AudTheo Quiz 1 and 2 Prelims

The term used to describe the broad range of information enhancement services performed by a Certified Public Accountant that are designed to enhance the degree of confidence in the information.

A. Auditing
B. Audit
C. Attestation
D. Compliance

A. Auditing

Which of the following is not a type of assurance engagement?

A. Audit of financial statements
B. Compilation
C. Audit of internal controls
D. Review

B. Compilation

To maximize independence, the internal auditor should directly report to the

A. Audit Committee
B. Chief financial officer
C. Controller
D. Director of information systems

C. Controller

Non-assurance engagements include all of the following except

A. Preparing of tax returns
B. Fraud investigation
C. Management consulting
D. Compliance Audit

D. Compliance Audit

Type of auditor that is primary responsible to the performance of audit of the published historical financial statements of all publicly traded-companies and many smaller companies and noncommercial organizations.

A. External auditor
B. Government auditor
C. Forensic auditor
D. Internal auditor

A. External auditor

This type of audit which aims to detect or deter fraudulent activities.

A. Compliance Audit
B. Internal Audit
C. Forensic Audit
D. Operational Audit

C. Forensic Audit

The objective of assurance services is best described as

A. Comparing internal information and policies with those of other firms
B. Enhancing decision making
C. Improving the firm’s outcomes
D. Providing more reliable financial statements

B. Enhancing decision making

An operational audit is designed to

A. Assess the efficiency and effectiveness of management’s operating procedures
B. Assess the presentation of management’s financial statements in accordance with generally accepted accounting principles.
C. Determine whether management has complied with applicable laws and regulations
D. Determine whether the audit committee of the board of directors s effectively discharging its responsibility to oversee management’s operations

A. Assess the efficiency and effectiveness of management’s operating precedures.

The market for auditing services is driven by

A. The regulatory authority of Securities and Exchange Commission
B. Pronouncements issued by the Auditing Standards Board
C. Congress
D. A demand by external users of financial statements

D. A demand by external users of financial statements

Professional accountants in business may be grouped in any of the following sub-sectors except:

A. Commerce and industry
B. Government
C. Education
D. Public Practice

D. Public Practice

Type of audit services that is independent, objective assurance and consulting activity designed to add value and improve the organization’s operations.

A. Compliance Audit
B. Internal Audit
C. Forensic Audit
D. Operational Audit

B. Internal Audit

It is a systematic process of objectivity obtaining and evaluating of evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.

A. Assertion
B. Compliance
C. Auditing
D. Forensic

C. Auditing

The following are activities of internal auditing, except:

A. Ascertaining the compliance with the established policies, plans and procedures
B. Appraising the quality of performance in carrying out assigned responsibilities
C. Probing money-laundering activities by tracking and reconstructing cash transactions.
D. Recommending operating improvements

C. Probing money-laundering activities by tracking and reconstructing cash transactions

The following are government regulatory auditors that check on the solvency and compliance of the various institutions and business firms with appropriate laws and regulations except:

A. Bangko Sentral ng Pilipinas
B. Office of the Insurance Commission
C. Department of Agriculture
D. Securities and Exchange Commission

C. Department of Agriculture

Which of the statement/s is/are true?

I. Attest services are a subset of assurance services
II. Auditing is a type of attest service
III. Consulting is an assurance service
IV. All attestation services are audits

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

C. I and II

COA Auditors aim to determine whether the government agencies and other entities that use public funds are doing the following, except:

A. Present their financial statements fairly in accordance with Financial Reporting Standards and applicable laws and regulations
B. Desired results are achieved
C. Conduct the programs with economy and efficiency
D. Collect enough revenues

D. Collect enough revenues

The primary purpose of an independent financial statement audit is to

A. Assure management that the financial statements are unbiased and free from material error.
B. Comply with state and federal regulatory requirements.
C. Provide a basis for assessing management’s performance.
D. Provide users with an unbiased opinion about the fairness of information reported in the financial statements.

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

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.

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

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

A. Assures the readers of financial statements that any fraudulent activity has been corrected
B. Confirms the accuracy of management’s financial representations
C. Guarantees that financial data are fairly represented
D. Lends credibility to the financial statements.

D. Lends credibility to the financial statements.

An independent auditor must be without bias with respect to the financial statements of a client in order to

A. Comply with the law established by governmental agencies.
B. Ensure impartiality necessary for an expression of the auditor’s opinion.
C. Maintain the appearance of separate interests on the part of the auditor and the client
D. Protect against criticism and possible litigation from stockholders and creditors

B. Ensure impartiality necessary for an expression of the auditor’s opinion.

The following are the actions of auditor to minimize exposure to legal liability, except:

A. Emphasize compliance with standards of auditing
B. Conduct the audit with appropriate professional skepticism
C. Accept companies with high risk of litigation
D. Use engagement letters which clearly point out the scope of auditor’s services and responsibilities.

C. Accept companies with high risk of litigation

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.

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

Which of the following is responsible for the fairness of the representations made in financial statements?

A. Client management and those charged with governance
B. Independent auditor
C. Audit committee
D. Client management and independent auditor

A. Client management and those charged with governance

This is committed by the auditors when they know that the financial statements are misstated but do not take appropriate action to report the misstatements.

A. Fraud
B. Negligence
C. Error
D. Gross negligence

A. Fraud

The following can be the auditors’ defenses against third party lawsuits except:

A. The audit was conducted in accordance with the standards of auditing
B. Lack of duty defense
C. The statute of limitations on the action has expired
D. Contributory negligence on the third party

D. Contributory negligence on the third party

It is one of the core values of CPAs wherein impartiality and intellectual honesty shall be maintained

A. Integrity
B. Objectivity
C. Competence
D. Commitment to excellence

B. Objectivity

This is the agency that is empowered to administer the Accountancy Law

A. BOA
B. PICPA
C. PRC
D. FRSC

A. BOA

The users of the audited financial statements that use the AFS as basis to assess credit risk.

A. Management
B. Financial institutions
C. Stockholders
D. Vendors

D. Vendors

The risk that the financial information used to make a decision is materially misstated

A. Information Risk
B. Inherent Risk
C. Relative Risk
D. Business Risk

A. Information Risk

Which of the statement/s regarding CPA Licensure Examination is/are true?

I. To pass the CPA licensure examination the candidate must obtain a general weighted average of at least 75% with no grades lower than 65% in any given subject
II. The candidate shall have a conditional credit if the candidate has a rating of at least 75% at least in the majority of the subjects
III. The candidate with conditional credit shall be given two (2) years to take the remaining subjects from the preceding examination.
IV. The candidate with a conditional credit will retake only those subjects with a rating of below 65%.

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

B. I, II and III

A candidate for the CPA Licensure Examination obtains a general average of 76%, but receives a grade of 60% in one subject and 75% or higher in the remaining five subjects. What is the status of this candidate?

A. Passed
B. Failed
C. Retake only the subject with 60% within one year
D. Conditional Credit

D. Conditional Credit

Under the legal concept of “Privity of Contract”, which of the following is true?

A. The CPA is not liable to third parties for fraud.
B. The CPA is not liable to third parties for ordinary negligence
C. The CPA is only liable to third parties if they are '“foreseeable".”
D. The CPA is only liable to third parties if the third party contributed to the loss

B. The CPA is not liable to third parties for ordinary negligence

Which standard-setting body is specifically tasked with assisting the Board of Accountancy in the adoption of International Financial Reporting Standards (IFRS) in the Philippines?

A. Auditing and Assurance Standards Council (AASC)
B. International Accounting Standards Board (IASB)
C. Financial Reporting Standards Council (FRSC)
D. Philippine Institute of Certified Public Accountants (PICPA)

C. Financial Reporting Standards Council (FRSC)

Which of the following is NOT categorized as a positive action to minimize an auditor’s exposure to legal liability?

A. Exercising extreme care in the audit of clients in financial difficulties
B. Avoiding companies and industries where the risk of litigation is high
C. Withdrawing from an engagement immediately whenever any error is detected to avoid future claims.
D. Providing the opportunity for auditors to consult with more experienced colleagues about difficult issued.

C. Withdrawing from an engagement immediately whenever any error is detected to avoid future claims.

Which of the following regulatory measures has been adopted to specifically address the “expectation gap” and the profession’s credibility crisis?

A. Allowing auditors to maintain professional liability insurance (PLI) as a standard practice.
B. Requiring regular, periodic Quality Assurance Review (QAR) of auditor compliance by the Board of Accountancy.
C. Transferring the responsibility for internal controls from management to the external auditor.
D. Limiting the auditor’s responsibility to only detecting intentional material misstatements.

B. Requiring regular, periodic Quality Assurance Review (QAR) of auditor compliance by the Board of Accountancy.

in the philippines which of the following is a legal restriction regarding the organization of a public accounting practice?

A. firms must only be organized as sole proprietorships

B. corporations are not allowed to engage the practice of public accounting

C. all firms must be organized professional corporations

D. firms can only be organized as general partnerships with no more than 10 partners.

B. corporations are not allowed to engage the practice of public accounting

according to the typical hierarchy in a public accounting firm which position is usually responsible for the overall quality of each other engagement?

A. audit manager

B. audit partner

C. senior auditor

D. partner in charge

B. audit partner

which of the following audit procedures is not likely to be done by the staff auditor?

A. examination of the declacy of allowances for depreciation and bad debts

B. examining voucher supporting minor disbursements

C. testing the postings of entries from journals to the ledger

D. checking the accuracy of footings and extensions and books of accounts

A. examination of the declacy of allowances for depreciation and bad debts

a staff auditor is generally task with which of the following

A. assembling the final working papers and drafting the financial statements

B. discussing reports and results of the audit with clients

C. assigning particular phases of audit work to other staff members

D. preparing schedules and reports of findings

D. preparing schedules and reports of findings

when a cpa coach a fee lower than another cpa for professional service this is:

A. automatically considered an ethical behavior

B. not in itself ethical but may create a self interest threat to competence

C. required by law to encourage competition

D. only allowed if the client is a non-profit organization

B. not in itself ethical but may create a self interest threat to competence

which international firm is partnered with the local firm isla lipana and associates

A. price waterhouse coopers

B. ernst and young

C. grant thornton

D. kpmg

A. price waterhouse coopers

which of the following is not one of the components of a system of quality management?

a. governance and leadership

b. marketing and client acquisition

c. relevant ethical requirements

d. the monitoring and remediation process

b. marketing and client acquisition

in relation to a system of quality management a response is defined as:

a. the formal reply provided when external oversight authority after investigation

b. the feedback given by engagement partner to a senior auditor during a performance review

c. corrections made the financial statements by client after an audit finding

d. policies or procedures to send and implemented by the firm to address one or more quality risks

d. policies or procedures to send and implemented by the firm to address one or more quality risks

which of the following is prohibited by code of ethics?

a. advertising in a general newspaper to attract clients

b. auditing a competitor of the current audit client

c. charging and accepting a contingent fee for a financial statement review engagement

d. purchasing a product and reselling that product at a higher price

c. charging and accepting a contingent fee for a financial statement review engagement

a basic objective of a cpa firm is to provide professional services that conform the professional standards. reasonable assurance of achieving the basic objective is provided through

a. compliance with generally accepted accounting standards

b. a system of quality management

c. a system of peer review

d. continuing professional education

b. a system of quality management

a threat to compliance with the principles when there is a potential benefit of the accountant, financially or otherwise, from a financial interest in/or some other financial relationship within attest client

a. self interest threat

b. familiarity threat

c. self review threat

d. intimidation/adverse/undue influence threat

a. self interest threat

which of the following statement is not true?

a. the firm may provide services related to the preparation of accounting records and financial statements to an audit client when the client is not a public interest equity

b. the firm may also provide accounting and bookkeeping services to a public interest equity when only the firm has the resources and necessary knowledge of the client system and procedures to assist in the timely preparation of its accounting records and financial statements

c. the firmly provide the accounting and bookkeeping services on audit client if those who provide the said services are not members of the audit team

d. the firm may provide the accounting and bookkeeping services to an audit client if the send services are not for short term period only and expected to recur

d. the firm may provide the accounting and bookkeeping services to an audit client if the send services are not for short term period only and expected to recur

it is a method of billing clients where client is charged on a perdian bas, with the arrangement that the total charges will not exceed a pertin agreed amount

a. per diem basis

b. maximum fee basis

c. fixed fee basis

d. retainer basis

b. maximum fee basis

the following are actions of auditor to minimize exposure of legal liability, except:

a. accept companies with high risk of litigation

b. emphasize compliance with standards of auditing

c. conduct the audit with appropriate professional skepticism

d. use engagement letters which clearly point out the scope of auditor services and responsibilities

a. accept companies with high risk of litigation

the following are the duties of an audit partner, except

a. to plan and review all the faces of an audit engagement

b. to sign audit report

c. to obtain/establish contracts with clients

d. to discuss reports and result of audit with clients

d. to discuss reports and result of audit with clients

which of the following is not the task of an audit manager or supervisor?

a. to discuss with the client's the problems in the audit

b. the direct charge of the training programs

c. to review working papers and drafts the audit report

d. to prepare audit program for an engagement

d. to prepare audit program for an engagement

which of the following is the task of the senior auditor?

a. to work on tax returns

b. to prepare schedules and findings

c. to review articles of incorporation, bylaws, and other non-financial records

d. to act as liasion officer between partners and other members of the staff

c. to review articles of incorporation, bylaws, and other non-financial records

all of the following are the possible sources of clients of a cpa, except

a. referrals from businessman interactive participation in civic and community affairs

b. referrals from clients by rending service at a lower price

c. referrals from legal and other professional firms

d. referrals from financial and government institutions by keeping high standards

b. referrals from clients by rending service at a lower price

a requirement that working papers be reviewed by the supervisor and any deficiencies be discussed with the preparer is an example of a quality management procedure in the area of

a. acceptance and continuance of client relationship and specific engagements

b. engagement performance

c. human resources

d. relevant ethical requirements

b. engagement performance

which of the following is not a broad category of threat to auditor independence?

a. familiarity

b. financial self interest

c. positive work relationship

d. undue influence

c. positive work relationship

which of the following is not a broad category of safeguards so that mitigate or eliminate threats to independence?

a. safeguards created by the profession, legislation, or regulation

b. safeguards implemented by the attest client

c. safeguards implemented by the firm, including policies and procedures to implement professional and regulatory requirements

d. safeguards created to assure proper training within both the client and attest environment

d. safeguards created to assure proper training within both the client and attest environment

which of the following types of employees must be independent of an audit client?

a. a partner in the office that performs the engagement

b. senior auditors assigned to the office that performs the audit

c. managers assigned to an office that does not participate in the engagement

d. all firm professionals, regardless of their position

a. a partner in the office that performs the engagement

a threat to compliance with the principles where the accountants immediate family, close relative or friend is employed by the client or director / officer of the client.

a. familiarity threat

b. self interest threat

c. intimidation/adverse/undue influence threat

d. self review threat

a. familiarity threat

which of the following forms of advertising would most likely be considered a violation of the code of ethics?

a. advertising including the types of services offered in the standard fees for the services

b. advertising including the experience of the firm's professional staff

c. advertising including the percentage of the firm staff that have cpa certificates

d. advertising including an indication that the firm has a close relationship with several tax court judges

d. advertising including an indication that the firm has a close relationship with several tax court judges

which of the following suitable safeguards implemented by the client that might mitigate an audit independence threat?

a. si pay firm leadership stresses the importance of complying with professional standards

b. management has suitable skills to make managerial decisions

c. management maintain substantial common stock investments in the company

d. top management selects the auditing firm

b. management has suitable skills to make managerial decisions

a threat to compliance with the principles where the accountant assumes a client's role while performing non audit services

a. self review threat

b. advocacy threat

c. familiarity threat

d. intimidation/adverse/undue influence threat

d. intimidation/adverse/undue influence threat

which of the following services is allowed to be performed by the auditor to his audit client?

a. performance of bookkeeping services for the client

b. authorization of transactions for the client

c. preparation of client source documents

d. preparation and posting of journal entries without the clients approval

a. performance of bookkeeping services for the client

abc & company cpa's has one office. which of the following is least likely to impair independence with respect to an audit client?

a. the client owes the firm for two prior years audit fees

b. a partner in the cpa firm is the son of the president of the client

c. the wife of the partner in the firm has a small direct financial interest in the client

d. a partner in the firm has an investment in a mutual fund that has a direct interest in the client

d. a partner in the firm has an investment in a mutual fund that has a direct interest in the client

which of the following statement regarding the code of ethics is true?

a. all direct financial interest is prohibited

b. only direct material direct financial interest is prohibited

c. all indirect financial interests are also prohibited

d. all financial interests are prohibited

a. all direct financial interest is prohibited

which of the following situations may the conflict/s of interest arise?

I. providing services to both a vendor and a purchaser in relation to the same transaction

II. preparing valuations of assets of two parties who are in adversarial position with respect to the assets

III. advising a client to invest in a business in which the spouse of the professional accountant in public practice has a financial interest

IV. advising a client on the acquisition of a business which the firm is also interested in acquiring

A. I and II

B. I, II and III

C. II and III

D. I, II, III and IV

C. II and III

an attitude that includes a questioning mind in the critical assessment of audit evidence is referred to as

a. due professional care

b. reasonable assurance

c. professional skepticism

d. supervision

c. professional skepticism

the following are the elements of an assurance engagement, except

a. engagement letter

b. suitable criteria

c. three party relationship

d. subject matter

a. engagement letter

a criterion that contributes to conclusions that are free from bias

a. neutrality

b. sufficiency

c. relevance

d. reliability

a. neutrality

in determining the quantity and quality of evidence to gather the auditor will be satisfied when the evidence is

a. completely convincing

b. highly persuasive

c. conclusive

d. irrefutable

b. highly persuasive

which of the following statement is not true?

a. evidence is more reliable when it is obtained from independent sources outside the entity

b. evidence that is generated internally is more reliable with a related controls are effective

c. evidence is more reliable when it exists in documentary form

d. none of the above

d. none of the above

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

a. audit report

b. financial statements

c. engagement letter

d. management letter

a. audit report

the risk of material misstatement occurring in account balance, assuming an absence of internal control is referred to as

a. inherent risk

b. control risk

c. detection risk

d. account risk

a. inherent risk

which of the following is not a service provider under the psqm?

a. an external organization that provides technological resources used in the system of quality management

b. an individual external to the firm providing intellectual resources for engagement performance

c. the firm's network, other network firms, or other structures or organizations in the network

d. a third party consultant hired to perform an objective evaluation of significant judgments

c. the firm's network, other network firms, or other structures or organizations in the network

it is a characteristic of a criteria that allows reasonable consistent evaluation or measurement of the subject matter

a. reliability

b. neutrality

c. relevance

d. appropriateness

a. reliability

the major reason and independent auditor gathers audit evidence is to

a. detect fraud

b. evaluate management

c. evaluate internal control

d. form an opinion on the financial statements

d. form an opinion on the financial statements