PATS (From B2)

Question 1

Which of the following attributes is more closely associated with assurance services performed by
professional accountants than with other lines of professional work?
a. Integrity
b. Independence
c. Competence
d. Keeping informed on current professional developments.

Answer 1

B. Independence.

Question 2

It refers to the practitioner’s satisfaction as to the reliability of an assertion being made by one party for use by another party.
a. Examination
b. Verification
c. Opinion
d. Assurance

Answer 2

D. Assurance

Question 3

The highest level of assurance that may be provided by the practitioner is reasonable assurance (less than
absolute) as a result of the following factors, except
a. Less than 100% testing
b. Human error
c. Conclusive evidence
d. Imperfect internal control

Answer 3

C. Conclusive evidence.

Question 4

Which of the following is least likely an objective of an assurance engagement?
a. The engagement is intended to enhance the credibility of information about a subject matter.
b. An assurance engagement is intended for a professional accountant to express a conclusion that provides the intended users with a level of assurance about the subject matter.
c. The engagement is intended to provide a level of assurance to be issued by a professional accountant about the information of being in conformity, in all material respects, with suitable criteria.
d. The engagement is intended to prevent the issuance of materially misleading information.

Answer 4

D. The engagement is intended to prevent the issuance of materially misleading information.

Question 5

The auditor’s understanding taken with a client should be established through a (n):
a. Oral communication with the client.
b. Written communication with the client.
c. Written or oral communication with the client.
d. Completely detailed audit plan.

Answer 5

B. Written communication.

Question 6

Which statement is correct relating to a successor auditor’s responsibility for communicating with the predecessor auditor in connection with a prospective new audit client?
a. The successor auditor has no responsibility to contact the predecessor auditor.
b. The successor auditor should obtain permission from the prospective client to contact the predecessor auditor.
c. The successor auditor should contact the predecessor auditor regardless of whether the prospective client authorizes the contact.
d. The successor auditor need not contact the predecessor auditor if the successor auditor is aware of all available relevant facts.

Answer 6

B. The successor auditor should obtain permission from the prospective client to contact the predecessor auditor.

Question 7

Which of the following factors would most likely cause a CPA to decide not to accept a new audit
engagement?
a. The CPA’s lack of understanding of the prospective client’s internal auditor’s computer-assisted audit techniques.
b. Management’s disregard of its responsibility to maintain an adequate internal control environment.
c. The CPA’s inability to determine whether related-party transactions were consummated on terms equivalent to arm’s-length transaction.
d. Management’s refusal to permit the CPA to perform substantive tests before the year-end.

Answer 7

B. Management’s disregard of its responsibility to maintain an adequate internal control environment.

Question 8

An auditor who accepts an audit engagement and does not possess the industry expertise of the business entity, should:
a. Engage financial experts familiar with the nature of the business entity.
b. Obtain a knowledge of matters that relate to the nature of the entity.
c. Refer a substantial portion of the audit to another CPA who will act as the principal auditor.
d. First inform management that an unqualified opinion cannot be issued

Answer 8

b. Obtain a knowledge of matters that relate to the nature of the entity.

Question 9

The auditor’s understanding of the entity and its environment consists of an understanding of the following aspects except:
a. Industry, regulatory, and other external factors, including the applicable financial reporting framework.
b. Nature of the entity, including the entity’s selection and application of accounting policies.
c. Measurement and review of the entity’s financial performance.
d. Entity’s selection and screening process of marketing and production personnel.

Answer 9

d. Entity’s selection and screening process of marketing and production personnel.

Question 10

Internal control is a process effected by the organization’s board of directors, management, and other personnel to provide reasonable assurance of achieving certain objectives. Which of the following does not fit into one of these objectives?
a. reliability of financial reporting.
b. compliance with laws and regulations.
c. continuing existence
d. effectiveness and efficiency of operations.

Answer 10

c. continuing existence

Question 11

In planning an audit, the auditor’s knowledge about the design of relevant internal control policies and procedures should be used to:
a. Identify the types of potential misstatements that could occur.
b. Assess the operational efficiency of the internal control structure.
c. Determine whether controls have been circumvented by collusion.
d. Document the assessed level of control risk.

Answer 11

a. Identify the types of potential misstatements that could occur.

Question 12

To obtain an understanding of an entity’s control environment, an auditor should concentrate on the substance of management’s policies and procedures rather than their form (i.e., both the controls design and implementation) because:
a. management may establish appropriate policies and procedures but not act on them
b. the board of directors may not be aware of management’s attitude toward the control environment.
c. the auditor may believe that the policies and procedures are inappropriate for that particular entity.
d. the policies and procedures may be so weak that no reliance is contemplated by the auditor.

Answer 12

a. management may establish appropriate policies and procedures but not act on them.

Question 13

Which of the following statements is most correct regarding the primary purpose of audit procedures?
a. to detect all errors or fraudulent activities as well as illegal activities.
b. to comply with Securities Regulation Code, Rule 68, promulgated by the Securities and Exchange
Commission.
c. to gather corroborative audit evidence about management’s assertions regarding the client’s financial statements.
d. to determine the amount of errors in the balance sheet accounts in order to adjust the accounts to actual.

Answer 13

c. to gather corroborative audit evidence about management’s assertions regarding the client’s financial statements.

Question 14

Ultimately, what is sufficient appropriate audit evidence depends on
a. Auditor’s professional judgment
b. Users’ view
c. Management’s judgment
d. All of the above

Answer 14

A. Auditor’s professional judgement.

Question 15

Which of the following best describes one of the primary objectives of audit documentation?
a. Defend against claims of a deficient audit.
b. Provide a basis for reviewing the work of subordinates.
c. Provide reasonable assurance that the audit was conducted in accordance with auditing standards.
d. Provide additional support of recorded amounts to the client.

Answer 15

c. Provide reasonable assurance that the audit was conducted in accordance with auditing standards.

Question 16

Management’s assertions in the financial statements are of relevance to the audit process because:
a. they are procedures that will be performed by the audit team.
b. they are utilized by auditors in developing proper tests and procedures.
c. they are direct evidence that management has prepared financial statements in accordance with
generally accepted audit standards.
d. they relate more to the audit while the financial statements belong to the auditor.

Answer 16

b. they are utilized by auditors in developing proper tests and procedures.

Question 17

The main purpose of risk assessment procedure is to:
a. Obtain an understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement (ROMM) at the financial statement and assertion levels.
b. Test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatement at the assertion level.
c. Detect material misstatements at the assertion level.
d. All of the above.

Answer 17

a. Obtain an understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement (ROMM) at the financial statement and assertion levels.

Question 18

Which one of the procedures provides the most reliable evidence?
a. Confirmations
b. Recalculation
c. Reperformance
d. Observations

Answer 18

A. Confirmations

Question 19

Which of the following is not among the characteristics of the procedures being performed in completing the audit?
a. They are optional since they have only an indirect impact on the opinion to be expressed.
b. They involve many subjective judgments by the auditor
c. They do not pertain to specific transaction cycles or accounts
d. They are usually performed by audit managers or other senior members of the audit team who have extensive audit experience with the client.

Answer 19

a. They are optional since they have only an indirect impact on the opinion to be expressed.

Question 20

Analytical procedures are required to be performed during the:
a. Planning and substantive test stages.
b. Substantive test and overall review stages.
c. Planning and overall review stages.
d. Planning stage only.

Answer 20

c. Planning and overall review stages.

Question 21

Subsequent events refer to:
a. Only significant events that occur between the balance sheet date and the date of the auditor’s report which have been discovered by the auditor during the same period
b. Only significant events that occur between the balance sheet date and the date of the auditor’s report irrespective of the date they have been discovered by the auditor
c. Only significant events that occur between the balance sheet date and the date the audited financial statements have been released to the client, irrespective of the date of their discovery by the auditor
d. All significant events that occur after balance sheet date.

Answer 21

b. Only significant events that occur between the balance sheet date and the date of the auditor’s report irrespective of the date they have been discovered by the auditor

Question 22

Written representation is used by the auditor to
a. Reduce the scope of the auditor’s physical inventory work but not the other inventory audit work that is normally performed.
b. Confirm in writing the valuation basis used by the client to value the inventory at the lower of cost or market.
c. Lessen the auditor’s responsibility for the fair presentation of balance sheet inventories.
d. Remind management that the primary responsibility for the overall fairness of the financial statements rests with management and not with the auditor.

Answer 22

d. Remind management that the primary responsibility for the overall fairness of the financial statements rests with management and not with the auditor.

Question 23

PSA 570 requires the auditor to evaluate whether there is a substantial doubt about a client’s ability to continue as a going concern for at least:
a. one quarter beyond the balance sheet date
b. one quarter beyond the date of the auditor’s report.
c. one year beyond the balance sheet date.
d. one year beyond the date of the auditor’s report.

Answer 23

c. one year beyond the balance sheet date.

Question 24

Which of the following is not one of the elements of the auditor’s report?
a. Auditor’s address
b. Date of the auditor’s report
c. Emphasis of a matter
d. Auditor’s signature

Answer 24

c. Emphasis of a matter

An emphasis of matter paragraph, though optional, is included in the auditor’s report and refers to a matter presented or disclosed in the financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements.

Question 25

The date of the audit report is important because
a. The date of the auditor’s report informs the user of the auditor’s report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date.
b. The auditor bills time to the client up to and including the audit report date, and the statement to the client should reflect this date.
c. PSAs require all audits to be performed on a timely basis.
d. This date coincides with the date of the financial statements.

Answer 25

a. The date of the auditor’s report informs the user of the auditor’s report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date.

Question 26

Whenever an auditor issues an unmodified opinion, the implication is that the auditor:
a. Does not know if the statements are presented fairly in accordance with PFRS.
b. Does not believe the statements are presented fairly in accordance with PFRS.
c. Is satisfied that the statements are presented fairly in accordance with PFRS except for a specific
aspect of them.
d. Is satisfied that the statements are presented fairly in accordance with PFRS.

Answer 26

d. Is satisfied that the statements are presented fairly in accordance with PFRS.

Question 27

A major purpose of the auditor’s report on financial statements is to:
a. Assure investors of the complete accuracy of the financial statements.
b. Enhance the degree of confidence of intended users in the financial statements.
c. Deter creditors from extending loans in high-risk situations.
d. Describe the specific auditing procedures undertaken to gather evidence of the opinion.

Answer 27

b. Enhance the degree of confidence of intended users in the financial statements.

Question 28

Which of the following is least likely to be considered by an auditor considering engagement of an information technology (IT) specialist on an audit?
a. Complexity of client’s system and IT controls.
b. Requirements to assess going concern status.
c. Client’s use of emerging technologies.
d. Extent of entity’s participation in electronic commerce.

Answer 28

b. Requirements to assess going concern status.

Question 29

The CIS (Computer Information System) application controls consist of the following except:
a. Controls over input.
b. Controls over processing and computer data files.
c. Controls over output.
d. Controls over access to systems software and documentation.

Answer 29

d. Controls over access to systems software and documentation.

General controls include any controls related to the security, use, or design of computer programs. Similarly, it consists of any methods that help secure data or information within these systems. General controls apply throughout the organization. Any department or area within a business that uses information technology will include general controls as well.

Application controls, as the name specifies, include safeguards related to specific computer applications. For companies, these may consist of both automated and manual procedures. The software ensures that only authorized data gets processed by the application. Application controls relate to the accuracy and completeness of the data the enters the technology systems.

Question 30

The auditor must consider internal control regardless of the nature of an entity’s information system. In a CIS environment, the auditor must, to a minimum attain:
a. A background in programming procedures.
b. An expertise in computer system analysis.
c. A sufficient knowledge in the computer’s operating system.
d. A sufficient knowledge of computer information system.

Answer 30

d. A sufficient knowledge of computer information system.

Question 31

The objective of a review of financial statements is to:
a. Express an opinion on the overall financial statements.
b. Carry out audit procedures agreed on with the client and other users of report.
c. Assist the client in the preparation of the financial statements.
d. State whether anything has come to the auditor’s attention that indicates that the financial statements are not presented fairly.

Answer 31

d. State whether anything has come to the auditor’s attention that indicates that the financial statements are not presented fairly.

Question 32

Which of the following procedures would an accountant most likely perform in a compilation engagement?
a. Collect, classify and summarized financial information
b. Apply analytical procedures
c. Assess risk components
d. Test the accounting records

Answer 32

a. Collect, classify and summarized financial information

Question 33

Given one or more hypothetical assumptions, a responsible party may prepare, to the best of its knowledge and belief, an entity’s expected financial position, results of operations, and cash flows. This prospective financial information is known as:
a. Pro forma financial statements
b. Partial presentation
c. Financial projection
d. Financial forecast

Answer 33

c. Financial projection
Financial forecast: based on historical data; may be either for general or restricted use.
Financial projection: hypothetical, “what-if” scenarios; only for restricted use.

Question 34

Which of the following is incorrect about agreed-upon procedures engagement?
a. An engagement to perform agreed-upon procedures may involve the auditor in performing certain procedures concerning individual items of financial data.
b. Users of the agreed-upon procedures report assess for themselves the procedures and findings reported by the auditor and draw their conclusion from the auditor’s work.
c. The auditor should be independent of the financial data or financial statements where agreed procedures have to be applied.
d. The report is restricted to those parties that have agreed to the procedures to be performed.

Answer 34

c. The auditor should be independent of the financial data or financial statements where agreed procedures have to be applied.

From ISRS 4400:
In an agreed-upon procedures engagement, the practitioner performs the procedures that have been agreed upon by the practitioner and the engaging party, where the engaging party has acknowledged that the procedures performed are appropriate for the purpose of the engagement. The practitioner communicates the agreed-upon procedures performed and the related findings in the agreed-upon procedures report. The engaging party and other intended users consider for themselves the agreed-upon procedures and findings reported by the practitioner and draw their own conclusions from the work performed by the practitioner.

An agreed-upon procedures engagement is not an audit, review or other assurance engagement. An agreed-upon procedures engagement does not involve obtaining evidence for the purpose of the practitioner expressing an opinion or an assurance conclusion in any form.

Question 35

Which statement is incorrect regarding audit, review and related services?
a. Related services comprise agreed-upon procedures and compilation.
b. Audits and reviews are designed to enable the auditor to provide reasonable assurance and limited assurance, respectively.
c. Engagement to undertake agreed-upon procedures and compilation are not intended to enable the auditor to express assurance.
d. In a consultancy engagement, the accountant is engaged to use accounting expertise as opposed to auditing expertise to collect, classify and summarize financial information.

Answer 35

d. In a consultancy engagement, the accountant is engaged to use accounting expertise as opposed to auditing expertise to collect, classify and summarize financial information.

Question 36

A firm’s basic objective is to provide professional services in accordance with professional standards. The reasonable assurance of attaining this objective is achieved through:
a. A system of quality control
b. Inspection checks
c. Continuing professional development (CPD)
d. Compliance with the code of ethics

Answer 36

a. A system of quality control

Question 37

Which of the following is least likely to create a threat to independence?
a. The fees generated by the assurance client represent a large proportion of the revenue of an individual partner.
b. The firm charges a contingent fee to an assurance client.
c. Accepting gifts or hospitality, the value of which is clearly insignificant, from an assurance client.
d. When litigation takes place, or appears likely, between the firm or a member of the assurance team and the assurance client.

Answer 37

c. Accepting gifts or hospitality, the value of which is clearly insignificant, from an assurance client.

Question 38

A process comprising an ongoing consideration and evaluation of the firm’s system of quality control, including a periodic inspection of a selection of completed engagements, designed to enable the firm to obtain reasonable assurance that its system of quality control is operating effectively.
a. Peer review
b. Engagement quality control review
c. Inspection
d. Monitoring

Answer 38

d. Monitoring

Question 39

The Chairpersons of the FRSC and the AASC shall be appointed by:
a. The President of the Republic of the Philippines
b. The Professional Regulatory Board of Accountancy
c. The Professional Regulation Commission
d. The Philippine Institute of Certified Public Accountants

Answer 39

c. The Professional Regulation Commission

Question 40

The Continuing Professional Development (CPD) program shall have the following objectives (choose incorrect statement):
a. The raise and maintain the professional’s capability for delivering professional services.
b. To attain and maintain the minimum standard and quality in the practice of his profession.
c. To make the professional globally competitive.
d. To promote the general welfare of the public.

Answer 40

b. To attain and maintain the minimum standard and quality in the practice of his profession.

Question 41

In designing audit programs, an auditor should establish specific audit objectives that related primarily to the:
a. Timing of audit procedures.
b. Cost-benefit of gathering evidence.
c. Selected audit techniques.
d. Financial statement assertions.

Answer 41

d. Financial statement assertions.

Question 42

Which of the following procedures is not performed as a part of planning an audit engagement?
a. Reviewing the working papers of the prior year.
b. Performing analytical procedures.
c. Tests of controls.
d. Designing an audit program.

Answer 42

c. Tests of controls.

Question 43

Which of the following procedures would an auditor most likely perform in planning an audit of financial statements?
a. Inquiring of the client’s legal counsel concerning pending litigation
b. Comparing the financial statements to anticipated results.
c. Examining computer generated exception reports to verify the effectiveness of internal control.
d. Searching for unauthorized transactions that may aid in detecting unrecorded liabilities.

Answer 43

b. Comparing the financial statements to anticipated results.

Analytical procedures involve comparisons of recorded amounts, or ratios developed from recorded amounts, to expectations developed by the auditor. The auditor develops such expectations by identifying and using plausible relationships that are reasonably expected to exist based on the auditor’s understanding of the client and of the industry in which the client operates. Following are examples of sources of information for developing expectations:

• Financial information for comparable prior period(s) giving consideration to known changes
• Anticipated results—for example, budgets, or forecasts inc. extrapolations from interim or annual data

Question 44

Which of the following audit risk components may be assessed in nonquantitative terms?
Columns: Control Risk / Detection Risk / Inherent Risk
a. Yes / Yes / Yes
b. No / Yes / Yes
c. Yes / Yes / No
d. Yes / No / Yes

Answer 44

a. Yes / Yes / Yes

Question 45

Confirmation is most likely to be the relevant form of evidence with regard to assertions about accounts receivable when the auditor has concerns about the receivables’
a. Valuation
b. Classification
c. Existence
d. Completeness

Answer 45

c. Existence

Question 46

Tests of controls are necessary when:
I. When the auditor’s risk assessment includes an expectation of the operating effectiveness of internal controls.
II. When substantive procedures alone do not provide sufficient appropriate audit evidence.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

Answer 46

c. Both I and II

Question 47

“Physical examination” is the inspection or count by the auditor of assets such as:
a. Cash or inventory only.
b. Cash, inventory, cancelled checks and sealed documents.
c. Cash, inventory, securities, notes receivable, and tangible fixed assets.
d. Cash, inventory, cancelled checks, and tangible fixed assets.

Answer 47

c. Cash, inventory, securities, notes receivable, and tangible fixed assets.

Question 48

Substantive tests include all but:
a. Testing details of transactions
b. Testing controls over the recording process
c. Testing details of balances
d. Analytical tests

Answer 48

b. Testing controls over the recording process

Substantive testing is an audit procedure that examines the financial statements and supporting documentation to see if they contain errors. These are activities performed by the auditor to detect material misstatement or fraud at the assertion level.

Question 49

Which statement is incorrect regarding the nature of further audit procedures?
a. The nature of further audit procedures refers to their purpose and their type.
b. Certain audit procedures may be more appropriate for some assertions than others.
c. The higher the auditor’s assessment of risk, the less reliable and relevant is the audit evidence sought by the auditor from substantive procedures.
d. The auditor is required to obtain audit evidence about the accuracy and completeness of information produced by the entity’s information system when that information is used in performing audit procedures.

Answer 49

c. The higher the auditor’s assessment of risk, the less reliable and relevant is the audit evidence sought by the auditor from substantive procedures.

Question 50

The auditor should determine overall responses to address the risks of material misstatement at the financial statement level. Such responses least likely include:
a. Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating audit evidence.
b. Assigning more experienced staff or those with special skills or using experts.
c. Incorporating additional elements of unpredictability in the selection of further audit procedures to be performed.
d. Performing substantive procedures at an interim date instead of at period end.

Answer 50

d. Performing substantive procedures at an interim date instead of at period end.

Question 51

If a material exception relates to a departure from PFRS, the auditor must decide between a(n):
a. Adverse opinion and an unqualified opinion
b. Adverse opinion and a qualified opinion
c. Adverse opinion and a disclaimer of opinion
d. Disclaimer of opinion and a qualified opinion

Answer 51

b. Adverse opinion and a qualified opinion

Question 52

An auditor may not express a qualified opinion when:
a. A scope limitation prevents the auditor from completing an important audit procedure.
b. The auditor’s report refers to the work of a specialist.
c. An accounting principle at variance with PFRS is used.
d. The auditor lacks independence with respect to the audited entity.

Answer 52

d. The auditor lacks independence with respect to the audited entity.

Question 53

A limitation on the scope of an audit sufficient to preclude an unqualified opinion will always result when management:
a. Engages the auditor after the year-end physical inventory count is completed.
b. Fails to correct a material internal control weakness that had been identified during the prior year’s audit.
c. Refuses to furnish a management representation letter to the auditor.
d. Prevents the auditor from reviewing the working papers of the predecessor auditor.

Answer 53

c. Refuses to furnish a management representation letter to the auditor.

Question 54

Which of the following matters is an auditor required to communicate to those charged with
governance?
a. Adjustments that were suggested by the auditor and recorded by management that have a significant effect on the entity’s financial reporting process
b. The auditor’s consideration of risk factors in assessing the risk of material misstatement arising from the misappropriation of assets
c. The results of the auditor’s analytical procedures performed in the review stage of the engagement that indicate significant variances from expected amounts
d. Changes in the auditor’s preliminary judgment about materiality that were caused by projecting the results of statistical sampling for tests of transactions

Answer 54

a. Adjustments that were suggested by the auditor and recorded by management that have a significant effect on the entity’s financial reporting process.

Question 55

Which of the following sections is required for listed entities and optional for others?
a. Opinion.
b. Basis for Opinion.
c. Key Audit Matters.
d. Auditor’s Responsibilities.

Answer 55

c. Key Audit Matters.

Question 56

The “Other Matter” paragraph is used by the auditor:
a. To draw the readers’ attention to matter that is presented in the financial statements.
b. To draw the readers’ attention to a matter that is disclosed in the notes to the financial statements.
c. To draw the readers’ attention to a matter that is not presented or disclosed in the financial statements.
d. To draw the readers’ attention to a matter that caused the auditor to modify his opinion.

Answer 56

c. To draw the readers’ attention to a matter that is not presented or disclosed in the financial statements.