Professional Documents
Culture Documents
P R A C T I C E E X A M I N A T I O N I
1. Wendy just took the recently-concluded October 2017 licensure board examination for certified public
accountants and obtained the following ratings:
Based on the Implementing Rules and Regulations of Republic Act No. 9298 other wise known as the Philippine
Accountancy Act of 2004, what is the status of Wendy on the said licensure board examination?
a. Passed c. Failed
b. Conditioned d. None of the choices
2. Absolute assurance in auditing is not attainable as a result of such factors as all of the following, except
a. need for judgment c. lack of expertise
b. use of testing d. inherent limitations of internal control
3. An online system may have different arrangements such as the following, except
a. As an intelligent online workstation.
b. As part of a distributed accounting system.
c. As part of a local area network.
d. As part of a disconnected and isolated workstation.
4. The test of recorded sales for which there were no actual shipments, the auditor traces from the
a. Bill of lading to the sales journal
b. Sales journal to the bill of lading
c. Sales journal to the accounts receivable subsidiary ledger
d. Bill of lading to the supporting customer order and sales order
5. Reymond, CPA is applying for renewal of his professional license. He is exempted from the CPE requirements
a. If he is at least 65 years old
b. If he is working abroad and he has been out of the country for at least two years immediately prior to the
date of renewal.
c. Either A or B
d. Under no circumstances
6. The responsibility for the detection and prevention of errors, fraud and noncompliance with laws and regulation
rests with
a. Auditor
b. Internal audit
c. Audit committee
d. Management and those charged with governance
7. Which of the following is a matter that does not affect the auditor’s opinion?
a. Emphasis of a matter
b. Disagreement with management regarding acceptability of accounting policies and the methods of their
application
c. Scope limitations imposed by the client
d. Scope limitations imposed by circumstances
PUP COLLEGE OF ACCOUNTANCY AND FINANCE
ACCO 4093 – AUDITING THEORY
8. Which of the following organizations is not directly/indirectly represented in the 15 -member FRSC?
a. Bureau of Internal Revenue (BIR)
b. Commission on Audit (COA)
c. Securities and Exchange Commission (SEC)
d. Professional Regulations Commission (PRC)
e. None of the above
10. The element of the auditor’s report that identifies the financial statement audited is the
a. title
b. introductory paragraph
c. management’s responsibility
d. opinion paragraph
11. The chairman and the members of the FRSC and AASC shall have a renewable term of
a. 3 years b. 5 years c. 6 years d. 1 year
12. What type of fraud occurs if an employee obtains financial benefit through intimidation?
a. Conspiracy. c. Extortion.
b. Embezzlement/defalcation. d. Larceny.
13. The Board , subject to the approval of the Commission, may revise or exclude any of the subjects and their
syllabi, and add new ones as the need arises provided that the change shall not be more often than every
a. two years b. three years c. four years d. five years
15. A certificate of accreditation shall be issued to CPA’s in public practice only upon showing, in accordance with
rules and regulations promulgated by the Board and approved by the PRC, that such registration has acquired a
minimum of ____ years meaningful experience in any of the areas of public practice including ta xation.
a. 5 b. 4 c. 3 d. 2
16. What is the purpose of the following paragraph in an audit report on financial statements:
“…….we draw attention to note X in the financial statements …….”
a. Emphasis of a matter
b. Qualification of an opinion
c. An inappropriate reporting.
d. Other matter paragraph
17. The auditor may address the report to all of the following, except
a. The client company
b. The president and/or CEO of client company
c. The board of directors of client company
d. The stockholders of client company
18. The Board of Accountancy may issue certificate of registration and professional identification card to any
successful examinee:
2|P age
PUP COLLEGE OF ACCOUNTANCY AND FINANCE
ACCO 4093 – AUDITING THEORY
19. Which of the following is least likely to be comparable between similar corporations in the same industry line of
business?
a. Return on total assets before interest and taxes
b. Accounts receivable turnover
c. Operating cycle
d. Earnings per share
20. This procedure for obtaining audit evidence consists of checking the arithmetical accuracy of source documents
and accounting records or of performing independent calculations.
a. Inspection. c. Inquiry and confirmation.
b. Observation. d. Computation.
21. This procedure consists of the response to an inquiry to corroborate information contained in the accounting
records of the company.
a. Computation. c. Inspection.
b. Confirmation. d. Observation.
22. If management r efuses to give the auditor permission to communicate with the entity’s lawyers, this would be a
scope limitation and should ordinarily lead to a
23. If the effect of the misstatement in opening balances is not properly accounted for and adequately disclosed, the
auditor should express a
a. Qualified opinion or an adverse opinion.
b. Disclaimer of opinion.
c. Disclaimer of opinion or adverse opinion.
d. Qualified opinion.
24. If the current period’s accounting policies have not been consistently applied in relation to opening balances and
if the change has not been properly accounted for and adequately disclosed, the auditor should express a
a. Qualified opinion or an adverse opinion.
b. Qualified opinion or a disclaimer of opinion.
c. Disclaimer of opinion or adverse opinion.
d. Qualified opinion.
26. This exists when other information contradicts information contained in the financial statements.
a. Material misstatement of fact c. Material misstatements
b. Material scope limitations d. Material inconsistency
27. The permanent file of an auditor’s working papers generally would not include
a. Bond indenture c. Working trial balance
b. Lease agreement d. Flowchart of internal control
29. “Subsequent events” for reporting purposes are defined as events which occur subsequent to the
a. Balance sheet date
b. Date of auditor’s report
c. Balance sheet date but prior to the date of the auditor’s report
d. Date of the auditor’s report and concern contingencies which are not reflected in the financial statements
3|P age
PUP COLLEGE OF ACCOUNTANCY AND FINANCE
ACCO 4093 – AUDITING THEORY
31. When an accountant performs more than one level of service (for example, a compilation and a review, or a
compilation and an audit) concerning the financial statements of a non -issuer (nonpublic) entity, the accountant
generally should issue the report that is appropriate for
a. The lowest level of service rendered. c. A compilation engagement.
b. The highest level of service rendered. d. A review engagement.
33. A written repr esentation from a client’s management which, among other matters, acknowledges responsibility
for the fair presentation of financial statements, should normally be signed by the
34. Six months after issuing an unqualified opinion on audited financial statements, an a uditor discovered that the
engagement personnel failed to confirm several of the client’s material accounts receivable balances. The
auditor should first
a. Request the permission of the client to undertake the confirmation of accounts receivable.
b. Perform alternative procedures to provide a satisfactory basis for the unqualified opinion.
c. Assess the importance of the omitted procedures to the auditor’s ability to support the previously
expressed opinion.
d. Inquire whether there are persons currently relying, or likely to rely, on the unqualified opinion.
35. Which of the following statements is incorrect regarding emphasis of a matter paragraphs and basis for
modification paragraphs?
a. The auditor should modify the auditor’s report by adding a paragraph to highlight a material matter
regarding a going concern problem.
b. An uncertainty is a matter whose outcome depends on futur e actions or events not under the direct control
of the entity but may affect the financial statements.
c. The addition of a paragraph emphasizing a going concern problem or significant uncertainty is ordinarily
inadequate to meet the auditor’s reporting responsibilities regarding such matters.
d. In a situation involving multiple uncertainties that are significant to the financial statements, the auditor
may consider it appropriate to express a disclaimer of opinion instead of adding an emphasis of a matter
paragraph.
36. Which of the following is the correct order for performing the auditing procedures A through C below?
A – Test of controls
B – Preparation of a flowchart depicting the client’s internal control structure
C – Substantive tests
a. ABC b. BAC c. ACB d. BCA
37. In the purchasing/disbursements cycle, of the order of the activities listed, which is the best order of a typical
sequence of activities
a. Ordering goods, receiving vendor’s invoice, selecting authorized vendor, payment activity
b. Ordering goods, receiving goods, receiving vendor’s invoice, cash payments
c. Ordering goods, receiving vendor’s invoice, receiving goods, payment activity
d. Selecting authorized vendor, receiving vendor’s invoice, receiving goods, payment activity
4|P age
PUP COLLEGE OF ACCOUNTANCY AND FINANCE
ACCO 4093 – AUDITING THEORY
38. On February 25, a CPA issued an auditor’s report expressing an unqualified opinion on financial statements for
the year ended January 31. On March 2, th e CPA learned that on February 11, the entity incurred a material loss
on an uncollectible trade receivable as a result of the deteriorating financial condition of the entity’s principal
customer that led to the customer's bankruptcy. Management then refus ed to adjust the financial statements
for this subsequent event. The CPA determined that the information is reliable and that there are creditors
currently relying on the financial statements. The CPA’s next course of action most likely would be to
a. Notify the entity’s creditors that the financial statements and the related auditor’s report should no longer
be relied on.
b. Notify each member of the entity’s board of directors about management’s refusal to adjust the financial
statements.
c. Issues revised financial statements and distribute them to each creditor known to be relying on the financial
statements.
d. Issue a revised auditor’s report and distribute it to each creditor known to be relying on the financial
statements.
39. An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor
designed a statistical sample that would provide 1% risk of assessing control risk too low (99% confidence) that
not more than 7% of the sales invoices lacked approval. The auditor es timated from pr evious experience that
about 2 1/2% of the sales invoices lacked approval. A sample of 200 invoices was examined and 7 of them were
lacking approval. The auditor then determined the achieved upper precision limit to be 8%. The allowance for
sampling risk was
a. 5 ½ % b. 4 ½ % c. 3 ½ % d. 1%
40. Which of the following statements ex tracted from a client’s lawyer’s letter concerning litigation, claims, and
assessments most likely would cause the auditor to request clarification?
41. An auditor most likely would modify an unqualified opinion if the entity’s financial statements include a footnote
on related-party transactions
a. Disclosing loans to related parties at interest rates significantly below prevailing market rates.
b. Describing an exchange of real estate for similar property in a nonmonetary related-party transaction.
c. Stating that a particular related-party transaction occurred on terms equivalent to those that would have
prevailed in an arm’s-length transaction.
d. Presenting the peso volume of related-party transactions and the effects of any change in the method of
establishing terms from prior periods.
42. In planning an audit, the auditor should consider the presence of fraud risk factors relating to misstatements
arising from (1) fraudulent financial reporting and (2) misappropriation of assets. In which of the following
situations would the auditor most likely presume that a high risk of defalcation exists?
a. ABC Company is a multinational company tha t does business in various countries in the Asia -Pacific rim.
b. DEF Company does business with related parties.
c. GHI Company has a cashier who also handles accounting and authorization functions.
d. MNO Company is in an industry where the rate of change is very slow.
43. Mac, CPA, is planning the audit of Printer, Inc. Printer verbally asserts to Mac that all the expenses for the year
have been recorded in the accounts. Printer’s representation in this regard:
a. Is sufficient evidence for Mac to conclude that the completeness assertion is supported for the expenses.
b. Should be disregarded because it is not in writing.
c. Is not considered a sufficient basis for Mac to conclude that all expenses have been recorded.
d. Can enable Mac to minimize his work on the assessment of control risk for the completeness of expenses.
5|P age
PUP COLLEGE OF ACCOUNTANCY AND FINANCE
ACCO 4093 – AUDITING THEORY
44. BB Corp. orally engaged MM, CPA to audit its financial statements. BB informed MM that it suspected that the
accounts receivable were materially overstated. Although the financial statements that MM audited did, in fact,
include a materially overstated accounts receivable balance, MM issued a standard unqualified report. If BB sues
MM for negligence in failing to discover the overstatement, MM’s best defense would be that:
a. MM had signed no engagement letter.
b. MM did not perform the audit recklessly or with intent to deceive.
c. MM was not in privity of contract with BB’s customers.
d. MM performed the audit in accordance with PSAs.
45. According to PSA 201, one of the hard and fast rules regarding terms of audit engagements is that:
a. The agreed terms would always need to be recorded in an audit engagement letter.
b. The auditor and the client should agree on the terms of the engagement.
c. The engagement letter should be sent before the commencement of the engagement.
d. The form and content of audit engagement letters should never deviate from the illustrative example
provided in PSA 210.
46. As the materiality level is set at a lower amount, audit risk ________, while the amount of substantive tests
________.
a. Increases, decreases c. Increases, increases
b. Decreases, increases d. Decreases, decreases
48. Material error (which occurs in the accounting process) may not be detected by the auditor in his examination of
the financial statements poses quite a big risk. In order to minimize this risk, the auditor relies on:
a. Compliance tests. c. Substantive tests.
b. Internal controls. d. Statistical risk analysis.
49. Elmer, CPA, is planning the time budget for the audit of Shindengen, Inc., a medium-sized manufacturing concern
with less than one hundred (100) shareholders. Which one of the following areas would require the most
amount of audit time?
a. Balance sheet. b. Assets. c. Liabilities. d. Owners’ Equity.
52. Which of the following is an appropriate combination of procedures required in completing a review
engagement?
A – Inquiry
B – Observation
C – Analytical Procedures
53. The primary source of information to be r eported about litigation, claims, and assessments is management.
Which of the following is another likely source?
a. Client’s lawyer b. Court records c. Client’s management d. Independent auditor
6|P age
PUP COLLEGE OF ACCOUNTANCY AND FINANCE
ACCO 4093 – AUDITING THEORY
54. Shortly after the audit report has already been released to Marie Company, Elvis, CPA, discovered that a material
subsequent event requiring adjustment of the financial statements. Despite asking Marie Company NOT to
release the financial statements and the audit report thereon, MARIE ISSUED BO TH DOCUMENTS. Related to
this, what is the best course of action on part of Elvis?
a. Issue a modified report, as a corrigendum, together with a written apology addressed to the board of
directors and shareholders of the entity.
b. Issue a modified report, as a corrigendum, but without a written apology.
c. Ask for legal advice, and take action to prevent reliance on the auditor’s report.
d. Issue a modified report, with a qualified or adverse opinion, to be printed in a newspaper of general
circulation, no less than 15 days after the issuance of the unamended financial statements and the original
audit report.
55. Under the comparative financial statements framework, the prior year information are:
a. An integral part of the current period financial statements
b. Implicitly given an opinion when the auditor expresses an opinion for the current year financial statements.
c. Read with reference to amounts and other disclosures relating to the current period
d. Capable of standing alone
56. An auditor's report includes a statement that "the financial statements do not present fairly the financial
position in accordance with Philippine Financial Reporting Standards." This auditor's report was probably issued
in connection with financial statements that were (select the exception):
a. Prepared on a comprehensive basis for accounting other than PFRS.
b. Pervasively misstated.
c. Misleading.
d. Materially misstated.
57. Jay Mark, CPA, is printing a 50-page long-form audit report in connection with the 2014 audit of Mansions, Inc.
After 30 pages, the computer screen displays this error message:
Attention!
Printer is out of paper. Please insert more paper into tray and press the Start button.
58. PSA 520, Analytical Procedures, provides guidance on the application of analytical procedures in an audit.
Analytical procedures
a. May be applied at other stages of an audit.
b. Is required as a substantive procedure during evidence-gathering.
c. Means the analysis of significant ratios and trends, but not including the r esulting investigation of
fluctuations and relationships that are inconsistent with other relevant information or which deviate fro m
predicted amounts.
d. Are not required during the completion stage of the audit of financial statements.
59. Whenever the auditor expresses an opinion that is other than unqualified, a clear description of all the
substantive reasons should be included in the report, and unless impracticable, a quantification of the possible
effect(s) on the financial statements. Ordinarily this information would be set out
a. In a separate paragraph succeeding the opinion or disclaimer of opinion and may include a reference to a
more extensive discussion, if any, in a note to the financial statements.
b. In a separate paragraph preceding the opinion or disclaimer of opinion and may include a reference to a
more extensive discussion, if any, in a note to the financial statements.
c. Within the scope paragraph preceding the opinion or disclaimer of opinion and may include a reference to a
more extensive discussion, if any, in a note to the financial statements.
d. Within the opinion paragraph and may include a reference to a more extensive d iscussion
7|P age
PUP COLLEGE OF ACCOUNTANCY AND FINANCE
ACCO 4093 – AUDITING THEORY
60. The following explanatory paragraph was included in an auditor’s report to indicate a lack of consistency:
“As discussed in Note 10 to the financial statements, the company changed its method o f computing
depreciation in 2017.”
How should the auditor report on this matter if the auditor concurred with the change?
Location of additional
Type of paragraph (emphasis of
opinion matter/basis for modification)
61. Which of the following documentation is required for an audit in accordance with generally accepted auditing
standards?
a. A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity’s controls.
b. A client engagement letter that summarizes the timing and details of the auditor’s planned fieldwork.
c. An indication in the working papers that the accounting records agree or reconcile with the financial
statements.
d. The basis for the auditor’s conclusions when the assessed level of control risk is at the maximum level for all
financial statement assertions.
62. Which of the following statements would an auditor most likely add to the n egative form of confirmations of
accounts receivable to encourage timely consideration by the recipients?
a. “This is not a request for payment; remittances should not be sent to our auditors in the enclosed
envelope.”
b. “Report any differences on the enclosed statement directly to our auditors; no reply is necessary if this
amount agrees with your records.”
c. “If you do not report any differences within fifteen days, it will be assumed that this statement is correct.”
d. “The following invoices have been selected for confirmation and represent amounts that are overdue.”
63. A client acquired 25% of its outstanding capital stock after year -end and prior to completion of the auditor’s
fieldwork. The auditor should
64. The practice of auditing firms to spread work throughout the year by carrying out as many auditing procedures
as practicable before the balance sheet date, in order to minimize the load during the peak period. This is called
a. test of transactions c. test of control
b. risk assessment procedures d. interim procedures
65. Waste Management and Enron are classic cases wherein the media was critical that auditors:
a. Were ignorant of the existing audit and assurance standards
b. Have failed to plan the audit engagements properly
c. Overlooked suspicious of earnings management reported in the Wall Street Journal
d. Received significant consulting fees relative to audit fees
66. Republic Act No. 9298 otherwise known as the Philippine Accountancy Act of 2004 provides that there should be
a Professional Regulatory Board of Accountancy which is composed of a chairman and six members appointed by
the president of the Philippines. Who is the current chairman of the Professional Regulatory Board of
Accountancy?
a. Samuel B. Padilla b. Arlyn S. Villanueva
c. Joel L. Tan-Torres d. Gloria T. Baysa
8|P age
PUP COLLEGE OF ACCOUNTANCY AND FINANCE
ACCO 4093 – AUDITING THEORY
67. Marvin, CPA, completed the fieldwork of the audit of Alej’s December 31, 2017 financial statements on March 6,
2018. A subsequent even requiring adjustment to the 2017 financial statements occurred on April 10, 2018, and
came to Marvin’s attention on April 24, 2018. If the adjustment is made without disclosure of the event, Marvin’s
report ordinarily should be dated
a. March 6, 2018 b. April 24, 2018
c. April 10, 2018 d. Using dual dating
68. Audit risk has three components: inherent risk, control risk, and detec tion risk. Which of the following
statements which pertain to these components is incorrect?
a. The acceptable level of detection risk is inversely related to the combined assessed level of inherent risk and
control risk.
b. The higher the assessment of inherent and control risks, the lower the detection risk that can be accepted
by the auditor.
c. Detection risk cannot be changed at the auditor’s discretion.
d. The auditor considers the combined assessments of inherent and control risk in order to determine the level
of detection risk which may be accepted.
69. Using statistical sampling to assist in verifying the year-end accounts payable balance, and auditor has
accumulated the following data:
Using the ratio estimation technique, the auditor’s estimate of year-end accounts payable balance would be
a. P6,150,000 b. 5,125,000
c. P6,000,000 d. P6,025,000
70. As one of the year-end audit procedures, Ebee Barney, the auditor, instructed the personnel of Kiong Hee Huat
Tsai Company, the client, to prepare a standard bank confirmation request for bank the bank account that had
been closed during the year. After Li Tong Hay, the client’s treasurer, had signed the request, it was mailed by Li
Tong Lito, the assistant treasurer. What is the major flaw of this audit procedure?
a. The confirmation request was signed by the treasurer.
b. Sending the request was meaningless because the account was closed before the year -end.
c. The request was mailed by the assistant treasurer.
d. The auditor did not sign the confirmation request before it was mailed.
71. Which of the following would most likely be deemed a direct-effect illegal act?
a. Violation of employment laws
b. Violation of environmental regulations
c. Violation of income tax laws
d. Violation of civil rights laws
72. The engagement team for the 2017 financial statements audit of Bookish Company are composed of the
following:
Following the Philippine Standards on Auditing, who among the above would be considered as “the auditor”?
a b c d
MCC Yes Yes Yes Yes
PHL Yes No No No
SCB No Yes No Yes
MTT No No No No
9|P age
PUP COLLEGE OF ACCOUNTANCY AND FINANCE
ACCO 4093 – AUDITING THEORY
Sabado Boy'Company
BANK TRANSFER SCHEDULE
December 31, 2017
Bank accounts Disbursement date Deposit date
Check no. From To Amount Per books Per bank Per books Per bank
73. The tick mark most likely indicates that the amount was traced to the
a. December cash disbursements journal.
b. Outstanding check list of the applicable bank reconciliation.
c. January cash disbursements journal.
d. Year-end bank confirmations.
74. The tick mark most likely indicates that the amount was traced to the
a. Deposits in transit of the applicable bank reconciliation.
b. December cash receipts journal.
c. January cash receipts journal.
d. Year-end bank confirmations
Reading comprehension
Courage is not only the basis of virtue; it is its expression. Faith, hope, charity, and all the rest don't become
virtues until it takes courage to exercise them. There are roughly two types of courage. The first an emotional
state which urges a man to risk injury or death, is physical courage. Second, more reasoning attitude which
enables him to take coolly his career, happiness, his whole future or his judgment of what he thinks either right
or worthwhile, is moral courage.
I have known many men, who had marked physical courage, but lacked moral courage. Some of them wer e in
high places, but they failed to be great in themselves because they lacked moral courage. On the other hand I
have seen men who undoubtedly possessed moral courage but were very cautious about taking physical risks.
But I have never met a man with moral courage who couldn't, when it was really necessary, face a situation
boldly.
* * * END OF EXAMINATION * * *
Now faith is confidence in what we hope for and assurance about what we do not see.
Hebrews 11:1
GO D BLE SS FU T URE CP A TO G O D BE T HE GL O RY
10 | Page