Chapter 2: THE PROFESSIONAL STANDARDS

Question 1

Generally Accepted Auditing Standards (GAAS)
1. Which of the following best describes what is meant by generally accepted auditing standards?
a. Audit objectives generally determined on audit engagements.
b. Acts to be performed by the auditor.
c. Measures of the quality of the auditor’s performance..
d. Procedures to be used to gather evidence to support financial
statements.

Answer 1

c. Measures of the quality of the auditor’s performance..

Question 2

In the auditing environment, failure to meet auditing standards is often a. An accepted practice
b. A suggestion of negligence
c. Conclusive evidence of negligence d. Tantamount to criminal behavior

Question 3

Audit standards require the auditor to
a. Perform procedures that are designed to detect all instances of fraud.
b. Provide reasonable assurance that the financial statements are not materially misstated.
c. Issue an unmodified opinion only when the auditor is satisfied that no instances of fraud have occurred.
d. Design the audit program to meet financial statement users’ o expectations conceming fraud.

Answer 3

b. Provide reasonable assurance that the financial statements are not materially misstated.

Question 4

Requirements for training, independence and due professional care are included in which group of the generally accepted auditing standards?
a. Fieldwork
b. General
c. Quality control
d. Reporting

Answer 4

b. General

Question 4

Which of the following underlies the application of generally accepted auditing standards, particularly the standards of field work and reporting
a. Element of internal control.
b. Elements of materiality and risk. c. Element of reasonable assurance. d. Element of corroborating evidence.

Answer 4

b. Elements of materiality and risk.

Question 5

The general standards of the generally accepted auditing standards include a requirement that
a. The fieldwork to be adequately planned.
b. The auditor’s report to state whether the financial statements are presented in conformity with PFRS.
c. Due professional care be exercised by the auditor.
d. The auditor to obtain sufficient, competent evidential matter.

Answer 5

c. Due professional care be exercised by the auditor.

Question 6

Which of the following reflects a concept from the general standards
of GAAS?
a. The confirmation of accounts receivable.
b. Completing an internal control questionnaire.
c. The initial planning of the audit with the audit partner, manager, senior, staff and client personnel.
d. The assignment of audit personnel to an engagement where they have no financial interest.

Question 7

While performing audit services for their clients, professional accountants have a duty to provide a level of care which is
a. Reasonable
b. Greater than average
c. Superiors
d. Guaranteed to be free from error.

Answer 7

a. Reasonable

Question 7

The standard of due audit care requires the auditor to
a. Make perfect judgment decisions in all cases.
b. Ensure that the financial statements are free from error.
c. Possess skills clearly above the average for the profession.
d. Apply judgment in a conscientious manner, carefully weighing the relevant factors before reaching a decision.

Answer 7

d. Apply judgment in a conscientious manner, carefully weighing the relevant factors before reaching a decision.**

Question 7

What is the general character of the three generally accepted auditing standards classified as general standards?
a. Criteria for competence, independence, and professional care of individuals performing the audit.
b. Criteria of evidence gathering
c. Criteria for the content of the auditors’ report on financial statements and related footnote disclosures.
d. The requirements for the planning of the audit and supervision of assistants, if any.

Answer 7

a. Criteria for competence, independence, and professional care of individuals performing the audit.

Question 8

Which of the following does not pertain to the standards of fieldwork?
a. Adequate planning and supervision.
b. Obtaining sufficient competent evidential matter.
c. Proper study and evaluation of internal control as a basis for reliance thereon.
d. Technical training and proficiency.

Answer 8

d. Technical training and proficiency.

Question 9

Which of the following is most likely to be unique to the audit work of CPAs as compared to work performed by practitioners of other
professions?
tea
a. Due professional care.
b. Competence.
c. Independence.
d. Complex body of knowledge

Question 10

The third general standard states that due care is to be exercised in the performance of an audit This standard is ordinarily interpreted to require.
a. Thorough review of the existing safeguards over access to assets and records.
b. Limited review of the indications of employee fraud and illegal 2 acts
c. Objective review of the adequacy of the technical training and proficiency of firm personnel
d. Critical review of the judgment exercised at every level of supervision.

Question 11

What is the general character of the three generally accepted auditing standards classified as standards of field work?
a. The competence of persons performing the audit.
b. Criteria for the content of the auditor’s report on financial statements and related footnote disclosures.
c. The criteria of audit planning and evidence-gathering.
d. The need to maintain an independence in mental attitude in all matters relating to the audit

Answer 11

c. The criteria of audit planning and evidence-gathering.

Question 12

The third standard of field work states that sufficient competent evidential matter may in part be obtained through the following methods except:
a. Inspection
b. Confirmation
c. Observation
d. Reconciliation

Answer 12

d. Reconciliation**

Question 13

The generally accepted standards of reporting encompass all of the
following except
a. Consideration of internal control
b. Consistent application of accounting principles
c. Informative disclosures
d. Conformity of financial statements with GAAP

Answer 13

a. Consideration of internal control

Question 14

The objective of the consistency standard is to provide assurance that
a. There are no variations in the format and presentation of financial
statements.
b. Substantially different transactions and events are not accounted for on an identical basis.
c. The auditor is consulted before material changes are made in the application of accounting principles.
d. The comparability of financial statements between periods in not materially affected by changes in accounting principles without
disclosure.

Answer 14

d. The comparability of financial statements between periods in not materially affected by changes in accounting principles without
disclosure.

Question 14

The third generally accepted standard of reporting in auditing refers to
a. Whether financial statements are presented in conformity with GAAP.
b. Whether accounting principles have been consistently observed.
c. Adequacy of disclosures
d. An expression of opinion on the financial statements taken as whole.

Answer 14

c. Adequacy of disclosures

Question 15

The fourth reporting standard requires the auditor’s report to contain an expression of opinion regarding the financial statements taken as a whole, or an assertion to the effect that an opinion cannot be expressed. The objective of the fourth standard is to prevent
a. An auditor from reporting on one basic financial statement and not on the others.
b. An auditor from expressing different opinions on each of the basic financial statements.
c. Management from reducing its final responsibility for the basic financial statements
d. Misinterpretations regarding the degree of responsibility the auditor is assuming

Answer 15

d. Misinterpretations regarding the degree of responsibility the auditor is assuming

Question 16

The fourth generally accepted auditing standard of reporting requires an auditor to render a report whenever an auditor’s name is associated with financial statements. The overall purpose of the fourth standard of reporting is to require that reports:
a. State that the examination of financial statements has been conducted in accordance with generally accepted auditing standards.
b. Indicate the character of the auditor’s examination and the degree of responsibility assumed by the auditor.
c. Imply that the auditor is independent in mind as well as in appearance with respect to the financial statements under examination.
d. Express whether the accounting principles used in preparing the financial statements have been applied consistently in the period under examination.

Answer 16

b. Indicate the character of the auditor’s examination and the degree of responsibility assumed by the auditor.

Question 22

The auditor is not liable to his client for
a. Negligence
b. Fraud
c. Dishonesty
d. Errors in the application of judgment

Answer 22

d. Errors in the application of judgment

Question 22

According to Philippine Standards on Auditing, because there are inherent limitations in an audit that affect the auditor’s ability to detect material misstatements, the auditor is:
a. A guarantor but not an insurer of the statements.
b. An insurer but not a guarantor of the statements.
c. Neither a guarantor nor an insurer of financial statements.
d. Both a guarantor and an insurer of the financial statements.

Answer 22

c. Neither a guarantor nor an insurer of financial statements.

Question 23

The Philippine Standards on Auditing (PSAs) issued by the Auditing and Assurance Standards Council:
a. Are interpretations of the generally accepted auditing standards.
b. Are the criteria used in evaluating the fair presentation of the financial statements.
c. Are interpretations of the generally accepted accounting principles.
d. Are optional guidelines which an auditor may choose to follow or not follow when conducting an audit.

Answer 23

a. Are interpretations of the generally accepted auditing standards.

Question 24

An auditor does not have to comply with a specific requirement of the PSA if the auditor believes that:

a. The amount is insignificant.
b. The requirement of the PSA is impractical to perform.
c. The requirement of the PSA is impossible to perform.
d. Any of the given three choices is correct.

Answer 24

d. Any of the given three choices is correct.

Question 25

The Philippine Standards on Auditing can be described as
a. Providing very specific guidance about the specific activities an auditor must perform on each engagement.
b. Similar to Philippine Financial Reporting Standards (PFRS).
c. Defining the minimum standards of performance for an auditor.
d. Providing assurance that an auditor will not issue an inappropriate audit opinion

Answer 25

c. Defining the minimum standards of performance for an auditor.

Question 25

Which of the following best describes the function of Auditing and Assurance Standards Council (AASC)?
a. To establish and promulgate generally accepted accounting principles in the Philippines.
b. To investigate violations of the Accountancy Law.
c. To promulgate auditing standards, practices and procedures that shall be generally accepted by the accounting profession in the Philippines.
d. To determine the minimum requirements for admission in the accounting profession.

Answer 25

c. To promulgate auditing standards, practices and procedures that shall be generally accepted by the accounting profession in the Philippines.

Question 26

Which of the following is correct about the Philippine Auditing Practices Statements (PAPS)?
a. These are issued to resolve issues relating to PSAs.
b. These statements are intended to have the authority of PSAs.
c. These statements are issued to provide practical assistance to auditors in implementing PSAs or to promote good practice.
d. These statements are forms of interpretations issued by AASC.

Answer 26

c. These statements are issued to provide practical assistance to auditors in implementing PSAs or to promote good practice.

Question 27

Question 27

Question 28

Question 30

Question 29

Which of the following pronouncements issued by the AASC is designed to resolve issues relating to PSAs?

a. Philippine Auditing Practices Statements
b. Interpretations
c. Statements of Auditing Standards in the Philippines
d. Generally Accepted Auditing Standards

Answer 29

b. Interpretations

Question 30

The risk that an auditor will fail to uncover a material misstatement is
eliminated
a. If client has good internal control
b. If auditor observes the Code of Professional Ethics.
c. When the auditor complies with PSA.
d. Under no circumstances.

Answer 30

b. If auditor observes the Code of Professional Ethics.

Question 31

The auditor’s best defence when material misstatements are not
uncovered is to have conducted the audit
a. In accordance with PSA.
b. As effectively as reasonably possible.
c. In a timely manner.
d. Only after an adequate investigation of the management team.

Answer 31

a. In accordance with PSA.

Question 32

The failure of the auditor to meet the requisites of PSA is
a. An accepted practice.
b. A suggestion of negligence.
c. An evidence of negligence.
d. Tantamount to criminal behavior.

Answer 32

c. An evidence of negligence.

Question 33

Quality Control System
One of a CPA firm’s basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through
a. A system of quality control.
b. A quality assurance review.
c. Continuing professional education.
d. Compliance with generally accepted reporting standards.

Question 34

A firm of independent auditors must establish and follow quality control policies and procedures because these standards
a. Are necessary to meet increasing requirements of auditors’ liability as insurers.
b. Are required by the SEC for auditors of all firms.
c. Include formal filing of records of such policies and procedures to a regulatory agency.
d. Give reasonable assurance that the firm as a whole will comply with the professional standards.

Answer 34

d. Give reasonable assurance that the firm as a whole will comply with the professional standards.

Question 35

The main purpose of implementing a system of quality control is to provide the firm with reasonable assurance that:
a. The firm and its personnel will comply regulatory and legal
requirements.
b. The audit will be performed in accordance with PSA.
c. The firm will issue a report that is approporiate in the circumstances.
d. All of the above.

Answer 35

d. All of the above.

Question 40

Which of the following is an element of a CPA firm’s quality control, system that should be considered in establishing its quality control policies and procedures?
a. Complying with laws and regulations
b. Using statistical sampling techniques
c. Independence
d. Consideration of audit risk and materiality

Answer 40

c. Independence

Question 41

Question 42

Question 42

Which of the following is one of the elements of a CPA firm’s quality
control system?
a. Leadership responsibilities
b. Computer assisted audit techniques
c. Control activities
d. Control environment

Answer 42

a. Leadership responsibilities

Question 43

Which of the following quality control objectives would be least important to the auditor?
a. Engagement performance
b. Human resources
c. Determination of audit fee
d. Independence

Answer 43

c. Determination of audit fee

Question 44

A quality control policy that requires personnel in the firm to adhere to independence, integrity, objectivity, confidentiality and professional behavior, relates to
a. Ethical Requirements
b. Human resources
c. Assignment
d. Consultation

Answer 44

a. Ethical Requirements

Question 45

Which of the following quality control policies and procedures does not relate to human resources and assignment?
a. Emphasize independence of mental attitude in training programs and in supervision and review of the audits.
b. Monitor the effectiveness of recruiting programs.
c. Identify criteria which will be considered in evaluating individual performance and expected proficiency.
d. Identify on a timely basis the staffing requirements of specific audits.

Answer 45

a. Emphasize independence of mental attitude in training programs and in supervision and review of the audits.

Question 46

In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm’s clients. Which quality control element would this be most likely to satisfy?
a. Monitoring
b. Assignment
c. Independence
d. Skills and competence

Answer 46

c. Independence

Question 47

A procedure in which a quality control partner periodically tests the application of quality control procedures is most directly related to which quality control element?
a. Engagement performance
b. Independence, integrity, and objectivity
c. Monitoring
d. Personnel management

Answer 47

c. Monitoring

Question 47

In connection with the element of engagement performance, a CPA firm’s system of quality control should ordinarily provide that all personnel
a. Have the knowledge required to enable them to fulfill responsibilities assigned.
b. Review and test compliance with the firm’s quality control policies and procedures.
c. Seek assistance from persons having appropriate levels of knowledge, judgment and authority..
d. Appropriately maintain independence when providing assurance
services

Answer 47

c. Seek assistance from persons having appropriate levels of knowledge, judgment and authority..

Question 47

Maintaining or providing access to adequate reference libraries and other authoritative sources is a procedure that is most likely performed to comply with the policy of
a. Monitoring
b. Skills and competence
c. Consultation
d. Assignment

Answer 47

c. Consultation

Question 48

Which of the following quality control procedures relates to engagement performance?

a. Hiring
b. Direction
c. Professional development
d. Advancement.

Answer 48

b. Direction

Question 49

Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel with:

a. Technical training that assures proficiency as a valuation expert.
b. Professional education that is required in order to perform with due professiorial care..
c. Knowledge required to fulfil assigned responsibilities.
d. Knowledge required to perform a peer review.

Answer 49

c. Knowledge required to fulfil assigned responsibilities.

Question 50

In compliance with the element of human resources, the firm should
address issues relating to
a. Engagement performance
b. Assignment of engagement teams
c. Consultation
d. Differences of opinion

Answer 50

b. Assignment of engagement teams

Question 51

In pursuing the firm’s quality control objectives with respect to assigning personnel to engagements, the auditors may use policies and procedures such as
a. Designating senior qualified personnel to provide advice on accounting or auditing questions throughout the engagement.
b. Requiring timely identification of the staffing requirements of specific engagements so that enough qualified personnel can be made available.
c. Establishing at entry levels a policy for recruiting that includes minimum standards of academic preparation and accomplishments.
d. Evaluate clients upon occurrence of specified events to determine whether the relationships ought to be continued.

Answer 51

b. Requiring timely identification of the staffing requirements of specific engagements so that enough qualified personnel can be made available.

Question 52

The primary factor that should be considered in determining the extent of supervision needed by an assistant is the assistant’s
a. Willingness to exercise due care
b. Competence
c. Independence
d. Professional certification

Answer 52

b. Competence

Question 52

In connection with the element of assignment, a CPA firm’s system of quality control should ordinarily establish procedures that
a. Provide adequate supervision at all levels, considering the training, ability and experience of the personnel assigned.
b. Encourage personnel to use authoritative sources on complex or unusual matter.
c. Require preparation of time budgets for audits to determine manpower requirements and to schedule the audit work.
d. Establish qualifications deemed necessary for various levels of responsibility within the firm.

Answer 52

c. Require preparation of time budgets for audits to determine manpower requirements and to schedule the audit work.

Question 53

Which of the following is a policy that must be established to comply with the quality control engagement performance?
a. The firm is to be staffed by personnel who have attained and maintained the technical standards and professional competence required to enable them to fulfill their responsibilities.
b. There is a sufficient direction, supervision, and review of work performed at all levels to provide reasonable assurance that the work performed meets appropriate standards of quality.
c. The firm should assign responsibility for each engagement to an engagement partner.
d. The continued adequacy and operational effectiveness of quality control policies and procedures are to be observed.

Answer 53

b. There is a sufficient direction, supervision, and review of work performed at all levels to provide reasonable assurance that the work performed meets appropriate standards of quality.

Question 53

The work performed by the assistants should be reviewed by personnel of at least equal competence to consider all of the following except:
a. Whether the conclusions expressed are consistent with the results of the work performed.
b. Whether the work was adequately performed and documented.
c. Whether the objectives of the audit have been achieved.
d. Whether the engagement personnel maintained independence.

Answer 53

d. Whether the engagement personnel maintained independence.

Question 54

The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to
a. Enable the CPA firm to attest to the integrity of the client
management.
b. Satisfy the CPA firm’s duty to the public concerning the acceptance of new clients.
c. Minimize the likelihood of association with clients whose management lacks integrity.
d. Anticipate before performing any field work whether an unmodified opinion can be expressed.

Answer 54

c. Minimize the likelihood of association with clients whose management lacks integrity.

Question 55

The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter’s resolution, the CPA firm’s procedures should enabl the assistant to
a. Refer the disagreement to the Quality Review Committee.
b. Document the details of the disagreement with the conclusion reached.
c. Discuss the disagreement with the entity’s management or its audit committee.
d. Report the disagreement to an impartial peer review monitoring
team.

Question 56

In making a decision to accept or retain a client, the firm should consider
a. Its competence
b. Its ability to comply with ethical requirements
c. The integrity of the client’s management.
d. All three should be considered.

Answer 56

d. All three should be considered.

Question 57

A CPA firm’s quality control procedures pertaining to the acceptance of a prospective audit client would most likely include
a. Inquiry of management as to whether disagreements between the predecessor auditor and the prospective client were resolved satisfactorily
b. Consideration of whether sufficient competent evidential matter may be obtained to afford a reasonable basis for an opinion. c. c. Inquiry of third parties, such as the prospective client’s bankers and attorneys, about information regarding the prospective client and its management.
d. Consideration of whether the internal control, structure is sufficiently effective to permit a reduction in the required substantive tests.

Answer 57

58

Question 58

Quality control policies and procedures should provide the firm reasonable assurance that the policies and procedures relating to the other elements of quality control are being effectively applied. This statement defines the quality control element of

a. Planning
b. Independence, integrity and objectivity.
c. Assignment
d. Monitoring

Answer 58

59

Question 58

In connection with the element of monitoring, a CPA firm’s system of quality control should ordinarily provide for the maintenance of

a. A file of minutes of staff meetings.
b. Updated personnel files.
c. Documentation to demonstrate compliance with its policies and procedures.
d. Documentation to demonstrate compliance with peer review directives.

Answer 58

60

Question 58

A deficiency in the firm’s system of quality control is an indication that a. The audit engagement was not performed in accordance with the professional standards.
b. The audit reports issued were not appropriate.
c. Both a and b
d. Neither a nor b
66. It involves a study or appraisal by the Board or its duly authorized representatives, of the quality of audit of financial statements through an evaluation of the quality control measures instituted by the CPA firm to ascertain compliance with ethical and technical standards of public practice.
a.
Quality review
b. Peer review Compliance audit
C.
d.
External audit
67. Which of the following is responsible for establishing auditing standards that will become generally accepted in the Philippines?
a.
b.
C.
Securities and Exchange Commission Financial Reporting Standards Council Commission on Audit
d. Auditing and Assurance Standards Council

Answer 58

61

Question 59

It involves a study or appraisal by the Board or its duly authorized representatives, of the quality of audit of financial statements through an evaluation of the quality control measures instituted by the CPA firm to ascertain compliance with ethical and technical standards of public practice.
a. Quality review
b. Peer review
c. Compliance audit
d. External audit

Answer 59

62

Question 60

Which of the following is responsible for establishing auditing standards that will become generally accepted in the Philippines?
a. Securities and Exchange
b. Commission Financial Reporting Standards Council
c. Commission on Audit
d. Auditing and Assurance Standards Council