of honesty

9. The most likely explanation why the auditor’s examination cannot reasonably be
expected to bring all illegal acts by the client to the auditor’s attention is that *

 Illegal acts are perpetrated by management override of internal control.

 Illegal acts by clients often relate to operating aspects rather than accounting aspects.  
 The client’s internal control may be so strong that the auditor performs only minimal
substantive testing.
 Illegal acts may be perpetrated by the only person in the client’s organization with access
to both assets and the accounting records.

10. Management has the responsibility to detect and prevent misstatements due to
fraud and error. This responsibility is accomplished through *

 Implementing adequate quality control systems

 Having an annual audit of financial statements
 Implementing adequate accounting and internal control systems
 Issuing a representation letter to the auditor

 
11. Which of the following is most likely to be an overall response to fraud risks
identified in an audit? *

 Supervise members of the audit team less closely and rely more upon judgment.
 Use less predictable audit procedures.
 Only use certified public accountants on the engagement.
 Place increased emphasis on the audit of objective transactions rather than subjective
transactions.

12.Which of the following best describes what is meant by generally accepted auditing
standards? *

 Audit objectives generally determined on audit engagements.

 Acts to be performed by the auditor.
  Measures of the quality of the auditor’s performance.
 Procedures to be used to gather evidence to support financial statements.

13. The general standards of the generally accepted auditing standards include a
requirement that *

 The fieldwork to be adequately planned.

 The auditor’s report to state whether the financial statements are presented in conformity
with PFRS.
 Due professional care be exercised by the auditor.
 The auditor to obtain sufficient, competent evidential matter.

14. Which of the following best describes the function of Auditing and Assurance
Standards Council (AASC)? *

 To establish and promulgate generally accepted accounting principles in the Philippines.

 To investigate violations of Accountancy Law.
 To promulgate auditing standards, practices and procedures that shall be generally
accepted by the accounting profession in the Philippines.
 To determine the minimum requirements for admission in the accounting profession.

 15. Based on the structure of AASC pronouncements, related services include? *

 Assurance-Yes; Review-Yes; Agreed-upon procedures-No; Compilation-No

 Assurance-No; Review-No; Agreed-upon procedures-Yes; Compilation-Yes
 Assurance-Yes; Review-Yes; Agreed-upon procedures-Yes; Compilation-No
 Assurance-No; Review-Yes; Agreed-upon procedures-Yes; Compilation-Yes

16. A firm of independent auditors must establish and follow quality control policies
and procedures because these standards *

 Are necessary to meet increasing requirements of auditors’ liability as insurers.

 Are required by the SEC for auditors of all firms.
 Include formal filing of records of such policies and procedures to a regulatory agency.
 Give reasonable assurance that the firm as a whole will comply with professional
standards
 
17. The objective of the quality control policies to be adopted by an audit firm will
ordinarily incorporate all of the following except: *

 Risk assessment  
 Leadership responsibilities
 Engagement performance
 Human resources

 
18. In pursuing the firm’s quality control objectives with respect to assigning personnel
to engagements, the auditors may use policies and procedures such as *

 Designating senior qualified personnel to provide advice on accounting or auditing

questions throughout the engagement.
 Requiring timely identification of the staffing requirements of specific engagements so that
enough qualified personnel can be made available.
 Establishing at entry levels a policy for recruiting that includes minimum standards of
academic preparation and accomplishments.
 Evaluate clients upon occurrence of specified events to determine whether the
relationships ought to be continued.

 
19. The firm should establish policies and procedures designed to promote an internal
culture based on the recognition that quality is essential in performing engagements.
Such policies and procedures should require the firm’s chief executive officer (or
equivalent) or, if appropriate, the firm’s managing board of partners (or equivalent), to
assume ultimate responsibility for the firm’s system of quality control. *

 Ethical requirements
 Monitoring
 Human resources
 Leadership responsibilities for quality within the firm
 
 20. Which of the following best describes what is meant by the term “fraud risk
factor”? *

 Factors whose presence indicates that the risk of fraud is high

 Factors whose presence often have been observed in circumstances where frauds have
occurred
 Factors whose presence requires modification of planned audit procedures
 Material weaknesses identified during an audit