AUD-Specialized Industries (Group1)
PILLADA, Velasco, Francisco, Molina, & Noval
1. Which of the following is a distinguishing characteristic of an attestation engagement?
a. Independence of the practitioner
b. Written assertions from the responsible party
c. Written assertions from the practitioner
d. Positive form of conclusion
2. An operational audit has as one of its objectives to:
a. make recommendations for improving performance.
b. determine whether the financial statements fairly present the entity’s operations.
c. evaluate the feasibility of attaining the entity’s operational objectives.
d. report on the entity’s relative success in attaining profit maximization.
3. Which one of the following is more difficult to evaluate objectively?
a. Presentation of financial statements in accordance with generally accepted accounting
principles.
b. Compliance with government regulations.
c. Efficiency and effectiveness of operations.
d. All three of the above are equally difficult.
4. When is the use of analytical procedures required in an audit?
I. In the planning phase
II. In the evidence-gathering phase
III. In the concluding phase
a. I only
b. I and II only
c. I and III only
d. I, II, and III
5. In determining the type of opinion to express, an auditor assesses the nature of the report
qualifications and the materiality of their effects. Materiality will be the primary factor considered
in the choice between:
a. An "except for" opinion and an adverse opinion.
b. An "except for" opinion and a qualified opinion.
c. An adverse opinion and a disclaimer of opinion.
d. A qualified opinion and a modified opinion.
6. The auditor’s judgment concerning the overall fairness of presentation of financial position, results
of operations, and changes in cash flow is applied within the framework of:
a. quality control.
b. Philippine Standards on Auditing, which include the concept of materiality.
c. the auditor’s evaluation of the audited company’s internal control.
d. generally accepted accounting principles.
7. Pitt Corporation’s stock is listed on a national stock exchange and registered with the Securities
and Exchange Commission. Pitt’s management hires a CPA to perform an independent audit of
Pitt’s financial statements. The primary objective of this audit is to provide assurance to the:
a. investors in Pitt Corporation’s stock.
b. stock exchange.
c. Securities and Exchange Commission.
d. management of Pitt Corporation.
8. The responsibility for the preparation of the financial statements and the accompanying footnotes
belongs to:
a. the auditor.
b. management.
c. both management and the auditor equally.
d. management for the statements and the auditor for the notes.
9. The independent audit is important to readers of financial statements because it:
a. Guarantees the accuracy of the facts and figures contained in the FS.
b. Determines the effectiveness and efficiency of management in managing the resources
of the company.
c. Assures the shareholders that the management of the entity is not committing illegal acts.
d. Involves the objective examination of and reporting on information prepared by
management.
10. Which of the following is least likely an example of an assurance engagement?
a. Providing an assessment of the effectiveness of a client’s accounting information
systems.
b. Examination report on a financial projection.
c. Review and reporting on tax returns filed by a client.
d. Providing expert opinion in an ongoing court case.
11. Which of the following is most likely a reason why intended users need auditor’s report on
financial statements?
a. Users have access to the accounting records that support the financial statements.
b. Users have sufficient understanding of complex transactions and accounting principles.
c. Management can potentially be biased in preparing the financial statements.
d. Regulators provide users the right to have the company’s financial statements audited.
12. Which of the following factors is controllable by the auditor?
a. Risk of material misstatements
b. Inherent Risk
c. Control Risk
d. Detection Risk
13. I. Audit risk refers to the risk that the auditor expresses an inappropriate conclusion when the
financial statements are not materially misstated.
II. One of the ways the auditor can manage detection risk is by examining more items during the
evidence gathering phase.
III. The higher the risk of material misstatements, the higher the amount of tolerable
misstatements that the auditor will establish for an engagement.
a. I and II are correct.
b. II and III are correct.
c. I and III are incorrect.
d. II and III are incorrect.
14. Which of the following is not a reason why intended users find the need for assurance
engagements?
a. Bias of responsible party
b. To increase profitability and cost of capital
c. Complexity of the subject matter
d. Remoteness of users
15. The main difference between audits, attestation services, and assurance services lies between:
a. The level of assurance provided.
b. The scope of the testing.
c. The elements considered.
d. All of the choices are correct.
16. For subject matter to be appropriate, all of the following except which one should be present?
a. Identifiability
b. Can be consistently evaluated or measured
c. Can be subjected to procedures
d. Free from bias
17. Internal auditing, though named as “audit” is generally not an assurance engagement because:
a. It lacks one or more element/s of an assurance engagement.
b. Internal auditors are not CPAs
c. Internal audits provide absolute assurance on the effectiveness of the business
operations.
d. Internal audit is always an assurance engagement.
18. The audit standards and the Code of Ethics for professional accountants (PA) require that the PA
practice professional skepticism. Which of the following instances shows that the PA practices
professional skepticism?
a. The auditor documents the responses made by the management in relation to the
acquisition of a machine without a board resolution.
b. The auditor noted the serial numbers of missing invoices when testing controls for
purchase of inventories.
c. The auditor receives the opened confirmation replies sent to the audit client and
documents the responses made by the customers.
d. The auditor sends out letters of audit inquiry in response to management's representation
on litigations.
19. PSA 210 requires that before the auditor accepts the engagement, certain preconditions must be
met. Please consider the following statements in relation to the requirements of PSA 210:
I. The management should use an acceptable financial reporting framework in the preparation and
presentation of the financial statements.
II. The management should acknowledge and understand their responsibility for the preparation of
the financial statements and the related internal controls and use of accounting estimates.
III. The management should always provide an unrestricted access to all information requested by
the auditor.
a. All of the statements are correct.
b. Only one statement is incorrect.
c. Only one statement is correct.
d. All of the statements are incorrect.
20. Based on PSA 210, which of the following refers to the use by management of an acceptable
financial reporting framework in the preparation of the financial statements and the agreement of
management and, where appropriate, those charged with governance to the premise on which an
audit is conducted?
a. Preconditions for an audit
b. Reportable conditions
c. General financial reporting framework
d. Special purpose framework
21. A CPA performed the following engagements in March 2024. Which is considered an attestation
engagement?
I. Audit of 2023 financial statements
II. Examination of 2025 proposed financial statements
a. I only
b. II only
c. Both I and II
d. Neither I nor II
22. Which of the following meets the definition of an assurance engagement but does NOT need to
be performed in accordance to the Framework for Assurance Engagement?
a. Consulting engagements
b. Preparation of tax returns
c. Agreed-upon procedures and compilations
d. Testifying in legal proceedings
23. A summary of findings rather than assurance is most likely to be included in
a. Audit report
b. Compilation report
c. Examination report
d. Agreed-upon procedures report
24. The following statements relate to assurance engagements. Choose the incorrect statements:
I. Objective is to evaluate subject matter and express a conclusion
II. Enhances credibility of information
III. Involves only two parties
IV. Limited to financial information
V. Intended user is for specific purpose
a. II,III,IV, and V
b. II,IV, and V
c. III and IV
d. I,II,III, and IV
25. Which of the following is correct about forensic audits?
a. Usually performed when fraud is suspected
b. Equivalent to compliance audits
c. Only law firms perform them
d. All audits are forensic
26. An operational audit is designed to
a. Assess efficiency and effectiveness of operations
b. Assess financial statements presentation
c. Determine compliance with laws
d. Evaluate audit committee performance
27. When approached to perform an audit for the first time, the CPA should make inquiries of the
predecessor auditor. This is a necessary procedure because the predecessor may be able to
provide the successor with information that will assist the successor in determining
a. Whether prior work should be used
b. Whether the company follows the policy of rotating its auditors.
c. Whether in the predecessor’s opinion internal control of the company has been
satisfactory.
d. Whether the engagement should be accepted.
28. A CPA should decide NOT to accept a new client if
a. the CPA lacks an understanding of the client’s industry and accounting principles prior to
acceptance.
b. The client’s management has unusually high turnover.
c. Both A and B
d. Neither A nor B
29. Which is NOT correct about understanding with a client?
a. the understanding should list the audit fees and frequency of billing.
b. the understanding should cover the limitations of the engagement.
c. the understanding should cover the limitations of the engagement.
d. the understanding should be in the form of an engagement letter in order to be in
conformity with auditing standards.
30. Which procedure is performed in planning an audit?
I. Selecting a sample of vendors’ invoices for comparison to receiving reports.
II. Coordinating the assistance of entity personnel in data preparation.
III. Reading the current year’s interim financial statements.
a. II only
b. II & III
c. I, II, III
d. III only
31. The ______ sets scope, timing, direction and guides development of the more detailed ______.
a. Overall audit strategy; audit plan
b. Audit plan; overall audit strategy
c. Audit risk plan; substantive tests
d. Audit plan; risk assessment
32. Users of financial statements demand independent audits because ______.
a. Improve internal control
b. Management may not be objective
c. Auditors correct errors
d. Ensure no fraud
33. In a financial statement audit, audit risk represents the probability that
a. Internal control fails and the failure is not detected by the auditor’s procedures.
b. The auditor unknowingly fails to modify an opinion on materially misstated financial
statements.
c. Inherent and control risk cause errors that could be material to the financial statements.
d. The auditor is not retained to conduct a financial statement audit in the succeeding year.
34. The risk that audit will fail to uncover material misstatement is eliminated ______.
a. Good internal control
b. Following standards
c. Compliance with auditing standards
d. Under no circumstances
35. Internal control is the process designed, implemented and maintained by those charged with
governance, management and other personnel to provide reasonable assurance about the
achievement of an entity’s objectives with regard to __________.
a. Financial reporting
b. Operations efficiency
c. Compliance
d. All of the above
36. A document that details what the auditor will do to gather sufficient, appropriate evidence is the
__________.
a. Audit strategy
b. Audit program
c. Audit procedure
d. Audit risk model
37. In the context of an audit of financial statements, substantive tests are audit procedures that
__________.
a. may be eliminated under certain conditions
b. are designed to discover significant subsequent events
c. may be either tests of transactions, direct tests of financial balances, or analytical tests
d. will increase proportionately with the auditor’s assessment of control risk
38. As the acceptable level of detection risk decreases, an auditor may change the
a. timing of substantive tests by performing them at an interim date rather than at year-end.
b. nature of substantive tests from a less effective to a more effective procedure.
c. timing of tests of controls by performing them at several dates rather than at one time.
d. assessed level of inherent risk to a higher amount.
39. After considering internal control, an auditor might decide to ___________.
a. increase the extent of tests of controls and substantive tests in areas where internal
control is strong
b. reduce the extent of tests of controls in areas where internal control is strong
c. reduce the extent of both substantive tests and tests of controls in areas where internal
control is strong
d. increase the extent of substantive tests in areas where internal control is weak
40. The engagement partner should be satisfied that appropriate procedures regarding the
acceptance and continuance of client relationships and specific audit engagements have been
followed, and that conclusions reached in this regard are appropriate and have been
documented. Acceptance and continuance of client relationships and specific audit engagements
include considering:
I. The integrity of the principal owners, key management, and those charged with
governance of the entity.
II. Whether the engagement team is competent to perform the audit engagement and has
the necessary time and resources.
III. Whether the firm and the engagement team can comply with ethical requirements.
a. I
b. I & II
c. II & III
d. I, II, III
41. Prior to beginning the field work on a new audit engagement in which a CPA does not possess
expertise in the industry in which the client operates, the CPA should
a. Reduce audit risk by lowering the preliminary levels of materiality.
b. Design special substantive tests to compensate for the lack of industry expertise.
c. Engage financial experts familiar with the nature of the industry.
d. Obtain a knowledge of matters that relate to the nature of the entity’s business.
42. An auditor is concerned with completing various phases of the audit after the balance sheet date.
This subsequent period extends to the date of the
a. Delivery of the auditor’s report to the client.
b. Auditor’s report.
c. Final review of the audit working papers.
d. Public issuance of the financial statements.
43. After testing a client's internal control activities, an auditor discovers a number of significant
deficiencies in the operation of a client's internal controls. Under these circumstances the
auditor most likely would _____________.
a. issue a disclaimer of opinion about the internal controls as part of the auditor's report.
b. increase the assessment of control risk and increase the extent of substantive tests.
c. issue a qualified opinion of this finding as part of the auditor's report.
d. withdraw from the audit because the internal controls are ineffective.
44. When an auditor believes that an understanding with the client has not been established, he or
she should ordinarily
a. Perform the audit with increased professional skepticism.
b. Decline to accept or perform the audit.
c. Assess control risk at the maximum level and perform a primarily substantive audit.
d. Modify the scope of the audit to reflect an increased risk of material misstatement due to
fraud.
45. Which of the following does not constitute a practice of accountancy?
a. A person holding out himself as one skilled in the knowledge, science and practiceof
accounting and as qualified person to render professional services as a CPA to
more than one client.
b. A person representing his/her employer before government agencies on tax and other
accounting related matters.
c. A person in educational institution teaching accounting, auditing, business law, taxation
or other technically related subjects.
d. A person is appointed as a marketing director of a government-owned and controlled
corporation.
46. Which of the following statements is incorrect?
a. A Professional accountant is an individual who is a member of an IFAC member body
engaged in public practice.
b. An Existing accountant is a professional accountant in public practice currently holding an
audit appointment or carrying out accounting, tax, consulting or similar professional
services for a client.
c. A Predecessor accountant is a professional accountant in public practice who most
recently held an audit appointment or carried out accounting, tax, consulting or similar
professional services for a client, where there is no existing accountant.
d. A Proposed accountant is a professional accountant in public practice who is
considering accepting an audit appointment or an engagement to perform accounting,
tax, consulting or similar professional services for a prospective client (or in
some cases, an existing client).
47. Which of the following is/are true?
Statement 1: Responsible parties and intended users may be from the same entity.
Statement 2: Responsible parties and intended users may be from the different entities.
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
48. Which of the following is/are true?
Statement 1: Audit is an assurance engagement while review is not.
Statement 2: More procedures are performed by a practitioner in a review than in an audit.
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
49. The COA conducts a comprehensive audit that includes
a. Financial and compliance audits.
b. Financial and financial-related audits.
c. Compliance and performance audits.
d. Financial, compliance, and performance audits.
50. One reason that an auditor only obtains reasonable, and not absolute, assurance that financial
statements are free from material misstatement is
a. Comprehensive basis reporting
b. Professional skepticism
c. Material misstatements
d. Employee collusion