AUDITING THEORY QUESTIONS

COMPREHENSIVE EXAM 2

1. Which of the following threats is most likely created when an individual is involved in an audit
engagement over a long period of time?
A. Familiarity threat.
B. Familiarity and self-interest threats.
C. Self-interest threat.
D. Advocacy and familiar threats.
2. An audit report contains the following paragraph: “Since the company did not take physical
inventories and we were not able to apply auditing procedures to satisfy ourselves as to inventory
quantities and the cost of property and equipment, the scope of our work was not sufficient to
enable us to express, and we do not express, an opinion on these financial statements.” This
paragraph illustrates a (an)
A. Disclaimer of opinion due to uncertainty
B. Disclaimer of opinion due to scope restrictions
C. Adverse audit opinion
D. Audit opinion qualified for material scope restrictions.
3. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of
control risk is high, an auditor would probably
A. Insist that the client perform physical counts of inventory items several times during the year.
B. Apply gross profit tests to ascertain the reasonableness of the physical counts.
C. Increase the extent of tests of controls of the inventory cycle.
D. Request the client to schedule the physical inventory count at the end of the year.
4. The objective of tests of details of transactions performed as tests of controls is to
A. Monitor the design and use of entity documents such as prenumbered shipping forms.
B. Determine whether controls have been implemented.
C. Detect material misstatements in the account balances of the financial statements.
D. Evaluate whether controls operated effectively.
5. Assessing control risk at a low level most likely would involve
A. Performing more extensive substantive tests with larger sample sizes than originally planned.
B. Reducing inherent risk for most of the assertions relevant to significant account balances.
C. Changing the timing of substantive tests by omitting interim-date testing and performing the
tests at year-end.
D. Identifying specific controls relevant to specific assertions.
6. A primary objective of procedures performed to obtain an understanding of internal control is to
provide an auditor with
A. Knowledge necessary to assess the risks of material misstatements.
B. Evidence to use in assessing inherent risk.
C. A basis for modifying tests of controls.
D. An evaluation of the consistency of application of management’s policies.
7. An audit client failed to maintain copies of its procedures manuals and organizational flowcharts.
What should the auditor do in an audit of financial statements?
A. Issue a qualified opinion on the basis of a scope limitation.
 B. Document the auditor’s understanding of internal control.
C. Assess control risk at the maximum level.
D. Restrict the auditor’s responsibility to assess the effectiveness of controls in the audit
engagement letter.
8. The audit work performed by each assistant should be reviewed to determine whether it was
adequately performed and to evaluate whether the
A. Auditor's system of quality control has been maintained at a high level.
B. Results are consistent with the conclusions to be presented in the auditor's report.
C. Audit procedures performed are approved in the professional standards.
D. Audit has been performed by persons having adequate technical training and proficiency as
auditors.
9. Analytical procedures used in the overall review stage of an audit generally include
A. Gathering evidence concerning account balances that have not changed from the prior year.
B. Retesting control procedures that appeared to be ineffective during the assessment of control
risk.
C. Considering unusual or unexpected account balances that were not previously identified.
D. Performing tests of transactions to corroborate management's financial statement assertions.
10. Which of the following factors most likely would lead a CPA to conclude that a potential audit
engagement should not be accepted?
A. There are significant related-party transactions that management claims occurred in the
ordinary course of business.
B. Internal control activities requiring the segregation of duties are subject to management
override.
C. Management continues to employ an inefficient system of information technology to record
financial transactions.
D. It is unlikely that sufficient appropriate evidence is available to support an opinion on the
financial statements.
11. Which of the following activities would be most helpful to a CPA in deciding whether to accept a
new audit client?
A. Reviewing industry benchmarking data.
B. Considering the client's compensation methods.
C. Evaluating the CPA's ability to properly service the client.
D. Evaluating the most recent peer review of the client's previous auditor.
12. One purpose of establishing quality control policies and procedures for acceptance and continuance
of client relationships and specific engagements is to
A. Undertake engagements only that the accounting firm is competent to perform.
B. Monitor significant deficiencies in the design and operation of the client’s internal control.
C. Identify noncompliance with aspects of contractual agreements that affect the financial
statements.
D. Provide reasonable assurance that personnel will be adequately trained to fulfill their assigned
responsibilities.
13. As used in auditing, which of the following statements best describes "assertions"?
A. Assertions are the representations of management as to the reliability of the information
system.
 B. Assertions are the auditor's findings to be communicated in the audit report.
C. Assertions are the representations of management as to the fairness of the financial statements.
D. Assertions are found only in the footnotes to the financial statements.
14. Which of the following types of audit uses as its criteria laws and regulations?
A. Operational audit c. Financial statement audit
B. Compliance audit d. Financial audit
15. Practice in Public Accountancy shall constitute in a person
A. Involved in decision making requiring professional knowledge in the science of accounting, or
when such employment or position requires that the holder thereof must be a certified public
accountant.
B. In an educational institution which involve teaching of accounting, auditing, management
advisory services, finance, business law, taxation, and other technically related subjects.
C. Who holds, or is appointed to, a position in an accounting professional group in government or
in a government owned and/or controlled corporation, including those performing proprietary
functions, where decision making requires professional knowledge in the science of accounting,
D. Holding out himself/herself as one skilled in the knowledge, science and practice of accounting,
and as a qualified person to render professional services as a certified public accountant; or
offering or rendering, or both, to more than one client on a fee basis or otherwise.
16. A Professional Identification Card bearing the registration number, date of issuance, expiry date,
duly signed by the chairperson of the Commission, shall be issued to every registrant renewable
every
A. Two years B. Three years C. Four years D. Five years
17. Historical financial information that is derived from FS but that contains less detail than the FS, while
still providing a structured representation consistent with that provided by the FS of the entity’s
economic resources or obligations at a point in time or the changes therein for a period of time, are
known as:
A. Simplified financial statements.
B. Summary financial statements
C. Compressed financial statements.
D. Abridged financial statements
18. Which of the following statements indicates a qualified opinion?
A. The financial statements do not present fairly in all material respects the financial position,
results of operations, and cash flows in conformity with PFRS.
B. The auditor does not express an opinion on the financial statements.
C. The financial statements present fairly in all material respects the financial position, results of
operations, and cash flows in conformity with PFRS.
D. Except for the effects of a matter, the financial statements present fairly in all material respects
the financial position, results of operations, and cash flows in conformity with PFRS.
19. During an audit engagement, data are compiled and included in the audit working papers. The
working papers are:
A. a client-owned record of conclusions reached by the auditors who performed the engagement.
B. evidence supporting financial statements.
C. support for the auditor's compliance with generally accepted auditing standards.
D. a record to be used as a basis for the following year's engagement.
20. Auditors often request that the audit client send a letter of inquiry to those attorneys who have
been consulted with respect to litigation, claims, or assessments. The primary reason for this
request is to provide the auditor with:
A. an estimate of the amount of the probable loss.
B. an opinion about whether the loss is possible, probable, or remote.
C. information concerning the progress of cases to date.
D. corroborative evidential matter.
21. Of the following, which is the least persuasive type of audit evidence?
A. Documents mailed by outsiders to the auditor
B. Correspondence between auditor and vendors
C. Copies of sales invoices inspected by the auditor
D. Computations made by the auditor
22. Which of the following factors will result in a decrease in the sample size?
A. An increase in the extent to which the auditor’s risk assessment takes into account relevant
controls
B. An increase in the expected rate of deviation of the population to be tested
C. An increase in the number of sampling units in the population
D. An increase in the tolerable rate of deviation
23. Which of the following statements refers to the definition of auditing?
A. A service activity which function is to provide quantitative information primarily financial in
nature about economic entities that is intended to be useful in making economic decisions.
B. The art of recording, classifying and summarizing in a significant manner and in terms of money,
transactions and events which are in part at least of a financial character and interpreting the
results thereof.
C. The process of identifying, measuring and communicating economic information to permit
informed judgment and decisions by users of the information.
D. A systematic process of objectively obtaining and evaluating evidence regarding assertions
about economic actions and events to ascertain the degree of correspondence between these
assertions and established criteria and communicating the results thereof.
24. The government agency tasked by law of implementing and enforcing the regulatory policies of the
national government with respect to the regulation and licensing of the various professions and
occupations under its jurisdiction is
A. PRC B. BOA C. COA D. SEC
25. The following are assurance engagements except
A. Financial statements audit C. Review of financial statements
B. Information system reliability services D. Tax consulting