iting Theory . seta INSTRUCTIONS: Select the best answer f co ollowing questions, Mark only one answer for each item fy tte answer sheet provided. Strictly NO ERASURES. ALLOW ae Erasures will render your examination answer sheet INVA Use PENCIL NO. 2 only. GOODLUCK!@ terres 1. The following statements relatin ig to the Board of and its composition are correct, except? ern a. The Board consists of eraletnair ts a seven members, including the b. The Board shall elect a vice- ThaltBoan ct_a vice-chairman from among its c. The four Sectors in the practice of accounté 4, {epresented in the Board a06¥ stall all be . The Chairman and members are a jppointed by the President of APO upan recommendati eh eu Pines ‘ion of PRC he CPA certificate issued to successful examinees a. Shall bear the signature of the PRC Chairperson b. Is renewable every three years ‘&. Shall remain in full force and effect until withdrawn, suspended or revoked. : 4. Igsenewable every five yeers Ined unly on 3, #K 9298 provided that a CPA certificate may be suspended or revoked on grounds except a. Immoral or dishonorable conduct. b. Gross negligence or incompetence in the practice of profession. c. Refusal to accept an audit engagement with a government corporation. d. Conduct discreditable to the accounting profession AT-OpentstPB0s.14 ‘Auditing Theory SETA 4-Siement 1: Independence standards are required for audits € D @ c of public companies, but not for audits of private companies. Statement 2: Due care requires a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision. T a. True,true —c._ False, true, b. Truerfalse d. False, fase 5” The auditor must be independent of the audit chent unless: a. The lack of independence does not influence his or her professional judgment. b. Both parties agree that the independence issue is not 2 problem. c. The lack of independen d. None of the above. is insignificant. 6. Statement 1: The Code of Professional Ethics does not allow an auditor to disclose confidential client information without the client's congent. f= MH Hee Ib on exGyhen, Statement 2: If an auditor is not independent of the client, it is unlikely that a user of financial statements will place much reliance on the CPA's work, a. True, true c, False, true, b. True, false d. False, false ich of the following statements best describes why the 1 ‘of certified public.accountants as deemed i or retiat to promulgate a code of conduct and to establish 2 mechanism for enforcing observance of the code? aA requirement of most state laws calls for the profession to establish a code of conduct b. A prerequisite to success is the establishment i Stheal code that stresses primarily the professs responsibility to clients and colleagues Ai DpentaPBOS.TA‘Auditing Theory eat, Acting Theory tera ©. Ethical standards are established so. that users of accounting services know what to expect” got 44. Which of the folowing statements fe with respect to professionals know what behaviors are acceptable, ang assurance, attest (assertion-based absofance engagement as overseers can take disciplinary action when approprigte ~-opposed to direct reporting assurance. engagement), and @. An essential means of self-protection for the profession ig i auch servione?. 7 the establishment of flexible ethical standards by the . meen See, srt only to financial statements sion 7 nts, a 1 (B These services all involve obtaining and evaluating : : evidence. eich of the following is a “self review” threat to engagement | ©. These services all involve determining the correspondence of some information to a set of criteria. d. These services all involve issuing a report. team member's compliance with fundamental principles? a. An engagement team member has a spouse that serves a. Relevance. b, True, false d. False, false b. Timeliness. as CFO of the attest client, fa — b. A second partner review is required on all attest A2estafement 1: Assurance services are _independent engagements. professional services that improve the quality of information ¢. An engagement team member prepares invoices for the spearfically for internal decision makers. = attest client. mann 2 d. An engagement team member has a direct financial ry Statement 2: Management and the \extemmal aud interest in the attest client. Sef -\nteect 2D respor ble for the effectiveness of the entity's internal ‘Assurance services may improve all of the following except: “a. True, true 13. In performing an attestation engagement, a CPA typically 10. Which of the following would (best; be described as an Ya. Supplies litigation support services, assurance service? — b. Assesses control risk at a low level ‘a. Preparing a report representing a client's position during cc. Expresses a conclusion about an assertion, an BIR audit. d. Provides management consulting advice b. Working with a client to develop a more efficient method of processing financial transactions. 14. According to Philippine Standard on Auditing, the procedures employed in doing compilation are: ©. Offering an opinion concerning the accuracy of statements i made on a client's web site relating to the client's online Da. Designed to enable the accountant to express a limited Privacy policies. Geared to enable the:accountat bo express:a negative d. Assisting a client ing potential sources of capital Ee i for potential acquisitions. c. Not designed to enable the accountant to express any form of assurance. ‘ d. Less extensive than review procedures but more extensive than agreed-upon procedures. ee Page Torz2 ‘Wa. BREcom. ph AT OpentstPBOS.14Ausiting Theory = 15/A CPA is most likely to refer to its quality control policies ang » «procedures in determining 7 a, The nature of the CPA's report qualification b. The scope of the CPA's auditing procedures c. Requirements for the review of the entity and its environment d. Whether the CPA should undertake an audit engagement 16. Which of the following is not an element of quality control as defined by Philippine Standards on Quality Control 1? a. Monitoring ¢. Human resources b, Indgpendence d. Relevant ethical requirements j@ quality control standards are concerned primarily with a. Actions of individual auditors b. A firm's monitoring of its practice ¢. Disciplinary actions against individual auditors d. Preventing legal action 18.A CPA firm's personnel partner periodi ly studies the CPA firm's personnel advancement experience to ascertain whether the individuals who were assigned increased degrees ‘of responsibility met a pre-determined criteria. This is evidence of the CPA firm's adherence to prescribed standards of a. Quality control c. Supervision and review b. Dueprofessional cared. Fieldwork alien the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures? a. Using the audit risk model b. Using statistical sampling techniques ¢. Assigning personnel to engagements d. Considering audit risk and materiality em, — eet ‘Audting Theory SETA 20. B In order to achieve effective control, @ firm of independent auditors should establish policies and procedures for a. Determining the minimum precedures necessary for unaudited financial statements b. Setting the scope of audit werk Deciding whether to accept or continue a client G. Setting the scope of internal control study and evaluation —_ 2ecWhich of the following actions should a CPA firm take to D comply with the Philippine Standards on Quality Control? 2. Establish procedures that comply with the standards of the RA 9298. b. Use attributes sampling techniques in testing internal controls. c. Consider inherent risk and control risk before determining detection risk. d. Establish policies to ensure that the audit work meets applicable professional standards. — 22¢Which of the following best describes why an independent C auditor is asked to express an opinion on the fair presentation of financial statements? a. It is difficult to prepare financial statements that fairly present a company's financial position and changes in cash flows without the expertise of an independent auditor. b. It is management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements. ¢. The opinion of an independent party is needed because 6 company is not likely to be considered objective with respect to its own financial statements. 4, Ire 2 customary courtesy that all stockholders of ‘company receive an independent report on management's Stewardship in managing the affairs of the business. AE GpantstPOO5. 14 Page 7 oF moans <Auditing Theory th of the folowing esd describes the fund: se wi ot ed aed lamental, underlying independent auditor to report on financial statements? SETA reason for is demand for an 2. Amanagement fraud may exist and it is more likely to be b. d. detected by auditors if they are independent, Different interests may exist between the compan preparing the statements and the parties using the statements. ‘A misstatement of account balances may exist and it is the independent auditor's responsibility to ensure that financial statements are not misstated A poorly designed internal control system may be in place, uth responsibility for the adequacy of disclosures in the financial statements of a publicly held company rests with th a b. ity e Partner assigned to the audit engagement Management of the company Auditor in charge of the fieldwork ane and Exchange Commission hich is not an attribute of an external auditor? a. b. Cr a. Independence Client advocacy Objectivity Concern for the public interest 26. Which of the following is true concerning internal and external auditors? Internal and external auditors requil ire the same Proress val designation. : internal and external auditors must be inde} but pendent, they define Independence differently. and external audit iy sores of re company, emer Internal and exter 7 nal audit y control of» commend “Ueltors both increase the interna AT-OpenistPB05.24 ‘SETA 27. An attitude of “professional skepticism” is necessary if a CPA 28. 29. Is to perform an, idit engagement with due care. Which of the following best describes how a CPA may display an attitude of “profess skepticism” when performing an audit engagement? Which of the fol By insisting that all management assertions are documented in writing By obtaining appropriate evidence in support of all material management assertions By assessing inherent risk as high for all material financial statement assertions By requiring both the client's CEO and CFO to sign the letter of representation to the auditor ing activities is typically associated with operational auditing? a. b. c a. The single feature that most clearly distinguishes au Determining whether the financial statements are an accurate representation of the entity's operations. Evaluating the feasibility of attaining the entity's operational objectives. Making recommendations for improving performance. Reporting on the entity's relative success in meeting profitability goals. attestation, and assurance is a b. c . ‘Type of service. Training required to perform the service ‘Scope of services. CPAs approach to the service. 30. 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 _ eé Yu company. b. It concentrates on implementing financial and accounting control in a newly organized company. Pope 9 of parte com. ah z Ti penIaPaOE A1 Theory SETA ‘Auditing Theory SETA c. It attempts and is designed to verify the fair presentation ¢. To gather corroborative evidence -about management's of a company's results of operations. assertions d. It concentrates on seeking out aspects of operations in d. To verify the accuracy of the balance sheet account which waste would be reduced by the introduction of balances controls. 35. Which statement concerning audit evidence Ca id? 31. Evidence is reliable if it a. The auditor is seldom convinced beyor doubt with a. Signals the true state of a management assertion. respect to all aspects of the financial statements being audited b. The auditor performs tests to collect convincing that the financial statements are not misstated c. The auditor weighs the cost of obtaining evidence with its usefulness d. The auditor considers the amount of risk present in deciding the nature and extent of evidence to be collected > b. Applies to the period being audited. ¢. Relates to the audit assertion being tested. d. Is consistent with management's assertions. fence 32. A confirmation is used to: a.~Verify the inventory count is correct. B b. Verify that a control is being observed. ¢. Verify a representation from a third party. J 36. Each of the following might, by itself, form a valid basis for an oo kn melt end i ore % auditor to reduce substantive testing except for the } a. Difficulty and expense involved in testing a particular item “Which of the following presumptions ‘does not + appropriateness of audit evidence? a. The more effective the internal control system, the more 4. b. Assessment of control risk at a low level 4 ¢._Low inherent risk involved r d. Relationship between the cost of obtaining evidence and assurance it provides about the accounting data and b is Usefiiness financial statements t b. An auditor's opinion, to be economically useful, is formed j 37. Which of the following presumptions is correct about the within a reasonable time and based on evidence obtained reliability of audit evidence? at a reasonable cost a. Information obtained indirectly from outside sources is c. Evidence obtained from independent sources outside the the most reliable audit, entity is more seliable than evidence secured solely within fib. To be reliable, auslt evidence should be convincing rather the entity than persuasive d. The independent auditor's direct personal knowledge, c. Reliability of audit evidence refers to the amount of ‘obtained through observation and inspection, is more corroborative evidence obtained suasive than information obtained indirectly d. An effective internal control system provides more reliable a ‘Evidence Which of the following best describes the primary purpose of audit procedures? “K CPA firm would be reasonably assured of meeting its a. To detect all errors or fraudulent activities responsibility to provide services that conform with b. To comply with generally accepted accounting principles Q 5 professional standards by 3 Tope istPBOR Ia + Footie waounrtecoman = a E Fags 10 of 2 “reer arco ab AF. OpenistPBOS.14‘sting Theory renerally accepted auditing standards F quality control . Having an appropriate system of be Meining professional societies that enforce ethical conduct SeMamnteiaing an attitude of Independence in ity engagements d by a firm t i 39. The policies and procedures adopted by 0 provide reasonable assurance that all audits done by the firm are being carried out in accordance with the professional standards. _& Internal control c. Peer review “b. Quality contro! d. General controls ‘a. Adhering to 9 40, According to PSQC 1, which of the following is (are) elements of a CPA firm's quality control that should be considered in establishing its quality control policies and procedures? ‘Supervision Monitoring Direction a. Yes No. Yes b. No Yes No c No No No oo Yes Yes Yes 41, An attestation engagement is one in which a CPA is engaged to a. Issue a written communication expressing a conclusion about the reliability of a written assertion that is the responsibility of another party b. Provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed ¢._ Testify as an expert witness in accounting, auditing, or tax matters given certain stipulated facts 4d. Assemble prospective financial statements based on the assumptions of the entity's management without expressing any assurance 42, Which one of the following best describes the attest process? 2. Soa the accuracy of the books and records Gathering evidence about specific and known assertions tea — Fage Tora i ‘Aucdting Theory SETA oe Assisting management in the successful operations of the ing tax returns and related supplemental information 43. The following sectors represented by the PICPA to the membership of AASC have one representative, except [\ @& Government ¢. Commerce and Industry b. Public Practice d. Academe 44, Which statement is incorrect regarding AASC? a. The AASC shall be composed of 14 members plus a a chairman b. The chairman and members of the AASC shall be appointed by PRC upon the recommendation of BOA . The chairman and members of the AASC shall have a renewable term of 3 years 4. The chairman should have been or presently a senior accounting practitioner in any scope of accounting practice 45. The ieast likely form of pronouncement of the AASC on 7 engagement standards, practices and procedures is, ine Auditing Practice Statements (PAPSs) rng (PSAS) c pine Standards on Related Services (PSRSs) d._ Financial eporting framework 46.7FE standards of the Auditing _and Assurance Standards Council (ASC) Include Philippine Standards on: (S Eaten II. Auditing. IIT, Review Engagements. IV. Assurance Engagements. a. I, IL and II only; ¢. I, Ill and IV only; b.. II, Land IV only; d. I, I, Ul and Iv. b -- PAD UR --C AF OpenistPBOR Ts Tage To aecaorteccom. a zAutti Theory — 47. Philippine Standards on Auditing (PSAs) oer Plust be followed on every audit engagement 2 Must be followed only those audits which must be submitted to the SEC c. may be eliminated on some engagements, but then it is c the responsibility of the CPA to justify that they were not appropriate on this job d. must be followed by CPAs who are member of the Philippine Institute of Certified Public Accountants, but they are optional for CPAs who are not members of the PICPA 148. The Philippine Standards on Auditing issued by AASC a. Apply to independent examination of financial statements of any entity when such an examination is conducted for the purpose of expressing an opinion thereon. b. Must not apply to other related activities of auditors. c._ Need to be applied on all audit related matters. 4. 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. 49-0rk‘iterence between auditors and other professionals is that most other professionals ‘a. Need not be concerned about remaining independent. b. Don't have requirements for Continuing Education beyond college. c. Don't have to pass rigorous examination. d. Are not expected to act in the public interest. 50. A type of audit the purpose of which is to determine whether the auditee is following specific procedures or rules set down by some higher authority a. Operational audit. b._ Compliance audit. “ Financial audit. Eparaoerent audit. / ‘Auditing Treory SETA Span Boat which has as its purpose the evaluation of the economy and efficiency with which resources are employed is known as a(n) audit cc. Governmental audit Compliance audit 4. Operational audit spewhicn of the following statements does not properly describe an element of the theoretical framework of auditing? 2. The data to be audited can be verified (Shorter confess may exst between managers who "prepare the data and auditors who examine the data c. Auditors act on behalf of management d. An audit benefits the public it is possible to provide an infinite range of [lp Rezarence fom a very lw lave of assurance tan sbssiute 7 \evel of assurance. In practice, the professional accountants cannot provide absolute assurance because of the following, except: 2. The professional accountants employ testing process. b. The internal control has inherent limitations. ¢. The use of judgment in gathering evidence and drawing conclusions based on that evidence 4. The lack of expertise of the professional accountants in doing a systematic engagement process. 54, The professional skepticism requires that an auditor assume" management is |. Honest, in the absence of frautl risk factors. . Neither honest nor dishonest. . Dishonest until completion of audit tests. |. Offering reasonable assurance of honesty. > pose fogs tT wears Sa A earerones Foe oT ara oeAuditing Theory SETA 55. The independent auditor's opinion helps establish the credi of the financial statements. The independent auditor's opinion is an assurance as to th efficiency or effectiveness with which management hee Orne the affairs of the entity. .) True, True True, False c. False, True d. False, False 56. The audit function is unique because it exists to Perform services on a “client" on behalf of shareholders, directors and other parties. F> The degree of confidence that users place on management's finan statements is higher than that placed on audited financial statements because few users have direct knowledge of the company's operations and management is the most knowledgeable about operations. — a. True, True © False, True b. True, False Ca "False, False 57. Evidential matters supporting the financial statements consist of accounting records and other information available to the auditor. Other information can be found Sai The subsidiary ledgers Worksheet supporting cost allocation c a. aoge Minutes of directors’ meetings Adjusting entries evidence? Documents mailed by outsiders to the auditor. Correspondence between auditor and vendors. Cobies of sales invoices inspected by the auditor. Computations made by the auditor. 62-tXamples of circumstances that may create famil Page Tora ‘Auditing Theory SETA 59. The measure of the quality of audit evidence and its relevance ‘to a particular assertion and its reliability. a. Sufficiency <. Significance b, Appropriateness d. Assurance 9-718 roster the risk, the less audit evidence is likely to be required ed The higher the quality, the less audit evidence may be required a. True, True ¢ © False, True b. True, False . False, False = $&-Which of the following most likely create “advocacy threat” a Dealing in, or being a promoter of, share or other securities in an assurance client. b. Long association of a senior member of the assurance team with the assurance client. ¢, Having a close business relationship with an assurance client. d. Pressure to reduce inappropriately the extent of work performed in order to reduce fees. rity threat include I. Undue dependence on total fees from an assurance client. Tl. Concern about the possibility of losing the engagement. a. Tonly Both I and It b. Ifonly Canetner Tor IL 63. Examples of circumstances that may create self-interest threat include I. Contingent fees relating to assurance engagements Il. A loan or guarantee to or from an assurance client or any of its directors or officers @® tonly cc. Both Tand II d. Neither I nor It “Bi open TePOOETA seam ome b. IonlySETA ‘sng TOY ‘nieve the objectives of the accountan ‘nian + % rafessional accountants have to observe 4 profession, Prquisites or fundamental principles. The r of prered' Fangemental principles include the following, except (6 Integr S prolessonal Competence and due care . ler to achieve the objectives of the accountancy 7 plete, professional accountants have to observe a humber of prerequisites or fundamental principles. The ental principles include a monitorng | . Confidentiality Consultation d. Delegation 66. Which of the following most likely create “self-interest threat” romoter of, share or other a. Dealing in, or being a Dp securities in an assurance client. b. Long association of a senior member of the assurance team with the assurance client. c. Having a close business relationship with an assurance client. 4. Pressure to reduce inappropriately the extent of work performed in order to reduce fees 67. The following statements relate to RA 9298 and its IRRs. Which statement(s) is (are) false? I. A_ meaningful experience shall be considered as satisfactory compliance if it is earned in Public Practice and shall include at least one year as audit assistant and at least two years as auditor in charge of the audit engagement covering full audit functions of significant clients. 11, Individual CPAs, Firms or Partnerships of CPAs, including Partners and staff members thereof shall register with the BOA and the PRC. If the application for registration of AB i Auditing Theory SETA 68, 69. 70. CPAs was approved on August 30, 2005, its ion will expire on December 31, 2008. cc. Ilonly d. Neither I nor I The following statements relate to RA 9298 and its IRRs. Which statement(s) is (are) true? I. According to RA 9298 and its IRRS, a Professional Identification Card bearing the registration number, date of issuance, expiry date, duly signed by the chairperson of the PRC, shall likewise be issued to every registrant renewable every two years. IL. Practice in Education/Academe shall constitute in a person when he or she is involved in teaching of accounting, auditing, management advisory services, accounting aspect of finance, business law, taxation and other technically related subjects. as Tonly © Land it b. Ifonly d. Neither I nor I The following statements relate to the Philippine Accountancy Act of 2004 (RA 9298). Which of the statement is true? a, The PRC has no authority to remove any member of the Board of Accountancy for negligence, incompetence or other just cause b. Insanity is not @ ground for proceeding against a CPA ¢. An applicant is prohibited from taking the Phil. CPA Board Exam if he (she) is below 21 years of age d. After one year, subject to certain limitations, the Board of Accountancy may order the reinstatement of a CPA whose certificate of registration has been revoked Which statement is correct regarding CPE requirements for renewal of professional license? a. The total CPE credit units required for CPAs shal ninety (90) units for three (3) years, provided that a minimum of fifteen (15) credit units shail earned in each year. b. A registered professional shall be Permanently exempted Foge 16 of 2 weeon Sara a al ‘AT OpentsiPB05.14 Pope Taf 2b ‘dng Theory from CPE requirements upon reaching the age of 65 years or eqistered professional who IS working abroad shall be temporarily exempted from compliance with" cpg equirement during his/her stay abroad, provided that he/she is has been out of the country for at least one year immediately prior to the date of renew. 4. Those who failed to renew professional ‘licenses for a period of four (4) continuous years from. initial registration, or from last renewal shall be declared delinquent. we YY 71. The‘Board, subject to the approval of the Commi tevise or exclude any of the subjects and their 5) add new ones as the need arises. Provided that the change shall not be more often than every a. 2years c. 4 years b. years d. 5 years. 72. Sound intemal contro! dictates that immediately upon receiving checks from customers by mail, a responsible employee should a. Add the checks to the daily cash summary. b. Verify that each check is supported by a prenumbered sales invoice. c. Prepare a duplicate listing of checks received. d. Record the checks in the cash receipts journal. 73.Internal_ control is improved when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the a. Department that initiated the requisition b. Receiving department ©. Purchasing agent CE recounts payable department Auditing Theory SETA 74. The mailing of disbursement checks and remittance advices should be controiied by the employee who 2. Signed the checks last b. Approved the vouchers for payment ©. Matched the receiving reports, purchase orders, and vendor invoices > d. Verified the mathematical accuracy of the vouchers and remittance advices _ 75:Kn auditor generally tests physical security controls over < “inventory by [> 2: Testcounts and cutoff procedures. Db. Examination and reconciliation, . Inspection and recomputation. d. Inquiry and observation. 76. The auditor gathers evidence regarding the validity of "deposits in transit by examining the \ a. Bank confirmation ‘c, Year-end bank statement b. Cut off bank statement 4. Bank reconciliation 77. One of the major audit procedures for determining whether the allowance for doubtful receivabies is adequate |s >) a. The preparation of a list of aged accounts receivable. J Confirming any accounts receivable written off in prior period: cc. Vouching the collection on any accounts receivable written off in prior periods. 4. Confirming any accounts receivable with a credit balance. 78. Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because a. A majority of recipients usually lack the willingness to respond objectively. b. Some recipients may report incorrect balances that require extensive follow-up. Pape FE‘Auditing Theory SETA The auditor cannot infer that verified their account information Negative confirmation do not produce evidential matter that is staljstically quantifiable « ll nonrespondents have GF the following assertions is the primary assertion that is satisfied by physically observing the client's count of inventory? a. Rights. c. Completeness. b. Valuation. d. Existence. 80. An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that all a. Noncapitalizable expenditures for repairs. and maintenance have been recorded in the proper period. b. Expenditures for property and equipment have been recorded in the proper period. ‘expenditures for repairs ~ and maintenance have been properly charged to expense. d. Expenditures for property and equipment have not been charged to expense. - end of examination - Please submit your answer sheet Keep the questionnaire. Thank you for taking the PRTC Open Pre-Board Examinations! © Tope 22 of 22 wan ateccom ah