Auditing and Related Services

Question 1

13. PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February 2008, applies to

A. Reviews of any historical financial information of an audit client.
B. Reviews of any historical financial information by a practitioner other than the entity’s auditor.
C. Reviews of historical financial or other information by a practitioner other than the entity’s auditor.
D. Reviews of historical financial or other information of an audit client.

Answer 1

B. Reviews of any historical financial information by a practitioner other than the entity’s auditor.

Question 2

14. When performing a compilation engagement, the accountant is required to

A. Assess internal controls.
B. Make inquiries of management to assess the reliability and completeness of the information provided.
C. Verify matters and explanations.
D. Obtain a general knowledge of the business and operations of the entity.

Answer 2

D. Obtain a general knowledge of the business and operations of the entity.

Question 3

15. Inquiries and analytical procedures ordinarily form the basis for which type of engagement?

A. Agreed-upon procedures.
B. Audit.
C. Examination.
D. Review.

Answer 3

D. Review.

Question 4

16. Independence is not a requirement for which of the following engagements?
    Compilation Review Agreed-upon Procedures
    A. No Yes No
    B. No No No
    C. Yes No Yes
    D. Yes Yes Yes

Answer 4

C. Yes No Yes

Question 5

17. A practitioner should accept an assurance engagement only if

A. The subject matter is in the form of financial information.
B. The criteria to be used are not available to the intended users.
C. The practitioner’s conclusion is to be contained in a written report.
D. The subject matter is the responsibility of either the intended users or the practitioner.

Answer 5

C. The practitioner’s conclusion is to be contained in a written report.

Question 6

18. A practitioner is associated with financial information when
    I. The practitioner attaches a report to that financial information.
    II. The practitioner consents to the use of his/her name in a professional connection.

A. I only
B. II only
C. Either I or II
D. Neither I nor II

Answer 6

C. Either I or II

Question 7

19. The auditor is required to comply with all PSAs relevant to the audit of an entity’s financial statements. A PSA is relevant to the audit when
    I. The PSA is in effect.
    II. The circumstances addressed by the PSA exist.
    A. I only C. Either I or II
    B. II only D. Both I and II

Answer 7

D. Both I and II

Question 8

20. The overall objectives of the auditor in conducting an audit of financial statements are
    I. To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether caused by fraud or error.
    II. To report on the financial statements.
    III. To obtain conclusive rather than persuasive evidence.
    IV. To detect all misstatements, whether due to fraud or error.
    A. I and II only
    B. II and IV only
    C. I, II, and III only
    D. I, II, III, and IV

Answer 8

A. I and II only

Question 9

21. The auditor is required to maintain professional skepticism throughout the audit. Which of the following statements concerning professional skepticism is false?

A. A belief that management and those charged with governance are honest and have integrity relieves the auditor of the need to maintain professional skepticism.
B. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the results thereof.
C. Professional skepticism is necessary to the critical assessment of audit evidence.
D. Professional skepticism is an attitude that includes questioning contradictory audit evidence obtained.

Answer 9

A. A belief that management and those charged with governance are honest and have integrity relieves the auditor of the need to maintain professional skepticism.

Question 10

22. Which of the following best describes the reason why independent auditors report on financial statements?

A. A management fraud may exist and it is more likely to be detected by independent auditors.
B. Different interests may exist between the company preparing the statements and the persons using the statements.
C. A misstatement of account balances may exist and is generally corrected as the result of the independent auditors’ work.
D. Poorly designed internal control may be in existence.

Answer 10

B. Different interests may exist between the company preparing the statements and the persons using the statements.

Question 11

23. Which of the following professionals has primary responsibility for the performance of an audit?
    A. The managing partner of the firm.
    B. The senior assigned to the engagement.
    C. The manager assigned to the engagement.
    D. The partner in charge of the engagement

Answer 11

D. The partner in charge of the engagement

Question 12

24. What is the proper organizational role of internal auditing?

A. To serve as an independent, objective assurance and consulting activity that adds value to operations.
B. To assist the external auditor in order to reduce external audit fees.
C. To perform studies to assist in the attainment of more efficient operations.
D. To serve as the investigative arm of the audit committee of the board of directors.

Answer 12

A. To serve as an independent, objective assurance and consulting activity that adds value to operations.

Question 13

25. Operational audits generally have been conducted by internal and COA auditors, but may be performed by certified public accountants. A primary purpose of an operational audit is to provide

A. A measure of management performance in meeting organizational goals.
B. The results of internal examinations of financial and accounting matters to a company’s top-level management.
C. Aid to the independent auditor, who is conducting the examination of the financial statements.
D. A means of assurance that internal accounting controls are functioning as planned.

Answer 13

A. A measure of management performance in meeting organizational goals.

Question 14

26. Governmental auditing often extends beyond examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and also

A. Accuracy.
B. Evaluation.
C. Compliance.
D. Internal control.

Answer 14

C. Compliance.

Question 15

27. Which of the following terms best describes the audit of a taxpayer’s return by a BIR auditor?
    A. Operational audit.
    B. Internal audit.
    C. Compliance audit.
    D. Government audit.

Answer 15

C. Compliance audit.

Question 16

28. Which of the following statements concerning consulting services is false?

A. The performance of consulting services for audit clients does not, in and of itself, impair the auditor’s independence.
B. Consulting services differ fundamentally from the CPA’s function of attesting to the assertions of other parties.
C. Consulting services ordinarily involve external reporting.
D. Most CPAs, including those who provide audit and tax services, also provide consulting services to their clients.

Answer 16

C. Consulting services ordinarily involve external reporting.

Question 17

29. Which of the following is the most appropriate action to be taken by a CPA who has been asked to perform a consulting services engagement concerning the analysis of a potential merger if he/she has little experience with the industry involved?

A. Accept the engagement but he/she should conduct research or consult with others to obtain sufficient competence.
B. Decline the engagement because he/she lacks sufficient knowledge.
C. Accept the engagement and issue a report that contains his/her opinion on the achievability of the results of the merger.
D. Accept the engagement and perform it in accordance with Philippine Standards on Auditing (PSAs).

Answer 17

A. Accept the engagement but he/she should conduct research or consult with others to obtain sufficient competence.

Question 18

30. An objective of a performance audit is to determine whether an entity’s
    A. Operational information is in accordance with government auditing standards.
    B. Specific operating units are functioning economically and efficiently.
    C. Financial statements present fairly the results of operations.
    D. Internal control is adequately operating as designed.

Answer 18

B. Specific operating units are functioning economically and efficiently.

Question 19

31. Internal auditors should review the means of physically safeguarding assets from losses arising from
    A. Exposure to the elements.
    B. Under usage of physical facilities.
    C. Misapplication of accounting principles.
    D. Procedures that are not cost justified

Answer 19

A. Exposure to the elements.

Question 20

32. The internal auditing department’s responsibility for deterring fraud is to
    A. Establish an effective internal control system.
    B. Maintain internal control.
    C. Examine and evaluate the system of internal control.
    D. Exercise operating authority over fraud prevention activities.

Answer 20

C. Examine and evaluate the system of internal control.

Question 21

33. Internal auditors review the adequacy of the company’s internal control system primarily to

A. Help determine the nature, timing, and extent of tests necessary to achieve audit objectives.
B. Determine whether the internal control system provides reasonable assurance that the company’s objectives and goals are met efficiently and economically.
C. Ensure that material weaknesses in the system of internal control are corrected.
D. Determine whether the internal control system ensures that financial statements are fairly presented.

Answer 21

B. Determine whether the internal control system provides reasonable assurance that the company’s objectives and goals are met efficiently and economically.

Question 22

34. Which of the following services, if any, may a practitioner who is not independent provide?
    A. Compilations but not reviews.
    B. Reviews but not compilations.
    C. Reviews but not financial statement audits.
    D. Agreed-upon procedures but not compilations.

Answer 22

A. Compilations but not reviews.