Accounting 501: Auditing and Assurance Principles

Prelims Part 1
MULTIPLE CHOICE
1. A person who prepares income tax
returns when related to accounting
procedures are said to be in
- Public Practice
2. Broadly defines, the subject matter
of any audit consists of
- Assertion
3. In the case of audit of financial
statements, which is not a valid
criterion?
- Philippine Standards on Audit
4. The type of auditing is performed
most commonly by CPAs on
contractual basis
- External Auditing
5. The law governing the practice of
accountancy in the Philippines is
- RA 9298 (Accountancy Act of
2004)
6. Type of audit uses law and
regulations as its criteria
- Compliance Audit
7. The reason an independent auditor
gathers evidence is to
- Form an opinion on the FS
8. Not a limitation of an audit
- Limitation imposed by clients
9. The level of assurance provided
when an auditor issues an audit
report
- Reasonable
10.Provides moderate level of assurance
- Review
11.A report on factual findings is the
end of the auditor when performing
- Agreed-upon Procedures
12.Level of assurance an accountant
gives on compilation report
- None

13.The current accounting standards

setting body in the Philippines
- Financial Reporting Standards
Council
14.According to PSA 300, assurance
engagement should exhibit five
elements including
- A written assurance report
15.The three commonly-sought types of
assurance services are
- Audits,
reviews
and
other
assurance services
16.A person who fails two sets of
examination will not be allowed to
take another set unless he/she
provides evidence that he/she
obtained how many units of
refresher course?
- 24
17.They address minor accounting and
auditing issues in an engagement
- Senior Associates
18.They assume overall responsibility
for every engagement
- Partners
19.A method of billing a client wherein
the client is billed a flat but allinclusive pre-arranged amount for
the entire engagement
- Fixed fee basis
20.Generally, advertising and publicity
in any medium are acceptable,
provided
- Good taste
- Professionally dignified
- Avoids frequent repetition of, or
an undue prominence being
given to the name of a firm or
professional accountant in public
practice

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Accounting 501: Auditing and Assurance Principles

21.Which is not a prohibited practice in
advertising a firm and its services
- Publishing in any medium that a
partnership
or
a
salaried
employment is being sought by
CPA
22.It regulates and supervises the
practice of the professionals in the
Philippines
- PRC
23.The
accredited
professional
organization must submit how many
nominations for every vacancy of the
Board
- 5
24.Who appoints the member of the
Board?
- The President of the Philippines
25.It aims to promote and preserve
monetary
stability
and
the
convertibility
of
the
national
currency
- Bangko Sentral ng Pilipinas
26.The client is billed on a per diem
basis but the fee should not exceed
a certain amount
- Maximum fee basis
27.The auditor is paid a fixed
predetermined fee for all services
rendered during a designated period
of time
- Retainer fee basis
28.A press release or any other media
releases
undertaken
only
to
commemorate a firms anniversary
by informing the public of their
achievements and accomplishments
may only be done
- Every 5 years
29.A person who receives conditional
credit for the subjects passed must
take the removal exam within

- 2 years
30.Procedures an accountant most
likely perform in a compilation
engagement
- Collects, classify and summarize
financial information
31.The procedures deemed necessary
in the circumstances to achieve the
objective of the audit shall be
determined by the
- Independent auditor
32.An independent appraisal activity
within the organization for the
review of the accounting, financial,
and other operations as a basis for
protective and constructive services
to management
- Internal auditing
33.An audit can have a significant
effect on
- Information risk
34.Characteristics
in
determining
whether the criteria are suitable
- Relevance, Neutrality, Reliability
35.Elements of assurance engagement
- Engagement Processes
TRUE OR FALSE
1. The Chairman of PRC may, if a
ground for removal is present,
remove a member of the Board of
Accountancy
- False;
President
of
the
Philippines
2. Neglect of duty is a ground for
removal of members in BOA
- True
3. IFAC is the global organization for
the accountancy profession founded
in Germany.

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Accounting 501: Auditing and Assurance Principles

4.

5.

6.

7.

8.

- True
The sectoral organization for those
who are in the academe is ACPAE.
- True
The renewal of accreditation must
be made on or before Sept 30 of the
same
year
upon
which
the
accreditation will expire.
- True
Having a pending case may be a
ground for removal of members.
- False; Final judgement
The
accredited
professional
organization for CPA is BOA.
- False; PRC
No person shall serve the board for

more than 10 years.

- False; 12 years
9. Organizing corporations for the
practice of public accountancy is not
allowed.
- True
10.A member of the Board is not
allowed to be appointed for two
consecutive terms.
- False
11.A person, notwithstanding his
insanity, is issued his certificate of
registration as long as he passes the
board exams.
- False
12.Accreditation to practice public
accountancy shall be renewed every
three years.
- True
13.Violation or tolerance of any
violation
of
the
Philippine
Accountancy Act of 2004 is a
ground for removal of a member of
the Board.
- True

14.The

drafting

normally

of

audit

assigned

to

report
a

is

senior

associate.
-False
15.A person who reaches 65 years of
age is temporarily exempted from
CPD requirements.
- False; permanent
16.Using words which are difficult to
objectively define is generally
allowed in advertising a firm and its
services.
- False
17.Evidence from external sources is
more reliable than that generated
internally.
- True
18.Evidence generated internally is
more reliable when subject to
appropriate controls within the
entity.
- True
19.Evidence obtained indirectly by the
practitioner is more likely reliable
than that obtained directly.
- False
20.Evidence in the form of documents
and written representation is more
likely to be reliable.
- True
21.Assurance engagement are intended
to enhance the credibility of
information about a subject matter
by evaluating whether the subject
matter conforms in all material
respects with suitable criteria.
- True
22.The subject matter of an assurance
engagement may take many forms
such
as
data,
systems
and
processes of behavior.

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Accounting 501: Auditing and Assurance Principles

- True
23.Not all engagements performed by
professional
accountants
are
assurance engagements.
- True
24.The Philippine Standards on
Assurance Engagement issued by
AASC describe the objectives and
elements of assurance engagements
to provide either a high, moderate or
low level of assurance.
- False
25.In the audit engagement, the auditor
provides high level of assurance that
the financial information is free of
material misstatement.
- True
26.In a review engagement, the CPAs
moderate assurance is expressed in
the form of negative assurance.
- True
27. For agreed-upon procedures, the
CPA provided a report on a factual
findings and no assurance is
expressed.
- True
28.In a compilation engagement, no
assurance is expressed and the
users of financial information do
not derive any benefit from the
CPAs involvement.
- False
29.One method of judging internal
auditors objectivity is to review the
recommendations made in their
reports.
- True
30.An operational audit conducted by
an internal auditor is intended to
provide an aid in the independent

auditor examining the financial

statements.
- False; Op Audit is about internal
control
31.Internal auditing is part of the
companys internal control system.
- True
32.An
independent
auditor
may
participate in preparing financial
statement, including accompanying
notes.
- True
33.The objective of the ordinary
examination of financial statements
is the expression of opinion on the
accuracy

of

such

financial

statement.
- False; assertions
34.Financial
statements
are
the
assertions by an organizations
management and are, therefore, the
responsibility of management.
- True
35.Auditing requires that data should
be externally-generated.
- False
36.Today, the most cost-benefit option
to reduce information risk is to
have users directly verify the
information.
- False
37.In the case of an audit of financial
statements, the suitable criteria to
be used are Philippine Standards
on Auditing (PSA).
- False; PFRS
38.The CPAs conclusion provides a level
of assurance about the subject
matter.
- True

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Accounting 501: Auditing and Assurance Principles

39.A person not citizen of the
Philippines will never be allowed to
practice
accountancy
in
the
Philippines.
- True
40.A CPA practicing in the academe is
not allowed to practice in other
sectors.
- False
41.One of the requirements to be
appointed as part of the Board of
Accountancy is to have at least 10
years of work experience in any
scope of practice of accountancy.
- True
42.An examinee who gets a general
average of 75% and above in the
CPA Licensure Examination is
considered to have passed the exam.

False; general average of 75%

with no grades lower than 65%
43.The validity of the PRC License is 3
years.
- True
44.The use of self-laudatory statements
is not allowed in advertising your
firm and/or services.
- True
45.Punishment of a violation of the
Philippine Accountancy Act of 2004
by a fine of P65,000 is allowable.
- True
46.The Commission on Audit is
mandated by law to assess and
collect taxes.
- False;
Bureau
of
Internal
Revenue

Prelims Part 2
MULTIPLE CHOICE
1. The organization that developed the
Code of Ethics.
- IFAC (International Federation of
Accountants)
2. The underlying reason for a code of
professional ethics is
- The need for public confidence in
the quality of the profession
3. The Code of Ethics for professional
accountants are divided into how
many parts?
- Three
4. It is not one of the professional
competence and due care obligation.
- To
become
aware
and
understand relevant technical,

professional
and
business
development
5. These eliminate or reduce to an
acceptable level the threats to
compliance with the fundamental
principle.
- Safeguards
6. The threat to compliance with
fundamental principles occurs when
a firm, or a member of the
assurance team promote or may be
perceived to promote, an assurance
clients position or opinion to the
point that objectivity may, or may be
perceived to be, compromised.
- Advocacy threat
7. The auditors perception of his own
independence relates to ________,

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Accounting 501: Auditing and Assurance Principles

while the publics perception of the
professional
accountants
independence relates to _________.
- Independence
of
mind;
independence in appearance
8. Situation that would pose the
greatest risk of noncompliance with
the fundamental principle in cases
wherein an audit firm audits two
companies in the same industry.
- The use of the same engagement
team for both clients
9. Which is an example of an
intimidation threat?
- Threat of replacement over a
disagreement
10. Should the professional accountant
in public practice assume custody of
client assets, the following are the
things the professional accountant
should do
11. A company obtained a loan from an
entity which subsequently became
its client. The independence will not
be impaired in case that
12. An employee resigned from his
company and then became a part of
the audit firm and engagement team
who audits his previous company.
His independence is
13. A professional accountants name
can be associated with information
that
- Uses estimates
14. In determining estimates of fees, an
auditor may take into account
- Value of the service
- Degree of responsibility
- Skills required to perform service

15.The period of the engagement

16.Using the same engagement partner
or the same individual for the
engagement quality control review
on a financial statement audit over a
prolonged period may create
- Self-review threat
17. The following activities may create
self-interest or self-review threats
18.Part A of the Code of Ethics for
Professional Accountants of the
Philippines applies to
- Establishes
fundamental
principles
and
provides
conceptual
framework
for
application of such
19.Which part of the Code of Ethics
applies to professional accountants
in public practice
- Part B
20.Which of the fundamental principles
requires a professional accountant
to be straightforward and honest in
all
professional
and
business
relationships
- Integrity
21.A professional accountant cannot
rely solely to ________ to reduce
threats to an acceptable level
22.An example of engagement-specific
safeguard safeguards in the work
environment
- Disclosing to those charged with
governance of the client the
nature of services and extent of
fees charged
23.If fee quoted for professional service
is so low may create a self-interest
threat to

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Accounting 501: Auditing and Assurance Principles

-

Professional competence and due

care
24.Elements of a system of quality
control
- Monitoring
- Leadership responsibility
- Relevant ethical requirements
- HR
- Engagement Performance
- Client relationship
25.Most likely associated with the
requirement to promote a culture of
quality
- Leadership responsibilities
26.Element of quality control that
should be considered in establishing
quality
control
policies
and
procedures
- Complying
with
laws
and
regulations
27.Quality
control
policies
and
procedures should be relevant,
adequate, effective, and complied
with is most likely associated with
- Monitoring
28.The nature, timing and extent of an
audit firms quality control policies
and procedures depend on
29.The work that can be reviewed by a
personnel at least equal competence
is
30.The
policies
and
procedures
designed to ensure that all audits
should be in accordance with PSA
should be implemented at
31.The primary purpose of quality
control policies and procedures
-

32.The process comprising an ongoing

consideration of the firms QC
including periodic inspection, etc.
33.The implementation of QC is the
responsibility of the
34.Supervision includes
35.Responsibility for overall quality on
engagements should be taken by
36.Maintaining access to adequate
references is most likely to comply
with
37.QC procedure related to engagement
performance
38.Independence
39.Documentation
of
audit
engagements should be kept for a
period of
40.Factors in determining professional
fees
-

TRUE OR FALSE
1. A CPA has the obligation to comply
with the principle of confidentiality,
therefore, he should not disclose
any information regarding his/her
client even if such information is
required to be submitted in the
course of legal proceedings.
- False

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Accounting 501: Auditing and Assurance Principles

2. The attainment of professional
competence is embodied in the CPD
requirements of the profession.
3. Professional competence and due
care imposes an obligation on
professional accountants to comply
with relevant laws and regulations,
and avoid any action that may bring
discredit to the profession.
- True
4. An indirect financial interest in an
audit
client
does
not
impair
independence.
5. A professional accountant in public
practice may quote whatever deemed
to be appropriate. Quoting a fee
lower
than
that
of
another
professional accountant is not itself
unethical.
6. Independence of the firm is not
required in a non-audit assurance
engagement wherein the report is
restricted as to distribution, the
additional requirement being there
should be no material financial
interest in the assurance client.
7. A professional accountant in public
practice should agree to provide only
those

services

that

he

is

competent to perform.
- False; Ask for advice from a more
competent in that field
8. A professional accountant in public
practice should never receive a
referral fee or commission relating to
client.

False; As long as he brought the

threats to an acceptable level
9. Fees, which are fixed by court,
received by a professional accountant
in public practice shall not be
regarded as contingent, thus, receipt
thereof will not impair independence.
10.The members of an engagement
team, the firm, and the network
firm(s) if any, shall be independent
from the audit client.
11.Generally, the nature and value of,
and the intention behind the gifts
and hospitality offered by a client are
considered
to
evaluate
the
significance of the threats to
compliance with the fundamental
principles may arise.
12.If threats to compliance with the
fundamental principles are not at an
acceptable level, the professional
accountant
should
immediately
withdraw from the engagement.
13.Engagement documentation is owned
by the firm and the client involved in
the engagement.
14.The firm shall communicate at least
annually
the
results
of
the
monitoring of its system of QC to
engagement partners and other
appropriate individuals within the
firm.
15.The integrity of the client need not
be considered under acceptance
and
continuance
of
client

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Accounting 501: Auditing and Assurance Principles

relationship
and
specific
engagements.
- False
16.Firms
shall
obtain
written
confirmation of compliance with its
policies
and
procedures
on
independence at least every 3 years.
17.Safeguards created by the profession,
legislation or regulation include firmwide
and
engagement-specific
safeguards.
18.Whether prescribed or not, a period
of work experience is included in the
attainment
of
professional
competence.

- True
19.A firm does not need to establish
policies and procedures for dealing
with and resolving differences of
opinions since the opinion of the
engagement QC reviewer always
prevails.
20.Independence is still required even
after the issuance of an assurance
report if the assurance engagement
is of a recurring nature. The
requirement only ends after the
termination of the relationship with
the client of the issuance of the final
assurance report, whichever is later.
-

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