a hk HOY ores CPAREVIEW scHOOL oF THE Pemzprines ATPW-8102 i Manila \UDITING THEORY CPA Review wu dordod }¢ Which of the following ig motan assurance service? ne 24 A. Examination of prospective financial information janie ke event ge — B. Audit of historical financial statements \ gar ao BAL = ; C. Review of financial statements sede ret D. Compilation of finandal information - pire Nees reat oar UE sia ioc 2 Which of the following conditions most likely would pose the greatest risk in accepting 2 a new audit engagement? ‘A. Staff will need to be rescheduled to cover this new client. B. There will be a clent-imposed scope limitation.» 97) CC. The firm will have to hire @ specialist in one audit area. “ D. The dent's fear recat sam has bee, In place for 10.years atts = ashe Neck & labo! Ae < 2 Which of theyelionn Bs financial akdments is(are) appropriate for general use? Financial forecast wade ee A. Yes yack Yes are ur B. Yes No w c. No Yes ¢ D. No No it - ok wean RRP a *S practitioner's report"on upon procedures that is in the form of procedures and findings should contain: Badrretien * ae seencpative assurance thet the procedures did not necessarly dsdose all reportable conditions. nw B. hn acknomedgment of the practitioner's responstiity for the sufficiency of the jures. ° «+ C. Astatement of restrictions on the use of the report. D. A dlsclaimer of pinion on the entity's financial statements. 5. one comman type of CAATs the use of auc software to process data of aut SOMINCSTe from the entity’s information system. An ‘audit-software that has widespread popularity from ie cis easy to use and requires ite computer background on the part ofthe audor, because sed on both mainframe and PC systems; it allows the auditor to perform hist 1 ependent ofthe ens computer pressing personnel; and ican be used t audit .w) the data in most file formats and structures is called @ A. Customized program B. Purpose-written program C. utility program 1D. Package or generalized audit software (GAS) » 6. Which of the following factors would most likely be considered an inherent limitation to an 7” entity's internal control? ‘A. The complexity of the information processing system. hi 4 B._Human judgment in the decision making process.\> Gerurdeyerert 4) c “The ineffectiveness of the board of directors. D, The lack of management incentives to improve the control eee hewr OES (ULVVOU-CL > Orrke Aves bok ONCE ‘auditor Is required to attempt communication with the predecessor auditor prior oar tt A successor J Performing test of controls. Shin - Rene ee tee a B. Testing beginning balances for the current year. ce ey x Gk / C. Making a proposal for the audit engagement. Rayent Fr Ka hove qo ‘Accepting the engagement. » Ck ae datos () Which of the following factors would likely affect the extent A — consideration ofthe client's internal cont bis? pm SSE. tee mations Page 1 of 16 Pages‘A,/‘The amount of time budgeted to complete the engagement. ~~ ‘The size and complexity of the client. " k C. The nature of specific relevent controls. D. The auditor's prior experience with client operations. 9% An auditor is testing the reasonableness of dividend income from investments in publicly held companies. The auditor most likely would compute the amount that should have been * received and recorded by the client by: ( ‘A. Reading the details of the board of directors’ meetings. B. Confirming the details with the investee companies’ registrars. C. Electronically accessing the details of dividend records on the Internet. D. Examining the details of the client's mast recent cutoff bank statement. wy cee hl sney scorers payrcl transactions, an auditor would lea: age wd controls conceming: (Yura Geese) ves CT ped ’ works, dlely ) ‘A. Overpayment of employees for hours nat tramedd 4 B. Control and distribution of unclaimed checks. »” » C. Withholding of taxes and Social Security contributions. D. Missing employee identification numbers. w\ ) Which of the following factors 1s most relevant when an auditor considers the clent's \_/’ organizational structure in the context of control risk? oor A. Management's attitude toward informaiton processing and accounting departments.» ‘The organization's recruiting and hiring practices. Physical proximity of the accounting function to upper management. ‘The duitability ofthe client's lines of reporting. auditor who uses zy refer to the if cuor we mestfeyokofn oper may feo ee HOS MORTLTET A aN sete tat the expetsfhetngs are reasonable inthe creumstanbss.” ame by yoart Expert's findings support the related assertions in the financial statements. oy ‘Aucitor modifies the report because of the difference between the client's and the expert's valuations of an asset. Experts findings provide the auditor with grester assurance of rellality about management's representations? 1 Reh to WRLC = Operen Un rediys Which of the following moét likely would cause an auditor to consider whether a client's ¥( \—7 financial statements contain material nissiatemerts? A. Management did not disciose to the auditor that it consulted with other accountants about significant accounting matters. B. ‘The chief financial officer will not sign the management representation letter until the last day of the auditor's field work. . Audit trails of computer-generated transactions exist oniy-for a short time, D. The results cf an analytical procedure lsciose unexpected differences. discovering 2 deviation from the prescribed control procedure? r ‘A. Make inguiries to understand the potential consequence of the deviation, — B. Assume that che-deviation Is an isolated occurrence without ausit significance. CC. Report the matinr to the next higher level of authority within the entity D. Increase sample size of tests of controls.~ Ing of the Internal controls for a client that sells garden 11. A CPA is gaining an understand ae a Wich of the folloving is not likely to be found on the products using an Internet site, lent’ organizational chart? A. The sales order department, BL The shipping department. CC. The warehouse.” D. Computer processing. the following describes 2 weakness in accounts payable procedures? »- publi mayebte clerk files Inveies and supporting documentation after po pet “ * A B. The accounts payable clerk manuelly verifies anthmetic on the vendor invoice. C. The accounts payable system compares the recelving report to the vendor invoice. D. The accounts payable manager Issues purchase orders. he auditor should perform tests of ecntzols when CF ty ba Hers atone dont provide suftident appropriate audit evidence at the relevant ascertior: level. 7” : B. Tests of details and substantive analytical procedures provide suffident appropriate audit evidence te support the assertion being evaluated. C. The auditor is not able to obtain an understanding of intemal controls. Page 3 0f 16 Pagesoe i. 26. e Me (2. es (28, 29. 30. ©. The owner-manager performs virtually alt the functions of internal control. ‘An auditor who has confirmed nal ra peteelalinaad accounts receivable may discover that the gales joumal was._ A.-Pesitive confirmations sent o debtors are not retumed. B. Negative confirmations sent to debtors are not returned. C. Most of the returned negative confirmations indicate that the debtor owes a larger balance than the amount being confirmed. (sore tewcGd celes) 1D. Most of the returned positive confirmations indicate that the debtor owes a smaller balance than the amouint being confirmed. White sa procteies iad eset aS bymanagement? «Inquiry of senior support staff and recently departed employees. 'B. Review and check mathematical accuracy of financial statements. C. Review articles of incorporation and corporate bylaws. D. Review purchase contracts and other legal documents. » ‘The risk of material misstatement refers to A. Control risk and acceptable audit risk. B. Inherent risk, + tock) C. The combination of herent skard con stp | pekchan teat (nei Mek) D. Inherent risk and audit risk. . Ina financial statement avait, inherent risk is eveluated to help an auditor assess which of the following? ~ ‘A. The internal audit department's objectivity In reporting @ material misstatement of @ financial statement assertion it detects to the audit committee. BB, The risk the intemal controf system wil not detect a material misstatement of a financial statement assertion C. The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion. , ‘The-susceptiblity ofa financial statement esserton to a material misstatement assuming tnere are no related controls. ‘auditors begin their assessments of Inherent risk during audit planning. Which of the fellowing would rot help in assessing inherent risk during the planning phase? ‘A. Obtaining client’ agreement on the engagement letter. B. Obtaining knowiecge about the client’ business and industry. C._ Touring the client's plant and offices. -» D. Identifying related parties. jackin f As the acneptable aud} risk is decreased, the likely cost of conducting an audit increases. Vien al Cae to accept that the financial Acceptable audit risk 1s a measure of the euditor’s willingness vat inar statements do ref contain material misstatenents after the audit is com and a qualified audit report has beer issued. (_ ult ruck = vnructipeed y Merioen 1. debe] C. False; False A. True; True q B. True; False 0. False; True elated party transactions may be indicated when another company mY. A Subsidizes certain operating expenses of the compa B. Purchases ts secures at thet a value. CC. Loans to company at market rates. 5. Has had a distributor relationship with the company for 10 years. ‘An auditor should examine minetes of the board of directors’ meetings A Stnreagh the date ofthe financial statements. B. Through the date of the audit report. ~~ CC. Oniy at the beginning of the audit D. Ona test basis. Prige #0f 16 Pagesa ) k XL x (GPA REVIEW 32, If the auditor were responsible for making certain that all of management's agsertions if the financial statements were absolutely correct ee A. Bankruptcies could no longer occur. B. Bankruptcies would be reduced to a very small number. C. Audits would be much easier to complete. D. Audits would not be economically practical.» nos Uaveredbitg Renee 33. Which of the following statements is true? A ‘Auditors have generally found that the most effective and efficient way to conduct 27) audit is to obtain. some assurance for each class of transaction and for the ending balance of the related account. on B, Management's assertion follow and are closely related to the aucit objectives, C. The auditor’s primary responsibilty Is to find and disclose fraudulent management assertions. BD ‘assertions about presentation and disclasure deal with whether the accounts have been included in the financial statements at appropriate amounts. yd 7 34. Which ofthe folloing stsements about the existence and ness assertions i& not te? Benes ern, em hn LE A. The existende and completeness assertions Yanko diferent audit concerns. B. Existence deals with overstatements and completeness deals ‘with understatements. C. Existence deais with understatements and completeness deals with overstatements. D. The completeness assertion deals with unrecorded transactions. 35. In testing for cutofi, the objective is to determine ‘A. Whether all of the current period's transactions are recorded. B. Whether transactions ere recorded in the corvect accounting period. CC. The proper cutoft between capitalizing and expensing expenditures. D. The proper cutoff between disclosing items in notes to the financial statements or in account, balances. 36. Determ'ne which of the feliowing Is most correct regarding the reliability of audit evidence? A. information that is indirectly obtained from external sources Is the most reliable audit evidence. oo Sey B. Rellabity of aucit evidence is dependent upon the evidence being convincing. CC. Reliability of eviclence refers to the amount of evidence obtained. D. An effective internal control system provides more reliabie audit evidence. 37. When the auditor develops supporting evidence for amounts posted to account balances with documentary evidence, that process is called = — Cu “ye prot (o A. Inquly : B, Confirmation. steer doe © Vouching. “ D, Physcal@arrigton. p pomank cH Waortedaye Urequnel) eavired i , flowcharts, and intemal control questionnaires are three common is of ‘A Documenting the auditor's understanding of internal controls. eT Ligl wid} B._ Designing the audit manual and procedures. \ C. Documenting the at !itor’s understanding of a client's organizational structur D. Testing the intemal controls. — + 39, Who Is most likely to perpetrate froudule:* financial reporting? | ©. Members of the board of directors. : 5 \ B, Production employees. — rus apy P™ when cy P< | CC. Management ofthe company. | D. The intemal auditors. pee | we 40. Which of the following Is not a factor that relates to opportunities to assets “A. Inadequate internal controls over assets. eee e B. Presence of large amounts of cash on hand. | Pages of 16 Pages |‘SPAREVIEW SCHOOLOFTHEPHILIPPINES (cPARL ATWO C. Inappropriate segregation of duties or independent vance. checks D. Adverse relationships between: management and employees. ssere scent J 41. A control that rel A A contrat at relates a parts ofthe IT system is called a/an B. Systems control. . C. Universal control, D. Applications control. 42. The auditor would design which of the foll detect wa errors in the financial statements? pence pa A. Contrel tests, 0 B, Analytical procedures. » > CC. Risk assessment procedures. D. Tests of operating effectiveness of controls over revenue and cash, ce ; enn tf Gihch b jab deteuh 4. \43, Trinherent risk is increased to medium from low, tests of details of balances can be reduced. F “The extent of tests of details of belances cannSt be redicéd when transaction-related aucht hee objectives have been satisfied by tests of controls or substantive tests of transactions. f A. True; False ©. True; Tue 8. False; True D. Fos; False 44. Adocument tat details what he auctor wil do together suicient, propriate evidence is A. Audit strategy. H B se a. ft 4 J © Audit procedure. 2 p [ compleAver B, Aut skmodel — gaa acl ( plameey (4 frm! i sary 45, Analytical procedures (muat’6e performed In A, The planning and ‘of control stages. B. Conjunction with tests of transactions and tests of details of balances. C. The planning and completion stages. D. The planning, test of control, and completion stages. O 46. An auditor noted that the accounts receivable department is separate from other accounting ‘activities. Credit is approved by 2 separate credit department. Control accounts and subsidiary ledgers are balanced monthly. Similarly, accounts are aged monthly. The. accounts receivable manayer writes off cilinquent accounts after 1 year, or sooner If & bankruptcy or cther unusual circumstances are involved. Credit memoranda are h renumbered and must correlate with reccwing reports, Which of the following areas could be viewed as an interne! control weakness ol the above organization? A. Write-offs of delinquent accounts, B. Credit approvals C. Monthly aging of receivables. D. Handling of credit mernos. 1 is received from 47. A purchasing agent places an order for inventory whenever a requisition the warehouse, ‘The warchouse clerk issues requisitions based on periodic physical counts : i have been because no perpetual records are maintained. humerous diets me , for goods reviously ordered out nck received, To prevent seat a shoul ‘ ‘A. Keep an adequate record of open purchase orders: ‘and review it before reg. 7 B. Count goods in tie warehouse less often. C._ Use prenumberes! purchase orders. D. Not use purchase requisitions. rent makes about the Which of the following is not a category of assertions that managem ~ deck ‘accounting information in the financial staxements? os pean ys classes of transactions forthe period under audit. Page 6 of 16 Pages: |SPA REVIEW SCHOOL, OF THE PHILIPPINES (CPAR) tO B. Assertic C. Assertens oc een ceees a prod end statements, 1@ Quality of source documents used to D. i. Prepare the financial .. Assertions about presentation and disclosure. - cu wees 49. The refusal lawyer to provide a representation cried oy eS ee arey jofren the legality of a particular act * Sufficient reason to issue a “subject to” opinion. ¢ ioe San TARGET [ee rie Oe ee of the lawyer's obligation of D. Proper grounds to withdraw from the engagement. 50. Which of the following steps perform determi enisten fic) fits tlowing should an auditor first to ine the 02 of ‘A. Examine invoices, contracts, and 7 s, and purchase orders. B. Request a list of related parties from management. CC. Review the company’s business structure. D. Review proxy and other materials filed with the SEC. In planning the audit engagement, the auditor should consider each of the following except A. The auditor's independence. B, Risks of material misstatement due to freud. C. Anticipated levels of audit risk and materialtty. D. The kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed. [After obtaining a sufficient understanding ofthe entity, its environment, and internal contro! in an audit of the financial statements, the auditor assesses A. The need to apply auditing standards. B. Detection risk to determine the acceptable level of inherent risk. C._betection risk and inherent risk to determine the acceptable level of control ris. i risk to determine the acceptable level of detection risk. D. Control risk and inherent jarila Bank, Maasim Corp. is required to submit 2 loan from Metro ‘dn audited statement of financial position but rot the related statements of income, changes in __Aanity, 0 cash flows. Maasim would tke to engage a CPA to aut ony Bs stafementofnancal ay, OF Caer tnese croumstances, the CPA [Vail wre oc oS RP may not audit only Maasim’s statement of ‘inenicial position if the amount of the loan ts Traterial to the financial statements taken as a whole. 2, avrnot audit only Maasin's statement of finance postion Won nota listed entity. ) Oey doe only Macsim’ statement of aendial postion the ‘CPA disclaims an opinion on Nother financial statements. eum ony Geeement of Ananclal position If access to the 51. 52. ~ 53. As a condition of obtaining Information wala oT D. May audit only Maasin’s a May ang the basic financial staternents sr inst npeeattin Tovnal Cok ai Coral, wudhor orally would. ote the reesovableness of an en's accounng estimates, an aUdROg SETTER! "a een Bytes fet 54. In eecemed about assumptions that are 54. In evaluatg about asm plions aan 2 | \ be espible to Des Insensitive to variations, Bea Oe etirk B Consistent with pror pesos. D. Sima to industry guidelines, yr yar of the audit usually CPA tims do en auit of historical financial statements, Part ee vets of identifying ppcratinal praciexns erd making recommendations that may benefit the audit dient, The pare be made orally but waver gegn ne By alot ao a oe eet Be cette oF Fepres=" Lae . Manages WEN Pet DB. Clent letter vt B. Engagement lette: knaviledge and experience, within ietter. 56. refers ty the application of rtevant tralring, Fhe context provided py auditing, accounting and ethical! standards in making informed te corre about the courses of action that are appropriate in the cumstances the audit Ps engagement. | ‘A. Professional judgment. . Professional skepticism. iigeccn |‘SPAREVIEWSCHOOLOFTHE PHILIPPINES (CPAR) TPB B. Reasonable assurance, D. Compliance, 57. Which of the following is not considered among the fraud risk factors? iq i. ne Pi ens eaaten Of third parties to obtain additional equity financing. . significant bonuses if unrealistic 7 C. Ineffective control environment. ee D. The existence and enforcement of a written code of conduct. When the auditor issues an erroneous opinion as the result of an underlying fil ing failure to Comply with the requirements of standards on auditing, it results in ‘A. Business failure, Audit risk, B. Audit fallure. ©. Allof the above. 59. Which of the following statements Is false? ‘A. The firm should obtain written confirmation of compliance with Its policies and Procedures on independence from ail firm personnel required to be independent by the Code of Ethics. 5. The firm should establish policies and procedures designed to provide It with reasonable assurance that the firm and its personnel comply with relevant: ethical requirements. . The firm's quality control policies and procedures need not be documented and communicated to the firm's personnel. D. The firm should establish polices arid procedures requiring appropriate documentation to provide evidence of the operations of each element ofits system of quality control. 60. Criteria need to be available to the intended users in an assurance engagement to allow them to understand how the subject matter has been evaluated or measured. Which of the following is not among the ways by which these criteria could be made available to the intended users? A. Publicly B. Through inclusion in a clear manner in the presentation of the subject matter information. . Through inclusion in the firm's office policy manual D. Throegh inclusion ina clear manner in the assurance report. 61. When comparing the auditor's responsibilty far detecting employee fraud and for detecting errors, the profession has placed the responsibitty A. More on discovering errors then employee fiaud. B. More on discoverig employee fraud than errors. C. Equally on discovering either one. D. On the senior auditor for detecting errors and on the manager for detecting employee fraud. 62, The primary purpose of performing analytical orozsclures in the planning phase of an audit Isto —— Help the auditor obtain an understanding of the clent’s Industry and business. B. Assess the going concem assumption. C. Indicate possible misstatements, D, Reduce detalled tests. 63. An auditor concludes that the omission of a substant've procedure considered necessary at the time ofthe examination say impair the oudtior’s present ability to support the previously expressed opinion. The auditor need 7ct apply the omitted procedure if A. The risk of adverse pubticity litigation is low. | “The results of oth. prooerlures that were applied tand to compensate for the procedure B. | c She ato’ ‘opiiion was qualified focaiise of 3 departure from financia! reporting standards. D. The ears ofthe subsequent neved :tesis of controls make the onitted progedure less important. 64. The auditor's risk ascessment procedures should always include the following ekcept Page 8 of £6 Pages |‘SPAREVIEW SCHOOL OETHE PHILIPPINES (CPAR) 67. ____aTPw-8102 A 5 Inquiries of management and of others within the entity. 4% wart ale coe 5 B. Analytical procedures. © Observation and inspection. f . Substantive test procedures and tests of controls. + ee 8 paced Tre,gutorsnsk assessment procedures By themselves, do not : the audit opinion, provide sufficient appropriate audit evidence on which to base . ‘Sou not consider Infrmation obtained fem the audios previous experience wih G ‘Are designed to detect material risstatements at the assertion level for cesses of transactions, account balances and disclosures. D. Are designed to test the effectiveness of the entity's controls. “The auditor should obtain an understanding of the entity's objectives and strategies, and those business risks that may result in risks of material misstatement. Which of the following statements conceming the entity's business risk is incorrect? ‘A. Business ‘isk {5 broader than the risk of material misstatement of the financial statements, though it includes the latter. 8, An understonding of the business risks facing the entity increases the likelihood of Identifying risks of material misstatement. C. The auditor has 2 responsibilty to identify or assess‘all business risks, D. Business risk may arise from the development of new products or services that may fal. Which of the following statements concaming aut risk and its components is tacorrect? ‘the auditor should always A. Regardless of the assessed levels of inherent and control risks, peforin some substantive procedures for material account balances and classes of transactions. ant of inherent and control risks, the more evidence the auditor should obtain from the performance of substantive procedures. idered in determining the nature, Shing, and edent of substantive procedures required to reduce audit risk to an acceprabiy low level . ater obtaining an understanding of the accounting and internal control SYST the ae eid make a preliminary assessment of contro risk, at the assertion level, for ‘gach material account balance or dass of transactions. When obtaining an understanding of controls that relevant required to to the audit, the auditor is A ‘Evaluate the cesign of those controls. B. ‘Determine whether those controls have been implemented. C. Evaluate the design ‘of those controls and determine whether they have been impiemented. D. tropiemertne design of those controls and determine whether they have Deen ented jing tests oF controls. S 9: AP inpanertel DY Peer mrg SOE. etl if an auditor is satisfied that sufficient evidence supports management's assertions about an uncertainty and its presentation or disclosure, the auditor should iphasis of Matter paragraph. ‘A Exoress a modified opinion with an Em B Biorese an unmodified opinion with an Emphasis of Matter paragreph. cB 3n unmodified opinion with an Other Matter paragraph. eck ) e rrrtes a qualified opiricn or dscalm an opinion, depending upon the materiality of the loss. test counts on the basis of a statistical plan. The auditor observes such ‘ed necessary and Is able to become satisfied as to the reliability of the Glents procedures. in reporting on the results of the audit, the auditor ‘A. Must quailfy the ofanion If the inventories were material, B. Can express an unmodified opinion. CC. Must comment in ai: Emphasis of Matter paragraph as to the inability to observe year- ‘end inventories. ‘A client makes ‘counts a5 are dees Paga9 of 16 Pages relere‘CPA REVIEW SCHOOLOF THE PHILIPPINES (CPAR) —__—— ATPWw-8102 D. Is required to disclaim an opinion if the irventories were material, 71. Which of the following procedures is ordinarily performed by an accountant during an engagement to compile the financial statements of an entity? ‘A. Make inquiries of the employees and senior management regarding transactions with related parties. 8. Determine whether there is substantial doubt about the entity's ability to continue as a D going concern. C. Scan the entity's records for the period just after the balance sheet date to Identify ‘subsequent events requiring disclosure. D. Consider whether the finandal statements are free from obvious material mistakes in the application of accounting principles. 72. Which of the following statements related to application controls is correct? ‘A. Application controls relate to various aspects of the IT function including software acquisition and the processing of transactions. LH 8. Application controls relate to various aspects of the IT function including physical ‘security and the processing of transactions in various cycles. C. Application controls relate to all aspects of the IT function. D. Application controts relate to the processing of individual transactions. 73. An entity's management is responsible for the preparation and fair presentation of the financial statements. Its responsibilty indudes the foliowing, except ‘A. Designing, implementing, and maintaining intemal control relevant to the preparation and presentation of financial statements. « B, Making accounting estimates that are reasonable in the circumstances. C. Selecting end applying appropriate accounting policies. D. Assessing the risks of matertal misstatement of the finandal statements. The following statements relate to the use of analytical procedures as substantive procedutes. Which is false? ‘A. Substantive anaiytical procedures are applicable when there is only a small volume of transactions. B. The application of substanve analytical procedures Is based on the expectation that relationships among data exist and continue In the absence of known conditions to the contrary. C. ‘The presence of relationships among deta provides evidence as to the completeness, accuracy, and occurrence of transactions captured in the information produced by the entity's information system, D. Reliance on the resulls of substantive analytical procedures will depend on the auditor's assessment of the risk that the analyical procedures may identify relationships as expected when, in fact, a material misstatement exists. The netlablty of data is influenced by its source and by its nature and is dependent on the circunistances uncer which itis obtained. Which of the following should the auditor consider in determining whether cata is reiiabie for purposes of designing substantive analytical procedures? 1. Source of the Information avaliable. 32. Comparability of the information available. TIT, Nature and relevance of the information avallabie, TV. Controls over the preparation of the information. . 1, 1, and 1V ont ¢. 1,11, and IIL only 8. ti, Mi, and tv only D. 1,0, 11, and 1V -The confirmation of customers’ accounts receivable rarely provides rellable evidence about the valuation assertion because e elevorners may not be Indlined to report understatement errors in their accounts. A asrcars typicaly select many accounts with low recorded balances to be confirmed. © Tis not practicable to ask the customer to confirm detailed Information relating to its ability to pay tre account. Page 16 of 16 FagesCARRIEWSCHOOLOFTHEUMNS eam we 77. 78. ai. D. Recipi fents usually respond only i they disagree with the information on the request. Which conus FRCNOMNG Items Is not requested on a standard bank account belance A. “The principal amount paid on a direct liabil & He hae of a direct liability, ( = Of collateral for a direct liability, D. The interest rate of a direct lability, a ‘An internal auditor would be concemed about the possibilty of fraud if t Cael Oe been tas acess to the petty cash fund 4 z the amounts used to cash tures, are e (oe ined ay petty cash-type expendi C. The monthly bank statement recondliation is performed by the same employee who maintains the perpetual inventory records. D. The accounts recelvable subsidiary ledger and accounts payable subsidiary ledger are ‘maintained by the same person. When using confirmations to provide evidence about the completeness assertion for ‘accounts payable, the appropriate population most likely is ‘A. Amounts recorded in the accounts payable subsidiary ledger. B. Vendors with whom the entity has previously done business. C. Invoices filed in the entity’s open invoice file. Dd. tapes Of checks drawn in the month subsequent to the balance sheet date. = tain |. Tn an audit of a purchasing department, which of the following usually is considered a risk factor? ‘A. Purchase specifications are developed by the department requesting the material. 8, Purchases are not rotated among suppliers included on an approved vendor list. C. Purchases are made from parties related to buyers or other company officals. . Purchases are made against blanket or cpen purchase orders for certain types of iterns. ‘When outside firms of nonaccountants specializing in the taking of physical inventories are used to count, list, price, and subsequently compute the total peso amount of inventory on hhand at the date of the physical count, the auditor will ordinarily ‘A. Consider the reduced audit effort with respect to the physical count of inventory as @ scope limitation. B. Make or observe some physical counts of the inventory, recompute certain inventory calculations, and test certain inventory transactions. C. Consider the report of the outside inventory-taking firm to be an acceptable alternative procedure to the observation of physica! inventories. D._ Not reduce the extent of work on the physical count of inventory. Which of the following is the best audit test to evaluate the accuracy of the inventory records for materials inventory in a production operation? ‘A. Reconcile quantities on hand per physical counts of selected items with perpetual inventory records and verify pricing. B. Trace selected inventory receipts to perpetual Inventory records. CC. Vouch selected postings in the perpetual inventory records to source documents, . Perform turnover tests for materials inventory. The, I count of inventory of a retailer was higher than shown by the perpetual records, Which of Ge flowing could explain te dierence? ‘A. Inventory items had been counted but the tags placed on the items had not been taken off the items and added to the inventory accumulation sheets, 8, An item purchased "FOB shipping point” had not arrived yet at the date of the inventory ‘count and had not been reflected in the perpetual records. ' C. Creatt memos for several tems returned by customers had not been recorded,| pay dere! . No Journal entry had been made on the retalle’s books for several items retumed td its 9 ‘suppliers. Poge 11 of 16 PagesC ‘CPA REVIEW SCHOOL OF THE PHILIPPINES (CAR) —__ATPW-102. 84. One payroll audit objective is to determine whether the employees received pay in amounts recorded in the payroll joumal. To achieve this objective, the auditor should ‘A. Determine whether a proper segregation of duties exists between recording payroll and ‘reconciling the payroll bank account. 'B. Requesting that a company official distribute all paychecks. C. Reconcile the payroll bank account. D. Compare canceled payroll checks with the payroll Journal. 85. The following statements relate to the form and content of working papers. Which Is false? ‘A. The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit. B. The auditor should include in the working papers information on planning the aucit work; the nature, timing, and extent of the aucit procedures performed and the results Cf such procedures; and the condusions drawn from the audit evidence obtained. C. Working papers should include documentation of every matter the auditor considers during the aucit, D. Working papers should include the auditors reasoning on all significant matters which Tequire the exercise of judgment, together with his/her conclusion thereon. 86. Which of the following factors would least likely affect the form, content, and extent of an auditor's working papers? ‘A. The content of the representation letter. B. The identified risks of material misstatement. C. The audit methodology and tools used. D. The significance of the audit evidence obtained. 87. Financial statements prepared in accordance with a financial reporting framework designed to meet the financial information needs of specific users are referred to as ‘A. Special purpose financial statements B. Special purpose framework CC. General purpose financial statements D. Specific purpose financial statements 88, The following are examples of special purpese frameworks, except A. A tax basis of accounting for a set of finandal statements that accompany an entity's tax return. B. The cash receipts and disbursements basis of accounting for cash flow information that an entity may be requested to prepere for crecitors. C. Philippine Financial Reporting Standards (PFRS) promulgated by the Financial Reporting Standards Council (FRSC). TGu-cea!. poy post D. ‘The financial reporting provisions of a contract (for example, a financing agreement), 89. Which of the following statements is correct with respect to an auaitor’s report expressing {an opinion on a specific element on a financial statement? A the auditor who has expressed an adverse opinion on the financial statements 25 @ hele can never express an unmodified opinion on a specific element in these financial statements. 8. The materiality determined fora specfic element ofa financial statement may be ower than the materiality determined for the entity's complete set of nancial statements, C. Such a report can only ‘be issued if the auditor is also engaged to audit the entire set of financial statements. D. Arc stn evoked to the spectic element is usually less than it would be IF the financial statements as a whole were audited. toner least likely to perform during a review results in budgets and forecasts. expected to conform to 90. Which of the following procedures is @ practi 7 engagement? ‘A. Comparing the financial statements with anticipated B. Studying the relationships of financial statement elements predictable patterns. cc. Mhauiang of management about actions taken atthe board of directors meetings. D. Observing the safeguards over access to and use Page 12 of 16 Pages\ ‘CPAREVIEW SCHOOL OF THE PHILIPPINES (CPAR)___ i ——ATPW-8102 91. ‘The date ofthe review report stout!) ‘A Not be earlier than the date on which the financial statements were approved by management. 8. Be earlier than the date on which the financial statements were approved by management. C. Coincide with the balance sheet date. 1D. Not be later than the balance sheet date, ‘92. Which of the following is a false statement concerning fraud? ‘A. Fraud generally involves incentive or pressure to commit fraud, a perceived opportunity 0 do So, and some rationalization of the act. 5. Two types of misstatements relevent to the auditor indude material misstatements arising from fraudulent financial reporting and material misstatements arising from misappropriation of assets. C. Fraud involves actions of management but excludes the actions of employees or third parties. D. An audit rarely involves the authentication of documentation; thus, fraud may go undetected by the auditor. 93. An entity installed antivirus software on all its personal computers. The software was designed to prevent initial infections, stop replication attempts, detect infections after their Occurrence, mark affected system components, and remove viruses from infected -% components. ‘The major risk in relying on antivirus software is that it may ‘A. Consume too many systern resources, 8. Interfere with system operations. C. Not detect certain viruses, D. Make software installation tou complex. 94. Which of the following describes how the objective of a review of financial statements differs from the objective of a compilation engagement? ‘A. The primary objective of a review engagentent is to test the completeness of the financial statements prepared, but a compilation tests for reasonableness BB. The primary cjective of a review engagement is to provide positive assurance that the financial statements are fairly presented, but a compilation provides no such assurance. . In a review engagement, accountants provide ‘imited assurance, but a compilation expresses no assurance. D, Ina review engagement, accountants provide reasonable or positive assurance that the financial statements are fatty presented, but a compilation provides limited assurance, When erroneous data are detected Sy computer program controls, such data may be ‘excluded from processing and printed on an error report. Who shouid review and follow up this error report? A. Systems analyst Computer operator B, Data control group D. Computer programmer A receiving clerk keyed in a shipment from a remote terminal and inadvertently omitted the purchase order number, Which of the folowing controls would most likely detect this error? A. Completeness check ©. Sequence check B. Compatibility check. . Reasonableness test 97. AS a result of tests of controls, an auditor assesses control risk too high. This incorrect assessment most likely occured because: A. Control risk based on the auditor's sample is less than the true operating effectiveness ce, (of the client's control activicy. 8, “The auditor believes that the contret activity relates to the client's assertions when, in fact, it does not C. The auctor belleves thatthe contro activity wil reduce the extent of substantive testing when, i fact, twill mot D. Control risk ‘based on the audtor's sarnple Is greater than the true operat effectiveness of the cilent’s control activity. as mit Page 13 of 16 Pages‘CPAREVIEW SCHOOL OFTHE PHILIPPINES (CPAR) ATP W802 | ca f0 ~~ Ble dnge hye se ‘An entity's accounting records generally record P , Me tenn ng include the records of inital entries and supporting |. o, a Informati tare fhe @D jon obtalned by the ax ied Irevecton. by wuditor from such audit procedures as inquiry, observation, Ki Db Worksheets and spreadsheets supporting cost allocations. 7 | . Other information developed by, oF avellable 4 f | \eioras teDugh vane by, ae to, the auditor to permit him/her to reach | go # we? 99. Which ofthe folowing statements concerning the auctor’ use of assertions is comet? . The auditor may combine the assertions about transactions and events with the assertions about account balances. \ B. In every audit engagement, the aualtor should use the assertions as described in PSA 0, Ley the assertions shuld alvays fallin tives categories: assertions about asses || Db ¢, Sfttansictions and evens, count balances, and presentation and closure we . There should always be a separate assertion related to cutoff of transactions and events. D. The completeness assertion deals only with whether all transactions and events that |(\¢-( > | ‘should have been recorded have been recorded. place Wee 100. Which of the following would least likely affect the ropriateness of evidence avalabe to h an auditor? ese Eevee = Gland teh ‘A. The sampling method employed by the auditor to obtain a sample of such evidence. B. The relevance of such evidence to the financial statement assertion being verified. C. The relationship of the preparer of such evidence to the entity being audited. D. The timeliness of such evidence. 101. Auditors may use positive and/or negative forms of confirmation requests. An auditor most likely will use ust ‘A. The negative form for small balances. \*"'{ hy % © ‘The positive form, when the combined assessed level of inherent and control risk/for related assertions is acceptably low, and the negative form when itis unacceptably high. C. The positive form to confirm all balances regardless of size. D. ‘A combination of the two forms, with the positive form used for trade balances and the negative form for other balances. 102. To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would 'A._ Inspect the faxes for forgeries or alterations and consider them to be acceptable if none are noted. 8. Consider the faxes to be nonresponses and evaluate them as unadjusted differences, C. Verify the sources and contents of the faxes in telephone calls to the senders. D. Examine the shipping documents that provide evidence for the existence assertion. L following statements is Inovrrect? on: My ht owt termine whether, on the basis of the audit work performed, the Juditor has identified one or more deficiencies in internal control Tf the auditor has identified one or determine, on the basis ination, they constitute significant deficiendes. wm oa ator shal oS se, orally or in wring, significant deficiencies in intemal Fee eleed during the audi to those charged with governance on a timely basis. A. Tony. ‘C. Wlonly. B Tonly. D. all ofthe above. Which of the following management roles would typically be acknowledged in a management representation letter? ‘A. Management has the responsibilty for the design of controls to detect fraud. B, Management communicates its views on ethical behavior to its employees. C. Management's knowledge of freud is communicated to the audit committee. 1D. Management's compensation is contingent upon operating results. f 104. 14 of 16 PagesSPARLVIEWSCHOOLOPTHEPMiRoINES (cpa) ___ATPw.8102 105. What type of ‘evidence would provide the highest level of assurance in an assurance ‘A. Evidence secured solely from B 8 Evidence obtained from Independent sours Evidence obtained indirectly. as D. Evidence obtained from multiple internal inquiries. 106. Which of Which ofthe folowing outcomes is @ key benef of infomation tecmology used fr Processing of unusual or nonrect [i & Enhanced timelines of oman ) —C. Potential loss of data. D. Recording of unauthorized transactions. 107. Which of the following procedures would be most appropriate for pleteness assertion as apples to inventory? " eee Scanning perpetual inventory, production, and purchasing records. I BB. Examining paid vendor invoices. rue CC. Tracing inventory items from the tag listing back tothe physical inventory quantities. D. Performing cutofF procedures for shipping and receiving. 108. Which of the following activities performed by 2 department supervisor most likely would help in the prevention or detection of a payroll fraud? ‘A. Distributing paychecks directly to department employees. B. Setting the pay rate for departmental employees. C. Hiring employees and authorizing them to be added to payroll. 1D. Approving a summary of hours each employee worked during the pay period. > 109. An auditor is concerned about a policy of management override as a limitation of internal control. Which of the following tests would Lest assess the validity ofthe aucltor's concer? ) A. Matching purchase orders to accounts payable. +} B. Verifying that approved spending linits ere not exceeded. r C. Tracing sales orders to the revenue account. D. Reviewing minutes of board meetings. 110. When an auditor plans to rely on controls that have changed since they were last tested, which of the following courses of action would be most appropriate? A. Test the operating effectiveness ‘of such controls in the current audit. B, Document that reliance ‘and proceed with the original audit strategy. C. Inquire of ‘management as to the ‘effectiveness of the controls. D. Report the reliance in the report on internal corirols. 111, In which of the following circumstances would an auctor expect t find that an entity implemented automated controls to reduce risks of misstatement? ‘A, When errors are dificult to predict. i) B. When misstatements are difficult to define. C. When large, unusual, or nonrecurring transactions, require judgment. 1. When transactions are high-volume and recurring. 112. Which of the following ‘eqpianations best describes why an auditor may decide to reduc tests of details fora particular audit objective? _. A. The aut is being soon after the balance sheet date. A ait saf are experienced in performing the planned procedures, ; C. Analytical procedures have revealed no unusual or unexpected results. 5. There were many transactions posted tothe account during the period..-” 113, Tabechingchng considered the sample size needed or 2 selection of customers! accounts } Tecalvable for the substantive audit of the total accounts receivable. She presented the following Information for two alternative cases: te Page 15 of 16 Pages115. O 116. 117. . Which of the following would be @ consideration in planning a sample for a test of —_—________ATpwaiz ‘Acceptable risk of incorrect acceptar Cased Case2 Acceptable isk of core maton Low High Tolerable peso mistatement inthe acount Small ine Expected peso misstatement in the aowunt fame: So ‘of population variability Lage Small ‘Tabachingching should expect the sample size A small ton te samples feces B, larger than the sample size for Case 2. C. the same as the sample size for Case 2. D. not determinable relative to the Case 2 sample size. 4. The audit working paper that reflects the major components of an amount reported in the financial statements is the A. interbank transfer schedule. B. carryforward schedule. C. supporting schedule. D. lead schedule. >, ) When the professional accountant has obtained sufficient appropriate evidence to conclude that the subject matter conforms in all material respects with identified suitable criteria, he/she can provide A. limited level of assurance. B. absolute assurance. C. reasonable level of assurance. D. no assurance. During an engagement to review the financiat statements of an entity, a practitioner Cen cara of 2 material departure from PFRS. Ifthe practitoner decides to modty teerew report because management will not revise the financial statements, the practitioner should Prepress nageive assurance on accounting prindples not conforming with PhIlppine Financial Reporting Sizndards. B. ivess postive assurance on acccunting prindples conforming with Phiippine Financial Reporting Standeras. C. Express a qualified opinion. Bi. Bapress a qualification ofthe negative assurance provided or lve an adverse statement ted fairly, in all material respects, in that the financial statements are not preser accordance with Philippine Financlat Reporting Standards. Which of the following procedures is contort a test of controls? ‘A. An auditor reviews the entity's check register for unrecorded liabilities. 8. an auditor evalustes whether a general joumel entry was recorded at the proper amount. Cc. An auditor interviews ard observes appropriate personnel to determine segregation of duties. D. An auditor reviews the audit workpapers to ensure proper sign-off. subsequent cash receipts? A. Preliminary judgments about materiality levels. i 4 B. The amount of bad debt write-offs in the prior year. _ C. The size of the intercompany receivable balance. D. The auditors allo:-able risk of assessing control risk is too low. = END Pago 16 al 16 Pages