Quizzer 1A

Correct Answer: C

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

a. Type of service.

b. Training required to perform the service.

c. Scope of services.

d. CPA's approach to the service.

Correct Answer: C

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

a. Detect fraud.

b. Examine individual transactions so that the auditor may certify as to their validity.

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

d. Assure the consistent application of correct accounting procedures.

Correct Answer: D

Philippine Standards on Auditing

a. Relate to the filing requirements and enforcement activities of the SEC.

b. Describe procedures to be applied in specific areas of audit activity to eliminate inconsistencies in audit practice.

c. Are intended to limit the degree of auditor judgment needed to fulfill the attest function.

d. Interpret standards that provide guidelines or measures of quality for an independent audit.

Correct Answer: A

The Philippine Standards on Auditing issued by AASC

a. Apply to independent examination of financial statements of any entity when such examination is conducted for the purpose of expressing an opinion.

b. Must not apply to other related activities of auditors.

c. Need to be applied on all audit related.

d. Require that in no circumstances would an auditor may judge it necessary to depart from a PSA, even though such a departure may result to more effective achievement of the objective of an audit.

Correct Answer: C

Which of the following best describes the objective of an assurance engagement?

a. To improve the company's outcomes

b. To compare the company's information and polices to those of other entities

c. To enhance the credibility of information in order to improve the likelihood that the information will meet the needs of an intended user

d. To provide consulting and advisory services.

Correct Answer: B

Assurance services differ from consulting services in that they

I. Focus on providing advice

II. Involve monitoring of one party by another

a. I only

b. II only

c. Both I and II

d. Neither I nor II

Correct Answer: C

As used in PSA, which of the following statements best describes "assertions"?

a. Assertions are the representations of management as to the reliability of the information system.

b. Assertions are the auditor's findings to be communicated in the audit report.

c. Assertions are the representations of management as to the fairness of the financial statements.

d. Assertions are found only in the footnotes to the financial statements.

Correct Answer: C

Which of the following mostly describes the function of AASC?

a. To monitor full compliance by auditors to PSAs.

b. To assist the Board of Accountancy in conducting administrative proceedings on erring CPAs in audit practice.

c. To promulgate auditing standards, practices and procedures that shall be generally accepted by the accounting profession in the Philippines.

d. To undertake continuing research on both auditing and financial accounting in order to make them responsive to the needs of the public.

Correct Answer: C

Which statement does not accurately describe an assurance engagement?

a. The objective of an assurance engagement is for a professional accountant to evaluate or measure a subject matter that is the responsibility of another party against identified suitable criteria, and to express a conclusion that provides the intended user with a level of assurance about that subject matter

b. Not all engagements performed by professional accountants are assurance engagements

c. A particular engagement, to be an assurance engagement, it depends upon whether it exhibits all the following elements: a two-party relationship, a subject matter, suitable criteria, and a conclusion

d. An engagement in form of agreed-upon procedures result in the expression of factual findings

Correct Answer: C

The Philippine Framework for Assurance Engagements identifies two types of assurance engagement a practitioner is permitted to perform: a reasonable assurance engagement and a limited assurance engagement. Which of the following is the objective of a reasonable assurance engagement?

a. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement as a basis for a negative form of expression of the practitioner's conclusion.

b. A reduction in assurance engagement risk to a very low level in the circumstances of the engagement as a basis for a disclaimer of the practitioner's conclusion.

c. A reduction in assurance engagement risk to an acceptably low level that is acceptable in the circumstances of the engagement as a basis for a positive form of expression of the practitioner's conclusion.

d. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement as a basis for a qualified form of the practitioner's conclusion.

Correct Answer: C

How many members of AASC are needed to approve the exposed draft as Philippine Standards on Auditing?

a. Majority of the regular members

b. At least eight

c. At least ten

d. At least twelve

Correct Answer: B

It refers to the level of satisfaction as to the reliability of an assertion being made by one party for use by another party

a. Confidence level

b. Assurance level

c. Reasonableness level

d. Tolerable level

Correct Answer: C

The following are the elements of an assurance engagement except:

a. Suitable criteria

b. An appropriate subject matter.

c. A two-party relationship involving a practitioner and intended users.

d. Sufficient appropriate evidence.

Correct Answer: A

When performing an assurance service, professional accountants use standards or benchmarks to evaluate or measure the subject matter of an assurance engagement. This element of an assurance engagement is called:

a. Criteria.

b. Conclusion.

c. GAAP.

d. Assertion.

Correct Answer: D

The subject matter of an assertion may include:

a. Historical or prospective financial information.

b. Internal controls.

c. Compliance with regulation.

d. All of the following.

Correct Answer: A

In an assurance engagement, the person or class of persons for whom the professional accountant prepares the report for a specific use or purpose is the:

a. Intended user.

b. Responsible party.

c. Management.

d. Client.

Correct Answer: D

Which of the following is expected of AASC to do?

a. AASC should normally expose a proposed interpretation of statements

b. AASC should normally expose its opinion on specific queries from a practicing CPA

c. When it is deemed necessary to expose for a comment on proposed interpretations of statements, the exposure period is understandably shorter than those of the regular drafts of standards

d. To make the statements on Philippine Standards on Auditing operative, the final statement shall be submitted to the Board of Accountancy for approval

Correct Answer: C

The suitability of the criteria to which the professional accountant will base his evaluation of the subject matter partly depends on:

a. b. c. d.

Relevance Yes Yes Yes No

Reliability Yes Yes Yes Yes

Understandability Yes No Yes No

Neutrality NO No Yes Yes

Correct Answer: C

Professional judgment

a. Should be exercised in planning an performing an audit of financial statements but need not be documented

b. Can be used as the justification for the decisions made by the auditor that are not supported by the facts and circumstances of the engagement

c. Is necessary in the evaluation of management's judgments in applying the entity's applicable financial reporting framework

d. Is not used in making decisions about materiality and audit risk

Correct Answer: D

Reasonable assurance means

a. Gathering of all available corroborating evidence for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole

b. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements, taken as a whole, are free from any misstatements

c. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements are free of material unintentional misstatements

d. Gathering of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole

Correct Answer: A

An audit in accordance with PSAs is performed on the premise that management and, where appropriate, those charged with governance have responsibilities that are fundamental to the conduct of the audit. Which of the following is not one of those responsibilities?

a. To comply with all relevant PSAs in the preparation and presentation of the entity's financial statements

b. To provide the auditor with all information, such as records and documentation, and other matters that are relevant to the preparation and presentation of the financial statements

c. To provide unrestricted access to those within the entity from whom the auditor determines it necessary to obtain audit evidence

d. To design, implement, and maintain internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether caused by fraud or error

Correct Answer: A

The auditor is required to maintain professional skepticism throughout the audit. Which of the following statements concerning professional skepticism is false?

a. A belief that management and those charged with governance are honest and have integrity relieves the auditor of the need to maintain professional skepticism

b. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the results thereof

c. Professional skepticism is necessary to the critical assessment of audit evidence

d. Professional skepticism is an attitude that includes questioning contradictory

Correct Answer: B

Every independent audit engagement involves both auditing standards and auditing procedures. The relationship between the two may be illustrated by how they apply from engagement to engagement. The best representation of this application is that, from one audit engagement to the next

a. Both auditing standards and auditing procedures are applied uniformly

b. Auditing standards are applied uniformly but auditing procedures may vary

c. Auditing standards may vary but auditing procedures are applied uniformly

d. Auditing standards are applied uniformly but auditing procedures are optional

Correct Answer: A

Generally accepted accounting principles (GAAP) are distinguished from generally auditing standards (GAAS) in that

a. GAAP are the principles for presentation of financial statements and underlying transactions, while GAAS are the standards that the auditors should follow when conducting an audit

b. GAAP are the principles auditors follow when conducting an audit, while GAAS are the standards for presentation of financial statements and underlying transactions

c. GAAP are promulgated by the SEC, while GAAS are promulgated by the FRSC

d. When GAAP are violated, sufficiently strong GAAS may make up for most GAAP deficiencies

Correct Answer: D

The primary purpose of an independent financial statement audit is to

a. Provide a basis for assessing management's performance.

b. Comply with state and federal regulatory requirements.

c. Assure management that the financial statements are unbiased and free from material error.

d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements.

Correct Answer: B

Independent auditing can best be described as a

a. Branch of accounting.

b. Discipline that attests to the results of accounting and other operations and data.

c. Professional activity that measures and communicates financial and business data.

d. Regulatory function that prevents the issuance of improper financial information.

Correct Answer: B

An independent audit aids in the communication of economic data because the audit

a. Confirms the accuracy of management's financial representations.

b. Lends credibility to the financial statements.

c. Guarantees that financial data are fairly presented.

d. Assures the readers of financial statements that any fraudulent activity has been corrected.

Correct Answer: A

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

a. Internal control.

b. Evaluation.

c. Accuracy.

d. Compliance.

Correct Answer: B

Which of the following statements is not a distinction between independent auditing and internal auditing?

a. Independent auditors represent third party users external to the auditee entity, whereas internal auditors report directly to management.

b. Although independent auditors strive for both validity and relevance of evidence, internal auditors are concerned almost exclusively with validity.

c. Internal auditors are employees of the auditee, whereas independent auditors are independent contractors.

d. The internal auditor's span of coverage goes beyond financial auditing to encompass operational and performance auditing.

Correct Answer: B

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

a. Primarily operational auditing.

b. Both financial and operational auditing.

c. Primarily the safeguarding of assets and verifying the existence of such assets.

d. Primarily financial auditing.

Correct Answer: D

Which of the following best describes the operational audit?

a. It requires the constant review by internal auditors of the administrative controls as they relate to operations of the company.

b. It concentrates on implementing financial and accounting control in a business.

c. It primarily considers the reliability and integrity of the financial records.

d. It is directed towards the study of business performance and evaluation of management effectiveness.

Correct Answer: B

Operational audits are especially important to management because they provide

a. Much greater assurance of accuracy of the financial statements than do financial statement audits.

b. Evaluations of efficiency and effectiveness of management policies and operations.

c. Proof that management can use to defend itself against charges of inefficient management practices.

d. Early warnings of changes in accounting principles and financial reporting requirements.

Correct Answer: C

Operational auditing is a branch of auditing that involves the systematic review of operations to evaluate the efficiency, effectiveness, and economy of operations. One significant benefit of operational auditing is

a. Assurance of compliance with company policies and procedures.

b. Detection of errors and fraud.

c. Appraisal of the organization's achievement of its operational objectives.

d. Assurance of compliance with applicable laws and regulations.

Correct Answer: A

Operational auditing is characterized by the following except

a. Scope restricted to financial control.

b. Coverage of financial and operating control.

c. Responsibility is not confined to financial matters.

d. Appraisal of managerial performance.

Correct Answer: A

Operational audits

a. Are more likely to result in recommendations for improvements than financial audits.

b. May be less costly than financial audits because they do not require the same level of technical expertise.

c. Are more likely to result in the discovery of fraud than financial audits.

d. May be performed by individuals who are not CPAs.

Correct Answer: C

Operational audits primarily provide evaluations of

a. Compliance with generally accepted accounting principles.

b. Company compliance with governmental regulations.

c. The efficiency and effectiveness of an organization's operating procedures and methods.

d. Company adherence to its stated code of ethics.

Correct Answer: C

Which of the following types of auditors is responsible for detecting errors and irregularities?

a. External auditors.

b. Internal auditors.

c. Forensic auditors.

d. Government auditors.

Correct Answer: C

Forensic audits focus on the issue of whether

a. A company's financial statements are prepared according to generally accepted accounting principles.

b. A company has operated its business according to government regulations.

c. An individual or organization has committed a financial crime.

d. A company's internal controls are adequate to prevent fraud.

Correct Answer: C

Which of the following best describes the purpose of a forensic audit?

a. To express an opinion on the fairness of financial statements.

b. To evaluate the efficiency and effectiveness of a company's operations.

c. To detect and deter fraudulent activities.

d. To ensure compliance with governmental regulations.

Correct Answer: C

Forensic audits differ from other types of audits in that they

a. Focus on preventing fraud rather than detecting it.

b. Are typically conducted by internal auditors rather than external auditors.

c. Are specifically designed to provide evidence for potential legal action.

d. Primarily involve evaluating internal controls rather than financial statements.

Correct Answer: D

A financial statement audit differs from a forensic audit in that a financial statement audit is primarily concerned with

a. Identifying and correcting errors in financial statements.

b. Detecting and deterring fraudulent activities.

c. Evaluating the efficiency and effectiveness of a company's internal controls.

d. Providing assurance about the fairness of financial statements.

Correct Answer: B

Which of the following is NOT typically a focus of a forensic audit?

a. Identifying fraudulent activities.

b. Evaluating the efficiency of a company's internal controls.

c. Providing evidence for potential legal action.

d. Determining the extent of financial losses due to fraud.

Correct Answer: A

Which of the following is NOT a characteristic of forensic audits?

a. They focus on identifying and preventing fraud.

b. They involve detailed examination of financial records.

c. They may be conducted in response to allegations of fraud.

d. They require specialized skills and training.

Correct Answer: C

Forensic auditing primarily involves

a. Reviewing financial statements for accuracy.

b. Assessing the efficiency and effectiveness of internal controls.

c. Investigating financial transactions for evidence of fraud.

d. Evaluating a company's compliance with regulatory requirements.

Correct Answer: C

The primary objective of a forensic audit is to

a. Identify errors in financial statements.

b. Assess the efficiency of internal controls.

c. Detect and deter fraudulent activities.

d. Evaluate a company's compliance with legal requirements.

Correct Answer: B

Which of the following is NOT typically a focus of a forensic audit?

a. Investigating allegations of financial misconduct.

b. Evaluating a company's financial performance.

c. Assessing the reliability of financial statements.

d. Determining the extent of financial losses due to fraud.

Correct Answer: A

Forensic audits are often conducted in response to

a. Allegations of financial misconduct.

b. Requests for financial advice.

c. Routine internal audits.

d. External regulatory requirements.

Correct Answer: B

Forensic auditors are primarily responsible for

a. Preparing financial statements.

b. Detecting and investigating financial fraud.

c. Evaluating internal controls.

d. Providing assurance on financial information.

Correct Answer: B

Which of the following statements best describes the role of a forensic auditor?

a. They are responsible for preparing financial statements.

b. They investigate allegations of financial misconduct.

c. They evaluate the efficiency of internal controls.

d. They provide assurance on the accuracy of financial information.

Correct Answer: B

Forensic auditors use a variety of techniques to detect and investigate financial fraud, including

a. Reviewing financial statements for accuracy.

b. Interviewing employees and stakeholders.

c. Evaluating internal controls.

d. Preparing financial reports for external stakeholders.

a

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.

b. Generally accepted auditing standards.

c. Internal control.

d. Information systems control.

b

The exposure period allowed for each exposure draft of PSA to be considered by the organizations and persons to whom it is sent for comment is generally:

a. Four months.

b. Three months.

c. Two months.

d. Six months.

c

The expertise that distinguishes auditors from accountants is in the:

a. Ability to interpret generally accepted accounting principles.

b. Requirement to possess education beyond the Bachelor's degree.

c. Accumulation and interpretation of evidence.

d. Ability to interpret PAS.

c

The financial reporting framework adopted by management and, where appropriate, those charged with governance in the preparation of the financial statements that is in acceptable in view of the nature of the entity and the objective of the financial statements, or that is required by law or regulation.

a. Generally accepted auditing standards.

b. Financial reporting standards.

c. Applicable financial reporting framework.

d. Philippine Standards in Auditing.

b

Which of the following statements is INCORRECT?

a. Unlike consulting services, assurance services report on the quality of information.

b. Audit engagements encompass assurance engagements.

c. Not all engagements performed by professional accountants are assurance engagements.

d. Non-assurance engagements include agreed-upon procedures, compilation of financial or other information, and preparation of tax returns where no conclusion is expressed, tax consulting and advisory engagements.

a

In "auditing" financial accounting data, the primary concern is with:

a. Determining whether recorded information properly reflects the economic events that occurred during the accounting period.

b. Determining if fraud has occurred.

c. Determining if taxable income has been calculated correctly.

d. Analyzing the financial information to be sure that it complies with government requirements.

c

An audit of financial statements is conducted to determine if the:

a. Organization is operating efficiently and effectively.

b. Auditee is following specific procedures or rules set down by some higher authority.

c. Overall financial statements are stated in accordance with an identified financial reporting framework.

d. Client's internal control is functioning as intended.

a

In determining the primary responsibility of the external auditor for an audit of a company's financial statements, the auditor owes primary allegiance to:

a. Shareholders, creditors, and the investing public.

b. The management of the audit client because the auditor is hired and paid by management.

c. The Auditing and Assurance Standards Council, because it determines auditing standards and auditor's responsibility.

d. The audit committee of the audit client because the committee is responsible for coordinating and reviewing all audit activities within the company.

c

An audit involves ascertaining the degree of correspondence between assertions and established criteria. In the case of an audit of financial statements, which of the following would not be a valid criterion?

a. International Accounting Standards.

b. Philippine Financial Reporting Standards (PFRS).

c. Generally accepted auditing standards.

d. PFRS for SMEs.

b

Most of the independent auditor's work in formulating an opinion on financial statements consists of:

a. Studying and evaluating internal control.

b. Obtaining and examining evidential matter.

c. Examining cash transactions.

d. Comparing recorded accountability with assets.

A

Which of the following is more difficult to evaluate objectively?

a. Efficiency and effectiveness of operations.

b. Compliance with applicable government regulations.

c. Presentation of financial statements in accordance with the applicable financial reporting criteria.

d. All the given criteria are equally difficult to evaluate effectively.

c

Which of the following best describes the operational audit?

a. It attempts of verifying the fair presentation of a company's results of operations.

b. It concentrates on implementing financial and accounting control in a newly organized company.

c. It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls.

d. It requires a constant review of the administrative controls by internal auditors as they relate to operations of the company.

c

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

a. Engagement letter.

b. Management letter.

c. Audit report.

d. Financial statements.

b

A limited assurance engagement is one in which:

a. The aim is a reduction in an 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.

b. The aim is a reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement, but where that risk is greater than for a reasonable assurance engagement, as the basis for a negative form of expression of the practitioner's conclusion.

c. The auditor is responsible not only for the conclusion but also for the subject matter.

d. None of the choices apply.

a

Which of the following statements exemplifies positive assurance?

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

b. "Based on our work described in this report, nothing has come to our attention that causes us to believe that internal control is not effective, in all material respects, based on XYZ criteria."

c. Both a and b.

d. Neither a nor b.

d

The three commonly-sought types of assurance services are:

a. Audits, review and compilations.

b. Audits, compilations, and other assurance services.

c. Reviews, compilations, and other assurance services.

d. Audits, reviews, and other assurance services.

b

This assurance engagement provides a limited level of assurance about the client's historical financial statements:

a. Financial statements audit.

b. Review of historical financial statements.

c. Forecasts and projections.

d. Agreed-upon procedures.

c

Which of the following best describes risk assessment services?

a. An engagement which provides assurance about whether financial and non-financial information being reported from the entity's performance measurement system is reliable.

b. An engagement which involves the evaluation of the quality of health care, medical services, and looks into the health care delivery system.

c. An engagement which identifies a set of risks that affect the client organization. It involves the study of the link between risks and the organization's vision, mission, objectives, and strategies and the development of new and relevant measures.

d. None of the following.

b

Which of the following best describes business performance measurement?

a. An engagement which identifies a set of risks that affect the client organization. It involves the study of the link between risks and the organization's vision, mission, objectives, and strategies and the development of new and relevant measures.

b. An engagement which provides assurance about whether financial and non-financial information being reported from the entity's performance measurement system is reliable.

c. An engagement which involves the evaluation of the quality of health care, medical services, and looks into the health care delivery system.

d. None of the following.

b

In government auditing, the three elements of expanded scope auditing are:

a. Goal analysis, audit of operations, audit of systems.

b. Financial and compliance, economy and efficiency, program results.

c. Pre-audit, post-audit, internal audit.

d. National government audit, local government audit, corporation audit.

c

An audit designed to determine the extent to which the desired results of an activity established by the legislative or other authorizing body are being achieved:

a. Economy audit.

b. Efficiency audit.

c. Program results audit.

d. Financial-related audit.

C

Which of the following types of audits are most similar?

a. Operational audits and compliance audits.

b. Independent financial statement audits and operational audits.

c. Compliance audits and independent financial statement audits.

d. Internal audits and independent financial statement audits.

d

Which of the following best describes the reason why independent auditors report on financial statements?

a. A management fraud may exist and it is more likely to be detected by independent auditors.

b. A poorly designed internal control structure may be in existence.

c. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's work.

d. Different interests may exist between the company preparing the statements and the persons using the statements.

b

The best statement of the responsibility of the auditor with respect to audited financial statements is:

a. The auditor's responsibility on the fair presentation of financial statements is limited only up to the date of the audit report.

b. The auditor's responsibility is confined to his expression of opinion about the audited financial statements.

c. The responsibility over the financial statements rests with the management and the auditor assumes responsibility with respect to the notes of financial statements.

d. The auditor is responsible only for his qualified opinion but not for any other type of opinion.

d

The general principles for conducting financial statement audits include which of the following?

a. Compliance with the Code of Ethics for CPAs.

b. Compliance with Philippine Standards on Auditing.

c. Planning and performing the audit with professional skepticism.

d. All of the choices apply.

D

Philippine Standards on Auditing (PSAs) should be looked upon by practitioners as:

a. Ideals to strive for, but which are not achievable.

b. Maximum standards which denote excellent work.

c. Benchmark to be used in all audits, reviews, and compilations.

d. Minimum standards of performance which must be achieved on each audit engagement.

d

An auditor needs not abide by a Philippines Standard on Auditing if the auditor believes that:

a. The amount is insignificant.

b. The requirement of the PSA is impractical to perform.

c. The requirement of the PSA is impossible to perform.

d. Any of the given three choices is correct.

A

Ultimately, the decision about whether or not an auditor is independent must be made by the:

a. Auditor.

b. Audit committee.

c. Client.

d. Public.

d

Which of the following attributes is required of an auditor in relation to audit clients?

a. Rationalization.

b. Bias.

c. Loyalty.

d. Independence.

d

A CPA, while performing an audit, strives to achieve independence in appearance in order to:

a. Reduce risk and liability.

b. Comply with the generally accepted standards of fieldwork.

c. Become independent in fact.

d. Maintain public confidence in the profession.

b

Which of the following best describes why publicly-traded corporations follow the practice of having the outside auditor appointed by the board of directors or elected by the stockholders?

a. To comply with the regulations of the Financial Accounting Standards Board.

b. To emphasize auditor independence from the management of the corporation.

c. To encourage a policy of rotation of the independent auditor.

d. To provide the corporate owners with an opportunity to voice their opinion concerning the quality of the auditing firm selected by the directors.

b

Practitioner's independence:

a. Minimizes risk.

b. Helps achieve public confidence.

c. Defends against professional liability.

d. Achieves compliance with the standards of planning and assessment of risks.

b

An audit committee must be comprised of an independent director. Which of the following is considered an independent director?

a. A member of company management.

b. A retired executive from another company.

c. The company's independent auditor.

d. A consultant to the company.

c

Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance to an absolute level of assurance. In practice, professional accountants cannot provide absolute assurance because of the following except:

a. The internal control has its inherent limitations.

b. The professional accountants employ a testing process.

c. The lack of expertise of the professional accountants in doing a systematic engagement process.

d. The use of judgment in gathering evidence and drawing conclusions based on that evidence.

B

Which of the following is not one of the limitations of an audit?

a. The use of testing.

b. Limitations imposed by the client.

c. Human error.

d. Nature of evidence that the auditor obtains.

d

Which of the following statements does not properly describe a limitation of an audit?

a. Many audit conclusions are made on the basis of examining a sample of evidence.

b. Some evidence supporting peso representation in the financial statements must be obtained by oral or written representation of management.

c. Fatigue can cause auditors to overlook pertinent evidence.

d. Many financial statement assertions cannot be audited.

C

Which of the following is one of the limitations of an audit?

a. The possibility that management may prevent the auditor from performing the necessary audit procedures.

b. The likelihood that the auditor may not be able to detect material misstatements in the financial statements because the auditor is engaged only after the year-end.

c. The fact that most audit evidence is persuasive rather than conclusive in nature.

d. The risk that the auditor may not possess the training and proficiency required by the engagement.

c

Which of the following is not a component of an engagement risk?

a. Control risk.

b. Inherent risk.

c. Business risk.

d. Detection risk.

B

Auditing is based on the assumption that financial data and statements are:

a. In conformity with applicable reporting framework.

b. Verifiable.

c. Presented fairly.

d. Consistently applied.

d

The decision of whether the criteria are suitable involves considering whether the subject matter of the assurance engagement is capable of reasonably consistent evaluation or measurement using such criteria. Which of the following characteristics is not considered necessary in determining whether the criteria are suitable?

a. Relevance.

b. Neutrality.

c. Reliability.

d. Sufficiency.

D

Choose one of the following which would describe best the phrase "Philippine Standards on Auditing (PSAs)".

a. They identify the policies and procedures for the conduct of the audit.

b. They define the nature and extent of the auditor's responsibilities.

c. They provide guidance to the auditor with respect to planning the audit and writing the audit report.

d. They set forth a measure of the quality of the performance of audit procedures.

b

The PSAs established by the Board of Accountancy apply:

a. Only to the PICPA membership.

b. To all CPAs.

c. Only to those who choose to follow them.

d. Only when conducting audits subject to the Board's jurisdiction.

a

On every audit engagement, the CPA should comply with applicable PSA:

a. Without exception.

b. Except in examinations that result in a qualified report.

c. Except in engagements where the CPA is associated with unaudited financial statements.

d. Except in examinations of interim financial statements.

d

A

b

The sufficiency and appropriateness of evidential matter is determined by:

a. Philippine Standards on Auditing.

b. Judgment of the auditor.

c. Availability of corroborating data.

d. Relevance of evidential matter.

c

In general, internal auditors' independence will be greatest when they report directly to the:

a. Financial vice-president.

b. Corporate controller.

c. Audit committee of the board of directors.

d. Corporate stockholders.

d

Operational audits often have an objective of determining whether an entity's:

a. Internal control is adequately operating as designed.

b. Operational information is in accordance with generally accepted governmental auditing standards.

c. Financial statements present fairly the results of operations.

d. Specific operating units are functioning efficiently and effectively.

b

An audit designed to detect violation of laws and regulations would be referred to as:

a. A financial statement audit.

b. A compliance audit.

c. A performance audit.

d. An operational audit.

c

Which of the following attributes is more closely associated with attestation services performed by a CPA firm than with other lines of professional work?

a. Integrity.

b. Competence.

c. Independence.

d. Keeping informed on current professional developments.

b

Professional skepticism dictates that when management makes a statement to the auditors, the auditors should:

a. Disregard the statement because it ranks low on the evidence quality scale.

b. Corroborate the evidence with other supporting documentation whenever possible.

c. Require that the statement be put in writing.

d. Believe the statement in order to maintain the professional client-auditor relationship.