CPA REVXEW SCHOOL OF THE
PHILIPPINES
Manila
AUDITING
THEORY
FIRST PREBOARD
EXAMINATIOII
SET
A
JULY
27,20L3
SATURDAY, 3:30PM
-
5:00PMINSTRUCTIONS:
CHOOSETHE
BESI"ANSWER FOR EACH OFTHE FOLLOWING.
FULLY SHADE ONLY ONE BOX FOR EACHilEM,
STRITI-LY NO ERASURES ALLOWED.1.
The primary reasonfor
an audit by ar, lndeperrdent, external auditfirm
isto
A.
Relieve managementof
responsii:ili*y forihe
financial staternentsB.
Guaranteethlt
there are no
missurternentsthe
financial statements and ensurethat
any fraudwill
be discovered.C.
Satisff
government regulatory requlrernents.D.
providelncreased assuranceto
users asto
the fairness of the financial statements'2.
An independent auditor must have whicir of the following?A.
A pie-existing and well-informed point of viewwith
respectto the
audit.B.
A background in many different disciplines.C.
Fxperiencein
taxatiorr
that
is
sufficiei"rtto
comply
with
PhilippineStandards
on Auditing.D.
Technical qualificationsto peform
an engagement.3.
Which of the following statemenLs appliesto
consultation services engagements?A.
A practitioner should obtain an understaniJingof the
internal controlto
assess control risk.B.
A practitioner is not permittedto
compile a financial forecast.C.
A practitioner isto
maintain an appearanceof
independence.D.
A practitioner should obtain sufficient relevant datato
completethe
engagement'4.
Upon discovering material misstaterienLsin a
client's financial statementsthat the
clientwould
not
revise,a
predecessor auditor withdretvfrom the engagement'
If
asked by the auditor about the termination of the engagement,the
predecessor auditor shouldA.
Indicatethat
a misunderstanding occurred'B.
Statethat
he/she found material misstatementsthat
the client wouldnot
revise.C.
Suggestthat the
auditor obtain the ellentk permissionto
discussthe
reasons.D.
Suggct
that
the auditor askthe
client.5.
An auditor is
planningan audit
engagrmentfor a
newclient
in a
business unfamiliarto
the aud'rtor.
Which Gtne
least useful sotrrceof
informationfor the
auditor during
the preliminary planning stage whenthe
aui";!:or istrying
to
obtain
an
understandingof
the entity and its environment?A.
Inquiriesof
intemal auditing personnel.B.
Observation of the entity's activities.C.
Inspectionsof
documented buslness plans.D.
Resultsof
performing substantive proredttrer.6.
Accordingto
professional standards, analyl-ical procedures are least likelyto
be appliedto
A.
Plan an audit and assist in the finai revit'u,;.B"
Test disclosures about rcportable operatinc segments.C.
Compile financial statements.D.
Review financial statements or int-erin: fiirancial informatlon.cPA REVIEV\I SCHOOL OF THE PFITUPPINES (CPAR)
*
MANitA FTRST PR"EBOARD EHMIT{ATIOI{ AUDMI{G THEORY JULY 27. 2013 / SATURDAYI
3:30PM-
5:00PM7.
Three
conditionsare
generally present
in
the clientt
organizaUonwhen
fraud
occurs. Those conditions include each of the following except a/anA.
Incentiveor
pressureto
commit fraud"B.
Professional skepticism aboutthe
likelihood of fraud.C.
Attitudeor
rationalization about the act of ftaud.D.
Opportunityto
commit fraud.8.
Internal auditing
can
affect
the
scope
of
the
external auditor's
audit
of
financial statements byA.
Decreasingthe
external auditor's needto
perforrn detailed tests.B.
Eliminatingthe
needto
be on hand duringthe
physical countof
inventory.C.
Limiting direct
testing by
the
external ar:ditor
to
assertionsnot
directly
tested
by internal audiUng.D.
Allowing the external auditorto
limit
hislher auditto
substantive testing.9.
Which of the following is an unusual procedurethat
may be deemed necessaryto
discover the effect of a related-parlry transactir.,n?A.
Inspect orconfirrr
the trcnsferabriify and value of collateral.B.
Confirm
or
discuss
significant information
with
intermediaries,
such
as
banks, guarantors, or agents.C.
Examine invoices and other pertinent docrrments such a receiving or shipping reports.D.
Determinewhether
the
transaction hasbten
approvedby the
boardof
directors or other appropriate officials.10.
In
evaluatingthe
reasonablenessof
an
aecriunting estimate,an auditor is
rnost likelyto
concentrate on key factors and assumptionsthat
areA.
Consistentwith
prior periods.B.
Deviationsfrom
historical pattems.C.
Similarto
industry guidelines.D.
Objective and not susceptibleto
bias.11.
Directors, management, external auditors, and interrral auditors all play important roles increating proper control processes. Senior rnanagement is primarily responsible
for
A.
Establishing risk management and conftol processes.B.
Implementing and monitoring controls clesigned bythe
board of directors.C.
Ensuring
that
external
and
internal auditors
oversee
the
administration
of
risk management and control processes.D.
Reviewingthe
reliability and integrity of financial and operational information.L2.
Why do auditors generally use a sampline appr<iacl-rto
evidence gathering?A.
Auditors areeryerts
anddo not
neecrto loo( at
muchto
know whetherthe
financial statements are corrector
not.B.
Auditors must balance the cost ofthe
audit tt'iththe
needfor
precision.C.
Auditors must limit their exposureto
their clientto
maintain Independence.D.
The auditor's relationshipwith
the cllent is generally adversarial, sothe
auditorwill
not have accessto
all of the financial inforrnation of the company.13.
An
investoris
readingthe
financial statementscf the
Staquio Corporationand
observesthat the
statementsare
accompaniedby
arrauditor's
unmodifiedreport.
Fromthis,
the investor may concludethat
A"
Any
disputesover
significant
accounting issueshave been settled
to
the
auditor's satisfaction.B.
The auditor is satisfiedthat
Staquiowill
be hlghly profitable in the future.C.
The
auditor
is
certain
that
Staquls's
financial statements
have been
prepared accurately andthat
all account balances are nrecisely correct.D.
The auditor
has determinedthat
Staquro's rnanagementis not
qualifiedto
lead the company.Hindi ka pwedeng magrely TOTALLY dun sa mga natest na ng Internal Auditor, pero pwedeng LESS DETAILED na lang yung gawin mo.
cpA REVTEW SCHtr;L
iir
rHE pHIUppINES (CPAR)-
MANIIS
FrRST PR.EBOAR.D EXAi'll1{ATrOt{lUOmtte
tXeonv
JULY 27' 2013 / SATURDAY I 3:30PM-
5:00PM14.
With regardt0
detecting fraud, auditing standards require auditorsto
A.
perform procedurei
designedto
deteet af!
instancesof
fraud
that
rnight affect
the financial statements.B.
Provide
reasonable
assu!'ancethat the
financial statements
are misstated hecause of fraud"C.
Issue
an
unmodifledopinion only when
the
auditor
is
satisfledthat
not
materiallyno
instancesof
16.
fraud have occurred.
D.
Designthe
audit
programto
meet financial staternent users' expectations concerning fraud.15.
Internal
control
is
a
function
of
manaEement and effective control
is
basedupon
the conceptof
charge and dischargeof
resfionsibility andduty.
Whichof
the following is one ofthe
overriCing principicscf
internal control?A.
Responsibrliiy'for
accounting
and
financial duties should
be
assigned
to
one responr;ible o.fflcer.B.
Responslbilitr,,fcrthe
accgunting duties must be borne by the audit committee.c.
Responsibilfi"y forthe
performance of eachduty
must be fixed.D.
Responsibitityfor
accounting must be assigned onlyto
honded ernployees'When engageri
to
compile the financiai statementsof
anentity,
an accountant is requiredto
possesii
ievelof
kncwledgeof
the
entity's
accounting principles and.practices.
This requirement n;cst likelywill
inctude obtaining a general understanding of theA.
Internal control awareness ofthe
entity'.s senior management.B.
Risk factors relatingto
misstaten'lents arising from lllegal acts'C.
Design ofthe
entity's internal controls innplemented.D.
Nature ofthe
entity's business transactions,the
formof
its accounting records and the accounting basis on which the tinancial inforrnation isto
be presented'Which
of the
foltowing
procedureswould
a
CPAordinarily perform when
reviewing thefinancial statement*
of'an
entity
'in
accordancewith
Philippine Standardson
Review Engagenrents (PSRES)?A. -Document whethen control risk is assessed at or below
the
maximum levei.B.
Obtain an unierskrnding of the entity's internal control components.c.
compare the fir.lancial statementswith
budEets or forecasts.D.
Apply '/ear-encl cutoff tests forthe
sales and purchasing functions.In
an assurancf; engagement,the
responsiblepafi
andthe
intended usersA,
Should L're from different entities.B.
Should be from the same entity.C.
Areboth
responsiblefor
determiningthe
nature,timing
andextent of
the
proceduresto
be perf<lrmed.D.
May be frocn the same entity or different entities.The following
statements relateto the
performanceof
an
assurance engagement otherthan an
auclitor
review
of
historical financialinformation
iovered by
PSAsand
PSRES.Which is
incorrcd?
A.
Those
personswho
are
to
perform
the
engagement should collectively possessthe
necessary professional contpetence.B.
The assurancerepolt
should be inwriting
anri should contain a clear expression of the practitioner's concllision aboutthe subjerl
matter information.C.
The
practitioner should consider nraieriality
and
assurance engagementrisk
when planning and performirrg an assurance engaqement.D.
The prJditiorrer is
pn:ciudedfrom
usingthi
work
of
personsfrom
other
professional disciplines"The
repori
on anlgreed-upon
pnocerlures engagerTlent should containA.
An expre,ssioli.if
positive assurance based'onthe
specific procedures performed. ''B.
A statement thatthe
auditor is independent ofthe
entity. L7,18.
19.
zCI.
cPA REVrn^/ SCHOOL OFTHE pHTUppINES (CPAR)
*
MANIT A EIRST PREBOARD EXAHITIATIO]IAUDmNGJHEoRY ___:__
JiJty2Z 2013 { sATURDAyliJopM -i:00pMC.
A general description ofthe
procedures performed.D.
Identification ofthe
purpose for which the agreed-upon procedures were performed.21.
which
of the following statements best descriSes a,ssurance services?A.
Services designed
to
express
an
opinion
on the
fairness
of
historical
financial statements based onthe
resultsnf
an aqrdit.The
preparation
of
financial statements
or
the
collection"
classification,
andsurnmarization of other fi nancial information.
Independent
professional servicesthat
are
intended
to
enhancethe
credibility
of
information
to
meetthe
needs of an Intended user.D.
SeEvices desiEnedfor the
improvement of operations, resultingin
better outcomes. Which of the following is not an overall objective of il're audltor inthe
aur"litof
revenues?A.
To
identifu and interpret
significanttrenrls and
variaUonsin the
arnountsof
various categoriesof
revenue.B.
To
veriff
that
earnecl re'renuehas been
recordedand
recorderj revenuehas
been earned.C.
To verify cash deposited during the year.D.
To
obtain
an
understanding
of
internei ':ontrol and
assessthe
risk
of
material misstatementwith
particular
emphasiscn the
use
of
accrual accountingto
record revenue,PSA
500
describesfive
qener".liizailrrnsccncerning
the
i'eliahil;ly
of
evidence.
The situations given below indicatethe
relative degreesof
assurance provided bytwo Vpes
of
evidence
obtained
in
different
sitrrations.
Which
descrlbesan
exr:eptrsntc
one
of
the genera!izations?4.. The
scheduleof
insurance coverageobtained
frorn the
company's insurance agent provides greater assurance than one pi'epared by ttre intenral arldit staff"B.
The
reportof
anexpert
regardinEthe
valuationof a
collectionof
paintings held as an investrnent providesgreater
assurancethan
&e
euditor's
physical obseryafionof
the paintings.C.
The
auditor's computationof
interest payableon
outstanding boncls provides greater assurance than reliance on theclienfs
calculation"D.
The
auditor has obtained greater
assurance abrouttfre
balanceof
salesat
Plant Awhere he/she
has
rnade limited
tesG
cf
traneactiCIr,sberause
of
effective
intemal ccrntrol thanat
Plant B where he/she has nraCe .:xtr:nsivetes*;
oft.an*ictions
becauseof
lnerTective intemal controi.In
confirming accounts
receivable,an
auditor
decide.dtn
crrniirm
r:ustorners' account balancesrather
than
indivlC*al
invcices,
ttuhieh+f
:"lie firlicra:inq nnostlikely
will
be included wrthtlte
.,::lienfs cr.rnfirntation leiter?A.
An auditor-preparedletter
expleininqtiat
e
rtcnresl)onse rnay cause an inferencethat
the account balance is correct.B'
A
client-prepared
letter
reminding
the
:u.;tonrer
that
a
nonresflosrsewill
cause
a second requestto
be senr.C.
An
auditor-preparedletter
requestingthe
customerto
supply
rnissingand
incorrect inforrnatiorr direcfiy to*re
alrriltor.D.
A client-prepared statementof
accourit shcwirrgthe
detaiiuof the
customer's account balance.Which of the following is usually included or shown in the.audit docu,'nentaUon?
A.
The
manner
in
which
exceptions
and
unusual matters
discloseclby the
audito/s
procedures were resolved or treated.B.
The procedures used bythe
audltorto
verifuthe
persc,nalfi*anclal
stafusof
members ofthe clienfs
managernent team.C.
Analysesthat
are <lesigriedto
bea
pard:of, or
a
subsxittitefcr,
tlr*
clieinfs accounting records.B.
23.
24.
25.
Mas reliable kung directly sa auditor talaga. Kahit pa vs expert.
26.
27.
29.
30.
31.
cPA REVIn/V SCHOOL OF THE PHIUPPINES (CPARj
-
l',i{NILA
FIRST PREBOARD EX/IMIiIATXOI{Xffi;iirfl;#ffii
-'
'-"-*
'-
-
-
-^
--,
JULY27' 20131sAruRDAY / 3:3oPM
-
s:00PMD.
Excerptsfrom
authoritative
pronouncernentsthat
support
the
underlying
generally accep:ted accounting principles used in preparing the financial statements.A company has computerized sales ancl cash receipts
journals.
The
computer programsfor
these journals have been properlydebugged.
The auditor discoveredthat the total
of
the
accounts receivable subsidiary accr:unts differs materially fromthe
accounts receivable controlaccount.
This discrepancy could indicate.A.
Credit memoranda being improperly recorded,B.
Lappingof
receivable;s.C.
Receivables not being properly aged.D,
Statements being intercepted pr;orto
mailing.An
auditor is
reviewinga
corporate client's statementof
cashflows.
The auditor
should expectthe
cash flowsto
be classifled accordingto
A.
Operating activities, sources, and ures.B.
Investing, financing, and operatlng activlties.C.
Fund inflows and fund outflows.D.
Cash inflows and cash outflows.Zg.
What isthe
general characterof the work
conductedin
performinga
forensic auditfor
a company?A.
Rroviding assurancethat
the finar*cial statenlents arenot
materially misstated,B.
Detectingor
deterring ftaudulent acilvity.C.
ffieringln
opinionin
tf,.
reliabilitr
ctthe
specific assertions made by management.D.
Identiffing the
causes of anentit/'s
financial difficulties.which
of
the
following
characteristicsmost likely
would
heighten
an
auditor's
concern aboutthe
riskof
intentional manipulatinrr of financial statements?A.
Turnover of senior acccunting personnel is low.B.
Insiders recently purchased acJditional shares ofthe
entity's stock.C.
Management places substantial ernphasis on meeting earnings projections.D.
The rate of change inthe
entity-s industry is slow.Which
of
the
following
would an auditor
nnostlikely
use
in
determining
the
auditor's planning ;:nateriality?A.
The anticipated sample sizefor
slanned substantive procedures.B.
The entity's annualized interim (i.e. qurartertry) financial statements.C.
The results ofthe
intemai contrc! questionttaire.D.
The contents ofthe
management represeniation letter.Which of the following procedures wcuicl he$- detect a liability omission by rnanagement?
A.
Review purchase contracts and other" legal cocuments.B.
Review articlesof
incorporation and colporate bylaws.C.
Review and check mathematical accuratry of financial statements.D.
Inquiry of senior support staff and recenfly depafted employees'In
an audit of other assets, ail of the foliowing are done exceptA.
Determining thatthe
asset iswritten off cn
a periodic basis.B.
Determining whetherthe
asset is fairiy presented in the financial statements.C.
Confirmingthat the
asset exicts'D.
Determiningthe
basis ofthe
car"r"ryinq amount of the asset'In
connectionwith an audit
of the
prepairl
insuranceaccount, which
of
the
following procedures is usually not perfiormerl by tire autiitor?A.
Recomputethe
portion ofthe
premiilryr that expired during the year.B.
Prepare excerptsof
insurance pclici*sfor
audit documentation.c.
confirm
premium rateswith
an i*dependent insurance broker.D.
Examine supportfor
premium pa;rnrant^e.32.
cPA REVIEW SCflOOL OF THE PFIIUPPINES (CPAR)
-
MANiI-q FIRST PREBOARDEXAIIII{ATIOI{
\
35.
AtlLIIItrGlH
-_-
IULY 27- 2013 / SATURDAY / 3:30PM-
5:00PM34.
On January20,2014,
beforethe
Balview Co. released its financial statementsfor
the year ended December 31, 2013,it
settled a long-standinglawsuit.
A material loss resulted and no prior liability had beenrecorded.
Hcw shouldthis
loss be disclosedor
recognized?A.
The
lossshould be
disclosedin
notes
to
the
financial statements,but the
financial statements themselves need not he adiusted"B.
The
lossshould
be
disclosediR
en
emphasisof
rnatter
paragraphin the
auditot's report.C.
No disclosureor
recognition is rer;uired.D.
The financial statements should be adjustedto
recognizethe
loss.Each
time
an auditor drawsa
concluslon basedcn
evidencefrom a
sample, an additional rislq samplingris(
isintroduced.
An example of sanrpling risk isA.
Drawing an erroneous conclusion ftorn sample data.B.
Improperly applying a proper audit pr*cedureto
sample data.C.
Properly applying an improper audit procedureto
sample data.D.
Projectingthe
results of sampling beyon.dthe
population tested.If
finaircial statements areto
meetthe
requirernents of adequate disclosure,A,
All
information pertaining
to
the
company
must be
disclosedin
the
statements or
related notes, eventhough
sornccf
the
disclosuresare
potentially detrimentalto
the companyor
its shareholders.B.
All
information believedby
the
auditor
to
be
essentialto
the
fair
presentationof
the
financial statements
must
be
dlsclosed,
no
matter how
confidential
management believesthe
datato
be.C.
A
statement note must clearll.
deGil statements themselves.D.
Statement
notes should
be
u;ritten misinterpretation bythe
reader.The risk
of
material misstatement differs frorn detection risk inthat
it
A.
Arises fromthe
misapplicationof
aucliting procedures.B.
May be assessed in either quantiiative or qualitative terms.C,
Exists independently ofthe
actions ofths
auditor.D.
Can be changed atthe
auditor's dis:tetion.Whlch
of
the following
procedureswould
mert be usedto
obtainan
understandingof
theentity
and its environment?A.
Obserye entrty operations.B.
Reper:1'r:rnn e;rtity processss.C.
Verifl7 proper valuationof
inventory subjectto
technological obsolescence.D.
Review prior year's auditdocumentittion-Which
of
the following is
not
an
irnpertant considerationin
an
auditor's evaluationof
an entity's business risk?A.
The specific business risks anentity
facesthat
may result in financial statement errors and fraud.B.
Business risk factorsthat
impactthe
abliitycf the
entityto
be profitable andsulive.
C.
Audit
standards include manyer:ti\i
hrisin*ss risk factorsthat identiff
circumstancesthat
increasethe
likelihoodof
rnatr.riai i"vtisstaternents.D.
Audit
standards requirethe
auditar
t,ei e'raluatethe
entity's
businessrisk
in
order to
provide suggestions
to
impror.,ethc
r:nUS'sprofihbility.
A
practitioner'srepoft on
agree,J-iJpon pio{::edures relatedto
an
entityt
compliance with specified requirements should containA.
A statementof
restrictions onthe
use ofthe
repoft.B.
An acknowledgmentof
responsibrlltyf*r
the
sufficiency ofthe
procedures.C.
Negative assurance on compliance.any
deficienciescontained
in
the
financialin
rr€ty
technical language
to
avoid37.
38. 39. 40. 36. Going Concern <= pwedeng emphasis of mather kasi yun.cpA REVIEW SCHOOL OF
fiE
pHIUppINES (CPAR)-
MANILA
FIRST PREBOARD EHI'trNATXOilAUDITITG
THEORY
IULY 27' 2013 / SATURDAY I 3:30PM-
5:00PMD.
An
opinion about whetherthe entity
complied,in
all
material respects,with
specified requirements.4L.
Internal auditing rs a dynemicprofession,
Which of the foltowing best describesthe
scopeof
Internal auditirrE asit
iras developedto
date?A.
Internal ouditing
involves evaluating
the
effectivenessand
efficiency
with
which resources are ernPloYed.B.
Internal
audltin_q'hai evolvedto veriffing the
existenceof
assetsand
reviewing the means of safeguarding assets.C.
Intemal
auditing involves evaluatinE compliancewith
laws, regulations, and contracts. .D.
Internal
auditiig
has
evolved
td
evaiuating
all
risk
management,
control,
and governance processes.42.
Which of the fcrllowing statements reflects an auditor's responsibilityfor
detecting fraud?A,
An auditor is
responsiblefor
detecting employee errors and simplefraud,
but
not for
discovering fraudulent acts involvingehpbyee
collusionor
management override.B.
Anauditoishould
designthe
arrditto
provide reasonable assurance of detecting errors and fraudthat
are materialto
the financial statements.C.
An
auditor
is
not
responsiblefor
detecting
fraud
unlessthe
applicationof
auditing standards would result in such detection.D.
An auditor should ptan the auditto deted
fraud caused try departuresfrom
PFR.S.43.
An auditor discoversa
iixelyftaud
during anaudit but
concludesthat the
overall effectof
the
fraud
is
not
sufficiently rnaterial
io
affect
the
audit
opinion.
The auditor
should probablyA.
Disciose the fl"aud tothe
appropriate levei ofttte
client's management.B.
Disclose the fraud to appropriate authorities externalto the
client.C.
Discusswith
the
clientihe
additionplaudit
proceduresthat will
be
neededto
identifuthe
exaet amourtt of the fraud.D.
Modiff the
ieudit programto
inclucJetests
specificatly designedto
identifuthe
fraud and its impact on the financial statennents.44.
In
testing
plant andequipngnt
baiances, an ai*ditor may physically inspect new additions listed 9n1he $:tmmary'of plant and equiprnent transactionsfor the
year. This procedureis-designed
to
obtain
.evidence
concel'ning
managennenfsasseftions
about
classesof
transactions and events, and specifically, which assertion?
A.
Occurrence.B.
Cutoff.C.
Authorization.D.
Oassification.45.
Ih
designingwritten audit
prograrns,an auditor
shoutd plan specificaudit
proceduresto
testA.
TiminE of audit procedures.B.
Cost-benefit of gathering evidence.C.
Selected audit i:cctrniclues.D.
Management asseftions.46.
Which staternent concerning audit evidence is neit valid?A.
The auditor is
seldom convinced heyorrdall
cJoubtwith
respectto
all
aspectsof
the
fi nancial statements being audited.B.
The auditor performs teststo
collect conrrincinE evidencethat the
financial statements are not misstated.C.
The auditor weighsthe
cost of obtaining evidencewitlt
its usefulness'D.
The auditor conlidersthe
am,:untof
risk present in decldinEthe
nature andextent
of
evidence
to
be collected.Agreed-upon procedures ka lang, NO OPINION expressed.
________
persuasive
CpA REVIEITI/ SCH@L OF THE PTIIUPPINES (C"AR)
-
MANIT-A.
FIRST PREETOARD EXAilIllATIOllAUDMI{G THEORY IULY 27. 20L3 / SATi.iRLIAY I 3:30FM
-
5:00PM47.
Whichof the
following statements is generallycorect
alroutthe
appl'c'prifit.€n'l:is';f
audit evidence?A.
The
more effective
the
internat conFol,
the
more
assuranceit
providesabout
the reliability ofthe
accounting data and "4nancial statements.B.
Appropriatenessof
audit
evidencerefers
to
the
amount
of
cc:'roborative evidence obtained.C.
Information
obtained indirectlyfrort
independent outside sourcesis
more Bemuasivethan
the
auditor's clirect
persona! knowledge
obtained through
observation
and inspection.D.
Appropriatenessof
aurllt evidence refers onlyto
audit eviclence obtainedfrom
outside the entity.,18.
Audit documentati6nA.
Must be in electronicfonn.
B.
Must be inpaperfonn
only.C.
Is not
required,but
is strongly recommended.D.
May be in paper, elecfionic, or someoiher
form.49.
Based
on
cc,nversationswith the
ovJner-'managerof
an
audit
client,
the
auditor ascertainedthat the
cornpany's prirnary moflwatisn isto
arloid pi:ving irrr:o,me taxes. Basedon
this
motivation, which account balanc* assei'ticnfdr
enrJino inventoty vrrilithe
auditorbe most concemed abor.rt
veriffing?
A.
Existence or o€curence.B.
Completeness.C.
Rights and obligations.D.
Observation.50.
An
auditor's
conslderationof
the
risk
of
rnaterial
misstatementdue
to
fraud and
tie
results of audit tests indicate a significant" nsk of
fraird.
"f,Fre aurlitor" orciinafily shot"lldA.
Express either a qualifiedoi'an
ad'yEersc cpinicn.B.
Considerwithdrawing
from
the
engagernentantJ
communicetingthe
reasonsfor
withdrawal to
the
audit committee.C.
Inform
proper authorities outsidethe
entity.D.
Express only an adverse opinion beeauseoi
Sre strong possittlli$, fraud.51.
Whenan
outsideexpert
(sBecialist) has assumedfull
responsihiiit'yfor
takingthe
clienYs physicalinventory
reliance on theexperfs
report is acceptahie i'iA.
The auditor
is
satisfied
through
application
of
apprcprlate
proceduresas
to
the reputation and cornpetence ofthe
expert.B.
Circumstarrces rnadeit
ir"npracticableor
imposslblefor tire
aurliter
to
either do
the
work perconally or observe the work done bythe
in'ventoryfin:i
C.
The auditor
conductedthe
same
audit tests anrl
proceduresas would
have
been applicable if ttre client eniployees tool( $re nhysicalintertt,iry.
D.
The auditor's report contains a referencets
the ass;rnpiion offuil
:esoonsiDility.52.
Internal
control can provide only reasanable assuranccot
achievingenti$
obje$ives.
One fact"or limitlng the likelitiood of achieving those obiecttues in a srnalfentity
isthat
A.
Effective separation of duties may not be feasibie.B.
The aurJitor/s primary responsibility is the deteeXion of fiaud"C.
The boardof
directors is active and intlependent.D.
Management monitorc internal conh'ol.53.
An abnonnalfluctuatlon in
gross incometimt
miglrt
sugge*
the
nexdf,:r
extended audit proceduresfor
sales and inventoriesw*uld
rnost likely be identJfietl in t-he planning phase of the audit bythe
useof
A.
Tests of transactions and balances"B.
A prelirninary reviewof
internal controis"54.
CpA REVIEW SCHOOL OF THE PHIUPPINES (CiAF\i
*
t4ANIlS
FIRST PRf;IOARD EXAIiII{ATIONAUDITII{G
THEORY-
IULY 27, 2013 / SATURD-AY I 3:30PM-
5:00PMD.
Analytical procedures.An
auditor
is
required
to
establish
an
understanding
with
a
client
regarding
the responsibilitiesfor
each engagement.'This understanding generally includesA.
Managemenfs responsibil,tyh
gua::anteethat there are no
material
misstatements dueto
frauci.B.
The
auditor's responsibility,to
planand
performthe
audit
to
provide reasonable,but
not absolute, assurance of 'detecting rnaterial errors or fraud.C.
Managemeni's ,esponsibilityfor
prJ,,idingthe
auditorwith
an assessment ofthe
riskof
material misstatement due to fraud.D.
The auditor's responsibility for the fairness of the financial statements.Analytical
proceduresperformed
in
the
overall review stage
oi
?n audit
suggestthat
several accounh;have'unexpected
relationships.The
resultsof
these
procedures most likely would indlcatethat
A.
Fraud exists withinthe
relevant accounts.B.
Internal control activiUes are not operating effiectively'C.
AdcJitional tests of details are required.D.
The communication withthe
audit comrnittee should be revised.The audit
client's boardof
directors and audit committee refusedto
take
any action with respectto
an
immaterial illegalact which was brought
to their
attention by
the
auditor' Becauseof their
failureto a&, the
auditor withdrew-fromthe
engagement'The
auditor's decisionto
withdraw was prirnarily duete
doubts concerningA.
Adequate financial statement disclosures.E.
Compliance withthe
statutory laws and regulations.C.
Scope limitatlcns resulting fromtheir
inaction.D.
The integrityof
management.An entity's
financial statements
were
misstatedover
a
period
o!
.V9arsdue
to
large amountsof
revenue being recorded injournal
entriesthat
involved debits and credltsto
an
illogical combinationof
accounts.-fhe
auditor could most likely
have beenalefted to
thisfraud
iryA,
Scanningthe generaljournal for
unusual entries.B.
Perforrning a revenue cutofftest
at year-end.C.
Tracing a sample of journal entriesto the
general ledger'D.
ExamiiinE documenlary evidence of saies returns and allowances recorded after year-end.In
conecl
order, general types of audit tests includeA.
Substantive'piocedures, testsof
controls, and risk assessment procedures.B.
Substantive procedures, risk assessment procedures, and testsof
controls.C.
Risk assessmerrt procedures, tests of controls, and substantive procedures.D.
Risk assessrnent prr:cedures, substantive procedures, and tests of controls'In
connectionwith the
examirration of fin.lncial statements by an independent auditor, the client suggeststhat
members ofthe
internal auditstaff
be utilizedto
minimize audit costs. Whichof
the
foltovring tasks could most appropriatelybe
delegatedto the
intemal
auditstafP
A.
Selectiorrof
accounts receivablefbr
corrfirrnation, base.dupon
the
internal
auditor'sjudgnient
as
Lo
how
many
accounts
and which
accounts
will
provide
sufficient covere{]e.B.
Preparution of schedulesfor
negative accounts receivable responses'C.
Evaluation ofthe
internal controlfor
accounts receivable and sales.D.
Determination of the adequacy ofthe
allowancefor
doubtful accounts' 55.56.
57.
59. 58.
CPA REVIEI , SCHOOL OF THE PHIUPPINES (CPAR)
-
MANII,A.
$TBST PREBOAR,DHXAITIIilATIOII
I
AUDmilG
TIIEORY
JULY 27.20L3 TSATURDAY 1 3:30PM-
5:00PM60.
Alfonso
Company
uses
its
sales
invaices
for
posting
Eerpetual
lnventory
records. Inadequatecontrol
activitiesover
the
lnvoicingfunction allow
goods Eobe
invoicedthat
are not shipped. The inadequate control activities could cause afi
A.
Understatementof
revenues, receivahles, and inventory.S"
Overstatementof
revenues and receivables and an undersLaternentof
inventory.C.
Understatementof
revenues and receivables and an overstatementof
inventory.D.
Overstatementof
revenues, receivables, and inventrrry.61.
Auditors
are
more
concerned
with the
occu!'renceassertion
for
revenues
than
the
completeness assertion becauseA,
Ciients are more likelyto
overstate than undemtate revenues.B.
Clients are more likely tcr understatr, th,tn ove'state revenues"C. It
is difEcultto
detennine when services have b,een pefformed.D.
The allowancefor
doubtful accounB often is understated.62.
Which
of
the
fnllowinq activities
r":,o::tlikely would detect whetl,er payroll data
are accurately' pr*cessed?A.
Monitor authorized distribution of data control sheets.B.
[.lse test datato
verifo the accurateperfrrnance of
payroll processinE.C.
Examine source documenbfor
approval by superuisors.D.
Segregate duties between approvalof
hereiware and software specifications.63.
Thecutcff
assertionfor
prepard insurar:ceA.
Is
never tested beCause amounE; atysays are inrrnaterial.B.
Is
best tested as partsf
the testingof
propefry and equipment purchasing.C.
Is
best tested exclusively by sending eonfinnations to venciors.B,
is
best tested by recomputingthe
unexpiretl portionof
insurance policies in effect.ffi.
Dueto
a
vreakness observedin
rnt*mal
eenEolover
recordlnq retrrementsr:f
eguipment, the auditor rnay decideto
A.
Inspecr certain items
of
equipnrent
in the
plant and
h'ace
those items
to
the accountlnE records.B.
Rerrlevrthe
subsidiary ledgerto
ascertainwh,,r$er
depre:iatieinwas taken
on
each itemof
equipment during the year.C.
Trace additionsto the
"other
assets" accountto
searchfer
e,quipmentthat
is still
on handbut
no longer is being ursecl.D"
S,elect certain itemsof
equipment fronrthe
accci.rnting reccrdr; ancl locatethem
in the plant.65.
An
auditor
testing long-term
investrnenis wo,.lld rrrdlnarlly
use
suLrstantive analytical proceclures asthe
pnrrrary au'Jlt eviilerr,€lo
supportthe
reasonable:ress of thef'.
Vaiuatisnof
marketable equity securities.B.
Classificationof
gairrs and losses on the disposal of seeurities.C.
Completenessof
recorded investment income.D.
Existence and ownershipof
invesffirents.66.
When a question arises abourt anentity's
continued existenc;e,tire
auditor should consider factors tendingto
mitigatethe
significnnceof
negatirie inrorrnation concemingthe
entity's meansfor
maintaining adequate eash flow. An exarnple of such a factos" is theA"
Possibilityof
purchasinE ceftain assets rafherti\an
leasingther,.
B.
Capability of exten-ding*re
elue elates of existlng debt.C.
Appropriatenessof
changingdeprccleiion
methods ftosrr double declining balanceto
straight line.
D.
Marketabilityof
property and equiprnenrtthat
riranagenierrt plan* Lo keep.67.
Con'rpilations provide which ofthe
following typ€suf
assurance ahoutfile
fair
presentation af fi narrciai statemenE?68.
69.
CpA REVIEW SCHOOL r?;j THE PHIUPPINES (CPAR) .-
MANILA
EIRST PREBOARD EXA1iI]{ATION IUOmXGTXrORY
JULY 27' 2013 / SATURDAY ' 3:30PM-
5:00PM74.
B.
Negative assurance.C.
Limited assurance.D.
Reasonable assurance.The party responsible
for
assurnptlcns identified inthe
preparationof
prospective financial statements is usual$A.
Athird-party
lending institution"B.
The client's management.C.
The repofting accountant.D.
The client's indepenrJent auditor.For
a
prar.titioner i:c examine rnanagement's asseftions ahoutthe
effectivenessof
internal controls, sll ofti:*
following conditions arenecessry
exceptA.
Suffici+nt ctirnpetent evidence can be developedto
support the evaluation.B"
The
practitionermust
have already concludedthat the
financial statements are fairly presented in accordancewith the
applicable accounting framework.C. 'ihe
eni:ity's managementaccepts'iesponsibility
for
the
effectivenessof
its
intemal control.D"
AII of the conditions above arft necessary. Absoiute assurance is provldeofor
inA.
An audit engagement.B.
A compilation engagement.C.
A review engsgement,D.
Noneofthe
above.Which of the following statements about
the
study of auditing isnot
trule?A.
The
study
of
aud"itingcan
be
valuableto
future
accountantsand
business decision makers whetheror
notthey
planto
become auditors.B.
The studyof
auditingfocuies on
learningthe
analytical and logical skills necessaryto
evaluatethe
relevance and reliabiliQrof
informaUon.C.
The
study
r:f
auditing
focuseson
learninEthe
rules,
techniques,and
computations requireclto
analyze financial statements.D,
T5g
$udy uf
auditing beginswith the
understandingof
a
coherent logical framework and technitrues us"fu]for
gathering andanalping
evidence about others' assertions.7L,
72.
The basic pi.it"pose of a financia! statement audit isto
i:
ffi13':,,:L;iduat
transactions sothat the
auditor may certify asto
their validitv'C,,
provide assurance regarding whetherthe clienfs
financial statements are fairly stated'D.
Assurethe
consistent appticatienof
correct accounting procedures.73.
An auditor who accepts an audit enEagement and doesnot
possess expeftisewith
respectto the
business entity's industry, shouldA.
Engage financial experE familiarwith the
nature ofthe
business entity.B.
OUtain a knowledgeof
mattersthat
relateto the
nature of the entity's business.C.
Refera substantiil
portlon
of the
audit
to
another CPA,who
will
act
asthe
principal auditor.D.
First inform managementthat
an unmodified opinion cannot be issued.74.
Whichof the
follrwing
hest describeswhy an
independentauditor
is askedto
express an opinion oir i;hefair
presentation of financial statements?A. It
is cifficult
t*
prepare financial statementsthat fairly
presenta
company's financial positiqn and casir flbws without the expertise of an independent auditor.B. It
is
nranagement's responsibilityto
seek available independent aid inthe
appraisalof
the
firiancial information shown in its financial statements.C.
The opir:ionof
an independentparty is
needed becausea
companyis not
llkelyto
be considered objectivewith
resgrectto
lts own financial*atements.
cPA REVIEW SCHOOL OFTHE pHIl_IppINES (CPAR)
-
h,tANIrA
FIRST pil,EABARD EXAifrrATrOIlAUDMilGTHEORY
,
-
--
-.
JULY2Z,JO13/SATUEE&YJ-3:3OPM-S:OOPI4