TRUE OR FALSE

CHAPTER 1

TRUE

1.​ Assurance services help enhance the reliability of financial information throughout the

capital markets.

2.​ Assurance refers to the practitioner's contentment that the information made by an

entity is reliable.

3.​ The responsible party may not be from the same organization as the intended users but

may be one of the intended users.

4.​ The criteria serve as the yardstick to measure or evaluate the subject matter.

5.​ A professional accountant must be independent to issue a review report.

6.​ The accountant is not required to obtain an understanding of the client's internal control

in a compilation engagement.

7.​ The more the practitioner intends to exhibit the attitude of professional skepticism, the

more engagement procedures will be required.

8.​ A practitioner is not expected to be an expert in the verification of the authenticity of

documentation of audit evidence.

9.​ Only limited procedures are performed by the practitioner on limited assurance

engagements as a basis for a negative form of conclusion.

10.​ Audits and reviews are assurance-based engagements as both the subject matter

information and the practitioner's assurance report are available to the intended users.

11.​ IAASB sets high-quality international standards for assurance engagements and

enhances quality control that promote public confidence in the accountancy profession.

12.​Procedures to be done in performing audits and reviews are exclusively determined by

the auditor.
FALSE

1.​ Assurance services refer to engagements in which a practitioner expresses a

conclusion designed to enhance the degree of confidence of the practitioner about

the outcome of the evaluation of a subject matter. INTENDED USER

2.​ The practitioner must be independent of the responsible party and the public. NOT

INDEPENDENT FROM PUBLIC

3.​ The intended users must have at least one responsible party to constitute an

assurance engagement. AT LEAST THREE RESPONSIBLE PARTY

4.​ Subject matter information relates to the nature of assertion with which the

practitioner gathers sufficient evidence. SUBJECT MATTER ONLY

5.​ A subject matter is considered appropriate if it can be subjected to audit procedures

on a test basis. IF IT IS IDENTIFIABLE

6.​ The criteria used to evaluate a subject matter must be included in any document that

contains the assurance report issued on such subject matter. NOT INCLUDED IN ANY

DOCUMENT

7.​ Review reports are normally dated as of the client's balance sheet date. REVIEW

ENGAGEMENT COMPLETION

8.​ A review is an engagement in which the accountant undertakes to present, in the form

of financial statements, information that is the representation of management.

COMPILATION ENGAGEMENT DEFINITION

9.​ A professional accountant must be independent to issue a compilation report.

ACCOUNTANT DOES NOT REQUIRED TO BE INDEPENDENT

10.​Sufficiency and appropriateness of evidence are interrelated factors and, as such, are

considered complements. COMPLEMENTARY

11.​The determination of materiality is a mathematical exercise that is a vital process in

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

PROFESSIONAL JUDGEMENT

12.​Inherent risk refers to the susceptibility of the subject matter information to

misstatements before consideration of controls. MATERIAL MISTATEMENT

BEFORE CONSIDERATION OF RELATED CONTROLS

13.​A practitioner may consider a procedure not applicable if it would entail a high level of

costs to the assurance service. PROCEDURE APPLICABLE

14.​Generally, evidence that is generated internally is more reliable than those from

independent sources when the related controls are effective. GENERATED EXTERNAL

15.​The three-party relationship still exists in non-assurance engagements which include

the practitioner, the responsible party, and the public. TWO-PARTY RELATIONSHIP

16.​Engagement standards are issued to provide interpretative guidance and practical

assistance to professional accountants that promote good practice in performing

assurance engagements. PRACTICAL STATEMENT

17.​The report issued on non-assurance engagements must be expressed in a negative

form. NOT REQUIRED IN NEGATIVE FORM

18.​Only a moderate level of assurance is provided in management advisory services.

NO ASSURANCE PROVIDED/NO MAS

 CHAPTER 2

TRUE

1.​ Auditors serve numerous parties, but most importantly is the public, as exemplified by

investors, creditors, and other stakeholders.

2.​ Assertions are representations made by an audit client, explicit or otherwise, about

economic actions and events.

3.​ External audit benefits the public by lending credibility to the items presented in the

financial statements.

4.​ The auditor's opinion does not assure the future viability of the audit client nor the

efficiency and effectiveness of its operations.

5.​ The financial statements must be adequately supported by records and documents to

be considered an appropriate subject matter.

6.​ The applicable financial reporting framework used as criteria in performing the audit is

driven by the information needs of its users.

7.​ The opinion to be expressed by the auditor depends on the materiality of

non-compliance from the framework and the pervasiveness of the related effects of

such non-compliance.

8.​ External audits provide value to organizations through reduction of information risk that

may lead to lower cost of capital.

9.​ One of the ways to reduce information risk is to share such risk with the preparer of the

information.

10.​The auditor is not, and cannot, be held responsible for fraud and error.

11.​An audit, when carried out, may act as a deterrent for fraud and error.

FALSE
1.​ External auditors enhance the credibility of information by helping the management in

preparing the financial statements and designing and implementing internal controls.

Management’s Responsibility

2.​ Providers of external audits and internal audits are both independent of the

management which allows them to perform financial statements audits. Internal auditors

are part of the organization

3.​ The overall objective of the auditor in a financial statements audit is to have an opinion

on whether the financial statements are prepared, in all material respects, in

accordance with the criteria. In accordance with the applicable financial reporting

framework

4.​ The opinion to be expressed by the auditor must pertain individually and separately

to each financial statement presented by management. The opinion covers the FS as

a whole, not each individually

5.​ Comparability means that different knowledgeable and independent observers could

reach a consensus. Verifiability

6.​ Financial statements should not favor one user over another, as such, the interest of

the users must have no conflicts. User interests can differ. Neutrality means information

should not favor particular users.

7.​ Financial information is more reliable when the internal controls of the entity are

effective, as such, external auditors also express an opinion over the effectiveness

of these controls. Auditors do not express an opinion on controls

8.​ The preparation of the financial statements requires the auditor to exercise judgment

in making accounting estimates that are reasonable in the circumstances. Auditors do

not express an opinion on controls

9.​ The opinion expressed by the auditor is on whether the financial statements are

prepared, in all material respects, in accordance with the generally accepted auditing

standards. Financial reporting framework, not auditing standards.

10.​All financial data are verifiable through the existence of supporting documents and

records. Not all data is directly verifiable

11.​There should be no conflict, whether short-term or long-term, should exist between the

auditor and the client's management. Conflicts may arise, but auditors must remain

objective and independent

12.​The auditor is expected to detect both fraud and error during the course of performing

external audits. Not all fraud/error may be detected

13.​Depending on the magnitude of audit procedures, the level of assurance provided by

auditors ranges from high to absolute levels. Never absolute assurance

14.​The accumulation of persuasive evidence leads to the establishment of conclusive

evidence in detecting material misstatements. Audit evidence is persuasive, not

conclusive

15.​Inherent limitations of an audit arise due to the auditor's exposure to inherent risks,

control risks, and detection risks. Inherent limitations arise from use of judgment,

sampling, and nature of audit evidence — not just audit risk components

16.​The high demand for audits is present because it is required by law. Reliable FS for

intended users

17.​The audit of financial statements relieves the management and/or those charged

with governance of their responsibilities with the financial statements. Management

always remains responsible for FS

18.​When the auditor is unable to gather sufficient appropriate evidence, he or she

ordinarily selects between qualified and adverse opinion. Insufficient evidence →

auditor issues qualified or disclaimer of opinion

19.​An auditor may provide an absolute level of assurance in extremely rare

circumstances. Audits never provide absolute assurance; only reasonable assurance is

possible
 CHAPTER 3

TRUE

1.​ The accountancy act governs the accountancy education, examination, registration and

practice of accountancy in the Philippines.

2.​ The chief financial officer (CFO) of a private sector company with retained earnings of

five million pesos and an annual revenue of fifteen million pesos is required to be a duly

registered CPA.

3.​ Tampering of CPALE grades is a ground for suspension or removal of any member of

the board.

4.​ It shall be the primary duty of the Commission and the Board to effectively enforce the

provisions of RA 9298 and its Implementing Rules and Regulations.

5.​ Any person may bring before the Commission, Board, or the aforementioned officers of

the law, cases of illegal practice or violations of RA 9298 and its Implementing Rules

and Regulations.

6.​ It shall be the primary duty of the Commission and the Board to effectively enforce the

provisions of R.A. 9298.

7.​ The Secretary of Justice or his duly designated representative shall act as legal adviser

to the Commission and the Board and shall render legal assistance as may be

necessary in carrying out the provisions of R.A. 9298.

8.​ Violation of the CPA's code of ethics is a ground for suspension and revocation of a

practitioner's certificate of registration and professional identification card.

9.​ Competence refers to an ability that extends beyond the possession of knowledge and

skills, which include cognitive, functional, personal and ethical competence.

 10.​Non-formal learning refers to learning that has been acquired in addition to formal

learning, which may be structured and made more flexible according to educational and

training arrangements.

11.​The Quality Review Committee and Education Technical Council shall be both

composed of seven members.

12.​The body tasked to monitor the implementation of the CPD program is the called CPD

Council.

13.​ SEC can issue cease and desist orders to prevent fraud or injury to the investing

public.

14.​BIR also prescribes additional requirements for audited financial statement that

accompany tax returns of entities.

15.​The insurance commission has the function of verifying the financial condition and

methods of doing business of entities engaged in insurance business, pre-need, mutual

benefit associations, trusts for charitable uses, and HMO companies.

FALSE

1.​ It is the primary duty of PRC, with the support of BOA, to effectively enforce or

implement the provisions of the accountancy act. BOA implements RA 9298 with PRC

supervision

2.​ An employee in an accounting or auditing firm is considered to be in the practice of

public accountancy. Only CPAs in public practice are considered engaged in public

accountancy

3.​ The dean of a college that offers business and management programs, including the

BSA program, must be a registered CPA. Only deans or heads of schools/colleges of

accountancy are required to be CPAs, not business/management colleges in general

4.​ The chairman and members of BOA are all appointed by the President of PICPA.

Appointed by the President of the Philippines, not PICPA

5.​ If a person has served the board of accountancy for more than 12 years, he shall be

eligible for reappointment until the lapse of 1 year. Maximum service is 12 years; no

reappointment after

6.​ A CPA candidate must be a natural-born citizen and resident of the Philippines. CPA

candidate must be a Filipino citizen, not necessarily natural-born

7.​ The certificate of registration of CPAs is renewable every three years on the month

and day of his birthday. Professional Identification Card (PIC) is renewable

8.​ Any person who shall violate any of the provisions of R.A. 9298 or any of its

implementing rules and regulations as promulgated by the Board subject to the approval

of the Commission, shall, upon conviction, be punished by a fine of not less than fifty

thousand pesos or by imprisonment for a period exceeding two years or both. Can

be less than 2 years

9.​ Three years of work in public practice are considered meaningful experience as

prescribed by RA 9298. Meaningful experience = at least 3 years in any practice area

10.​ Working papers are confidential, privileged and property of the audit client. Property

of auditor

11.​The Financial Reporting Standards Council must be composed of 14 members. FRSC

= 15 members

12.​The chairman of the Auditing and Assurance Standards Council must have been or at

present a senior practitioner in any of the scope of accounting practice. Chairman of

AASC = senior practitioner in public practice

13.​ The Education Technical Council was established to assist the Board of Accountancy in

continuously upgrading the accountancy education in the Philippines to make Filipino

CPAs locally competitive. CPAs globally competitive

14.​PICPA shall have a full-time or part-time career Executive Director who shall implement

the policies promulgated by the PICPA Board of Directors to maintain its recognition

as APO. PICPA National Board of Directors

15.​COA has the power, authority and the duty to examine, audit, and settle all accounts

pertaining to the management of funds of the government excluding

government-owned and controlled corporations. Including GOCCs

 CHAPTER 4

TRUE

1.​ The audit process is a structured series of steps taken by the auditor to achieve his

audit objectives.

2.​ Assertions relating to classes of transactions generally relate to line items presented in

the statement of financial performance while assertions relating to account balances

generally relate to line items presented in the statement of financial position.

3.​ Audit evidence serve as the basis for expressing the opinion required by the audit of

financial statements.

4.​ Observation consists of looking at a process or procedure being performed by others.

5.​ The audit process is comprised of two sub-phases namely, the investigative phase and

reporting phase.

6.​ The successor auditor should obtain permission from the prospective client to contact

the predecessor auditor.

7.​ The auditor will not ordinarily initiate discussion with the audit committee concerning the

details of the procedures the auditor intends to apply.

8.​ Auditing standards require that the audit report must be titled and that the title must

include the word "independent."

9.​ When there is a substantial risk of intentional misapplication of accounting principles, it

is an indicator that the entity's management lacks integrity.

10.​The auditor and the client should agree on the terms of the engagement. Such an

agreement may be in the form of the audit engagement letter or other suitable forms of

contract.

11.​Even in those countries where the scope of the audit is established by law, an

engagement letter may be informative for the client.

 12.​ Matters to be discussed with the previous auditor include the reason for change and

disagreements with management.

13.​The agreement of the audit terms before the commencement of the audit help avoid

misunderstandings between the entity and the auditor.

14.​The auditor must determine if there is a reasonable justification for a change in the audit

engagement prior to its completion.

FALSE

1.​ Management has the responsibility for the preparation and presentation of the face of

financial statements which allows the auditor to prepare the related disclosures.

Management prepares FS and disclosures

2.​ Management has the responsibility to provide the auditor with unrestricted access to

any information maintained by them. Management must provide all information

3.​ Risk assessment procedures are performed to obtain an understanding of the entity

that leads to the identification of the risk of material misstatements at the assertion level.

Risk assessment identifies risks

4.​ Substantive procedures are designed to detect material misstatements at the

financial statement level. Target misstatements at the assertion level, not overall FS

level

5.​ Confirmation is a specific type of inquiry to obtain a representation of information or of

an existing condition from management. Obtains evidence directly from a third

party, not from management

6.​ The successor auditor has no responsibility to contact the predecessor auditor.

Successor must attempt to contact predecessor, with client’s permission

7.​ Recalculation pertains to the auditor's independent execution of procedures or

controls that were originally performed as part of the entity's internal control. That is

reperformance, not recalculation

8.​ Preliminary engagement activities help eliminate the likelihood of being associated with

a client whose management lacks integrity. They reduce but do not eliminate the risk

9.​ If the results of the study and evaluation of internal control support its operating

effectiveness, the auditor proceeds with the completion of the audit and expression of

opinion. Strong controls reduce substantive testing but audit still proceeds to

completion

10.​ An auditor may accept an engagement that is beyond his capacity and capability

provided that relevant training and expertise will be obtained during the performance

of the audit. Auditor must have competence/resources before accepting engagement

11.​The corporate treasurer normally signs the engagement letter for an audit of a private

company. Engagement letter is signed by those charged with governance, typically the

CEO, president, or authorized officer, not treasurer

12.​ In an audit engagement, the audit engagement team must be independent of the client

which excludes the auditor's expert. Including auditor’s expert

13.​ Engagement letter that documents and confirms the auditor's acceptance of the

engagement would normally be sent to the client after the audit report is issued.

Engagement letter is sent and agreed before audit starts

14.​The auditor must obtain the acknowledgment by management of its responsibility to

design, implement and monitor internal controls during the investigative phase of the

audit. Acknowledged at the engagement acceptance stage, not during audit

15.​The form and content of engagement letters are prescribed by the engagement

standards. Form/content not prescribed but guided by standards

16.​To comply with ethical requirements, the audit fee and its basis of computation must be

excluded from the engagement letter. Fees and basis are normally included in the

engagement letter
 CHAPTER 5

TRUE

1.​ Audit planning helps the auditor properly organize and manage the audit engagement.

2.​ For recurring audits, members of the previous year's engagement team are advised to

participate in the planning of the current year's audit.

3.​ Risk assessment procedures enable the auditor to understand the entity and its

environment and identify and assess risks of material misstatement.

4.​ Risk assessment procedures help in specifically identifying the applicable further audit

procedures to respond to identified risks.

5.​ Physical verification of the entity's premises and plant facilities is considered an

inspection procedure.

6.​ Risks of material misstatement are assessed at the assertion level in order to determine

the nature, timing, and extent of further audit procedures necessary to obtain sufficient

appropriate audit evidence.

7.​ Inherent risk and control risk should be assessed separately.

8.​ Analytical procedures enable the auditor to conclude if the fluctuations and relationships

in the entity's financial information make sense.

9.​ Industry benchmarks or averages may be used to develop expectations regarding

financial statements.

10.​Only planning and concluding analytical review are required to be performed in an audit.

11.​The auditor should revise the overall materiality should he become aware of information

during the audit that would lead to a different amount.

12.​The identification and assessment of risks of material misstatements are both done at

the financial statement and assertion levels.

 13.​ Detection risk is determined and controlled by the auditor.

14.​The results of preliminary engagement activities are also considered when establishing

the overall audit strategy.

15.​ To comply with ethical requirements, the current year auditor shall communicate with

the previous auditor for initial engagements.

FALSE

1.​ Audit effectiveness is the primary objective of the auditor in engagement planning

which results in the utilization of the least amount of resources. AUDIT EFFICIENCY

2.​ Audit planning helps in achieving effective and efficient audits which must be

completed before the performance of further audit procedures. NOT REQ. TO BE

COMPLETED

3.​ The audit plan sets the scope, timing, and direction of the audit which leads to the

establishment of the overall audit strategy. OVERALL AUDIT STRATEGY FIRST

4.​ Inquiry consists of seeking both financial and non-financial information from

knowledgeable persons within the entity. WITHIN AND OUTSIDE THE ENTITY

5.​ Observation consists of looking at a process or audit procedure. PERFORMED BY

OTHERS

6.​ Analytical procedures are seldom used for planning an audit engagement because

they are substantive procedures. COMMONLY USED

7.​ Preliminary arrangements with clients should be set forth in the management letter.

ENGAGEMENT LETTER

8.​ An audit plan includes a detailed listing of the audit procedures to be performed in the

verification of items in the financial statements. NOT ALWAYS DETAILED

9.​ Preliminary analytical review is only required for new or unusual business

transactions entered by the entity during the period under audit. REQ. FOR ENTIRE

FINANCIAL INFORMATION

10.​Test of details obtains corroborative evidence for a particular assertion as compared to

substantive analytical procedures which doesn't. SUBSTANTIVE ALSO DOES

11.​Materiality is an absolute concept as prescribed by the engagement standards.

RELATIVE CONCEPT

12.​Misstatements, including omissions, are considered to be material if individually they

could reasonably be expected to influence the economic decisions of users.

INDIVIDUALLY / AGGREGATE

13.​The determination of materiality is a mathematical exercise with a prescribed formula

that differs depending on the industry of the entity. NOT PURELY MATHEMATICAL

14.​When the work of an expert is involved in the audit, the auditor's responsibility for the

audit opinion is shared with the expert. AUDITOR HAVE FULL RESPONSIBILITY

15.​Establishing an overall audit strategy and plan for audits of small entities need to be

complex but not time-consuming. SIMPLE NOT COMPLEX

 CHAPTER 6

TRUE

1.​ Internal control is implemented by those charged with governance, management, and

other personnel.

2.​ Most controls are directed at routine or standard transactions which impose a limitation

affecting their effectiveness.

3.​ A common control is uniformly designed and is implemented consistently across a

single entity or location or at different entities or locations.

4.​ Control environment is the basis on which an effective system of internal control is built

and operated in an organization.

5.​ The organizational structure also establishes the flow of information between levels in

an entity.

6.​ Communication and information are vital in making all relevant parties understand

internal control responsibilities and the importance of internal control in achieving

objectives.

7.​ Internal control is concerned with the reliability of financial information.

8.​ Incompatible duties exist when an employee is in a position to perpetuate and conceal

errors or fraud.

9.​ Business process narratives, process maps, and risk and control matrices are some of

the commonly used forms of control documentation.

10.​ A gap in internal control may be identified through an effective internal control

questionnaire that highlights strengths and weaknesses of the system through a

structured series of questions.

11.​Test of controls are designed to obtain sufficient and appropriate evidence as to the

operating effectiveness of relevant controls.

 12.​If a significant deficiency in internal control has been identified, the auditor shall

communicate those in writing to management or to those charged with governance.

FALSE

1.​ Accounting controls promote operational efficiency and adherence to managerial

policies. RELIABILITY OF FINANCIAL REPORT

2.​ All controls adopted by management of an entity to assist in achieving management's

objectives must be considered in the audit. NOT ALL CONTROLS

3.​ The tone at the top regarding the relevance of internal control, including ethical

requirements, is established by management. NOT JUST BY MANAGEMENT

4.​ The auditor shall identify the business risks relevant to the financial reporting

objectives of the entity and decide on how to manage those risks. BUSINESS RISK IS

BY MANAGEMENT

5.​ Internal auditors should preferably report to the chief accounting officer of the

company. AUDIT COMMITTEE/BOD

6.​ The auditors' communication of internal control significant deficiencies should be

addressed only to senior management of the company. CHARGED W/

GOVERNANCE

7.​ If the auditors' assessment of the design of internal control reveals that it cannot be

relied upon, the auditors are not required to prepare any documentation of internal

control for their working papers. REQUIRED TO DOCUMENT

8.​ Control activities are designed to detect risks at different levels of the organization to

ensure the achievement of its objectives. TO PREVENT AND DETECT RISK

9.​ At least majority of the five components of internal control must be implemented and

be operated effectively to ensure attainment of objectives. ALL FIVE COMPONENTS

10.​Segregation of duties over cash receipts and recording is an example of an entity-wide

control. TRANSACTION LEVEL CONTROL

11.​After assessing the inherent risk, the auditor may judge to proceed directly in performing

substantive procedures without consideration of internal control. WITH

CONSIDERATION

12.​In order to test the controls, their design and implementation are being evaluated.

OPERATING EFFECTIVENESS

13.​If the results of inquiry of entity personnel show no changes in the entity's processes,

the prior year's documentation of controls may be carried forward. INQUIRY IS NOT

ENOUGH

14.​If an understanding of the design and implementation of control is obtained, its

operating effectiveness must likewise be evaluated. OPERATING EFFECTIVENESS

IS NOT ALWAYS REQUIRED

15.​Inquiry alone is not enough to test the operating effectiveness of controls.

SOMETIMES ENOUGH

16.​If the control risk assessment is set at the maximum level, the auditor is required to

document the basis for such judgment. NO DETAILED DOCUMENT IS REQUIRED

17.​A material weakness in internal controls is present when a deficiency or combination of

deficiencies in internal control is of sufficient importance to merit the attention of those

charged with governance. CASE NOT PREVENTED / DETECTED

18.​Obtaining an understanding as to the design and implementation of controls would lead

to a conclusion as to their operating effectiveness. DOES NOT PROVE OPERATING

EFFECTIVENESS
MULTIPLE CHOICE

CHAPTER 1

1-3 MULTIPLE CHOICE QUIZZERS

1. The Philippine Framework for Assurance Engagements

B. Defines and describes the elements and objectives of an assurance

engagement, and identifies engagements to which PSAs, PSRES, and
PSAEs apply.

2. The Philippine Standards on Assurance Engagements (PSAEs) are to be

applied in

A. Assurance engagements dealing with subject matters other than

historical financial information.

3. Practitioners who perform assurance engagements are governed by the

following, except

D. Philippine Financial Reporting Standards

4. Assurance services can be best described as

C. Independent professional services intended to enhance the credibility of

information to meet the needs of an intended user

5. The independent auditor lends credibility to client financial statements by

C. Attaching an auditor's opinion to the client's FSS

6. Which of the following statements best describes assurance services?

A. Independent professional services that are intended to enhance the

credibility of information to meet the needs of an intended user

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

C. Information risk

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

I. Assurance engagement means an engagement in which a practitioner

expresses a conclusion designed to enhance the degree of confidence of the
intended users other than the responsible party about the outcome of the
evaluation or measurement of a subject matter against criteria.

II. Assurance refers to the practitioner's satisfaction with the reliability of an

assertion being made by one party for use by another party.

C. Both I and II

9. Financial statements need to be prepared in accordance with one, or a

combination of:

B. No Yes Yes Yes

10. Assurance engagements include the following, except

D. An engagement to perform agreed-upon procedures.

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

C. Scope of services
12. Which of the following criteria is unique to the independent auditor's attest
function?

D. Independence

13. The primary goal of the CPA in performing the attest function is to

C. Determine whether the client's assertions are fairly stated

14. The three types of attestation services are:

C. Audits, reviews, and other attestation services

15. Not all engagements performed by professional accountants are assurance

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

D. Examination of prospective financial information

1-4 MULTIPLE CHOICE QUIZZERS

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

D. Preparation of tax returns that use estimates

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

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

3. A practitioner should accept an assurance engagement only if

C. The practitioner's conclusion is to be contained in a written report.

4. Independence is required for which of the following types of engagements?
I. Compilation
II. Review

B. II only

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

C. The practitioner must be independent to the responsible party but not

necessarily to the intended users.

6. Indicate the level of assurance provided by audit and related services.

A.
High
Moderate
None
None

7. There is a broad range of engagements to provide a high or moderate level of

assurance. Such engagements may include
I. Engagements to report on a broad range of subject matters covering financial
and non-financial information
II. Attest and direct reporting engagements
III. Engagements to report internally and externally
IV. Engagements in the private and public sector

D. I, II, III and IV

8. Unlike consulting services, assurance services:

B. Report on quality information

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

D. Preparation of tax returns where a conclusion conveying assurance is

expressed.
10. Which of the following is true about assurance services?

B. An assurance engagement must have five fundamental elements

11. Which of the following does not appropriately pertains to the elements of
assurance engagement?

A. A three-party relationship involving an auditor, the management, and

intended users

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

D. Appropriate professional fees.

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

C. Intended users may include either the practitioner or the responsible

party.

14. Evaluate the following statements.

I. The term auditor is broader than the term practitioner.
II. The responsible party may or may not be from the same organization with the
intended users.
III. The intended users may be identified by agreement between the practitioner
and the responsible party or engaging party, or by law.

B. Only two statements are correct

15. The subject matter of an assurance engagement may include

D. All of these

1-5 MULTIPLE CHOICE QUIZZERS

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

B. Suitable and available to intended users

2. Which of the following is not suitable criteria in the context of audit?

C. PSA

3. Suitable criteria are required for reasonably consistent evaluation or

measurement of the subject matter of an assurance engagement. Which of the
following statements concerning the characteristics of suitable criteria is correct?

C. Neutral criteria contribute to conclusions that are free from bias.

4. The following cannot be a suitable criterion for an assurance engagement,

except?

D. Agreement between the responsible party and the intended users

5. Characteristics of suitable criteria do not include

C. Comparability

6. For the criteria to be suitable, it shall possess several characteristics. Which of

the following is incorrect?

A. Relevant criteria allow reasonably consistent evaluation or measurement

of the subject matter including, where relevant, presentation and
disclosure, when used in similar circumstances by similarly qualified
practitioners.

7. The sufficiency and appropriateness of evidence shall be determined by the

I. Practitioner
II. Responsible party
III. Intended users

A. I only

8. Which of the following statements is true concerning evidence in an assurance

engagement?

A. Sufficiency is the measure of the quantity of evidence.

9. Which is incorrect concerning evidence?

C. The volume of evidence can compensate for its poor quality.

10. Which is incorrect?

B. It is generally more difficult to obtain assurance about subject matter

information at a point in time than about subject matter information
covering a period of time.

11. Which is correct concerning the concept of professional skepticism

B. A critical assessment, with a questioning mind on the validity of

evidence obtained

12. Professional skepticism means that

I. The practitioner makes a critical assessment, with a questioning mind, of the
validity of evidence obtained and is alert to evidence that contradicts or brings
into question the reliability of documents or representations by the responsible
party.
II. the benefits that will be derived from obtaining the evidence should exceed the
cost of obtaining it.
III. The practitioner plans and performs an assurance engagement recognizing
that circumstances may exist that cause the subject matter information to be
materially misstated.

C. I and III

13. Below statements relate to generalizations about reliability of evidence may

be useful. Which is incorrect?

A. Evidence is more reliable when it is obtained from sources inside the

entity.

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

C. Evidence obtained directly by the practitioner is more reliable than when

obtained indirectly, even if the source is not competent.
15. Which of the following statements exemplifies positive assurance?

A. "In our opinion internal control is effective, in all material aspects, based
on XYZ criteria."

1-6 MULTIPLE CHOICE QUIZZERS

1. Which of the following statements correctly defines the term reasonable

assurance?

D. A high, but not absolute, level of assurance to allow an auditor to detect

a material misstatement.

2. Under this engagement, the objective is a reduction in assurance engagement

risk to an acceptably low level in the circumstances of the engagement as the
basis for a positive form of expression of the practitioner's conclusion.

C. Reasonable assurance engagement

3. These are assurance engagements that the practitioner either directly

performs the evaluation or measurement of the subject matter, or obtains a
representation from the responsible party that has performed the evaluation or
measurement that is not available to the intended users in the assurance reports.

C. Direct reporting engagements

4. Which set of standards apply to assurance engagements dealing with subject

matter other than historical financial information?

C. Philippine Standards on Assurance Engagements (PSAES)

5. This document defines the elements and objectives of an assurance

engagement, but does not, by itself, establish standards or provide procedural
requirements for the performance of assurance engagements.

D. Philippine Framework for Assurance Engagements (PFAE)

6. Which is correct concerning the framework for assurance engagements?

C. It provides a frame of reference for accountants in public practice when

performing assurance engagements

7. An engagement conducted to provide: (a) a high level of assurance that the

subject matter conforms in all material respects with identified suitable criteria; or
(b) a moderate level of assurance that the subject matter is plausible in the
circumstances.

D. Assurance engagement

8. The auditor's satisfaction as to the reliability of an assertion being made by

one party for use by another is called:

C. Assurance

9. Which of the following statements is incorrect?

D. Non-assurance engagements include agreed upon procedures,

compilation of financial or other information, preparation of tax returns
where no conclusion is expressed, tax consulting and review
engagements.

10. Assurance services differ from consulting services that they

I. Focus on providing advice
II. Involve monitoring of one party by another

B. Both I and II

11. What is the type of assurance engagement that has as its subject matter
non-historical financial information?

D. Prospective financial information

12. A public accounting firm's primary role in performing non-attest services is to:

C. Provide advice valuable to a client's effectiveness

13. Which of the following is not one of major categories of practitioner's
assurance services?

D. Compilation engagement

14. When performing a compilation engagement, the accountant is required to

C. Obtain a general knowledge of the business and operations of the entity.

15. Which of the following services, if any, may a practitioner who is not
independent provide?

A. Compilations but not reviews

1-7 MULTIPLE CHOICE QUIZZERS

1. Professional accountants not in public practice such as internal auditor who

applies the Framework and refer the Framework, PSAS, PSRES or PSAES in
their report but are not independent of the entity in respect of which the
engagement is performed are required to do the following, except

B. Not to restrict the purpose and users of the report

2. The objective of a review of financial statements

B. Is to enable an auditor to state whether, on the basis of procedures

which do not provide all the evidence that would be required in an audit,
anything has come to the auditor's attention that causes the auditor to
believe that the financial statements are not prepared, in all material
respects, in accordance with an identified financial reporting framework.

3. How does the related services framework differ from the assurance
framework?

A. Related services engagements do not result in an opinion.

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

B. A multi-party relationship involving a practitioner, a responsible party,

those in charge with governance, and the intended users

5. An engagement to perform agreed-upon procedures may involve the auditor in

performing certain procedures concerning
I. Individual items of financial data.
II. A single financial statement.
III. A complete set of financial statements.

D. I, II and III

6. A practitioner should accept an assurance engagement only if

C. The practitioner's conclusion is to be contained in a written report.

7. According to the IAASB Glossary of terms, this refers to a professional

accountant in public practice

C. Practitioner

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

procedures?

A. Practitioner

9. The person or person who in a direct reporting engagement, is responsible for

the subject matter; or in an assertion-based engagement, is responsible for the
subject matter information (the assertion), and may be responsible for the subject
matter.

C. Responsible party

10. A responsible party does each of the following except:

D. Selects the audit procedures

11. Which is not true of the intended user?

B. The intended user(s) is (are) always limited to the addressee of the

professional accountant's report

12. Subject matter and subject matter information of an assurance engagement

can take all the following forms except:

A. Litigation planning

13. "Subject matter information" as used in the Framework to Assurance

Engagement shall mean

B. Outcome of the evaluation or measurement of a subject matter

14. Which of the following is not true about the subject matter of an assurance
engagement?

C. It could be International Financial Reporting Standards.

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

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

A. I only
 CHAPTER 2

2-3 MULTIPLE CHOICE QUIZZERS

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

D. A systematic process of objectively obtaining and evaluating evidence

regarding assertions about economic actions and events to ascertain the
degree of correspondence between these assertions and established
criteria and communicating the results thereof.

2. Which of the following is not among the characteristics of auditing?

D. It includes communication of the results to the management

3. The predominant type of attestation service performed by CPAs Is

A. Audit

4. Which of the following types of auditing is performed most commonly by CPAs

on a contractual basis?

D. External auditing

5. These audits are similar in most respects.

C. Financial and compliance

6. Which is incorrect regarding internal auditing?

D. It can be performed only by internal auditors.

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

A. The line functions of the organizations

8. To provide for the greatest degree of independence in performing internal

auditing functions, an internal auditor most likely should report to
 A. Board of Directors.

9. The scope and objectives of internal auditing vary widely and depend on the
size and structure of the entity and the requirements of its management.
Ordinarily, internal auditing activities include one or more of the following:

A.
Yes
Yes
Yes
Yes

10. Which statement is correct regarding the relationship between internal

auditing and the external auditor?

C. Certain aspects of internal auditing may be useful in determining the

nature, timing and extent of external audit procedures.

11. This type of audit Involves a review of an organization's procedures and

methods for the purpose of evaluating efficiency and effectiveness of operations,
identifying areas for improvement, and making recommendations to improve
performance.

B. Operational audit

12. Operational auditing is primarily oriented toward

A. Future improvements to accomplish the goals of management.

13. An objective of operational audit is to assess whether

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

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

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

C. Compliance audit

2-4 MULTIPLE CHOICE QUIZZERS

1. Which of the following types of audits uses as its criteria laws and regulations?

C. Compliance audit

2. An operational audit has as one of its objectives to:

C. make recommendations for improving performance.

3. Which of the following best describes the operational audit?

D. It concentrates on seeking out aspects of operations in which waste

would be reduced by the introduction of controls.

4. What is the proper organizational role of internal auditing?

A. To serve as an independent, objective assurance and consulting activity

that adds value to operations.

5. Internal auditing often extends beyond examinations leading to the expression

of an opinion on the fairness of financial presentation and includes audits of
efficiency, effectiveness, and

D. Compliance.

6. The best description of the scope of internal auditing is that it encompasses

C. Both financial and operational auditing.

7. To maximize independence, the director of internal auditing should report to

the

A. Audit committee.
8. Governmental auditing beyond examinations leads to the expression of
opinion on the fairness of financial presentation and includes audits of efficiency,
economy, effectiveness, and also

C. Compliance

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

C. Efficiency and effectiveness of operations.

10. Which of the following audits can be regarded as generally being a

compliance audit?

A. BIR examiners' examinations of taxpayer return.

11. The overall objectives of the auditor in conducting an audit of financial

statements are
I. To obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether caused by fraud or error.
II. To report on the financial statements.
III. To obtain conclusive rather than persuasive evidence.
IV. To detect all misstatements, whether due to fraud or error.

A.I and II only

12. The objective of the ordinary audit of financial statements is the expression of
an opinion on:

A. the fairness of the financial statements.

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

D. To express an opinion whether the financial statements are prepared, in

all material respect, in accordance with an identified financial reporting
framework.
14. In "auditing" accounting data, the concern is with

A. Determining whether recorded information properly reflects the

economic events that occurred during the accounting period.

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

B. To provide a biased evaluation of the FSs

2-5 MULTIPLE CHOICE QUIZZERS

1. If the auditor believes that the financial statements are not fairly stated or is
unable to reach a conclusion because of insufficient evidence, the auditor:

C. has the responsibility of notifying financial statement users through the

auditor's report.

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

C. Governance

3. Management of a company is responsible for

C. Preparing the financial statements

4. The auditor's best defense when material misstatements are not uncovered is
to have conducted the audit:

A. in accordance with auditing standards.

5. The concept of reasonable assurance indicates that the auditor is:

A. not an insurer of the correctness of the financial statements.

6. Absolute assurance cannot be provided in an audit because of: (Choose the
exception)

B. The need to obtain conclusive evidence

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

D. Complexity of decision-making

8. Which of the following is incorrect regarding the general principles of an audit?

D. The auditor would ordinarily expect to find evidence to support

management representations and assume they are necessarily correct.

9. Which of the following statements does not describe a condition that creates a
demand for auditing?

D. Users can directly assess the quality of information.

10. Which is not a theoretical postulate framing an audit?

B. Long-term conflict between the auditor and client may exist.

11. Auditing assumes that the financial data are verifiable. Data are verifiable
when two or more qualified individuals,

B. Working independently, each reach essentially similar conclusions.

12. An audit of historical financial statements most commonly includes the:

D. Statement of Financial Position, the Statement of Comprehensive

Income, the Statement of Cash Flows, and the Statement of Changes in
Equity.
13. The auditor is required to comply with all PSAs relevant to the audit of an
entity's financial statements. A PSA is relevant to the audit when
I. The PSA is in effect.
II. The circumstances addressed by the PSA exist

D. Both I and II

14. An audit of historical financial statements is most often performed to

determine whether the:

D. none of the other choices.

15. Which of the following is/are correct?

Statement 1: The financial statements most commonly audited by external
auditors are the Statement of Financial Position, the Statement of
Comprehensive Income, and the Statement of Changes in Retained Earnings.
Statement 2: Only companies that file annual statements with the Securities and
Exchange Commission are required to have an annual external audit.

D. Both statements are incorrect

2-6 MULTIPLE CHOICE QUIZZERS

1. It refers to the audit procedures deemed necessary in the circumstances to

achieve the objective of the audit.

D. Scope of an audit

2. The auditor's opinion

A. Enhances the credibility of the financial statements.

3. When the auditor issues an erroneous opinion as the result of an underlying

failure to comply with the requirements of generally accepted auditing standards,
it results in
I. Audit failure
II. Audit risk
III. Business failure
 A. I only

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

D. Client's management

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

C. Audit report

6. Which of the following statements does not properly describe a limitation of an

audit?

A. Many financial statement assertions cannot be audited.

7. Absolute assurance is rare in practice due to limitations of assurance

engagement. Which of the following does not describe such limitation?

D. The procedures applied to reasonable assurance engagement are

usually comprehensive

8. The market for auditing services is driven by

B. A demand by external users of financial statements.

9. Financial statement users often receive unreliable financial information from

companies. Which of the following is not a common reason for this?

D. Each of these choices is a common reason for unreliable financial

information.

10. The risk that the client's financial statements may be materially false and
misleading is referred to as the

D. Information risk

11. Which of the following can be significantly affected by an audit?

 B. Information risk.

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

C. Different interest may exist between the company preparing the

statements and the persons using the statements.

13. The underlying conditions that create demand by users for reliable
information include the following, except

D. Decisions are not time sensitive

14. There are four conditions that give rise to the need for independent audits of
financial statements. One of these conditions is consequence. In this context,
consequence means that the:

D. Financial statements are used for important decisions.

15. Which of the following statements does not properly describe an element of
the theoretical framework of auditing?

C. Auditors act on behalf of management.

2-7 MULTIPLE CHOICE QUIZZERS

1. Which of the following is a correct statement relating to the theoretical

framework of auditing?

A. The financial data to be audited can be verified.

2. The auditor's judgment concerning the overall fairness of the presentation of

financial position, financial performance, and changes in financial position is
applied within the framework of

A. Philippine Financial Reporting Standards

3. The purpose of governmental effectiveness or program results auditing is to
determine if the desired results of a program are being achieved. The first step in
conducting such an audit should be to

D. Identify the legislative intent of the program being audited.

4. This involves the application of relevant training, professional knowledge, skill,

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

C. Professional judgment

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

auditing and internal auditing?

B. Although independent auditors strive for both validity and relevance of

evidence, internal auditors are concerned almost exclusively with validity.

6. Which of the following is/are correct?

Statement 1: The primary purpose of a compliance audit is to determine whether
the financial statements are prepared in compliance with generally accepted
accounting principles.
Statement 2: Results of compliance audits are typically reported to someone
within the organizational unit being audited rather than to a broad spectrum of
outside users.

B. Only Statement 2 is correct

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

C. To hear

8. Which of the following is an incorrect phrase?

C. Auditing evaluates evidence regarding assurance.

9. The trait that distinguishes auditors from accountants is the:

D. auditor's accumulation and interpretation of evidence related to a

company's financial statements.

10. Which of the following types of audits is performed to determine whether an

entity's financial statements are fairly stated in conformity with generally accepted
accounting principles?

C. Financial statement audit

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

C. Express an opinion on the fair presentation of the financial statements in

accordance with generally accepted accounting principles.

12. In the audit of historical financial statements, which of the following

accounting bases is the most common?

C. Generally accepted accounting principles.

13. The overall objective of the independent auditor in conducting financial

statement audits is:

C. To obtain reasonable assurance about whether the financial statements

are free from material misstatements, due to fraud and error

14. The auditor's judgment concerning the overall fairness of the presentation of
financial position, results of operations, and changes in financial position is
applied within the framework of

A. Generally accepted accounting principles.

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

B. Measures of the quality of an auditor's performance.

 CHAPTER 3

3-3 MULTIPLE CHOICE QUIZZERS

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

are developed and nurtured through
I. Inviolable, honest, effective and credible licensure examinations
II. Regulatory measures, programs and activities
III. Penalties and fines

C. I and II only

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

appropriating funds therefor and for other purposes

A. RA 9298

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

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

A. True, True, True

4. The objectives of RA 9298 include

I. The standardization and regulation of accounting education
II. The examination for registration of CPAS
III. The integration of the practice of accountancy
IV. The supervision, control, and regulation of the practice of accountancy

B. I, II and IV
5. The area of practice of accountancy namely public accountancy, commerce
and industry, academe/education, and government.

B. Sector
6. Which of the following is not considered a sector of the practice of
accountancy?

C. Private accountancy

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

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

C. Practice in commerce and industry

8. Positions in the private sector that require extensive financial reporting roles
and responsibilities shall be occupied by a CPA if the business has

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

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

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

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

10. Statement 1: Only Certified Public Accountants are allowed to teach

technically related subjects in the BSA program.
Statement 2: Practice in the academe shall constitute in a person in an
educational institution which involve technically related subjects.

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

B. True, False, True

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

A. Practice in the government

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

A. Board of Accountancy

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

A. Chairman and six members

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

D. Both statements are incorrect

3-4 MULTIPLE CHOICE QUIZZERS

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

members of the board?
I. The members are appointed by the President of the Philippines
II. The Commission submits 3 recommendees to the President based on a list of
nominees
III. 6 nominees for each position will be submitted by PICPA to the Commission

B. Only two statements are correct

2. PICPA shall submit its Board member nominations with complete

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

B. 60 days

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

A. 1 year

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

C. Must be associated to at least one educational institution

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

A. 2025

6. Which of the following is not a power and/or function of BOA?

D. To ensure, in coordination with the Department of Education (DepEd)

that all higher educational institutions offering accountancy shall comply
with its policies
7. The President of the Philippines may suspend or remove any member of the
Board on the following grounds, except

C. Suspected of crimes involving moral turpitude

8. The annual report of the Board shall be

I. Submitted to the President of the Philippines every end of each calendar year
II. Give detail account of its proceedings and accomplishments during the year
III. Make recommendations for the adoption of measures that will improve the
practice of accountancy

C. All statements are correct

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

A. BOA shall be under the supervision of PRC.

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

facilitated in accordance with the rules and regulations set out in

B. RA 8981

11. Which of the following is not a qualification of applicants for the CPA licensure
examinations?

A. A natural born citizen and resident of the Philippines

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

examinations, except

D. Certificate of good moral character from an educational institution

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

B. Business Law and Taxation

Use the following to answer the next two questions

An examinee obtained the following ratings during the May 2022 CPA licensure
examinations:
Auditing 99
Financial Accounting and Reporting 90
Advance Financial Accounting and Reporting 88
Regulatory Framework for Business Transactions 74
Taxation 76
Management Advisory Services 64

14. Based on the Information, what is the examinees status in the CPA licensure
examinations?
C. Conditional

15. Based on the information, the examinee should retake the following subjects
in the removal exam

B. Regulatory Framework for Business Transactions and Management

Advisory Services

3-5 MULTIPLE CHOICE QUIZZERS

1. BOA may revise the licensure examination subjects and syllabi

B. Every 3 years

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

A. 10 calendar days

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

required to

B. Take an oath of profession

4. Evaluate the following
I. All successful candidates in the examination shall be required to take an oath
of profession
II. The oath shall be taken before any BOA member or government official
authorized by PRC or by law
III. An oath is not required for CPAs admitted in the practice of accountancy
under reciprocity or international agreements

B. Only two statements are correct

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

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

examinations

6. The certificate of registration of successful examinees

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

revoked

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

every
B. 3 years

8. Whenever a CPA signs any document in connection with the practice of the
profession, (s)he is required to indicate the following, except

C. Tax identification number

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

registration and professional identification card?

B. BOA
10. The Board shall not register and issue a certificate of registration and
professional identification card to any successful examinee who is
I. Convicted by a court of competent jurisdiction of a criminal offense involving
moral turpitude
II. Convicted for a political offense
III. Any person of unsound mind

C. I and III

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

B. After 2 years from the date of revocation

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

I. Received a certificate of registration
II. Be issued a professional identification card
III. Issued a valid temporary/special permit

D. I, II and III

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

B. Automatically be registered as CPAs

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

A. At least two years as audit assistant and at least one year as auditor in
charge of audit engagement covering full audit functions
15. Statement 1: A certificate of registration shall be issued to certified public
accountants in public practice only upon showing that such registrant has
acquired a minimum of three (3) years meaningful experience.

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

C. False, True

3-6 MULTIPLE CHOICE QUIZZERS

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

and privileged and shall remain property of his/her client.
Statement 2: The workings papers shall be provided to the authorities if required
through a subpoena issued by any court, tribunal or government regulatory or
administrative body.

C. False, True

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

C. PICPA

3. Evaluate the following statements.

I. PICPA shall have a creditable plan to enlist into active membership within three
(3) years, at least a majority of the CPAs in the practice of accountancy
II. PICPA shall only have fifteen (15) national directors
III. PICPA is duly registered as a stock corporation or association by the
Securities and Exchange Commission (SEC)

B. Only two statements are correct

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

C. 3 years
5. The following are grounds for the cancellation of the certificate of accreditation
of PICPA, except

D. It served the best interest of professional accountants

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

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

B. Every 3 years

7. After becoming a sole proprietor, a partner surviving the death or withdrawal of

all the other partners in a Partnership may continue to practice under the
Partnership name for

B. 2 years

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

professional within the 3-year period starting 2019?

D. 120 credit units

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

requirements for renewal of professional license?

D. Senior citizens are not exempted from CPD requirements.

10. Which of the following describes masteral degree?

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

from a recognized school, college or university.

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

program, activity or source shall be equivalent to

D. 1 credit unit
12. As a condition to register or renew the certificate of accreditation, BOA shall
require the applicant to undergo a

C. Quality review

13. Which of the following is correct regarding the Quality Review Committee?
I. Conduct quality review on applicants for registration to practice private
accountancy
II. Recommend the revocation of the certificate of registration and PIC of
applicants who has not observed the quality control measures
III. BOA may conduct the required quality review.

B. II and III

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

firm or partnership shall be reported to BOA not later than

B. 30 days

15. Statement 1: Only CPAs in academe/education shall abide by the

requirements, rules and regulations on continuing professional education (CPE).
Statement 2: A CPE council has been created to implement the CPE program.

C. False, True
3-7 MULTIPLE CHOICE QUIZZERS

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

I. To provide and ensure the continuous education of a registered professional
with the latest trends in the profession
II. To raise and maintain the professional's capability for delivering professional
services.
III. To make the professional locally competitive

A. I and 11

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

D. To prescribe the code of ethics for professional accountants

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

B. PICPA

4. Which of the following is a requirement to be accredited as a CPE provider?

I. Must be a duly registered organization, firm, institution or agency, or a
professional of good standing and has never been convicted of a crime
II. Shall have an established mechanism and updated instructional materials to
carry out the CPE programs and activities
III. Shall have instructors, lecturers, trainers and resource speakers with good
moral character, technical competence, facilitation skills and are holders of
current CPA licenses.

D. I, II and III
5. Statement 1: CPE programs shall be relevant, related and limited to the
practice of the profession.
Statement 2: CPE programs shall upgrade and update knowledge and skills for
the practice of the profession brought about by modernization and advancements
in the profession.

C. False, True

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

D. The word "independent"

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

D. Tax Identification Number of the CPA

8. Statement 1: Subjects or citizens of foreign countries may be allowed to

practice Accountancy in the Philippines.
Statement 2: A foreign CPA may practice accountancy in the Philippines if (s)he
can prove that his/her home country allows Filipino CPAs to practice accountancy
without limitation.

C. True, True

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

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

D. I, II and III

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

A. Fine of not less than 50,000 pesos or imprisonment for a period not
exceeding two (2) years or both
11. Who has the primary duty to enforce RA 9298?
I. BOA
II. PRC

C. Both I and II

12. Who acts as the legal adviser of PRC and BOA in carrying out the provisions
of RA 9298?

B. Secretary of Justice

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

C. Board of Investments

14. Who appoints the members of the COA?

C. The President, with the concurrence of the Commission on

Appointments

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

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

Registration and the professional identification card of an individual CPA or
firm including any of their staff members who has not observed the quality
control measures and who has not complied with the standards of quality
prescribed for the practice of public accountancy.
 CHAPTER 4

4-3 MULTIPLE CHOICE QUIZZERS

1. Set the following phases in proper order:

i. Pre-Engagement
ii. Internal Controls
iii. Evidence-Gathering
iv. Planning
v. Post-Audit Responsibilities
vi. Reporting

B. i, iv, ii, iii, vi, v

2. The four major steps in conducting an audit are:

I. Testing internal controls
II. Audit report
III. Planning
IV. Testing transactions and balances
The proper sequence in applying the above steps is:

C. III, I, IV, II

3. The definition of auditing contained within A Statement of Basic Auditing

Concepts recognizes that auditing includes both a(an)

C. Investigative process and a reporting process.

4. The audit process is

A. A special application of the scientific method of inquiry.

5. Assertions about account balances at the period-end include completeness,
which means that

B. All assets, liabilities and equity interests that should have been recorded
have been recorded.

6. Preliminary engagement activities include:

C. Determining engagement team requirements.

7. Ultimately, the decision about whether or not an auditor is independent must

be made by

A. Auditor

8. In deciding whether to accept or reject an engagement, the auditor's firm

should consider the following,
I. Its competence and independence
II. Its ability to serve the client properly
III. The integrity of the prospective client's management

D. I, II and III

9. On an audit engagement performed by a CPA firm with one office, at the

minimum, knowledge of the relevant professional accounting and auditing
standards should be held by:

A. The auditor with final responsibility for the audit.

10. Which is not considered in deciding whether to accept an engagement?

D. Type of opinion to be issued

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

B. Obtain knowledge of matters that relate to the nature of the entity's

business.
12. A CPA who has never audited a commercial bank

C. May accept the engagement after attaining a suitable level of

understanding of the transactions and accounting practices unique to
commercial banking.

13. An auditor may most likely decide not to accept a new audit engagement
when

C. The CPA has knowledge of the prospective client's disregard of its

responsibilities concerning internal controls

14. The primary purpose of establishing quality control policies and procedures
for deciding whether to accept a new client is to

C. Minimize the likelihood of association with clients whose management

lacks integrity.

15. When one auditor succeeds another, the proposed auditor should request the

C. Client to authorize the previous auditor to respond to inquiries.

4-4 MULTIPLE CHOICE QUIZZERS

1. The assertion of accuracy means that:

D. Amounts and other data relating to recorded transactions and events

have been recorded appropriately

2. Which description refers to the classification and understandability assertion?

C. Financial information is appropriately presented and described, and

disclosures are clearly expressed.
3. Which of the following is not one of the three categories of assertions?

B. Assertions about financial statements and correspondence to GAAP

4. Which of the following is not a financial statement assertion relating to account

balances?

D. Valuation and competence.

5. If a short-term note payable is included in the accounts payable balance on the

financial statement, there is a violation of the:

D. classification and understandability assertion.

6. A proposed auditor makes specific inquiries of the previous auditor, prior to

engagement acceptance, to

C. Gain understanding on the reasons for the change of auditor

7. Communication with a predecessor auditor is initiated by:

C. The successor auditor

8. Which of the following should an auditor obtain from the previous auditor prior
to accepting an audit engagement?

D. Facts that might bear on the integrity of management.

9. Before accepting an engagement to audit a new client, a CPA is required to

obtain

D. The prospective client's consent to make inquiries of the previous

auditor, if any.

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

B. The adequacy of the accounting records.

11. Auditors must not only decide whether to accept new clients; they also should
periodically review their list of current clients and remove those clients the firm no
longer wants to be associated with. Reasons for discontinuing clients might
include the following, except:

C. Evidence indicating a client's management has integrity.

12. Which of the following factors most likely would cause a CPA to not accept a
new audit engagement?

D. The prospective client is unwilling to make all financial records available

to the CPA

13. Which of the following factors most likely would lead a CPA to conclude that a
potential audit engagement should be rejected?

C. It is unlikely that sufficient appropriate evidence is available to support

an opinion on the financial statements.

14. If permission from the client to discuss its affairs with the proposed auditor is
denied by the client, the predecessor auditor should:

B. Disclose the fact that the permission to disclosure is denied by the client

15. A firm has obtained information that would have caused it to decline an
engagement had the information been available earlier. Actions available to the
auditor would include the following, except:

D. Issue a disclaimer of opinion

4-5 MULTIPLE CHOICE QUIZZERS

1. Acts to be performed in order to obtain audit evidence.

C. Audit procedures

2. Which of the following does not describes further audit procedures?

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

A. I, II and III

3. Audit procedures performed to obtain an understanding of the entity and its

environment, including its internal control, and to assess the risks of material
misstatements at the financial statement and assertion levels.

A. Risk assessment procedures

4. Audit procedures to test the operating effectiveness of controls in preventing or

detecting and correcting material misstatements at the assertion level.

B. Tests of control

5. An auditor may achieve audit objectives related to particular assertions by:

C. Performing analytical procedures.

6. It is the use by management of an acceptable financial reporting framework
(e.g. PFRS) 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.

C. Preconditions for an audit

7. According to PSA 210, the auditor and the client should agree on the terms of
engagement. The agreed terms would need to be recorded in a(n)

C. Engagement letter

8. The primary purpose of the engagement letter is to:

C. Provide a written record of the agreement with the client as to the

services to be provided

9. An engagement letter is best described as

C. A letter from the auditors to company management that specifies the

responsibilities of both the company and the auditors in completing the
audit and the timing for its completion.

10. Engagement letters are widely used in practice for:

D. Professional engagements of all types

11. The form and content of audit engagement letters may vary for each client,
but they would generally include reference to:
I. The objective and scope of the audit of the financial statements
II. The responsibilities of the auditor and management
III. Identification of the applicable financial reporting framework for the
preparation of the financial statements

D. I, II and III
12. The auditor may also wish to include in the engagement letter the following,
except

D. Description of specific procedures to be performed during the audit

13. Which of the following matters is generally included in an auditor's

engagement letter?

A. Management's responsibility for the entity's compliance with laws and

regulations.

14. Which of the following statements would least likely appear in an auditor's
engagement letter?

D. After performing our preliminary analytical procedures, we will discuss

with you the other procedures we consider necessary to complete the
engagements.

15. The terms of the audit engagement shall include: (choose the exception)

D. The overall audit strategy

4-6 MULTIPLE CHOICE QUIZZERS

1. An auditor understands the client's business primarily to

D. Identify transactions that may impact the financial statements

2. Which of the following statements appropriately describes inquiry?

D. Consists of seeking information from knowledgeable persons, both

financial and nonfinancial, within the entity or outside the entity.
3. Which of the following statements appropriately describes reperformance?

B. Auditor's independent execution of procedures or controls that were

originally performed as part of the entity's internal control.

4. If a company's external auditor expresses an unqualified opinion as a result of

the audit of the company's financial statements, readers of the audit report can
assume that

D. All material disagreements between the company and the auditor about
the application of accounting principles were resolved in the satisfaction of
the external auditor.

5. Auditing standards require that the audit report must be titled and that the title
must:

A. include the word "independent."

6. An engagement letter should ordinarily include information on the objectives of

the engagement and

A.
Yes
Yes
Yes

7. Assuming a recurring audit, in which of the following situations would the

auditor be unlikely to send a new engagement letter to the client?

A. A recent change in partner and/or staff involved in the audit

engagement.

8. The auditor should document the understanding established with a client

through a(n)

C. Written communication with the client.

9. Which of the following helps prevent misunderstandings during audit planning?

C. A preliminary meeting conference with the client to discuss fees, timing,

client assistance and related issues.

10. Which of these circumstances would normally lead to a change in

engagement?

D. Misunderstanding as to the nature of the engagement

11. While performing procedures for the audit engagement, the auditor was
asked to change the engagement to review. Assuming the change is not
justifiable, which of these statements does not concur?

D. The auditor provides negative assurance on the new report.

12. If the auditor concludes that there is reasonable justification for the change in
engagement, the report to be issued would

A. Be that appropriate for the revised terms of the engagement

13. If a change in the type of engagement from higher to lower of assurance is

not justified, the auditor should:

C. Refuse to agree to management's request on the change of engagement

and continue with the original engagement.

14. An auditor who, before the completion of the engagement, is requested to

change the engagement to one which provides lower level of assurance, should

C. Not agree to a change of engagement where there is reasonable

justification for doing so.

15. One of the first things that the auditor will do after accepting a new client is:

D. Tour the client's facilities.

4-7 MULTIPLE CHOICE QUIZZERS

1. When an independent auditor is approached to perform an audit for the first

time, he or she should make inquiries of the predecessor auditor. Inquiries are
necessary because the predecessor may be able to provide the successor with
information that will assist the successor in determining whether

B. The engagement should be accepted

2. Before accepting an audit engagement, a successor auditor should make

specific inquiries of the predecessor auditor regarding the predecessor's:

B. Understanding as to the reasons for the change of auditors.

3. Prior to acceptance of the engagement, a CPA firm is not likely to

D. Review the personnel practices of the proposed client

4. Early appointment of the auditor enables preliminary work to be performed by

the auditor, which benefits the client in that it permits the examination to be
performed in

A. A more efficient manner.

5. What is the responsibility of a successor auditor to communicate with the

predecessor auditor in connection with a prospective new client?

B. The successor auditor should obtain permission from the prospective

client to contact the predecessor auditor.

6. Prior to beginning the fieldwork on a new audit engagement in which a CPA

does not possess expertise in the industry in which the client operates the CPA
should

D. Obtain knowledge of matters that relate to the nature of the entity's

business.
7. One means of informing the client that the auditor is not responsible for the
discovery of all acts of fraud is the:

A. Engagement letter.

8. Which of the following best describes the purpose of the engagement letter?

A. The engagement letter relieves the auditor of some responsibility for the
exercise of due care.

9. The purpose of an engagement letter is to:

B. Document the terms of the engagement in writing to minimize

misunderstandings.

10. Which of the following normally signs the engagement letter for an audit of a
public company?

D. Audit committee.

11. An auditor's engagement letter most likely would include a statement

regarding:

A. Management's responsibility to provide certain written representations

to the auditor.

12. In making arrangements for an audit, there should be a clear understanding

between the auditor and the client as to the following except:

B. Assurance of auditor's independence

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

Statement 1: On recurring audits, the auditor should consider whether
circumstances require the terms of the engagement to be revised and whether
there is a need to remind the client of the existing terms of engagement.
Statement 2: The auditor should send a new engagement letter each year to an
established client.
 A. Only statement 1 is correct

14. On recurring audit engagements, the auditor may decide not to send a new
engagement letter each period. In which of the following situations will there be
no need to send a new letter?

D. Recent change of middle management and rank and file organizational

structure

15. An understanding of a client's business and industry and knowledge about

operations are essential for performing an adequate audit. For a new client, most
of this information is obtained:

D. At the client's premises.

CHAPTER 5

5-3 MULTIPLE CHOICE QUIZZERS

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

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

B. Only two statements are correct

2. The auditors plan should
I. Precede action
II. Be flexible
III. Be cost-beneficial

D. I, II and III

3. Adequate planning benefits the audit of financial statements in several ways,

including the following, except

A. Helping the auditor to devote appropriate attention to less important

areas of the audit

4. Which of the following statements is incorrect?

D. Planning is not a discrete phase of an audit, but rather a continual and

iterative process that often begins shortly after (or in connection with) the
completion of the previous audit and continues until the finalization of the
audit program.

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

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

A. Only 1 statement is correct

6. An initial (first-time) audit requires more audit time to complete than a recurring
audit. One of the reasons for this is that

C. The client's business, industry, and internal control are unfamiliar to the
auditor and need to be carefully studied.
7. An auditor should design the audit plan so that

C. The audit procedures selected will achieve specific audit objectives.

8. In developing an overall audit strategy, an auditor should consider:

D. Preliminary evaluations of materiality, audit risk, and internal control.

9. An understanding of a client's business and industry and knowledge about

operations are essential for performing an adequate audit. For a new client, most
of this information is obtained:

D. at the client's premises.

10. Which of the following is most likely to occur at the beginning of an initial
audit engagement?

C. Determine the client's reason for an audit.

11. While assessing the risks of material misstatement auditors Identify risks,
relate risk to what could go wrong, consider the magnitude of risks and

C. Consider the likelihood that the risks could result in material

misstatements.

12. The extent of audit planning will vary according to the

I. Size of the entity
II. Complexity of the audit
III. Auditor's experience with the entity and knowledge of the business

D. I, II and III

13. Which of the following is not one of the three main reasons why the auditor
should properly plan engagements?

A. To enable proper on-the-job training of employees.

14. With respect to the auditor's planning of a year-end audit, which of the
following statements is always true?

D. It is an acceptable practice to carry out parts of the examination at

interim dates..

15. Early appointment of the independent auditor will enable:

D. a more efficient examination to be planned.

5-4 MULTIPLE CHOICE QUIZZERS

1. If it is probable that the judgment of a reasonable person would have been

changed or influenced by the omission or misstatement of information, then that
information is:

A. Material.

2. The preliminary judgment about materiality is the amount by which the auditor
believes the statements could be misstated and still not affect the decisions of
reasonable users.

B. Maximum

3. Auditors are responsible for determining whether financial statements are

materially misstated, so upon discovering a material misstatement they must
bring it to the attention of:

D. the client's management.

4. The definition of materiality emphasizes what class of financial statement

users?

C. Reasonable persons.
5. When auditors allocate the preliminary judgment about materiality to account
balances, the materiality allocated to any given account balance is referred to as:

D. tolerable misstatement.

6. Which of the following statements concerning materiality is incorrect?

B. In general, the more misstatements the auditor expects, the higher

should be the aggregate materiality threshold.

7. It is a threshold calculated as a certain percentage of overall materiality in

order to capture any uncorrected misstatements, the total amount of which may
exceed overall materiality.

C. Performance materiality

8. Amounts involving fraud are usually considered unintentional errors of equal

peso amounts. important than

D. More

9. Statement 1: The benchmark to be used in determining materiality could either

be an element or component of the financial statements
Statement 2: In practice, the benchmark commonly used for profit- oriented
companies is profit from continuing operations before tax (PBT).
Statement 3: Specific materiality is the amount set by the auditor for particular
elements or components, well though higher than overall materiality could
influence decision-making.

B. Only two statements are correct

10. The preliminary judgment about materiality and the amount of audit evidence
accumulated are related.

D. Inversely
11. After the preliminary judgment about materiality has been established,
auditors may:

D. adjust it either downward or upward.

12. In an audit area that has a lower inherent risk, it would be prudent to:

C. increase the tolerable misstatement for the area.

13. Which of the following is least likely to be appropriate as the basis for
determining the preliminary judgment about materiality in the audit of
financial statements?

D. Inventory.

14. Auditing standards that the basis used to determine the preliminary judgment
about materiality be documented in the audit files.

C. require

15. Which of the following statements is correct regarding the auditor's

determination of materiality?

B. The auditors' planning level of materiality may be disaggregated into

smaller "tolerable misstatements" for the various accounts.

5-5 MULTIPLE CHOICE QUIZZERS

1. The auditors must consider materiality in planning an audit engagement.

Materiality for planning purposes is:

B. The auditors' preliminary estimate of the smallest amount of

misstatement that would be material to any one of the client's financial
statements.

2. Which of the following situations would most likely require special audit
planning by the auditors?

D. Inventory is comprised of precious stones.

3. The auditor's analytical procedures will be facilitated if the client

A. Uses a standard cost system that produces variance reports.

4. Analytical procedures are performed in the planning stage because

D. Plausible relationships among information are expected and continue in

the absence of opposing conditions

5. An abnormal fluctuation in gross profit that might suggest the need for
extended audit procedures for sales and inventories would most likely be
identified in the planning phase of the audit by the use of:

B. Analytical procedures.

6. Which of the following statements is not correct with respect to analytical

procedures?

B. Analytical procedures must be performed throughout the audit.

7. Which of the following is correct with respect to the use of analytical

procedures?

D. Analytical procedures are performed by studying plausible relationships

between financial and non-financial data

8. The most widely used profitability ratio is the:

D. earnings per share.

9. Which of the following ratios is best used to assess a company's ability to meet
its long-term debt obligations?

C. Debt to equity.

10. Which of the following statements is not correct?

B. Analytical procedures used in the completion phase are primarily aimed
at assessing going concern and secondarily aimed at directing the
auditor's attention to areas that may contain possible misstatements.

11. When are auditors likely to encounter judgment problems in the use of
analytical procedures?

D. The auditor is likely to encounter judgment problems in each of the

above instances.

12. The major concern when using nonfinancial data in analytical procedures is
the:

A. accuracy of the nonfinancial data.

13. In using the information on the statement of cash flows while obtaining an
understanding of a profitable, growing company, which of the following would
ordinarily be least surprising to an auditor?

C. Negative cash flows from investing.

14. If the business environment is experiencing a recession, the auditor most

likely would focus increased attention on which of the following accounts?

B. Allowance for doubtful accounts.

15. Which of the following procedures is not performed as a part of planning an

audit engagement?

C. Confirmation of all major accounts.

5-6 MULTIPLE CHOICE QUIZZERS

1. An audit approach that allocates proportionately more audit resources to areas

of high audit risk is referred to as a audit.

D. Risk-based approach
2. These are audit procedures performed to obtain an understanding of the entity
and its environment, including the entity's internal control, to identify and assess
the risks of material misstatement, whether due to fraud or error, at the financial
statement and assertion levels.

A. Risk assessment procedures

3. Which component of the audit risk model may be expressed in qualitative

terms?
I. Inherent Risk
II. Control Risk
III. Detection Risk

D. I, II and II

4. The risk of a material misstatement occurring in an account, assuming an

absence of internal control, is referred to as

D. Inherent risk.

5. The risk that the auditors' procedures will lead them to conclude that a material
misstatement does not exist in an account balance when in fact such a
misstatement does exist is referred to as:

C. Detection risk.

6. It is easier and more common to implement increased evidence accumulation

for inherent risk than for acceptable audit risk because:

A. inherent risk can usually be isolated to specific accounts.

7. Which of the following is least likely to be considered a financial statement

audit risk factor?

A. Management operating and financing decisions are dominated by top

management.
8. When inherent risk is high, there will need to be:
I. A lower assessment of audit risk
II. More evidence accumulated by the auditor

B. II only

9. Which of the following is not a potential effect of an auditor's decision that a

lower acceptable audit risk is appropriate?

B. Less evidence is accumulated.

10. Which of the following is not an example of a likely adjustment in the auditors'
overall audit approach when significant risk is found to exist?

B. Increase the assessed level of detection risk.

11. After evaluating the risks of material misstatements, the auditor determines
detection risk

C. At a level that equates the joint probability of inherent risk, control risk,
and detection risk with overall audit risk.

12. Which of the following conditions supports an increase in detection risk?

A. Internal control over cash receipts is excellent.

13. In a financial statement audit, audit risk represents the probability that

B. The auditor unknowingly fails to modify an opinion on materially

misstated financial statements.

14. Audit programs are designed to

B. Gather sufficient and appropriate evidence to support the opinion

15. Which of the following is not typically included in initial audit planning?

D. Perform analytical procedures as substantive tests.

5-7 MULTIPLE CHOICE QUIZZERS

1. The auditor faces a risk that the audit will not detect material misstatements in
the financial statements. In regard to minimizing this risk, the auditor primarily
relies on:

A. Substantive procedures.

2. When planning an audit, an auditor should:

B. Make preliminary judgments about materiality levels for audit purposes.

3. Which of the following is least likely to be required on an audit?

B. Make a legal determination of whether fraud has occurred.

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

B. Obtain a knowledge of matters that relate to the nature of the entity's

business.

5. Which of the following appropriately relates to the auditor's objective in

planning the audit?

C. The auditor plans the audit so that it will be performed in an effective

manner.

6. Which of the following statements inappropriately relates on how adequate

planning benefits the audit of financial statements?

B. Helps the auditor plan the level of risks of material misstatements

present in the audit
7. Which of the following is considered a required documentation in planning an
audit?

B. An audit program setting forth in detail the necessary procedures to be

performed during the engagement

8. Inquiries directed towards those charged with governance may most likely

B. Help the auditor understand the environment in which the financial

statements are prepared

9. An auditor should inspect minutes of the meeting of BOD

B. through the date of the audit report.

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

B. Timing of inventory observation procedures to be performed.

11. Which of the following is not a factor that affects the auditor's professional
judgment, during audit planning, as to the quantity, type, and content of working
papers?

B. The type of report to be issued by the auditor.

12. How can the audit program best be described at the beginning of the audit
process?

C. Tentative.

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

C. A portion of the audit of a continuing audit client can be performed at

interim dates.

14. A retailing entity uses the Internet to execute and record its purchase
transactions. The entity's auditor recognizes that the documentation of details of
transactions will be retained for only a short period of time. To compensate for
this limitation, the auditor most likely would:

C. Perform tests several times during the year, rather than only at year-
end.

15. The auditor should plan the nature, timing and extent of direction and
supervision of engagement team members and review their work. Which of the
following statements is incorrect regarding direction, supervision and review?

C. As the assessed risk of material misstatement decreases, for the area of

audit risk, the auditor performs a more detailed review of their work.

CHAPTER 6

6-3 MULTIPLE CHOICE QUIZZERS

1. A process, effected by an entity's board, management, and other personnel,

designed to provide reasonable assurance regarding the achievement of
objectives relating to operations, reporting and compliance.

C. Internal Control

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

D. It can be expected to provide absolute assurance regarding that the

achievement of the entity's objectives

3. Internal control is not primarily designed to achieve objectives with regard to

D. Quality of audits
4. Key concepts that underlie management's design and implementation of
internal control are:

B. inherent limitations and reasonable assurance.

5. Which of the following most likely would not be considered an inherent

limitation of the potential effectiveness of an entity's internal control?

A. Incompatible duties.

6. Which of the following statements does not properly describe the reason why
control risk cannot be reduced to zero?

D. Some accounts and transactions are more susceptible to misstatement

(whether due to fraud or error) than other accounts and balances.

7. The basic concept of internal control which recognizes that the cost of internal
control should not exceed the benefits expected to be derived is known as
C. Reasonable assurance

8. An internal control system that is working effectively

C. Reduces the need for management the review exception reports on a

day-to-day basis

9. Internal controls can never be considered as absolutely effective because:

A. their effectiveness is limited by the competency and dependability of

employees.

10. A secondary objective of the auditor's study and evaluation of internal control
is that the study and evaluation provide

A. A basis for constructive suggestions concerning improvements in

internal control.
11. Which of the following statements about internal control is correct?

D. The cost-benefit relationship should be considered in designing internal

controls.

12. Which of the following would be least likely to be considered a benefit of

effective internal control?

A. Eliminating all employee fraud.

13. Of the following statements about internal control, which one is not valid?

D. Control activities reasonably insure that collusion among employees

cannot occur.

14. Controls are not designed to provide assurance that:

B. Fraud will be eliminated.

15. Which of the following factors would most likely be considered an inherent
limitation to an entity's internal control?

B. Human judgment in the decision-making process.

6-4 MULTIPLE CHOICE QUIZZERS

1. Which of the following is not an element of an entity's internal control?

D. Control risk.

2. Which of the following is not considered one of the five major components of
internal control?

B. Segregation of duties.
3. Transaction authorization within an organization may be either specific or
general. An example of specific transaction authorization is the

B. Approval of a construction budget for a new warehouse.

4. Proper segregation of functional responsibilities calls for separation of the

functions of

A. Authorization, execution, and recording.

5. Evidence about segregation of duties is best obtained by

B. Direct personal observation of employees who perform control activities.

6. Evidence of proper approval, review, and recording of transactions is provided

by a well-documented

C. Audit trail

7. Control activities constitute one of the five components of internal control.

Which of the following is not included in this internal control component?

A. An internal audit function

8. In understanding the control environment, which of the following is not

explicitly considered?

B. Information processing

9. Which of the following activities would be least likely to strengthen a

company's internal control?

B. Maintaining insurance for fire and theft.

10. Which of the following contributes most to effective internal control

C. The company has an effective internal audit staff that monitors controls
on a continuous basis.
11. An auditor should consider the competence of a client's employees because
their competence bears directly and importantly on the

B. Achievement of the objectives of internal control.

12. What is the correct order of the following procedures?

I. Tests of internal control procedures.
II. Preparation of a flowchart depicting the client's internal control system.
III. Substantive tests.

C. II, I, III

13. The sequence of steps in gathering evidence as the basis of the auditor's
opinion is:

C. Documentation of control structure, tests of controls, and substantive

tests.

14. The auditor should obtain an understanding of internal control sufficient to:

A. assess control risk.

15. The auditor shall obtain an understanding of whether the entity has a process
for
I. Identifying and estimating the significance of business risks relevant to financial
reporting objectives
11. Assessing the likelihood of occurrence of business risks
III. Deciding about actions to address identified and assessed risks

D. I, II and III
6-5 MULTIPLE CHOICE QUIZZERS

1. The auditor shall obtain an understanding of the information system, including

the related business processes, which include the following except

C. Controls related to the company's process for training and on-boarding

its production employees

2. Controls that enhance the reliability of the financial statements may be

classified as preventive controls and detective controls. Which of the following is
primarily a detective control?

B. Bank accounts are reconciled monthly by persons independent of cash

recording and cash custody.

3. Which of the following procedures is essential to determining whether

necessary control activities were prescribed and are being followed?

C. Documenting and testing controls.

4. Flowcharting as a means of internal control evaluation provides the following

advantage over the use of questionnaires and descriptive narratives:

C. Ease in following information flow.

5. Which of the following is not ordinarily a procedure for documenting an

auditor's understanding of internal control for planning purposes?

D. Confirmation.

6. An auditor's flowchart of a client's internal controls is a diagram depicting the

auditor's

A. Understanding of the internal controls.

7. Evaluate the following statements:
I. Walkthrough precedes test of controls
II. Walkthrough's focus is the operating effectiveness of controls

A. True, False

8. Which of the following is not done by an auditor when obtaining an

understanding of an entity's internal controls?

B. Consider the operating effectiveness of the internal controls.

9. Which of the following comes closest to outlining the auditors' responsibility for
considering internal control in all financial statement audits?

B. The auditor must obtain an understanding of each of the five internal

control components sufficient to assess the risks of material misstatement
for the audit.

10. In the consideration of internal control, the operating effectiveness of controls

is tested by:

B. Tests of controls.

11. Which of the following statements is correct concerning the understanding of

internal control needed by auditors?

C. The auditors must have a sufficient understanding to assess the risks of

material misstatement.

12. On financial statement audits, it is required that the auditors obtain an

understanding of internal control, including:

B. Whether it has been implemented (placed in operation).

13. After documenting the client's prescribed internal control, the auditors will
often perform a walk-through of each transaction cycle. An objective of a
walk-through is to:

A. Verify that the controls have been implemented (placed in operation).

14. The scope of substantive procedures as compared to the scope of tests of

controls generally vary:

B. Inversely.

15. After obtaining an understanding of internal control and arriving at a

preliminary assessed level of control risk, an auditor decided to perform tests of
controls. The auditor most likely decided that:

C. It would be efficient to reduction in planned substantive procedures.

6-6 MULTIPLE CHOICE QUIZZERS

1. Which of the following is least likely to be evidence of operating effectiveness

of controls?

B. Confirmations of accounts receivable.

2. Which of the following is ordinarily considered a test of internal control

procedures?

C. Examine signatures on checks.

3. Which of the following audit tests would be a test of controls?

C. Comparing signatures on canceled checks to board of directors'

authorizations.
4. Which of the following would be least likely to be regarded as a test of a
control?

A. Tests of the additions to property by physical inspection.

5. The effectiveness of controls is not generally tested by:

B. Performance of analytical procedures.

6. Tests of controls do not ordinarily address:

D. The cost effectiveness of the way a control was applied.

7. What is the objective of testing the operating effectiveness of controls?

A. Provide a basis for reducing the assessed level of control risk below that
which resulted from the auditor's initial understanding of internal control.

8. In the assessment of control risk, the auditor is basically concerned that the
client's internal control provides reasonable assurance that

B. Errors and fraud have been prevented or detected.

9. An auditor already tested controls as of and for the nine months ended
September 30, 2018 (client yearend is December 31, 2018). Ordinarily, the
auditor would

D. Update his/her procedures for the remaining three months

10. Which is most likely when the assessed level of control risk increases?

D. Use larger sample sizes for substantive procedures.

11. A client's internal control appears strong, but the CPA has elected not to
perform any tests of controls. The planned assessed level of control risk is at
what level?

D. Maximum
12. When tests of controls reveal that controls are operating as anticipated, it is
most likely that the assessed level of control risk will:

B. Equal the preliminary assessed level of control risk.

13. An auditor has concluded that a client's internal controls are well designed
and functioning as expected. Under these circumstances the auditor would most
likely

B. Not increase the extent of planned substantive tests.

14. Under which circumstance is it likely that the extent of substantive procedures
will be expanded beyond that anticipated in the audit plan?

D. The operating effectiveness of certain controls was found to be less than

expected, although no material misstatements were identified.

15. If the auditors do not perform tests of controls for certain assertions:

D. They must assess control risk at the maximum level for those
assertions.

6-7 MULTIPLE CHOICE QUIZZERS

1. In a financial statement audit performed by auditors, how frequently must an

auditor test operating effectiveness of controls that appear to function as they
have in past years and on which the auditor wishes to rely upon in the current
year?

D. At least every third audit.

2. Which of the following is not a responsibility that should be assigned to a
company's internal audit department?

B. Approving disbursements.

3. The independent auditors might consider the procedures performed by the

internal auditors because:

B. They are employees whose work might affect the independent auditors'
work.

4. In assessing the objectivity of a client's internal auditors, the CPA would be

most likely to consider internal auditor:

C. Organizational status within the company.

5. To provide for the greatest degree of independence in performing internal

auditing functions, an internal auditor most likely should report to the:

C. Audit committee.

6. In assessing the competence of a client's internal auditor, an independent

auditor most likely would consider the

A. Internal auditor's compliance with professional internal auditing

standards.

7. If the independent auditors decide that the work performed by the internal
auditors may have a bearing on their own procedures, they should consider the
internal auditors':

A. Competence and objectivity.

8. Which of the following must the auditor communicate to the audit committee?

A. Significant deficiencies and material weaknesses.

9. An auditor is required to communicate significant deficiencies in internal
control to

A. Audit committee of the board of directors.

10. A deficiency in internal control exists when:

I. A control is designed, implemented or operated in such a way that it is unable
to prevent, or detect and correct, misstatements in the financial statements on a
timely basis
II. A control necessary to prevent, or detect and correct, misstatements in the
financial statements on a timely basis is missing

C. Both I and II

11. A deficiency is a deficiency or combination of deficiencies in internal control

that, in the auditor's professional judgment, is of sufficient importance to merit the
attention of those charged with governance.

C. Significant

12. A significant deficiency:

D. Is less severe than a material weakness.

13. Which of the following matters would an auditor most likely consider to be a
significant deficiency to be communicated to the audit committee?

C. Evidence of a lack of objectivity by those responsible for accounting

decisions.

14. The auditor shall communicate in writing significant deficiencies in internal

control identified during the audit to those charged with governance on a timely
basis. This communication shall include:

I. Description
II. Potential effects
III. Recommendations

A. I and II
15. Reportable conditions are matters that come to an auditor's attention and that
should be communicated to an entity's audit committee because they represent

B. Significant deficiencies in the design or operation of internal control.