ATPW-28: PREWEEK QUESTIONS In the international arena, this body oversees the IFAC's standard-setting activities in the areas of auditing assurance, ethics and education. ri ad ‘A. Monitoring Group (MG) B. Public Interest Oversight Board (PIOB) C. IFAC Regulatory Liaison Group (IRLG) D. Intemational Auditing and Assurance Standards Board (IAASB) 2. One of the government auditing standards which is not observed by independent CPAs in the private sector is: ‘A. the audit is to be adequately planned and assstants are to be properly supervised. e B. a review shall be made of compliance with legal and statutory requirements. C. an evaluation shalt be made of the system of internal control, D. sufficient competent evidential matter shall be obtains through inspection, observation, inquites and confirmations. 3, A requirement of the application of PSAs is for the auditor: ‘A. Not to obtain clients by solicitation. B. To undertake @ proper study and evaluation of the existing internal control. C. To charge fees fairly and in relation to time and cost of the engagement. D. To inspect all fixed assets acquired during the year. 4. A professional accountant who does not consider and apply the guidance included in a relevant Practice Statement should be prepared to: ‘A. Explain to the Board of Accountancy tribunal why the practice statement was not complied with B, Bear the consequences of such non-compliance, such as suspension or revocation of license, plus imprisonment of not more than two (2) years. C. Face the shareholders of the entity, and explain in the meeting why such practice statement was ‘Rot complied with, provided that the explanation is also put in writing, and signed in the presence of the Chairperson of the Auditing and Assurance Standards Council. Explain how the basic principles and essential procedures in the Engagement Standards addressed by the Practice Statements have been complied with. '5. The Core Competencies of CPAs include: ‘A. Assurance and information integrity. C. Strategic and critical thinking skis, B. Objectivity. ©. Pursuit of life-long leaning and excellence. AA violation of the profession's ethical standards would most likely occur when a CPA who ‘A. {5 also admitted to the Bar represents on letterhead to be both an attorney and a CPA. B. Writes 2 newsletter on financial management also permits a publishing company to solicit subscriptions by direct mail. C. is controller of a bank permits the bank to use the controller's CPA title in the listing of officers in its publications. D. forms a partnership for accountancy practice with non-CPA’s. 7. Which of the following describes most completely how the profession defines independence? ‘A. performing an audit from the public’s point of view B. avoiding the appearance f a significant interest in an audit client's interest CC. resisting a client's reluctance to reveal evidence =D. accepting responsiblity to act professionally and in accordance with the professional Code of Conduct ‘8. What kind of threats are created by virtue of a close business relationship with assurance clients? ‘A. Soff interest threat CC. Seif interest and self-review threat 8, Self-interest and intimidation threat D. No threats are created. 9. Family and personal relationships between a member of the assurance team and a director, an officer or certain ‘employees, depending on their role, of the assurance client, least likely create ‘A. Self-interest threat. C. Intimidation threat. .B. Seff-review threat. D. Famitarity threat, 10, If firm, oF network firm, personnel providing such assistance make management decisions, the seif-review thveat created could not be reduced to an acceptable level by any safeguards. Examples of such managerial decisions include the following, except ‘A. Determining or changing journal entries, or the classifications for accounts or transactions or other ‘accounting records without obtaining the approval ofthe aucit cients. 18. Authorizing or approving transactions. Preparing source documents or originating data (including decisions on evaluation assumptions), or ‘making changes to such documents or data. = D. Assisting an audit dient in resolving account reconciliation problems. Secale, ies atl tl anal hii aia Seen &.4 _ 1. The provision of accounting and bookkeeping services to audit clients in emergency or other unusual situations, when it is impractical for the audit client to make other arrangements, woul! not be considered to pose an ‘unacceptable threat to independence provided: ‘A. The firm or network firm, does not assume any managerial role or make any managerial decisions. B. The audit clent accepts responsibilty for the results ofthe work. a C, Personnel providing the services are not members of the assurance team. D.Allof the above. 12. If the valuation services involves the valuation of matters material to the financial statements and the valuation involves a significant degree of subjectivity, the sel-review threat created (choose the incorrect one) Could not be reduced to an acceptable level by the application of any safeguard. Could be reduced to an acceptable level by the application of safeguards. Such valuation services should not be provided. The assurance team should withdraw from the audit engagement, if the team opted to perform the valuation services. ‘Tp 13. 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. CC. Overlooked suspicions of earnings management reported In the Wall Street Journal. 1D. Received significant consulting fees relative to audit fees. 4 ACPA purchased stock im a clent corporation and placed I in a trust as an educational fund for the CPA's minor Child. “The trust securities were not material to the CPA but were material to the child's personal and worth. ‘Would the independence of the CPA be considered to be impaired with respect to the client? ‘A. Yes, because the stock would be considered a ditect financial interest and, consequently, materiality is not a factor. B. Yes, because the stock would be consilered: an indirect financial interest that is material to the CPAs chi C. No, because the CPA would not be considered to have a direct financial interest in the client. 1D. No, because the CPA would not be considered to have a material indirect financial interest in the client. 15. The Code of Professional Ethics would most likely be violated if an auditor: ‘A. Owns a buikding and leases floor space to an assurance client. B. Has an insured account with a brokerage firm audit client. C.__Is engaged by an audit cient to identify potential acquisitions. D. Screens candidates for an audit clent’s vacant controllership position, : B 16. Pupung, CPA, is an audit manager of the Dom, Day and Jordan, CPAs, accounting firm. He has just been assigned to the aucit of the Lugao Money Market Fund, Pupung has maintained a money market account with MMF since it opened in 2005. All his savings, amounting to 75% of his total assets, are in this account, which Days the highest interest available in money market funds. However, his account constitutes only 0.00001 percent of the fund's assets. Is the audit firm's independence impaired in this situation? A. Yes. Pupung is considered a member of the assurance team, since he i a manager and will provide ‘audit services to LMMF. The firm’s independence is impaired since Pupung holds a material indirect financial interest, B. Yes, Pupung is considered a member of the assurance team, since he is a manager and will provide audt services to LMMF. The firm's independence is impaired since Pupung holds a direct fancial interest. CC. No. Pupung, despite being a "member of the assurance team" holds only 0.00001 percent of the fund's assets. His financial interest in CMMF is irrelevant to the question on independence, . No. Pupung, despite being a "member of the assurance team” holds only 0.00001 percent of the fund's assets. It is the audlt partner in charge of the LMMF engagement (and not Pupung) who should be checked for any direct or material indirect financial interest in the audit clent. (Numbers 17 to 19 follow) CPA Dagut's wife owns 20 percent of the ordinary shares of Pugad Company, which wants Dagul to perform the audit for the calendar year ended December 31, 2009. C17, May Dagul perform the auatit of Pugad Company for the calendar year ended December 31, 2009? ‘A. Yes, since itis Dagul's wife who owns the shares and not Dagul. B. Yes, because the interest is less than 50 percent and therefore Dagul is considered independent. . No, since Dagut's wife's interest is attributed to him, and he would not be independent. D. No, since Daguls wie's interest constitutes significant influence and gives rise to an intimidation * threat, goe> 18. Assume that Dagu's wife gave her shares to their dependent 10-year-old daughter, Tiny, on July 1, 2009. May A. Dagul now perform the audit of Pugad Company forthe calendar year ended December 31, 2003? ‘A. No, for as fong as Tiny & a dependent child. The financial interest is considered direct. B. Yes, because Dagul is now considered independent since iis his daughter who row owns the shares, CC. No, for as iong as Tiny ts @ dependent child, ‘The financial interest is consklered indirect. D.. Yes, because under the Code of Ethics, the interest in Pugad Company is no longer relevant to Dagul's ‘decision whether to accept or decline the audit engagement.D 19. Ascunte Authew that Nay, acting through an appropriate custodian, sold the shares to her grandfather Lolo Dom ‘4 August 1, 2008, Yits purchase, a6 an accommodation, took two: thitds of his eettement savings. May Dagul ‘woo per fo4m the aul OF Puugad Company for the calendar year ended December 31, 2000? A Yes tui ont iF Loks Dom #6 not Daguls fatter (ic, Lolo Dom is Daguls father-in-iaw). UL No. The apywnarance of independerice fs impaired. Moreover, the grandfather's investment is material (08.67 percent) tn relation to his net financial resources, Yes Paiqul may now accept the engagement since there is no impairment of independence. Lolo Dom is ‘conitered a tton-dopendent close relative No The elopencleace ia mental attitude is impaired. Moreover, the grandfather's investment is "material (06.67 percent) In relation to his net financial resources, 20, ‘Oh Auuust 20, 2009, Mar Bonafe, CPA and partner, was offered and accepted the engagement to audit the annual Frnclal statements of ABC Corporation for the fiscal and calendar years ended December 31, 2009, The audit teua on September 15, 2009, and ended on March 17, 2010. ABC Corporation is regulated by the NIC. Konate served as controler of ABC Corporation from November 5, 2002 until January 12, 2009, at which {une he teminated Inis employment with ABC. (Mar Bonafe owned! a material amount of ABC Corporation's ordinary shares from November 5, 200? until August 45, 2008, at Which tine he sold the shares. Is Mar Bonafe in violation of the Code of Ethics due to impairment ‘of independence? ‘A. Yes, because Mar Bonate owned ABC shares at the start of the audit for December 31, 2009. B. Yes, because Mar Bonafe served as a controler for ABC Corporation in previous years. Yes, because Mar Bonafe had an empbyient relationship with the dient during part of the period covered by the financial statements, dB Yes, beviause itis stil less than a year since Mar Bonafe has owned shares in ABC Corporation, ‘The provision of services by a firm or network firm to an audit client that involve the design and implementation ‘Of financial information technokoay systems that are used to generate information forming part of a client's Financial statements may mast likely create ‘AL Self interest threat, c 1B Seif-review threat, D. a Intimidation threat. Familiarity threat. 22. The lending of staff by a firm, or network firm, to an audit client may create a threat when the individual is in a position to influence the preparation of a client’s accounts or financial statements. ‘A, Sellinterest threat, C._Tatimidation threat, B. Self-review threat, D. Familiarity threat, 23, These services may Include such activities as acting as an expert witness, calculating estimated damages or ‘other amounts that might become receivable or payable as the result of itigation or other legal dispute, and assistance with document management and retrieval in relation to a dispute or litigation. ‘A. Paralegal services C.Client representation services. B. Litigation support services. D. Corporate finance and similar activities, 24. Legal services are defined as ‘A, The making of assumptions with regard to future developments, the application of certain methodologies ‘and techniques, and the combination of both in order to compute a certain value, or range of values, for an asset, a hability oF for a business a5 a Whole. Vatic}ix Few B.A broad range of services, including compliance, planning, provision of formal taxation opinions and assistance i the resolution of tax disputes. Tay Ge eyivee C. May include such’ activities as acting as an expert witness, calculating estimated damages ‘or other amounts that might become receivable or payable as the result of litigation or other legal dispute, and assistance with document management and retrieval in relation to a dispute or tigation, tis.t=. sy 1D. Any services for which the person providing the services must either be admitted to practice before the Courts of the jurisdiction in which such services are to be provided or have the required legal training to practice law. . The recruitment of senior management for an assurance client, such as those in a position to affect the subject Of the assurance engagement may least likely create ‘A. Seff-interest threat, C. Intimidation threat. B. Advocacy threat. D. Familiarity threat. 26. CPA Ela Santos performs the audit of the local symphony society. Because of her good work, she was elected ‘an honorary member of the board of directors. Ela will not be considered independent unless: A B c D = The position is in fact purely honorary Yes Yes Yes Yes + Listings of directors show she is an honorary director, No Yes Yes No + She restricts participation strictly to the use of her name, Yes No Yes No = She does not vote or participate in management functions Yes. Yes Yes Yes 27. Rita, CPA 1s in charge of the audit of Mabuhay Resort, Inc. Seven young members of the audit firm's professional staff are working with Rita on this engagement, all of which are avid divers, Mabuhay Resort owns {wo condominiums in Boracay, which it uses primarily to entertain clients, The controller of Mabuhay Resort ‘nas tokd Ms, Rita that her whole team is welcome to use the condominiums at no charge any time that they are ot already in use, How should Rita, CPA, respond to this offer?a A. Rita shouk! withdraw from the engagement due to a significant threat to independence. B Rita abwoo may aevept the offer, buLher stat may not use the condominiums. Rita shout eine the offer, both for herself and her staff DL Ria may avept the offer, but only tt favor of her staff; she cannot use the condominiums because as Panties, Rita will sn the report, 28, This refers to fearing which uses course manuals or accredited learning modules. A. Masteral degree In-service training Continuing professional education D.Self-directed learning package 29, Generatty, advertising and puibieity in any mextiun are acceptable provided (select the exception): AC TT has as its objective the notification to the public or such sectors of the public as are concerned, of mattors oF fact (2g, name, address, contact numbers, services offered) In a manner that 6 false, aunkanting oF deceptive Bo IES in good taste IC avorls frequent repetition of, and any undue prominence being given to the name of the firm or Drofesstonal accountant in public practice D. Tes not professionally dignited Wiiet of the following & allowed! under the revised rules on advertising? A. Putlishing services in billboard (e.g, tarpaulin, streamers, etc.) advertisements B._ Using words oF phrases which are hand to define and even more difficult to substantiate objectively Giving to much emphasis on competitive differences 1D. None of these are allowed forms of advertising, 31, Asser Tamayo, CPA, has iisted his practice in a directory. Which of the following cannot be included in the tistng? dan OE a ‘A. Complete name B. Address and contact number CC. Professional description and services offered 1D. Allof these may be included in the directory listing. 32. Antonio, CPA and partner of Dayag and Lee auditing firm, is being Interviewed by Chris Espenilla, CPA in his oontime business show, “Chris per Minute”. During the course of the interview, which of the following responses by Antonio would be a violatont of the revised rules on Advertising? ‘A. “Derivatives require higher accounting knowledge, but they are relatively easy with study and practice.” B. “PERS No. 3 covers business combinations, It as been the recent subject of the IASB Improvements Project.” G. “Alnght, T would be more than willing to entertain accounting questions from the audience.” BD. “Dayag and Lee offers audit and other assurance services, and also management consulting services, {including creation and installation of accounting systems. Our cents include top universities and ‘manufacturing companies in the Luzon area” =) 30 hse oe yay 33, An individual (whether internal or extemal to the firm) who has a reasonable understanding of (a) audit processes, (D) PSAs and appicable legal and regulatory requirements, (c) the business environment in which the entity operates, and (0) auditing and financial reporting issues relevant to the entity's industry. ‘A. Suttably qualified person C. Experienced auditor 8. Engagement quality control reviewer D. Expert or speciaist 34. This fs the date selected by the practitioner to date the report. A. Dual date G._Date of report B. Date of signing D. Last day of field work 35. A network Is: A 8 ¢ 2 + Thats aimed at cooperation Yes No Yes No + That is clearly almed at profit or cost-sharing or shares ‘common ownership, control or management, common quality control policies and procedures, common business, strategy, the use of a common brand name, or a significant part of professional resources Yes Yes No No 36. The firm shall establish policies and procedures designed to provide it with reasonable assurance that ‘engagements are performed in accordance with professional standards and regulatory and legal requirements, ‘and that the firm or the engagement partner issue reports that are appropriate in the cicumstances,’ Such policies and procedures shall include: A. Matters relevant to promoting consistency in the quality of engagement performance B. Supervision responsibilities C. Review responsibilities ‘1D. All of the choices. 37. In reviewing the audit work performed, the engagement partner: ‘A, Must review all audit documentation. 'B. Need not review all audit documentation, but may do so.a C._Need not review all audit documentation. 1D. Must ask the staff performing the audit work to Sign the audit report. 38. The incoming auditor is also known asthe auditor: A. Successor 8, Principal © other D. Proposed 39. One of the major parts of audit planning is pre-plsnning. Which of the following 1s NOT involved dunng the ‘pre-planning phase? ‘A. Deciding whether to accept or continue ths cent. 8. Obiaining information about clent’s legal obligabons. C._ Selecting staf for the engagement. D. Obtaining an engagement Ketter. 40, Which of the following matters 6 east likely to be discussed in an engagement letter? 9% soso} ‘A. the fact that the financial statements are the responsibilty of management. 8, the fact that an auditor does not plan to detect matenal imegularities. C. assistance to be provided by client personnel D.__tening of the performance of the examination, 41. To obtain an understanding of a continuing chent’s business in planning an audit, an auditor most likely would ‘A. Perform tests of details of transactions and balances, B. Review prior-year working papers and the permanent file for the client. CC. Read specialized industry journals. D. Reevaluate client’ internal control environment. 42, Ordinarily, predecessor auditor permits the successor to review the predecessor's working paper analyses, relating to Balance sheet Balance sheet Contingencies accounts Contingencies ‘accounts A Yes Yes c No Yes a Yes No D. No No 43. ACPA may reduce the audit work on a first time audit by reviewing the working papers of the predecessor auditor. The predecessor should permit the successor to review working papers relating to matters of continuing significance such as those that reiate 10 ‘A. extent of reliance on the work of specialists. CC. analyss of contingencies. B. fee arrangements and summanes of payments. _D. _staff hours required to complete the engagement. 44, The following statements relate to audit programs. Which statement is true? ‘A. The FRSC publishes a standard audit program and encourages the adoption for general use. 8. The preparation of an audit program ts not influenced by the state of the chent’s internal control system. CC. An audit program would not contain documentation of the system being reviewed. 1D. The audit plan and related program should no longer be changed once the audit 6 started. 45, This means the amount or amounts set by the auditor at less than materiality for the FS as a whole to reduce to an appropriately low level the probabilty that the aggregate of uncorrected and undetected misstatements ‘exceeds materalty for the FS as a whole. 'A. Allowance for sampiing risk C. Standard deviation 8B, Planning materiality ©. Performance materiality 46. Which of the following statements best describes why an auditor makes a preliminary estimate of materiality? ‘A. an estimate i required by generally accepted auditing standards B. the estimate provides a basis for evaluating hkely msstatements C._ the estimate helps the auditor plan the appropriate evidence to accumulate ©. estimating materiality early helps the auditor avoid legal habiity 47. Which of the following discoveries by the auditor would NOT raise the red flag of increased inherent risk? ‘A. Management bonuses are based on a percentage of net income, B.A bond indenture requires a current ratio of at least three to one. CC. Client makes extensive use of notes receivable and notes payable rather than buying and selling on ‘open-account basis. D. Client isa parent company with a subsidiary. me 48. While performing an audit, Conrad, CPA, decides to restrict the, risk of material misstatement to 3%. What ‘must the acceptable level of detection risk be if inherent risk és 25% and control risk is 40%? A 0.3% 30.0% B 12.0% D. 33.3% 49. The systems approach to an audit is least likely to be appropriate for: ler an v Rk ‘A. Clients with weak internal control. CC. Clients in specialized industries. B. Clients that are large in size. D. Clients that are publicly sted. 50. One of the auditor's major concerns is to ascertain whether the internal control structure és designed to provide reasonable assurance that ‘A. Profit margins are maximized, and operational efficiency is optimized, + B. The chief accounting officer reviews all accountng transactions,C. Corporate morale problems are addressed immediately and effectively. 1D, Transactions are executed in accordance with management's general or specific authorization, 51. Which of the following would be feast tIkely to be consktered an objective of the internal control structure? A. Checking the accuracy and reliability of accounting data, 8. _Detexting management fraud Encouraging axtherence to managerial polices, D. Safeguarding assets. 52. Which Of the following comes CLOSEST to outlining the auditor's responsibilty for internal control on all nancial statement aucits? cf ‘A. An-undeystanding of the control environment and the accounting system is necessary; an understanding ‘of the contiol procedures is necessary for areas in which the auditor is performing tests of control. 8, The auditor must obtain an understanding of each of the five internal control elements sufficient to plan the aud. When tests of controls have been performed, control risk must be assessed at a level less than the maximum, D, An understanding of the control environment is necessary, but not of the accounting system or control Drocexlures unless Control risk & to be assessed at a level less than the maximum. 53. An objective of a walk-through isto: ‘A, Verily that the structure has been placed in operation. B. Replace tests of controls. Evaluate the inajor strengths and weaknesses in the clients structure. , Identity weaknesses to be communicated to management in the management letter. 54. Which of the following ts an advantage of describing internal control through the use of a standardized questionnaire? ‘A. Questionnaires highlight weaknesses in the system. BL Questionnaires are more flexible than other methods of describing internal control C. Questionnaires usually identify situations in which internal control weaknesses are compensated for by other strengths in the system. D. Questionnaires provide a clearer and more specific portrayal of a client's system than other methods of describing internal control. 55: Which ofthe folowing statements isnot corect? ‘A. Tt would be unusual to use both a narrative and a flowchart to describe the same system. B The use of both questionnaire and flowcharts on the same engagement is highly desirable for understanding the client's system, C. The advantage of the narrative description Is the ease of describing the details of the internal control structure. 1D. When reliable and understandable narratives, flowcharts, and questionnaires are available from the ‘cient, its desirable to use them rather than have the auditor prepare his/er own documents, C56. The overall attitude and awareness of an entity's board of directors conceming the importance of the internat control structure usually s reflected in ts: ‘A. Computer-based controls. Control environment. 8 System of segregation of duties. D. Safeguards over access to assets. 1B 57. Internal contro! és a function of management, and effective control is based upon the concept of charge and ‘discharge of responsibilty Or duty. Which of the following & one of the overriding principles of internal control? ‘A. _ Responsibility for accounting and financial duties should be assigned to one responsible officer. B, _Responsibllty for the performance of each duty must be fixed. C._ Responsibility for the accounting duties must be borne by the auch committe of the company. 1. _Responsibilty for accounting activities and duties must be assigned only to employees who are bonded. 58: which of he folowing not walt concep fea conto? When one person is responsible for all phases of a transaction, there should be a clear designation of that Person's responsibilty. 1B, The recorded accountability for assets should be compared with the existing assets at reasonable intervals and appropriate action should be taken it there are differences. C. Accounting control procedures may appropriately be applied on a test basis in some circumstances. 1D. Procedures designed to detect errors and imegularives should be performed by persons other than those in a position to perpetuate ireegularives. 59. Control procedures do nok encompass: ‘A. Comparison of assets with recorded accountability. B. Design and use of documents. C._ Proper safeguards over access to assets, 1D. Aninternal audit function. Compre *f tmtel Ensicenmtn 160. This term means "to analyze Klenified risks to conclude on their significance”: A Estimate, B. Assess, C. Measure. 1D 61. which ofthe folowing is nok 2 valid Sequence of steps Inthe aust process? ra Analyze. Se ee ap are T + ‘ieee,0 > A. performing certain analytical procedures, assessing ihherent tsk, avsvany Cont 8. Choosing auait risk, assessing control rk, determming Getetion nee nd nel ek CC. choosing audit risk, performing certain analytical procedures, meksyany erent tk D. determining detection risk, assessing inherent isk, performing veram ataltial procedres 62. A defeny internal cont ets when: a Non dene, pened ocperated sh 8 Wa , aed Suh a ay ha 8 une prevent, Fda ad Correct, misstatements in the financial statements on a timely baste, ! : 8. A control necessary to prevent, or detect and correct, snrsstaten ce Dea ect, Mratatements in the financial statements on a There i a defeleicy oF combination of defences in Itenal : nation of dite ia enna contol that, ne autor’ psec Judgment, of sufcent mportance to mest te atten of tha charged ih unernce D. Alor these chokes decibea decency ternal conte 63. The audtor shal conmunkate stent dienes i ternal conc ened ding ees i ten Jee cng the aut theme charged with governance on a timely basis. Such commuination: _ mB Pee ‘May be done orator n wring. Mist be done ory Must be monte. D._ ot vaqured by Pipine Standards in Aung. 64. In order to ensure unbiased information, record-keeping i typically included in a separate department under the: ‘A. VP-operations 8, -—Treasurer Controller D. Internal auditor 65. Transaction cycles begin and end: ‘A. At the beginning and end of the fiscal period. B. At the balance sheet date. At January 1 and December 31 B. At the ongin and final dispositon of the company,» 7 66. The authority to accept incoming goods in ceiving should be hased on a(n): ‘A. Vendors invoice. C. Bil of lading. B. Matenals requsstion. D. Approved purchase order. 67. Input documents are typically the responsibilty of the: ‘A. User department that transmits the documents to accounting before processing. B. Accounting department which prepares and records them. C_ Production and quality control department to see that they are prepared properly. D. Computer department since they will have to be responsible for inputting them. 68. “Contr activities" include procedures that pertain to physical controls over access to and use of assets and records. A departure from the purpose of such procedures is that: ‘A. Access to the safe-depost box requires two officers. B. Only storeroom personnel and line supetuisors have access to the raw materials storercom. The mail clerk compiles alist ofthe checks recewed in the incoming mai. 1D. Only salespersons and sales supervisors use sales department vehicles, 69. Effective internal control requites organizational independence of departments. Organizational independence ‘would be impaired in which of the following situations? 'A. The internal auditors report to the audit committee of the board of directors, 'B.._ The controller reports to the vice president for production, C._ The payroll accounting department reports to the chief accountant, 1D. The cashier reports to the treasurer. 70. Which of the following statements is true? i ‘A. Accounting for the sequence of pre-numbered documents is a control procedure intended to achieve ‘specific control objectives related to validity. 8. Incompatible functions are those that place any person in a position to perpetuate errors or irregularities. CIF comparison reveals that the assets do not agree with the recorded accountability, it provided evidence °. ‘of unrecorded or improperly recorded transactions. [A chart of accounts is generally prepared in detail to enable the controller to pinpoint budget variance ‘and trace it to a specific department or area of responsibilty 71. The frequency of the comparison of recorded accountablity with assets (for the purpose of safeguarding assets) should be determined by: 'A. The amount of assets without reference to the cost of the comparison, 'B._ The nature and amount of the asset and the cost of making the comparison. C) The cost of the comparison and whether the susceptiblity to 15s results from unintentional errors or intentional irregularties andjor defalcations.. 1D. The auditor in consultation with client management, (Numbers 72 and 73) Geiine Hardware Wholesalers sels hardware and small apphances, to selected retalens throughout the Phiippines. Terms are 2/10, n/30. In addition to customer accounts, Geline’s accounts recenvabie Includes employee receivables, customer credit’ balances, and other non-trade receivables, such a5 returnable Container deposits, utility deposits, and amounts receivable from sale of assets other than snventory,Og a ee ‘These other amounts are considered materia, but no effort ks made to idently them separately for ether interim oF ‘annual financial statement purposes. 72, Identity any internal control weakness present in Gelie Hardware Wholesales. Is the internal contro! 2. 74, 7. 7. 78. 73. 81. 82. 83. weakness relevant to the audit? A. Yes, because i affects the completeness and cut-off assertions related to the revenue-receivables-cash receipts cycie. 8. No, since the weakness in internal control affects only the classification of accounts in the tral balance and the financial statements, C. Yes, because i affects the presentation and disclosure assertions related to the revenue-receivables- cash receipts cycle. D, Cannot be answered without additional information. Which of the folowing substantive audit procedures would most likely address the intemal control weakness ientified in umber 43? ‘A. Reviewing transactions at and near year-end to ascertain the propriety of cut-off procedures by the lent, B., __ Tracing entries in the sales journal to the related invoices and shipping documents. © Selecting sample sales invoices and shipping documents and checking them against entries in the sales journal and the accounts recewable account, ©. Checking the propriety of classification of items in accounts receivable and proposing reclassification entries as necessary. ‘The use of fidelity bonds protects a company from embezzlement losses and ako: ‘A. Allows the company to substitute the fidelity bonds for various parts of internal control, B. Reduces the company’s need to obtain expensive business interruption insurance. C. Minimizes the possibilty of employing persons with dubious records in positions oF trust. Protects employees who made unintentional erors from possible monetary damages resulting from such errors. Which one of these is not a type of evidence that would be used for both obtaining an understanding of the control structure and testing the controls? . ‘A. Inquiries, B. Inspection, © Observation, D. —_Reperformance. ‘An error fn which an item is posted to the wrong personal account, or the incorrect cakulation of an amount constituting an original entry is a(n): ‘A. Error of omission C. Error of principle B. Error of commission D. Counterbalancing error In the consideration of internal control, the effectiveness of the design of controls i tested by: A. Flowchart, C.- Substantive tests, BL Tests of contro. D. Decision tables. ‘Tests of controls, for efficiency, are frequently done at the same time as: ‘A. Analytical procedures. C. Substantive tests of transactions. 8. Compliance tests. D. Substantive tests of balances, The test for recorded sales for which there were no actual shipments, the auditor traces from the: ‘A. Bill of lading to the sales journal 8. Sales journal tothe bil of ading recorded . Sales journal to me accounts recewable subsidiary ledger Sites —v thipad ? D. Bll of lading tothe supporting customer order and sales order. or To test the possibility of a shipment to a fictitious customer, the auditor traces from the OS hing Oe ‘A. Bil of iading tothe credit authorization Bp, 30 RY B. Credit authorization to the bill of lading i CC. Accounts receivable ledger to the bil of aging Boe Joerg Pa Gah ae 1. Sales journal to the accounts receivable eiger ‘An effective procedure to test for unbilled shipments is to trace from the: ‘A. Sales Journal to the shipping documents Dpmads — bill? 8, Shipping documents to the sales journal C, Sales journal to the accounts receivable ledger Pree Pr SE fs . Sales Journal to the general ledger slaes account ‘A CPA auditing an electric utlity wishes to determine whether all customers are being billed. The CPA's best direction of test 1s from the Weg ° ; ‘A. Meter department record to the billing (sales) register eben paki, —a biog she went J eyator B. Billing (sales) register to the meter department records C. Accounts receivable ledger to the billing (sales) register 1. Bling (sales) register to the accounts recewable ledger ‘An auditor concludes during the planning and internal control phase that the client is not auditable because of ‘deficient accounting records. Under such circumstances, the auditor must NOT: ‘A. Withdraw from the engagement without issuing a report. B. Issue a disclaimer of opinion.» ° oe oe & C._ Issue an adverse opinion. D. Send the client a bil for services renctered, 84. In the revenue and collection cycle, of the order of activites listed, which is In the best order of a typical sequence of actives? ‘A. Delivering goots, piling customers, credit granting, collection activity. B. Customer ordering, delivering goods, biliag customer, cash receipts. CC. Customer ordering, delivening goods, credit granting, collection activity, D, Credit granting, biling customers, delivering Gouxts, cash receipts, 85. The customer's request for merchandise, the customer order, would be In the form of: A. An cral request C._A vwritten request on pre-printed form. 8. Awniten request on customers letterhead, D. Any of these formats, £86. A document for recording the description, quantity, and related information for goods ordered by a customer Is the: ene odd by atle A. Customer order B, Sales order C. Shipping document, Remittance advice 87, Sales order forms and invoice blanks should be controled in the: ‘A. Sales order section ofthe sales department C. Credit manager in the credit department. 8. _Biling clerk in the accounting department. D. Sales manager in the sales department. 88. Before goods are shipped on account, a properly authorized person must: ‘A. Prepare the sales invoice. G.Approve credit 8. Approve the journal entry, D. Very that the unit price is accurate 89. Which one of the following ts not an auditor's concern about a key authorization point In the revenue/receipts oycle? ‘A. The receiving room must have authorization before releasing Items to inventory control. 8B. Credit must be authorized before the sale, C. Goods must be shipped after the authorization, D. Prices must be authorized, ‘90. For most firms, the function of indicating credit approval is recorded on the A. Customer order 8, Sales order . Sales invoice D. Remittance advice 91. A document prepared to initiate shipment of the goods sok Is the: ‘A. Sales order 8, Billof lading C. Sales Invoice D. Customer order 92, The document used to indicate to the customer the amount of a sale and due date of the payment isthe: A. Sales order 8, Bilof lading . Shipping document —D. Sales invoice ‘93, Most companies recognize sales when a/the: ‘A. Merchandise i received by the customer, C. Customer order is received. B. Merchandise & shipped. D. Cash i received on account. ‘94, When posting to the sales journal, details of a journal are posted to X and journal totals are posted to Y. What 15x? What's 7 X sob diary Ye Gemiaad byes femal hot y ‘A. Sales account se 6 General ledger C.Sales account AR subsidiary ledger B. AR master file General edger D. ARGL account Sales GL account 95. The report which typically includes Information analyzed by key components as sales person, product, and terttory is the: ‘A. Remittance advice. C. Accounts receivable master file, B. Summary sales report, D.Monthiy statement, 96. A flle for recording individual sales, cash receipts, and sales returns and alowances for each customer isthe: ‘A. Sales journal. . General tedger. B. Cash receipts journal, ©. Accounts receivable subsidiary ledger. 97. A document sent to each customer showing their beginning accounts recelvable balance and the amount and. {date of each sale, cash payment received, credit memo issued, and the ending accounts receivable balance Is the: ‘A. Recounts receivable subsidiary ledger, C. Remittance advice,” 8. Monthly statement. D. Sales invoice, ‘98. Which one of the following would the auditor's concern with when examining the billing function of the client? \.._ All shipments made have been billed, 8. No shipment has been biled more than once. C.Each shipment has been billed for the proper amount. D, All of the above are of concern to the auditor, 99. To achieve good internal contro, which department should perform the activites of matching shipping documents with sales orders and preparing daily sales summaries? A BID /Ru Ay eg 8. Shipping ©. Great D, ‘Sales orderaaneap-nerustbremees=drussvenasmansaea Soon = A 100 @ 1% a 108 14 A 10s C106, yr, 108, pm. Bu. ut. c pe | ps jc | | Which of the fotlowing control procedures may prevent the failure to bill customers for some shipments? ‘A, Fact shipment should be supported by a pre-numbered sales invoice that is accounted for, 1B, Lach sales order should be approved by authorized personnel. CC. Sals journal entries should be reconcied to daily sales summaries D, Each sales invoice should be supported by a shipping document. The document which supports reductions in accounts receivable is the: ‘A, Remittance advee—B. Credit meno . Sales invoice D. Monthly statement ‘The document whict accompanies the customer's payment is the: A. Remittance adve — 8B. Credit memo . Sales invoke D. Monthly statement When a customer fails to inclide a remittance advice with a payment, itis common practice for the person ‘opening the mail to prepare one, Consequently, mail should be opened by which of the following four company employees? ‘A. Credit manager. B. Receptionist, . Sales manager, D. AR clerk. Internal control over cash receipts 1s weakened when an employee who receives customer mail receipts also: ‘A, Prepanes initial Cash receipts records, B, Records credits to individual accounts receivable, C. Prepares bank depost sips forall mail receipts. D, Maintains a petty cash fund. The most difficult type of cash defalcation for the auditor to detect és that which occurs: ‘A. Before the cash 1s recorded. 1B. After cash 1s recorded but before It oes to the bank. C, Out of the balance kept in the cash register. 1. In amounts under F100, Which of the following would be the best protection for a company that wishes to prevent the “lapping” of trade accounts receivable? ‘A, Seureyate duties so that the bookkeeper in charge of the general ledger has no access to incomming mal B, Segregate duties so that no employee has access to both checks from customers and currency from daily ‘ash receipts, C. Have customers send payments directly to the company’s depository bank. 1. Request that customer’s payment checks be made payable to the company and addressed to the treasurer. When accounts receivable is considered uncollectible, the person who generally authorizes the write-off is the: ‘A. Credit manager 'B. Treasurer C. Accountant D. Sales manager ‘The two most important considerations the auditor should keep in mind in the verification of the write-off of Individual uncoechible accounts are: ‘A. Cut off and completeness. C.__Validty and authorization, 8. Cut-off and authorization. D. Validity and completeness. Tn the purchasing/aisb Leyce, ofthe order of activites listed, which isin the best order of a typical sequence of activities? ~ 'A. Ordering goods, receiving vendor's invoice, selecting authorized vendor, payment activity, B, Ordering goads, receiving goods, recewing vendor’ invoice, cash payments, C.Oraering goods, receiving vendor's Invoice, recelving goods, payment actity D. Selecting authorized vendor, recewving vendors invoke, receiving goods, payment activity. ‘A request by an authorized employee for goods or services is made on the: ‘A. Purchase order. Debit memo, B. Purchase requisition. 1D. Acquisition transaction file, Proper authorization for acquisitions ensures that the client will not; ‘A. Be overbilled by the vendor. B, Run out of stock before the next shipment arrives, CC. Purchase excessive or unnecessary items. D, All three of the above. The purchase order, usually In writing, is a legal document that ‘A. Abinding agreement between client and vendor. B. An offer to buy. CC. Not enforceable if iis not in writing. 1D. Am acceptance of a vendor's catalog offer to sel, ‘The receipt of goods and services in the normal course of business represents the date clients normally recognize: ‘A. Income, B, The habilty, C. Warranty assets. ——_D._Expenses, ‘The personne! in the Receiving Department should: ‘A. Be supervised by the head of the storeroom, since iti the storeroom personnel who are responsible for the Physical contro! of goods, 8, Be supervised by the Accounting Department, since ws the accounting personnel who are responsible for the accuracy of the records about the goods,C.__ Be indepencient of both the storeroom and accounting functions. D. Be supervised by the Shipping Department since the receiving docks and the shipping docks are in dose proximity. 5 Powe 7 115, An auditor usually examines receiving reports to support entries in the 5 “A. Voucher register and sales returns journal, . Voucher register and sales journal, 8. Sales journal and sales returns journal. ©. Check register and sales journal 116, The document which specifies the amount of money owed to the vendor for an acquisition ist A. Receiving report. B. Purchase order. . Vendor's invoice. D. AP trial balance. 117. A file for recording individual acquisitions, cash disbursements and acquisition returns and all A me gon aca ‘and allowances for each ‘A. Accounts payable master file. C. Acquisitions transactions file 8. Cash disbursements transactions file. D. Summary acquisitions report. 118. The cients accounts payable master ile stould be the same asthe vendor’ statement, except forthe following: ‘A. Disputed amounts B, Timing differences. C, Bothaand b 1D. None of the answers 119. An important control in the accounts payable and IT departments is to require that those personnel who record ‘acquisitions do not have access to the: ‘A. sts of vendor's names and addresses. Vendor's price lists. B. Cash, trading securities, and other assets, 1D. The accounts payable master file, 120. The accounts payable department usually has responsibilty for verifying the propriety of acquisitions. by comparing the details on thi ‘A. Vendor's invoice and the purchase requisition. -N B. Vendor’ invoice and the receiving report. CC. Purchase requisition, purchase order and receiving report. D. Purchase order, receiving report, and vendor's invoice. 121. In assessing control risk for purchases, an auditor vouches a sample of entries in the voucher register to the ‘supporting documents. Which assertion would ths test of controls most likely pertain to? Poder they = Pecalee A. Completeness. ype f Efe C.Valuation or allocation, B. Exstence or occurrence, " =~ ©. Rights and obligations. 122. A document indicating a reduction in the amount owed to a vendor because of returned goods is known as: ‘A. Vendor-issued credit memo. C. Receiving room report. B. Purchase adjustment slip, D. Shipping room report. 123. For good internal control, the person who should sign checks is the: ‘A. Person preparing the checks. C. Accounts payable clerk. 8. Purchasing agent. D. Treasurer. 124, The maling of disbursement checks and remittance advices should be controlled by the employee ‘A. Who signed the checks last. 8. Who approved the vouchers for payment. C. Who matched the receiving reports, purchase orders, and verdor’s invokes. 1. Who verified the mathematical accuracy of the vouchers and remittance advices, 125. When processing and recording cash disbursements, itis important to have a method of canceling the ‘supporting documents to prevent their reuse as support for another check at a later time. A common method is i A. Shred the documents so they can’t be reused. B. Transfer possession of the documents to a bank vault such as a safety deposit box. C. Move the documents to a permanent off-site facility such as a warehouse. D. Write the check number on the supporting documents, 126. Bell’s accounts payable clerk has a brother who is one of Bell's vendors. The brother will often invoice Bell twice for the same delivery. The accounts payable clerk removes the receiving report for the first invoice from the pald-vouchers file and uses it for support of payment for the duplicate invoke. The most effective procedure for preventing this activity to: A. Use pre-numbered receiving reports. B. Mail signed checks without allowing them to be returned to the accounts payable clerk. C. Cancel vouchers and supporting documents when payment is made. 'D, Use dual signatures. . 127. In the personnel and payroll cycle, ofthe order of activities listed, which is the best order of a typical sequence of activities? ‘A. Attendance and work, payroll accounting, cash disbursement, payroll distribution. B, Personnel hiring, labor relations, attendance and work, payroll accounting. 4 Pays disk bu-hew- C. Personne! hiring, attendance and work, payroll distribution, payroll accounting. 1. Labor relations, personnel hiring, payrat distribution, payroll accounting.A a A A A D c A i eeeniinaiaemasonaiasiiickedlasabaanigate Tee 126, The tot ofthe india employe eamings in the pyro master Me eu te: Total balance of gross payroll in the general kxiger accounts, B Toto the checks cree emetoyces for pay CC. Total gross payroll plus the total contributed by the empkiyer for payrall axes, D. Total gross pay for the current week’s payroll. 129, The most common control deficlency in the personnel and payroll cycle is the; ‘A. Attitude of management towards control, B. Inadequate segregaton of dutes. C. Unlimited access to the payroll system. D.._ Little comparison of personnel and payroll records. 130. Which of the foliowing best describes proper internal control over payroll? ‘A. The preparation of the payroll must be under the control of the personnel department. B. The confidentiaity of employee payroll data should be carefully protected to prevent fraud, C.__ The duties of hiring, payroll computation, and payment to employees should be segregated, D. The payment of cash to employees should be replaced with payraent by checks, 131, For appropriate segregation of duties, ournalzng and posting summary payol transactions shoul! be aged “he The wensuers searemant, C. Payroll accounting, B. General accounting. D. The timekeeping department, 132. For internal control purposes, which of the following individuals should preferably be responsible for the distribution of payroll checks? ‘A. The company paymaster. C. A bank representative, B. Amember of the accounting department D. The internal auditor, 133, To minimize the opportunities for fraud, unclaimed cash payroll should be ‘A. Deposited in a safe deposit box. CC. Deposited in a special bank account. B. Held by the payrol custodian. con. a4, D. Held by the controller, 134. Which of the fotiowing departments most ikely would approve changes in pay rates deductions from employee salanes? ‘A. Personnel B. Treasury C. Controller D. Payroll 135. Which of the following controls would be the most appropriate means to ensure that terminated employees have been removed from the payroll? ‘A. Mailing checks to employees’ residences. BL Establishing direct deposit procedures with the employees’ banks, Reconciling payroll and time-keeping records D. Establishing computerized limit checks on payroll rates. 136, The auditor's test of the adequacy of physical controls over raw materials, workin process, and finished goods must be restricted to: ‘A. Observation and inquiry. ©. Documentation and confirmation, B. Documentation and observation, D. Documentation and inquiry, 137, The objectives of the internal structure for a production cycle are to provide assurance that transactions are property executed and recorded, and that ‘A. Custody of work in process and of finished goods és properly maintained, B. Production orders are pre-numbered and signed by a supervisor. C._ Independent internal verification of activity reports is established. D. Transfers to finished goods are documented by a completed production report and a quality control report. 138, Which of the following procedures is most likely to ensure that employee job time tickets are accurate? ‘A. Make sure that the number of hours per week on each employee's fob time ticket IS not more than 40 hours. B. Keep employment information in the human resources department. CC. Approve the payroll voucher in the accounts payable department. 1D. Check the employee time cards against the job time tickets. 139. A major dificuty in the verification of inventory cost records 's determining the reasonableness of ‘A. The direct labor hourly rate. C. The cost allocations, B. The raw materials cost per unit, ©. Allof the answers. 140. Which of the following control procedures could best prevent direct labor from being charged to manufacturing ‘overhead? ‘A. Comparison of daily journal entries with factory labor summary. B. Examination of routing tickets from finished goods on delivery. C._Reconcilation of work in process inventory with cost records. 1D. Re-computation of direct labor based on inspection of time cards,oO @ 141. An auditor's tests of a client’s cost accounting system are designed primarily to marty to determine that: ‘A. Quantities on hand have been computed based on acc thods that reasonaly quantities on hand ‘Sule methods a eaorayappronmate acta 8B. Physical invertones substantially apre wth bok mentors, . The system complies with generally accepted accounting principles and functions as plan ©. Costs nave been asigned properly to fished goods, Work I process, nd cost ef goons oe 142, Perpetual inventory master fs provide a recor A. Of tems on hand. 8. Of the use of raw materials and the sale of finished goods, C. That can be used to pinpoint responsibilty for custody. D. For all three of the above, 143. When perpetual inventory records are maintained in quantities and in pesos, and internal procedt ‘over inventory are deficient, the auditor would probably: Saal ates ‘A. Want the client to schedule the physical inventory count at the end of the year. B, Insist that the cient perform physical counts of inventory items several times during the year. . Increase the extent of tests for unrecorded labiltes at the end of the year. 1D. Have to disclaim an opinion on the income statement that year. 144. A useful starting point for becoming familiar with the client's inventory is for the auditor to: ‘A. Read the PICPA's Industry Audit Guide. B. Review accounting theory covering special problems such as oll and gas accounting, or accounting for lease-purchase agreements, C. Read the client’s accounting manual. D. Tour the client's facilities. 145. The emphasis in auditing manufacturing equipment is on the verification of: ‘A. The balance carried forward in the account from the previous period (beginning balance). 8. The current period's acquisitions and retirements. CC. The balance in the account after the current year’s activites are recorded (ending balance. D. All three.of the above. 146.-An effective internal control procedures covering fixed asset additions should require: ‘A. Classification as investments of those fixed asset additions that are not used in the business. B. Capitalization of the cost of fixed asset addition in excess of a specific peso amount. CC. Performance of recurring fixed asset maintenance work solely by company maintenance staff. D. Authonzation and approval of major fired asset additions. 147. Which ofthe folowing & an internal contro weakness related tothe acquistion of equipment? A Kavence exclave approves are requ fr equpmenteciustons B Setances Between setorzed equipment expenditures and actual costs ae to be immediatly reported to management ._Depreration poles are reviewed only once a year. B. Acquisitions are to be made through and approved by the department in need of the equipment. 148, To. strengthen control procedures over the custody of heavy mobile equipment, the client wouk! most likely institute a poley requiring 2 peroxic ‘A. Increase in insurance coverage. B. Verification of ens, pledges, and collateralizations. C_Recounting for work orders. Serre Pt guipent and reconcilton with accountng recor. A holds bearer bonds as a short-term investment (Le. trading secunty). Responsibility for custody of 148. Coma rot coupons or periodic interest clections probably shouldbe delegated tothe A. Chief accountant. B. Internal auditor. C. Cashier. D. Treasurer. , secures 150. A company has additional funds to invest. The Board of Directors decided to purchase investment A company Nis 2 ese and sake ecole (0 @ responsible Mana excitve. The DES Person(s) make periodic reviews of the investment activity should be . TA B00 investment committe. ©. The corporate controler. B. The chief operating officer. OL The treasurer. 151: Notes payable which have been rea in ful should be: ee epee tat they wl nt be pal! again inadvertently. B. Canceled and destroyed. Canceled and returned to the creditor. DL Canceled and retained by an authorized company official, e 152. Which of the folowing questions would an auditor most likely include on an internal control questionnalre notes payable? ; Paya eoings on notes payable authored y the board of dretos FA ee signatures requred on checks that repay notes payable? asses? the proceeds from notes payable used for the purchase of noncurrent 5, ee eon colateratae nets payable crtically needed forthe ents continued existence poeOo & 1st. 154. 155 156. 157. 158, 159. 160. 161. 162. 163. 164, Chee ge falewing types of owners enuity ansactions would require authorization by the board of rectOs OF A CoMranny? A fan OF shine capital © Dectaration of dividends. 8, Repurchase of stun capital, D. Alot the atowe. When ne independent stock transfer ayputs ae employed and the corporation tues its own stocks and maintains stork records, canceled ster certifies shold ‘A. Nl be defaced but seyregated from other stock certificates and retained in a canceled ceruicates fie, 8, Bee desitoyed ts prevent fraudulent reeeasance G._ Be detacess anil sent to Ibe ‘ee tobany of State Ds Be detaced to prevent rekauance and attacied to thelr corresponding stubs. These generally include the records of inital entries and supporting records, such as checks and records of electronic fund traimters; Invokes; contracts, the general and subsidiary ledgers; journal entries and other adjustments ta the financial statements that are not sefiected in formal yournal entries; and records such as work sheet and spreadtieels supporting cost allocations, Computations, reconcikabons and disclosures. AL Accounting system, Accounting records, B, Source documents, D. Audit evitence. Amounts and other di insures relating to the current period, A. Notes 10 the financial statements, C Bxisting disclosures B, Current period figures, D. Financial statement ancilaries Which one of the following statements bs true? In deciding on substantive tests of transactions, A. some procedures. are commonly empliyed on every audit regardiess of the circumstances 8B. all procedures are dependent on the adequacy the controls and the results of the tests of controls CC. results oblamed in the pine year’s audit will net affect the procedures. used this year D, the materiality of the tem will not mfluence the choice of procedures used The general audit objectives of valaity and completeness emphasize opposite audit concerns: A. Validity deals with potential overstatement and completeness deals with understatement. 8, Validity deals with potential understatement and completeness deals with overstatement. C.Valisity and completeness may each deal with overstatements or understatements, but not in the same transaction, D. Validity always deals with overstatements only, ‘The strongest criticism of the reliability of audit evidence that the auditor physically observes is that ‘A. the client may conceal items forin the auditor. 8. the auditor may not be qualified to evaluate the kems which he or she is observing. CC. such evidence is too costly in relation to ts relability. D. the observation must occur at a specific time, which is often difficult to arrange ‘According to the PSA Glossary of Terms, this means to inquire into matters arising trom other procedures to resolve them. ‘A. Confirm, B. Valkate, c Venty. D. Investigate ‘The most reliable form of evidence, other than test of subsequent cash receipts, concerning the validity of a note receivable balance is a(n): A. Bill of lading CC. Customer putchase order B. External confirmation reply. D. Sales invoice Which of the following Is one of the better auditing techniques that might be used by an auditor to detect kiting ‘between intercompany banks? ‘A. Review composition of authenticated deposit tips. B. Review subsequent bank statements, C. Prepare a schedule of the bank transfers. D. Prepare a year-end bank reconciliation. ‘An auditor should be able to collect and evaluate documentary evidence. When evaluating and interpreting evidence, the auditor must be on guard against the possibility of drawing unwarranted conclusions. AN ‘example of a valid conclusion is: ‘A. Correct inventory valuation a5 determined from observation of the physical count, 8. Client ownership determined from third-party inquires about consigned goods. C. Existence of a company travel vehicle determined from the examination of the paid invoice for the said vehicle. 0, — Proper accounts payable cut-off at reporting date as determined by a review of raw materials requisitions. describes the overall approach used when performing a cut-off review? rac ee eerie ree tom ae been accounted for in the proper accounting period 8. Confirm year-end transactions with regular customers 2 evereaeeemereeres D. Analyze transactions occurring within a few days before and after year end165. An entity’ financial statements were mestatel Ovi & Period OF years dl to large amuunts Of ren being Fevomted in journal entries thal involved debits aid credit to an lyical Combination of aveounte, The auriton COURT MSE Hkely have been alerted to Us inegulatly by ‘A. Scanning the general journal for unusual entries, Performing a revenue cut aff test at yen end, Tracing a sample of journal entries to the genoral lodger D, Examining documentary evidence of sales returts and allowances recorded after year end, 166, An entity has leased an asset ant appropriately recorded a finance lease because of the extstence of a bargain Purchase option, In addition, the entity expressed thal it certain to exercise the upbon, The auditor shuld determine: ‘A, Whether the interest rate used in computing the present value of the minimum lease payments is the Interest rate imple In the lease, 8, That reconted cost in the Iessee's books fs the same as the carrying value of the property in the books of the lessor immediately before the lease That the leased property Is being depreciated over the lease term, That the minimum lease payments inchide contingent rent and executory costs: 167. For which of the following account balances are substantive tests of details least likely to be performed unless analytical procedures indicate the need to extend detail testing? A. Payroll expense C.-Research and development costs B. Marketable securities D. Legal expense 168. One payroll audit objective is to determine whether the employees received pay in amounts recorded in the payroll journal, 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, 8. Requesting that a company offical distribute all paychecks, Reconcile the payroll bank account 1D. Compare cancelled payroll checks with the payroll ournal 169. Which of the fotlowing income statement accounts Is least likely to be verified in conjunction with the audit of a balance sheet account? ‘A. Depreciation expense, . Travel and entertainment. B, Interest revenue, D, Uncollectible accounts expense. 170. The following are purposes of analytical procedures, except: ‘A. Assist the auditor in planning the nature, timing and extent of other audit procedures B. As a test to obtam audit evidence about the suitabilty of design and effective operation of internal ‘controts CAS a substantive procedure when their use can be more effective or efficient than tests of details in reducing detection risk for specifi financial statement assertions D. AS an overall review of the financial statements in the final review stage of the audit 171. The physical count of Inventory of realy was higher than shown by the perpetual records. Which ofthe following could explain the diference? Count ‘A. Inventory tems had been counted but the tags placed on the ems had not been taken off the items and ‘added to the inventory accumulation sheets, % B, Credit memos for several items returned by customers had not been recorded. ay C. No journal entry had been made on the retailer's books for several Items returned to its suppliers. 'D. An item purchased "F.0.8. shipping point” had not arrived at the date of the inventory court and had not!” been reflected in the perpetual records, a5 172. In a CIS environment, which ofthe following isnot a control objective, associated with processing controls? ‘A. transactions are authorized 8, processing is complete C. all changes to computer records are accurate 1. access to computer files is limited to authorized personnel 173. A manufacturer of complex electronic equipment such es oscilloscopes and microscopes has been shipping its products with thick paper manuals but wants to reduce the cost of producing and shipping this documentation. ‘The best medium for the manufacturer to use to accomplish this is __ technology. ‘A Write once, read many C. Compact dsc/read-only memory B. _Dhgital audio tape ©. Computer output-o-microtim 174, Which of the following statements Is correct regarding the Internet as a commercially viable network? ‘A. Organizations must use firewalls they wish to maintain security over internal data. 8, Companies must apply to the Internet to gain permission to create a homepage to engage in electronic commerce, © Companies that wish to engage in electronic commerce on the Intemet must meet required security ‘Standards established by the coalition of Internet providers, D. Allof the above.A 175, whic ofthe folowing represents a type of appkallons software that a arge client Is most to use? A. Enterprise resource planning C. Central processing unit a 8 Opewtns sytem . Vawueaed network 176. Contos that the serve organization which assumes, athe desk of in ents and, mecensry to ahve contol objectives ate ented nthe Gesamte ‘A Complmentay ser ently convo 8. Seer audio conom ©. General conrob over the sere organization ©. End-user henge aprecnen cone 177. A Type II report és a report that comprises the following: ‘A. A description, prepared by management of the service organization, of the service organization's system, control objectives and related controls, their design anid implementation as at a specified date (oF throughout @ specified period and, In some cases, their operating effectiveness throughout @ specified period. B. A repoit by the service auditor with the objective of conveying reasonable assurance that includes the ‘service auditor’s opinion on the description of the service organization's system, control objectives and related contro’, the sultabilty of the design of the controls to achieve the specified control objectives, and the operating effectweness of the controls, CA description of the service auditor's tests of the controls and the results thereof, 1D. Allof these 178. An, auditor who, at the request of the service organization, provides an assurance reppt.on the controls of a service organization, Caen ‘A. Requested auditor Service auditor cleed Set B. Subservice auditor D. Practitioner | \ 179, An auditor who audits and reports on the financial statements of a user entity. Vane gtimie A. Requested auditor C. Service auditor Fy 1 “ipo B. User auditor D. Practitioner te 180. Which of the following phrases best describes a service organization? ‘A.A third-party organization (or segment of a third-party organization) that provides services to user entities that are part of those entives’ information systems relevant to financial reporting. 8. The policies and procedures designed, implemented and maintained by the service organization to provide user entities with the services covered by the service auditor's report. C._Asservice organization used by another service organization to perform some of the services provided to User entities that are part of those user entities’ information systems relevant to financial reporting. Ss 1D. Amentity that uses a service organization and whose financial statements are beng audlted. vx «14, 181. Many clents now have their data processed at an independent computer service center rather than have their ‘own computer. The défculty the independent audtor faces when a computer service center fs used 8: 'A. Gaining the permission of the service center to review their work. B._ Finding compatible programs that will analyze the service center programs. C__ In trying to abide by the Code of Ethics to maintain the secunty and confidentiality of the client's data. 1. In determining the adequacy of the service centers internal controls. 4182, The policies and procedures that the entity implements and the IT infrastructure (hardware, operating systems, etc.) and application software that it uses to support business operations and achieve business strategies. A. IT environment. 'B. Internal control. C. General controls. D. Application controls. 183. The use of computer in data processing systems frequently eliminates the basic Internal contro! of: ‘A. Using vouchers for authorization of disbursements —C, Information processing B. Appropriate segregation of duties D. Cost should not exceed benefit 184, When the IT system is significant, the auditor should also obtain an understanding of the IT environment and whether it may influence the assessment of Le eel ‘A. Inherent and control risks. Inherent and detection risks. B. Control and detection risks. . General and application controls. 185. These are economical yet powerful self-contained general purpose computers. choy suerempuer Pesan comptes oF FCS. 'B. Pentium computers and multimedia station. ,_RISOgraph photocopy machines. D186. A personal computer can be used in any of the following configurations, except: een stand-alone workstation operated by a single users or @ number of users atthe different times. B.A workstation which is part of a local area network of personal computers. CA workstation connected to a server. 1D. Aserver connected to another server. 187. The following are common characteristics of personal computers, ‘except: ‘A. Provide users with substantial computing capabilities. B.Portabilty (small enough to be transportable), C. Relatvely inexpensive. D. Must be configured for a fong time before use. i palane:els Nd EB Att _—_— 2 —o 188. This is an arrangement where two or more personal computers are inked together through the use of special Software and communication lines. This may also be referred to as a distributed system. ‘A. Local area network. C. World Wide Web. BR Wide area network. 1D. Unit to unit workstation. 189. The two requirements crucial to achieving audit eMciency and effectiveness WIth @ personal computer are. selecting: ‘A. The appropriate audit tacks for personal computer applications and the appropriate sofware to perform the selected audit tasks. B. The appropriate software to perform the selected audit tasks and data that can be accessed by the auditors personal computer. (C. Company data that can be accessed by the auditor's personal computer and the appropriate audt tacks, {or personal computer applications. 1D. The appropriate sample of company data to test with the auditor's personal computer and the appropriate software to perform the selected audit tasks, 190, $4: In a personal computer environment, may mot be practicable or cost-effective for management to implement suffident contro to reduce the risk of undetected errors to a minimum level. ‘$2: The auditor may often assume that control risk fs high in personal computer environments with insufficient internal conto, ‘A. True, false B. False, vue C. True, wve D, Fatse, false 191. In a computerized system, procedure or problem-oriented language §s converted to machine language through ator: A. Interpreter. 8. Verfer, Comper. D. Converter. 192. Which of the following statements is incorrect? ‘A. The purpose of C1S application contro’ 's to establish specific control procedures aver the application systems in order to provide reasonable assurance that all transactions are authorized and recorded, and are processed accurately and on a timely basis. 8. It may De more efficient to review the design of the general CIS controls before reviewing the CIS ‘application contro’. C. If general CIS controls are not effective, there may be a risk that misstatements might occur and go undetected in the application systems, D. The purpose of general CIS controls is to establish a framework of overall control over the CIS activities {and to provide an absolute level of assurance that the overall objectives of Internal control are achieved. 193. When personal computers are accessible to many users, the concem Is on the risk relating to ‘A. Custody. 'B. Authorization, ©. Recording. D. Alteration, 194, The folowing, except one, are internal control techniques which can be used for data and program security: ‘A. Employing passwords. B. Using anti-virus sofware programs. C._Segregating data into files organized under separate fe directories, . Disconnecting from the office network. 195, Management can contribute to the effective operation of stand-alone computers by prescribing and enforcing ppolcies for their control and use, such as policies for: ‘A. Management responsibilities. B._ Standards of report format and report distribution contro’, C_Training requirements and personal usage poles. D. All of the answers. 196, These are computer systems that enable users to access data and programs directly through workstations: ‘A. In-line computer systems. C. Transaction processing systems. B. Oniine computer systems. . Personal computer environment. 197, There are two common types of workstations — general purpose terminals and special purpose terminals. ‘Which of the following is not a general purpose terminal? ‘A Personal computers. C._ Point of sale devices. 8. Inteligent terminal, D. Basic keyboard and monitor. 198, These are procedures designed to restrict access to on-line terminal devices, programs and data, ‘A. hecess controb. C. User authentication. B. General IT controb. . User authorization. 199. This access control typically attempts to Mlentfy @ user through unique logon Kdentications, passwords, access ‘cards or biometric data. ‘A, Access controé, User authentication bel Yn ychuok wb 8. General IT contros, D. User authorization, 4. 200. User authorization procedures are designed to prevent or detect the following, exces: ‘A. Unauthorized access to on-line terminal devices, programs and data, B. Entry of authorized transactions. . Unauthorized changes to data es. 1D. The use of computer programs by unauthorized personnel and the use of computer programs that have ‘ot been authorized, ‘— Transaction logs B. Controls over User IDs and passwords ©. Alot these 202. These are programmed routines that chesk the Input data and processing results for completeness, accuracy and reasonableness ‘A. Pre-processiny authorization. C. Master fle controls, BL Cut-off procedures, . Edit, reasonableness and validation controls. 203, This is the process of establishing contro! totals over data being submitted for processing through workstations <2nd comparing the control totals dung and after processing to ensure that Complete and accurate data are transferred to each processing phase. ‘A. Footing. B. Cross-casting. . Baancing. D. Posting. 204. The electronic transmission of documents between organizations in 2 machine-readable form, a. Cryptography, computer processing b. Short messaging service 4. Electronic data interchange 205. A combination of hardware and software that protects a WAN, LAN or PC from unauthorized access through the Internet and from the introduction of unauthorized or harmful software, data or other material in electronic form, ‘A. Anti-virus program Security update. Firewall D. Access monitor 206. The purpose of input controls isto ensure the: ‘A. Authorization of access to data fies. . Completeness, accuracy, and validity of update. Authorization of access to program fle. D. Completeness, accuracy and validity of input. 207. Procedures designed to prevent or detect improper changes to computer programs that are accessed through ‘on-line terminal devices ‘AL Limit checks .TTapplication controls B. Edit checks ©. Programming controls 208. A company uses the account code 614 for maintenance expense. However, one of the company clerks often codes maintenance expense as 641. The highest account code in the system is 620. What would be the best Internal control check to build into the company’s computer system to detect this error? ‘A. Amanual ce-check of the code, Sequence check, B. Valid-character test. D. Valid-code test. 208. Party check, read after write checks, and duplicate circuitry checks are IT controls that are designed to detect: ‘A. Erroneous internal handling oF data. 'B. Lack of sufficient documentation for computer processes, C._Tlogical programming commands. D. logical uses of hardware. 210, Reports that are designed to create an audit tral for each on-line transaction, Such reports often document the source of a transaction (terminal, time and user) as wel as te transaction’ detals ‘A. Batch processing logs C. Transmital sheets BL Transaction logs Embedded aucit modules 211. This fs the individual responsible in preparing specifications for the systems to guide programmer, and writes procedures and user instructions. ‘A. Network administrator. CTT control group supervisor. B. Systems analyst. D. None of these, 2112, This ts the individual responsible for the development and management of data communications system, and reviews documentation to ensure compliance with standards and provides approval of documentation when standards are met. ‘A. Network administrator. CTT control group supervisor, B. Systems analyst, D. None of these, 213. A computer programmer has written @ program for updating perpetual inventory records.” Responsibility for initial testing (debugging) of the program should be assigned to the: ‘A. TT department control group, C. Programmer. 8. Internal audit control group. D. Machine operator. 214, More than one file may be stored on a single magnetic memory disk, Several programs may be in the core storage unit simultaneously. In both cases its important to prevent the mixing of data. One way to do this i: ‘A, to use File integrity contro. to use interleaving, B. to use Boundary protection. D. to.use Paging. 215. In comparing the control environment in complex versus non-cimplex IT systems, the contro! environment in ‘complex IT systems i: ‘A. More critical because there is greater potential for ertors and irreguarties. Less critical because the complexity ensures that controls wil be built ito the system. More critical because of the high degree of technical competence needed by the programmers and eratos. toer crea lisa peie-ouparts ack Kav the pasty iy secret winsapereaa ees ki op 2— ° K 216. During one processing run, several transactions have been rejected by the IT t min ed rejected by the IT system. Accordingly, the IT ‘A. Should contact the user departments and inform them ofthe rejection. 8. Should re-encode the mputs previously made by computer operators and reprocess the transactions. Is responsible for ensuring that these transactions are in fact resubmitted and re-entered for processing, . Is not responsible forthe resolution of rejected transactions, 217. This refers toa collection of data that shared and used by @ number of different users for diferent purposes. A. Database. B, Information fie. C, Master fie, . Transaction fe, | 218. A database management system ‘A Physically stores each element of data only once, 8 Stores data on cerent fle for diferent purposes, but avays knows were they are and how to retieve rem. C. Allows quick retrieval of data but at a cost of inefficient use of fle space. D. Allows quick retrieval of data but it needs to update files continually. 219. Which two important characterstics distinguish database systems? ‘A. Data integrity and data independence, C._ Data sharing and data interconnection, 8. Data independence and data sharing. . Data integrity and user integrity. 220. A software within the database management system which is required to keep track of the location of data in the database. ‘A. Data discussion. Data dictonary. B. Data tracker. 1D. Documentation dictionary. 221. User access to the various elements of a database may be controlled through the use of passwords. These restrictions apply to ‘A. Individuals but not to terminal devices and not to programs. 8. Terminal devices but not to individuals and not to programs, C._Programs but not to individuals and not to terminal devices. 1. Individuals, terminal devices and programs. 222. These controls require a database administrator to assign security attributes to data that cannot be changed by database users: ‘A. Discretionary access controls. C._ Password controk. B. Mandatory access controts. . Distributed access controls. 223. These controls allow users to specify who can access data they own and what action privileges they have with respect to that data. ‘A. Discretionary access controls. C._ Password controls B. Mandatory access contro’. D. Distributed access controls. 224, The best and most widely accepted model for explaining why "good people” commit fraud fs known as the: ‘A, Trust Violator Theorem, “Fraud Triangle B. Cressey Mode! D. Gloria Zamora Model 225. If there is fraud involving the collusion of several employees that includes the falsification of documents, the chance that such fraud would be uncovered in a normal audit is: A. Zero. 8. Unikely. C5050. D. Very high. 226, This i a kind of fraud committed by making entries of fititious payments or faure to enter receipts, ‘A. Misappropriation of goods. C. Falsifcation of accounts, B._ Misappropriation of cash. D. Lapping. 227. The following statements properly describe the pillars ofthe Fraud Triangle. Select the exception: ’A. Incentive or pressure to commit fraudulent financial reporting may exist when management is under pressure, from sources outside or inside the entity, 10 achieve an expected (and perhaps unrealistic) earnings target or financial outcome ~ particularly since the consequences to management for failing to ‘meet financial goals can be significant. 8. A perceived opportunity to commit fraud may exist when an individual believes intemal control can be ‘overridden, for exariple, because the individual is in a postion of trust or has knowledge of specific weaknesses in internal control. C_ Indiviiuats may be able to rationalize committing a fraudulent act. Some indwviduals possess an attitude, character or set of ethical values that alow them knowingly and intentionally to commit a dishonest act D. Events oF conditions indicate an incentive or pressure to commit fraud or provide an opportunity to ‘commit fraud, but do not necessarily confirm the presence of fraud. Which of the following fs an example of fraudulent financial reporting? Fre Ne mony management changes ventory count tags and. overstates ending inventory, whe understating cost of goods sold. ‘The treasurer divers customer payments to his personal due, concealing his actions by debiting an ‘expense account, thus overstating expenses. 8. Pipe iz ‘An employee steals inventory and the “shrinkage” is recorded in cost of goods sold. “SD. ‘An employee steals small tools from the company and neglects to return them; the cost & reported ¢s & miscellaneous operating expense.229, What is the independent auditor's responsibilty prior to completion of field work when he believes that 2 ‘material fraud may Nave occurred? ‘A. Notify the appropriate law enforcement authority B. Investigate the person involved, the nature of the fraud, and the amounts involved. Reach ani understanding with the appropriate clent representatives as to the desired nature and extent of subsequent audit work, D. Continue to perform normal audit procedures and write the audit report in such a way as to disclose adequately the suspicions of mater! fraud. 230, This refers to the mathematical complements of sampling risk. A. Assurance error B. Tolerable levels. C.—“Expected error. Confidence levels » 231. Which of the following statements is NOT correct? A. Its acceptable for auditors to use statistical sampling methods. B. Its acceptable for auditors to use non-statistcal sampling methods. C. The primary benefit of statistical sarnping metnods is the quantification of sampling risk. D. An advantage of using statistical sampinig 1s thal the cost/benelit rato is always postive. 232. Which of the following statements is a valid critiism of the use of non statistical sampling methods? A. Many audit tests, such as footing of journals, must be performed outskle a statistical context. B. The cost of performing random selection of testing often exceeds the benefits, C. _Non-statistical sampling does not differ substantally from statistical sampling method, D. Conclusions may be drawn in more precise ways when using statistical sampling methods. 233. Which of the following statements regarding documentation of the sample selection process is NOT true? ‘A. Regardless of the method used in selecting a random sample, it 1 necessary to have proper documentation. B. When comparing statistical sampling to judgmental sampling, it 1s_more important that statistical ‘sampling be properly documented because of is mathematical nature. C. Minimum documentation would include sufficient information to permit the reproduction of the sample at a later date. D. For documentation, itis permissible for the auditor to include in the working papers a copy of the table used, with the random numbers Kentified. 234. Unless a precise statement of what constitutes an attribute is made in advance, the staff person who performs the audit procedure will have no guidelines: ‘A. For identifying deviations. B. To determine what documents to obtain and review for the observation tests, C. To use when evaluating the results of analytical review procedures. D. For performing all three of the above. 4 34, 235. Which of the following statements regarding-replacement and non-replacement sampling is NOT true? ‘A. In replacement sampling, an element in the population wil not be included in the sample more than once. 8. In non-repiacement sampling, an element in the pop If the random number corresponding to an elem sampling, it treated asa discard the second time. ©. Auditors rarely use replacement sampiing. ‘A, 236. When the auditor intends to evaluate a sample statistically, the only acceptable selection method is: ‘A. Probabilistic selection. C. Haphazard selection, 8, Judgmental selection. D. Block selection, A 237. When using statistical sampling, which of the following need not be known to evaluate the results of an ¢ attribute sample? tion can be included in the sample only once. ' Selected more than once in non-replacement A. Sample size Number of deviations in the population B._ Risk of assessing contol risk too low. . Number of deviations in te sample, A, 238. The variables sampling method which generally results in smaller sample sizes than any other method is: A. Difference estimation. C. Ratio estimation. B. Mean per unit estimation. ©. Peso-unt sampling. B, 239. increases in the planned allowance for sampling risk have what effect on required sample size? A. Increases 8. Decreases ©.” Noetect D. Indeterminate 240. The auditor's failure to recognize an error in an amount or an error in an internal control data processing procedure is described as: ‘A. Statistical error Standard error ofthe mean 8. Sampling error 1. Non-samping error 241. Non-sampling errors occur when the audit tests do not uncover existing exceptions inthe: Population. C. Planning stage. & Sompe D. Financial statements.oO o e ® 242. If an auditor tested 50 transactions and found two deviations from an important control procedi -coukl conclude from this test that the: nei apemet TA Tolerable rate 0.0% Sample had two deviations. 8. Critical rate of occurrence 1s 0.04. - ‘D. Expected population deviation rate is 0.04, 243. GQ, CPA audited the May Company accounts receivable with a book value of P3,000,000 and 4,400 accounts. Ina sample of 400 accounts, GQ found P13,200 understatement errors, The projected likely misstatement for the sample 1s: 3. se A P13,200. BP145,200, cc p272,727 1D. P435,600 a: 244. A type of value-weighted selection in which sample size, selection and evaluation results ina conclusion in ‘monetary amounts, ‘x Random samiling C._Stratiied samping 8. Monetary unt samping D.Financalsamping 25. Which of te folowing s NOT 2 resporsbity tat stould be asigned to & company’s ima aust fepariment? Ae et AD Evaluating intemal contro! + GO a Hate Fev Po 8. Balancing subsiiary ledgers Mees tine PRY MT C_ Reporting on the effectiveness of operating segments. D. Investigating potential merger candidates. Sepa Madden # A309 Gata orca) 246, The independent auditors might consider the procedures performed bythe internal auditors because: A They are employees whose work mist be reviowed dung substantive testing. = <4 They are employees whose work mat be conser me trina -E C._Thetr work mpacts upon the cost/benefit trade-off m evalating inherent hmitations. D. Their degree of independence may be mferred by the nature of er WOK. ns Keay gq 1 gt 247. Which of the following terms best describes component management? Px. Fem 1%. ‘A. ‘A auditor who, at the request of the group engagement team, performs work on fnanca information related to a component for the group aut de + (Maen 8. An entity or business activity for which group or component management prepares financial information that should be included in the group financial statements. on oe CC. Management responsible for preparing the financial information of a component. yyy tion = 1D. The materiality level for a component determined by the group engagement team. 1 248. All the components wtiose financial information fs included in the group financial statements, are collectively known as: ‘A Group B. Consolidation. Pooling D. Business Combination 249. In the context of PSA 600 (Revised and Redrafted), @ group: ‘A. May have more than one component. 8. May consist entirely of one component. Always has more than one component. 1D. Cannot be determined without additonal information 250. A matter whose outcome depends on future actions or events not under the direct control ofthe entity but that ‘may affect the financial statements. ‘A. Uncertainty © Provision B. Inconsistency D. Significant risk 251. The date on which those with the recognized authority assert that they have prepared the entity's complete set Of financial statements, including the related notes, and that they have taken responsiblity for them. ‘A. Date of the financial statements. C._ Date of the auditor’ report B. Date of approval of the financial statements. D. Date the financial statements are issued. 252. The date of the end of the latest period covered by the financial statements, which & normalty the date of the ‘most recent balance sheet in the financial statements subject to audit. ‘A. Date of management approval C._ Date of the audit report B. Date of the financial statements D. Date of financial statement ssuance 253. Subsequent events refer to events that occur after the date of the financial statements and are: ‘A, Favorable to the entity being audited 8. Unfavorable to the entity being audited . Either favorable or unfavorable to the entity being audited D. Neither favorable nor unfavorable to the entity being audited. 254. Harvey, CPA, és preparing an audit program for the purpose of ascertaining the occurrence of subsequent events that may require adjustment or disclosure essential to a fair presentation of the financial statements in Confemty wth GAAP, Which ofthe fling procedures wok! De task appropriate or Ns prose Confirm as of the completion of fiekiwork accounts recelvable which have increased significantly from the year-end date. Fries = valebin of AW 8, Read the minutes of the board of directors. CC. Inquire of management concerning events, which may have occurred. D. Obtain a lawyer's letter as of the completion of fieklwork.255. A major customer of an audit cllent suffers a fre prior to completion of year ended feld work. The audit client believes that this event could have @ significant direct effect on the financial statements, ‘The auditor should ‘A. Advise management to dickse the event m notes to the financial statements, 8. Disclose the event in the auditor's repent. CC. Withhold subynission of the auditor's report until the extent of the direct effect on the financial statements is known, D. Advise management to adjust the financial statements, 256, Which of the following events occurring after the Ksuance of an auditors report most likely Would cause the auditor to make further inquines about the previously issued financial statements? ‘A.A technological development that could affect the entity's future ability to continue as a going concern. B. The discovery of information regarding a contingency that existed before the financial statements were issued, C. The entity’s sale of subsiiary that accounts for 30% of the entity’s consolidated sales, D. The final resolution ofa lawsuit explamed in a separate paragraph of the auditor’ report, 257. On March 15, 2009, Kent, CPA, Kssued an unqualified opinion on a clent’s audited financial statements for the year ended December 31, 7008. On May 4, 2009, Kent's internal inspection program daclosed that engagerient personnel failed to observe the chent’s physical inventory. Omesion of this procedure mpaits Kent’s present abiity to support the unqualified opinion, If the stockhoklers are currently relying on the ‘opinion, Kent should frst ‘A. Advise management to disclose to the stockholders that Kent's unqualified opinion should not be relied on. 8. Undertake to apply alternative procedures that woul! provide a satisfactory basis for the unqualified opinion, C. Reissue the auditor's report and add an explanation paragraph describing the departure from GAAS. D. Compensate for the omitted procedure by performing tests of controls to reduce audit risk to a sufficiently low level, 258. When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations: ‘A. Complement, but do not replace, substantive test designed to support the assertion. 8. Constitute sufficlent evidence to support the assertion whien considered in combynation with reliance on Internal accounting contro’. G,_Are not parts of the evidential matter considered to support the assertion. . Replace retance on internal accounting controls as evidence to support the assertion, 259. A representation letter issued by a client: ‘A. Is essential for the preparation of the aucit program. B, 15 a substitute for testing. C. Does not reduce the auditor’s responsibilty D. Reduces the audttor’s responsibilty only to the extent that its relied upon. 260. To which of the following matters would materalty limits not apply in obtaining written management representations? ‘A. The availabilty of minutes of stockholders and director's meeting. B. Losses from purchase commitments at prices in excess of market value. C. The disclosure of compensating balance arrangements involving related parties, D. Reductions of obsolete inventory to net realizable value. 261. Which of the following expressions fs least likely to be included in a clients representation letter? ‘A. No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure: in, the financial statements. 8. The company has complied with all aspects of contractual agreements that would have @ maternal effect ‘on the financial statements in the event of noncompliance. C. Management acknowledges responsibility for illegal actions committed by employees. D, Management has made available all financial statements and the related data. 262. An audit committee's responsibilities normally would not include: ‘A. Discussing the meaning and significance of audited financial statements. B. Discussing problems and experience with independent auditors in completing the audit of annual financial statements. C._ Nominating the independent auditors. D. Discussing the audit programs of the independent auditors, B__ 263. An auditor is obligated to communicate a proposed audit adjustment to an entity's audit committee onty f the adjustment: ‘A. Has not been recorded before the end of the auditor's fied work. B. Has a significant effect on the entity’ financial reporting process. ©. Isa recurring matter that was proposed to management in the prior year, 1D. Results from correction of a prior period's departure from GAAP.& : foc ynces when: ee eee kaiser inability of the client to prepare schedules, reports or computations oF er Tae m 264. A document issued by an entity, ordinarily on an annual bass, which includes Is financial taternents Haytner with the auditor's report thereon. A. Auditor’ report. CC. Annual report B. Statement of management's responsibilty BD. Management assertions, 265. Which PSA covers the audit of financial statements prepared in accordance with special purine fratnewen'es? ‘A. PSA 800 C. PSA BIO BL PSA 805 D. PSABI5 266. In the auditor's opinion on a financial statement prepared in accordance with a special purge framework, we rate the following: “Without modifying our opinion, we draw attention to Note X to the financial statements, which deers the ‘bests Of accounting. The financial statements are prepared (o asshl thee partners of AMC Partuershiy I preparing their mdividual income tax returns. As a result, the nancial statenents may wot te wallable for another purpose. Our report 1s intended solely for ABC: Partnershyy and ts partners and should mt be istrbuted to partes other than ABC Partnership or its parties,” This paragraph is known as: ‘A. The opinion paragraph B. “Without modifying our opinion” paragraph C. Basis of Accounting and Restriction of Use paragraph . Basis for adverse opinion paragraph 267. In the report accompanying compiled financial statements, which of the following statements should not be included? ‘A. "We have not audited of reviewed these financial statements and accordingly express no assurance thereon.” 8. “A compilation is substantially less extensive in scope than an examination in accordance with generally accepted auditing standards.” C. “On the basis of information provided by management, we have compiled, in accordance with the Philippine Standard on Related Services 4410." 1D. “Management is responsible for these financial statements.” 268. The distinction between a forecast and a projection is: ‘ ‘A. a projection ts based on assumptions that include hypotheses which may be different from management's Copinion of the most likely set of events 1B. only forecasts are based on management’ planned course of action CC. forecasts are predictions with a shorter time horizon than projections D. projections are frequently non-quantitatwe in nature 269. Hershey, CPA, is preparing a report on internal control. She has already discussed the internal control weaknesses with the appropriate client official. During these discussions, the client stated that, given its circumstances, there was no practicable corrective action which could be taken for one of the major weaknesses and therefore asked that it not be included in Hershey's report. In the final analysis, Hershey concurred that no corrective action by management is practicable. Which of the following the MOST appropriate course of action for Hershey to take? : ’A. She must include this weakness in her report; otherwise, she will be in violation of GAAS. 8, She may omit this weakness from the report without further mento. C. She may omit this weakness from the report but should send a confidential memo to the Board of Directors pointing out the nature of the weakness and why it was omitted from her report. D. She may omit the weakness from her report but should clearly state that the report Is restrkted to material. weaknesses for which corrective action by management may be practicable in the circumstances. ). Which of the following phrases refer to forecast? 270 et toca noo prepared on the ass Of ASUMpONS a5 1 fue events which management expects to take place and the actions management expects to take as of the date the information is prepared (best-estimate assumptions) 8. prospective financial information prepared on the basis of hypothetical assumptions about future events {and management actions which are not necessarily expected to take place; and a mixture of best: y retical assumptions. Fi0\ w. ee ut outa tans 1D. None of these statements describe a forecast 7 due to the the tavre se ecntaeciterences noted inthe aut de the poor conan of te accountng OD, B.A particular audit procedure & beyond the competence or area of expertise of the auditor, C. The scope limitation fs imposed by the cltent or by circumstances D. The documents or information exist but are not made avaiable to the audltor,ReSA: The Review School of Accountancy TH Auditing Theory: Preweek Questions ATPW-28 A. 272. This is a type of financial institution whose principal activity is the taking of deposits and borrowing for the purpose of lending and investing and that # recognized as a bank by the regulatory authorities in any country in which i operates, A. Bank 8. Depositonum CC, _—_Stock broker D. Investment house 273. Which of the following statements is incorrect? ‘A. Whenever possible, the confirmation request shoul! be prepared in the language of the confirming bank oF in the language normally used for business purposes. B. The most commonly requested information «sin respect of balances due to or from the requesting bank on ‘current, deposit, loan and other accounts, C, Control over the content and dispatch of confirmation requests ts the responsibility of the confirming bank. ~( D. Confirmation of asset repurchase and resale agreements and options outstanding at the relevant date should also be sought. [5) 274, Which statement is incorrect regarding inter-hank-confirmations? ‘A. The requirement for bank confirmation arses from the need of the bank's management and its auditors to confirm financial and business relationships, B. While inter-bank relationships are similar in nature to those between the bank and a non-bank customer, there may be special significance in some inter-bank relatonships. A The auditor should decide from which bank or banks to request confirmation, having regard to such ‘matters as the sive of balances, volume of activity, degree of reliance on internal controls, and matenality within the context of the financial statements. . tis usual practice to request a response only ifthe information submitted is incorrect or incomplete. 275, TAPS 1004, on which PAPS 1004 is based, was prepared in’assoctation with which of the following? ‘A. International Accounting Standards Board. B. Basel Committee on Banking Supervision (the Basel Committee), C. Professional Regulatory Board of Accountancy. D. Professional Regulation Commission, C276. Which document published in 1997 serves as a basic reference for an effective supervisory system internationally and in all countries? ‘A. Statements on Auditing Standards applicable to Banks and QuastBanking Institutions, B. PAPS 1004 ~ The Relationship Between BSP and the Bank’s External Auditors, CC. Core Principles for Effective Banking Supervision, a.k.a. Basel Core Principles. 1D. Enhancing Corporate Governance for Banking Organizations, C27. Ageneric term used to categorize 2 wide variety of financiat instruments whose value depends on an underlying rate or price, such as interest rates, exchange rates, equity prices, or commodity prices ‘A. Assetiliabfity management. Derivatives 8. Commodity D. Hedge a 278. This act provides that only licensed professionals may teach licensure subjects, and provides for the triennial renewal of the Professional identification card: A, RANO, 9298 C. IRR of RA 9298 8. PRC Modernization Act : D. PD 1081 -ende- ! ‘~~DO YOUR BEST, AND GOD WILL DO THE REST~~ |