Aud Theory Mock Board

 

2011 2011 NA NATI TION ONAL AL CP CPA A MO MOCK CK BO BOAR ARD D EXAMINA XAMINAT TION In partnership with the Professional Review & Training Center, Inc. and I sla  Lipana &  Co .

AUDITING THEORY the best answ answer er for eac each h   of   I NS TR UCTIONS:   Select   the of    the foll followin owing g   qu estions.   Mar k onl only y on one e an answ swer er for for eac each h   item   on the ans answer  wer   sheet   pr ovided.   AVOID   ER ASUR ES .   Answer s erasu sures res may ren render der your  your   exam ination answe answer  r   sheet   I NVALID.   U se PENCIL with era  NO.2   on ly.   GOODLUCK ! 1.

un n ction   of  t h e Which hich of   of   the following following is  t he   least   f u ccoun tan cy? Board of  Board  of    Acco a.   Determ in ation   of    the   m in im u m re  quir emen ts leadin g   to th the e   adm ission   of    can did ates   to th the e

 b.   Guar an tee   that there are   n o   m isstatem ents   in the financial   statem ents   and and en ensu sure re that that an any y frau fraud d will   b e  d iscover ed c.   R elieve   management   of    r es es pon si bili ty   f or    the

CPA  exam in ations.  b.   R egu lation   of   the   pr actice  of    acc cco oun tan cy. c.   Su per vision ov er the   acc r edited   professional or gan ization   of   CPAs. d.   Pr e p ar ation   of    the contents contents   of    the   CPA   licen sur e an n d r a  ting of    the examin ation exam in ation s   a  p a per s.

financial   statem en ts assur suranc ance e to u ser s as   to th d.   Pr o ov vide   incr ease eased   as the e fairness of  fairness  of    the financial financial  statem ents 9.

The   in de pen den t   au ditor    lends   cr edi bility   to   clien t s financial   s stateme tatements nts by a.   Main tainin g   a   clear -cut   distin ction   between m anagem en t s   r e pr ese esen tation s an d   the   au ditor  s r e pr ese esen tation .  b. Testifying under oath about   clien t s   financial statem ents. c.   S tatin g in the   au ditor  s   m an agem en t   letter    that made   in acco accordan rdance ce   with th e examin ation was mad gener ally   acc e pted   au ditin g   stan d ar ds. d.   Attachin g   an   au ditor  s   opinion to   th e   clien t s financial   statem en ts. ’

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2.   No   person   sh all   ser ve   the   Pr of ess ession al   R egulator y Board of  Board  of    Acco ccoun tan cy for more   than a . 3 ye a rs c .   9  y ear s   d. 12 year s  b. 6 year yearss

3.

4.

5.

Which hich of   of    the following following i s   not   inclu ded   in   th e   seal used  by   a  C PA? a. Pr of ess ession altaxr ecei ptnum ber   b. Name  of    the   CPA c.   R egistr ation  number  d. The  t itle   “ CPA” Which hich of   of   the following following i s   r eq uir ed  for   a  p ar tner shi p   f or   publi c   accountancy p r actice?  public a.   At   least  on e  of   the partners must  b e a  C PA.  b.   All partners must be   PICPA  m em ber s. c.   All p  par tn er smu st beCPAs. d.   Firm name must   contain nam es  of    of    par tn er s  o nly. Belo Below w ar are e   n am es   of   of   four   four   CPA   f irm s an d per tin en t   facts r elating   to   them .   Unless   oth er wise   in dicated ,   the in dividu als   n am ed   are   CPAs   and par partne tners, rs, and there there are   n o   other partners.   Which firm name   an d   r elated facts   in dic ate a  v iolation   of RA   9298 and   its  I RR ?  b ou t   f ive  years a. Dee,  Lim   and Sy,   CPAs  (Dee   died   a bo ago;   Lim   and   Sy   are   con tinuin g  t he   f irm ).  b. Cruz and Reyes,   CPAs   (The nam name e   of    V.   Valdes, CPA,   a   thir d   partner,   is   om itted   fr from om th the e firm n am e). c. Go om m ez ez a nd nd   Castr o,   CPAs   (Gom (Gomez ez died abou aboutt three   years ago;   Castro   is   c on tinu in g th the e fi firm rm as a   sole  p r o op p r ietor sh i p). d.

6.

(The firm firm   h as   ten ot P . Re Re ye yes a an nd   Co.,   CPAs   (The other  her   par tner s who are   all   CPAs).

Which   of   of    the foll following owing servi services ces would   be   most   likely to be structured as an   assur an ce en gagem en t? c ating   a  c lien t s   position   in   tax  m atter . a.   Advo voc   c n engagement to   develo p   a   new data  b.   A o sulting   engagement  base syste m for the r evenu e  c  cy ycle. c.   An   engagemen engagementt to   issu e a   r e po  p or t   add r ess essing   an en tity s   com plian ce   with r eq uir em en ts   of   s pecif ied ’

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laws.

d. 7.

The  c om pilation   of   a  c lien t s  f or ec ast   in f orm ation. ’

  to   PSA   120 ,   which   of    the   following   is   an op p r iate   com bin ation   o f    pr ocedur e a pp r o es s   r equir ed   in c om pletin g   a  r eview   en g agem en t? a.   Inqui Inquiry ry and o b o bser vation es s  b.   In qu ir yan d an alytical pr ocedur e c.   An alytical   pr ocedur e es s  a nd   in s pection d.   O bser vation and   analytic al  p r ocedur e es s

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10. Which Which   of  of    the fol following lowing are   elemen ts   of    a   CPA   f irm s qu ality   c on tr ol   th at   sh ould be   c onsider ed   in esta blishin g   its   qu ality   con tr ol   p pol olic icie iess an and d ’

es s?  pr ocedur e E thic al R equ ir em en ts a.   No  b.   Yes c.   Yes d.   No

Hum an R es esour ces Yes

 

 

No

 

Yes

 

E n g agem en t    

No

   

  rm an ce Per ff o No No Y es Y es

11 11.. Th This is q u ality   con tr ol   elem en t   r equ ir es firm to es a   CPA   firm policie ciess an and d pr oc edur es ov vi d e   i t   w i t h esta blish   poli es   to pr o r eas eng a ag gem emen entt s ar are e eason a ble assur an ce   th at   en  perfo rme rmed d   in accordan accordance ce   with   professional   standards an d   r egulator y   and   legal   r equir ements,   and   that   the firm or   the engagement partner   issu e   reports that are  in n   th e  c ir cum stances. a pp r o pr iate  i a.   E thic al  r equ ir em en ts  b.   E ng agem ent perfo rma rmance nce c.   Mon itor in g d.   Hum an r e es sour ces es s p 12 12.. Who Who   should   take   r e  po on si bility for   the   over all   qu ality on each   au dit  e ngagem ent? a.   E n g agem en t   qu ality  c on tr ol  r eview  b.   E ng agem ent p ar tner  c.   E n g agem en t  team d.   CPA   f irm

13.   Communication   with   a  p r edecessor   au ditor   is   in itiated  by: a.   Managem en t  b.   T hesu cc essor au ditor  c. The  a u dit   comm ittee  of   the board  o f   dir ector s d. The  c h air  of    the board  o f   dir ector s

  Acco cc or din g

14. 14. In   m ak in g   a   decision to accep t o r    c on tinu e   with a client,  t he   au ditor   sh ould   con sider : (a) (b) ( c )   ( d) Its own in de pen den ce   Y es   No   Y es   N o Its ability ability to   ser vice a Y es   Y es   Y es   N o clien t   pr o per ly ’

8.

’

reason for an   au dit   by   an   in de pen dent, The   pr im ar y   reason extern al   au dit  firm   is   to   a.   S atisf y   government r eg ulator y   r equir emen ts

The   in tegr ity  of    th e  c lien t s m an agem en t

Yes

  Y es

  No

 

Y es

15.   A   partner, partner, other person   in the   f irm ,   suita bly qu alif ied  per son, or a team tea m made ma de up   of    such   in dividu als,   with

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suff icien t   and   a pp r o pr iate ex per ien ce an d   au th or ity to objectively   evalu ate,   before   the   report   is   issu ed,   the significant   ju dg m ents   th e   engag engagemen ementt team made made,, and   th e   conclu sion s   they reached   in   f ormu latin g   th e r e po r t; a.   E ng agem en t  Partner   b.   Au dit   Par tn er  c.  E n g agem en tQualityCon tr olR eviewer  d.   Managin g   Par tner 

16.   An   au ditor   is   not r equ ir ed   to   plan   the   audit   to cover  cover  in f orm ation   that   is   in dicative  o f : a.   Adver s se e   r elation shi ps   betw een   the   entity   and m  p it s e loyees.  p or tin g.  b.   Fr au dulen t   f in an cial  r e po c.   Misa pp r o pr iation   of   assets. d.   E rr or s. 17. 17. The m most ost diffi difficul cultt typ type e   of   misstatem ent to  detect   is fraud b ased  o n a. The overr ec or din g   of   tr an sactions  b.   T h en onr ecor din gof tr an saction s c. Reco Record rded ed t r ansactions   in   su b sidiar ies d.   R elated p ar ty   r eceiva bles 18. 18. Whe When n the   au ditor   believes a   misstatem en t   is   or may  be the r es fraud bu butt   th at the   effect   of    the esult   of    fraud m isstatem en t   is   not   m ater ial   to to the finan inanc cial ial of   the followin following g steps steps   is  r equ ir ed? statem ents,   which   of   a.   Con sider   the   im plication s   for oth er   as pects   of   the au dit.  b. Resign from   th e au dit. c. Com Comme menc nce e a   f rr  au d   exam in ation . d.   Con tact  r egulator y   auth or ities. 19. 19. Whe When n per f  fo   rm ing a fi finan nancia ciall   statement statement au dit,   au ditor s are   r equ ir ed   to explicitl explicitly y asse assess ss   th e   r isk   k    of    mater ial m isstatem en t  d ue   to a. Errors. c.   I lleg al   acts.  b.   Fr au d.   d.   B usin ess  r isk . cc or din g   to   PSA   240 Re 20.   Acco Revis vised, ed,   th e auditor m ay c on sider   w ith dr awin g   from   th e en g agem ent a . W he he n t he he   entity does not take   th e   r em edial   action r eg ar din g   fraud, fraud, even   if    it   no no t mater ial   to th the e f in an cial  s tatem en ts.  b. If the fraud   is   perpetrated through   th e   conn ivan ce of   some   em ployees c . W he n t he   f rr  au du len t   act act aff affect ectss   th e   financial statements, state ments, even   if   such   eff ect   is   r ef lected in the financial   statem en ts d. W he n t he   au ditor    is   un a ble   to   g ath er  obo r ate   his sus picion   that eviden ce that   will   corr obo  po  p ossi ble  o cc urr en ce   of f rr  au d   may have have m ater ially affected  t h e  financial   statem en ts 21.

  Assum in g

which h   of    the   a   r ecurr ing   au dit,   in whic following   situations   would the   auditor    be   unlikely to newengagement ment   letter   to  t he  c lient? send   a newengage a.   A   recen recentt cha change nge in  partner   and/or   staff   involved   in the   audit  e ngagem ent.  b.   A   cha chang nge e in the the terms terms of   engagement. c.   A   recent change   of   c c lien t  m anagement. cha hang nge e in   the nature nature   or    size   of    the d.   A   signif icant   c client's  b usiness.

22. 22. Wh Which ich of   of    the foll following owing statements   best   descr i b es   why the profes professio sion n   of    CPAs   h as   deemed   it   essential essential to  pr omu lg ate a   cod e   of    ethics   a nd nd to   esta blish   a m ech an ism   f or   en f or cin g ob ser van c e  of   the   c ode? a.   A   distinguishin g   mark    of    a   pr of ess ession   is its  acceptance   of   r e es s po nsi bility   to   the  p u blic  b.   A   pr er equ isite   to suc success cess   is   the esta blishm en t   of  an   ethical   code   that   stresses   pr im ar il ily   the  pr of ess  po ession al s   r e es s p on si bility   to   clien t s an d ’

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c olleagu es c.   A   r equ ir em ent   of    most stat state e   laws   c alls   for for th the e f    ethics  profession to   esta blish   a code  o f 

d.   An   essential   means   of    self - pr otection   f or    the  profession   is   the   esta blishm ent   of    flexible   ethic al standards   by   th the e   pr of ess ession 23.   A   CPA,   while   per ff o   rm ing   an   audit,   str ives   to   ach ieve  in n   appearance   in   or der   to in de pen den ce  i a . Re Red du uc c e r isk   an d   lia bility  b.   Maintain pu blicco cc onf idencein the profe ssion c . Become   in de pen den t  i  in n   f act d. Comp Comply ly w ith   PSAs 24. In which which  of   of    th the e following following may   con f iden tial inf orm ation not be disclosed? a.   To   c om ply   with   the   quality  r eview  of    a   member   body or   or   professional   body  b.   To   su bm it   eviden ce  in the   cour s se e  o f   leg al  pr oceedin gs c.   Ac quir ing   inf orm ation  in the   c our se   rm in g se  p er ff o  professional  professi onal services   and use   that   in f orm ation   for   per son al   advan tages d. W he n  c  co on sent  t o   disclose  i nf orm ation   is  g iven   by the   clien t 25 25.. In plann in g   the   au dit   engagement,   th e au ditor   sh ou ld c onsider each   of   the   f ollowin g   exce pt a.   Matter s   r elatin g   to the   entity s   business   and the  per ates in du str y  in which   it  o  o p  b.   The   en tity s acco cc oun tin g   policies   an d pr o ced ur e es s c.   An tici p ated   levels   of  of    contr ol   r isk   and m ater iality d.   T h ek in d of o pinion th atwilllik ely b egiven ’

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26. The term term   “ au dit  risk”   r ef er s  to the   r isk : a.   Of    legal   expos exposur ure e and r elated   costs sh ould   the charge rged d   with n egligen ce   in con du ctin g auditor be cha an   au dit  b.   Th at   the   au ditor m ay un k n owin gly fail to a pp r o pr iately mo modi dify fy   his   o pinion   on fina financ ncia iall statements that ar e  m ater ially   misstated c.   Th at   err or s   or    irr egu lar ities   may   cau se   financial statements stat ements not to be   f air ly   pr ese esen ted d.   Th at   the   au ditor    may may fail ail   to   an tici p ate   all cir cum stan ces   which   w il l inf lu en ce   his   judgment in   evalu atin g   the au dit   f ind in gs   upon   com pletion of   th e audit 27. Whi Which ch statement   is  n ot  c orr ect a.   Contr ol  r isk   is   the   r isk   the   au ditor   will   n ot  detect a m ater ial   misstatem en t  that exists  in an   asser tion  b.   S am pling   r isk aris arises es from from   th e   possi bility   that, when a   test   of    con tr ols   or    a su bstan tive   test is   r es estr icted   to a sam ple,   the   au ditor  s c on clusion s   may   be   d iff er en t   fr om om th e c on clusion s   h e o r s h he e   would reach   if    the   test were   a pp lied   in   th e ’

i

 i

i

i ili

ent   r  sk  s   the   susce p t  b ty   of    an   asser t on Inh e r m c.   to a ater ial   misstatem en t,   assum ing   that there there

d.

 

are are no   r elated   in tern al   c on tr ol   structure,   policies or   pr ocedur es es N on -sam p lin g   r isk inclu includes des only only   th ose   aspects   of  audit  r isk   that are not due   to   sam plin g

28. Whi Which ch of  of    the following following statements   is  n ot   corr ect? a.   The   pr inci p al   purpos purpose e in   con du ctin g   a   study study and u n n g n rn   c n r  eval atio   of    the   existi   i te al o t ol   system is   for   th e   in de pen den t   au ditor t o m ain tain   a state of   in de pen den ce   in   men tal   attitu de   in   all   matters r elated  to the   au dit. corporate orate  b.   Working   papers can be   destr o oy yed   af ter corp and statutory r eten tion r equ ir em ents  a re   m et. c.   The   au dit   program   contains   the   list   of    specific tas k kss to be performe d   an d   estim ated   tim e r equ ir ed. d.   An   au dit   pr progr ogram wou would not not   c on tain   the d ocum en tation  of    system   bein g  r eviewed.

29.   A   po ten tial   bu siness   r isk    c crreated r equir em en t  may most   lik ely   in clu de a.   In cr ease od d uct  liability eased pr o  b.   In cr ease easedleg alexposure

by

re   gu lator y

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a.   In vestigating   ch an ges   in   stock h older s   equity occ urr in g   af ter year   en d.  b.   R ecom pu tin g   a sam ple   of    lar ge- peso   tr an saction s occ urr in g   af ter year end   f or   ar ithm etic   acc ur acy. year  ar  c.   Confi Confirming rming bank accounts accounts   esta blished   af ter ye en d. d.   Inquiring   of   the   en tity s   leg al   coun sel   con cern in g litig ation ,   claim s,   an d   assessm en ts ar isin g   af ter    year   en d. ’

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45. 45. Whi Which ch   of    the the follow following ing   is a   valid pur  po se   of    a management r e pr ese esen tation   letter ? a.   to re reduc duce e the   p ossi bility   of    a   m isun der stan ding c on cern in g   m anagem en t s   r e  p on si bility for    th e es s po ’

  state en ts.  p on si bili ty   to   detect  b.   tfinancial o re ed du uce ce anm   au ditor  s   r e es s po ’

m ater ial   misstatem en ts   only   to   th e   extent extent that th e   letter   is  r elied  o n . reduce the the scope scope   of    an   au ditor  s   pr ocedur e c.   to reduce es s c on cern in g   r elated p ar ty   tr an saction s   and su bseq uen t   events. redu duce ce   au dit   r isk    t o a n   agg r egate   level d.   to re of   misstatem en t   that  c ould b e  c on sider ed  m ater ial. ’

46.   To   which   of    the the foll followin owing g   matters   wou ld   m ater iality   not   a pp ly   in   ob tain ing   wr itten lim its management  r e pr ese esentation s? a. The   availa bility   of   minu tes   of  f    stock h older s   and dir ector s   meetin gs.  b.   L osses   from purchase   c omm itmen ts at   prices prices in excess   of   market   valu e. b alance c. The   disclosur e   of    c om pen satin g arr an gem en ts   involving   r elated p ar ties. d.   R edu ction s   of   of   ob solete   inven tor y   to n et   r e ea aliza ble ’

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value.

47.   As   part   of    an   au dit,   a   CPA   of ten r equest   a r e pr ese Which ch on one e   of  esen tation   letter    from   th e   clien t.   Whi the fol followin lowing g is not not a  valid purpose   of   such a   letter ? a.   To   pr o ov vide as au dit  e viden ce.  ponsi bility for   b.   To   em phasize   to the   c lien t   his   r e es s po for  the correctness correctness of   of    th e  financial   statem en ts. c.   To   satisf y   himself    by   means   of    oth er    auditing  pr ocedur e cust stoma omary ry   auditing es s   when   cer tain cu  pr ocedur e es s   are   n ot   per ff o   rm ed. d.   To   pr o ov vide   possi b le   p r otection   to the   CPA   again st fraud ud   is a charg charge e   of    k n owledg e   in cases   where fra the e su bseq uen tly   discover ed   to   have   existed   in th acco cc oun ts. 48. Exampl Examples es   of    events events or   c on ditions,   which   individually or   or    collectively,   may   cast   sign if icant   doubt doubt abou aboutt the the go in g   concern   assum ption   inclu de   the the fo follo llowin wing g exce pt: i i

s Net liabi liabili lity tyfrom or n net et    ccurr  Cha nge r edein t t  liability to   c  po ash-toonn-.deliver y tr ansaction s   with   su pp lier s. c.   L a bo r    difficul difficultie tiess or    sh or tages   of    im por tant u  pp . s lies d.   Com pliance   with   c a pital   or    oth er    statutory r equ ir em en ts.

a.  b.

49. The   standard   au dit   report report incl includes udes all all   of   th e   following except exce pt a   (an) a.   op inion   p ar agr a ph   c.explan ator yp yp ar agr a ph  b.   ssco cop pe pa arr a ag g rrap aph h d .   o penin g par agr a ph 50. 50. The The   au ditor  s   report   should   be   titled,   an d   the   title should   inclu de  t he   w or d a.   s t a n d a rd c .   au dit  b.   op inion   d. in de pen den t ’

51. 51. The The  a u dit  report   is  n orm ally addressed to   th e i

a.

 b. c. d.

f  Board D ir ect oo r s   Y es

 

No

 

Y es

 

Y es

 

es sd Pr e ee nntitt yof   the

Sh ar eholder s  

Y es

 

Y es

Y es Yes No

 

Y es

   

 

   

No No

52. Which Which   paragraph   of    an   au ditor  s stan d ar d   rep repor ortt on financial   state stateme ment nts s sh ould   r ef er    to Ph Phil ilip ippi pine ne  po Financial   R e p or tin g   Standards   (PFRSs) (PFRSs) and Philippi Philippine ne Stan dar ds  o n   Au ditin g   (PS As)? PFRSs   P S As a. O p i ni o n   Au d itor  sResponsibility  b.   O penin g   Au ditor  s  R es es po n si bility c.   Man agem en t s O pinion  po R e es s p on si bili ty d.   O penin g   O pinion ’

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53.   An   au ditor 's   report report that   r ef er s t o a   depart departure ure from PFRSs includes the   lan gu age,   "In our op inion ,   with   the f or eg oin g   ex plan ation ,   the   f in an cial   statements r ef err ed   to above   pr ese ..." This   is a(n) esen t   fairly   ..."  pinion . a.   Adver se se  o  o p  b.   Qualified   o pinion . c. Un q qu ualifie d o p inion   with   an   ex plan ator y  p ar agr a ph. d.   E xam pleof ina pp r o pr iater e p  po or tin g. 54. When When a an n   au ditor   express expresses es an adverse adverse o pinion   he/she should sho uld disclose   the   su bstan tive   reaso reasons ns for such such an op inion  in an   explan ator y par agr a ph. a.   Within the   n otes   to the financial financial   statem en ts  b.   P r ecedin g th eop inion p ar ag r a ph c.   Followingthe Followingthe o pin ion   p ar agr a ph d.   Pr ecedin g   the   intr odu ctor y   p ar agr a ph 55. Whi Which ch of  following ing p r ocedur es of    the follow es   is  n ot   in clu ded in a r eview   engagement engagement on  a  n on pu blic   entity? a. Inqui Inquiri ries es of   of   m anagem en t.  b. Inquiries   r eg ar din g   events   su bsequ en t   tto o th e  b alan ce sheet   date. c.   Any   pr ocedur e es s   desig ned   to   iden tif y   r elation shi ps among data that appear to   b e  un u su al. tudy dy an and d   evalu ation   of    intern al   contr ol d.   A   sstu ru c ur  . st t e 56. Wh Which ich of   of    the following following s h ould   the   au ditor   pe perfo rform rm in a r eview   en g agem en t? a.   U n der stan d   matt matte e rs rs th tha a t a re re   r elevant   tto o the financial   statem en ts.  b.   U n der stan d   the   en tity s   in tern al  c on tr ol   system. c.   Observe Observe the p h ysical  count  o f   inventor y. d.   In qu ir e  of    legal  counsel  counsel of   of    pendin g   litig ations. ’

5 7. T h he e objective   of    an   agr ee eed-u po n   p r ocedur e es s en g agem en t a. I s tto o   ena ble   the   au ditor    to expr expres esss   an o pin ion   wh whet ethe herr th the e fina financ ncia iall   statem en ts   are alll   m ater ial   r es  pre pared par ed   in al es pects,   in accordance   with   an   iden tif ied   f in an cial   r e p  po or tin g r am ew or k f r  k    b. Is to   ena ble   the   au ditor to   state   wh eth er ,   on the  b asis   of  of    pr ocedur e es s   which   do   not   pr o ov vide   all the eviden ce   th at   wou ld   be r equir ed   iin n an   au dit, o the   au ditor  s atten tion   that anythin g   has come tto causes caus es the   au ditor    to believe   ttha hatt th the e fina financ ncia iall not prepar prepared ed   iin n al l   m ater ial stat statem emen ents ts ar e   not r e es s pects,   in accordance   with   an   iden tif ied   f inan cial r e po r tin g   f r  r am ewor k k .  c. I s to carry out those pr ocedur es es   of    an   au dit nature nat ure to   which which the   au ditor    an d   the   en tity   and any   a pp r o pr iate   thir d p ar ties   have   agr e ee ed   and to report   on   f actu al   f in dings. cc oun tin g   ex per tise as   o pp  ppo d. I s t o u usse   acco osed   to auditing   ex per tise   to   collect,   classif y   and summ ar ize  f in an cial inf orm ation . ’

 bo  po 58. Whi Which ch of   of    the following following  is   inc orr ect   a b ou t   agr e ee ed-u p on  pr ocedur e es s eng agem en t?  po a.   An   en eng gag agem emen entt t o   per ff o   rm   agr e ee ed-u p on  pr ocedur e es s   may invol involve ve the   auditor   in   p er ff o   rm in g es   con cern in g   in dividu al item s   of  cer tain   pr ocedur es financial d ata.  po  b. Users   of    the   agr ee eed -u p on   pr ocedur es es   report a sssse ssss for     them selves   th e   pr ocedur es es   and d g d f in in s   reported   by   th e au itor an and d draw draw   th eir  c on clusion   f r  r om   the au ditor  s   wor k k .  ’

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c.

d.

The   auditor   sh ould   be   in de pen den t   of   the  financial d ata   or or fi fina nanc ncia iall   statements   where   agr e ee ed  pr ocedur e es s  have to   be a pp li ed. that have Th The e re repo port rt   is   r e es str icted   to those   p ar ties   that agr ee eed  to the   pr ocedur e es s  t o   be  p r ef orm ed.

59.   A CPA   has   been en g ga ag ge ed to   com pil e   financial s ta ta tte e me me n ntts fo r a n on pu b lic clien t.   Which   of    the following statements b est   descr i bes  t his   engagement? a.   The   CPA   mu st   perform perform the   PSAs   n ecessar y   to determ ine   that that the statements statements are   in   con f orm ity with   PFR Ss.  b. The   CPA   is   per ff o   rm in g   an   acc cco oun ting ser vice   rather    th an   an   exam in ation of    financial  s tatem en ts. c. Th The e fina financ ncia iall   statemen statements ts are   r e pr ese esentation s   of   both man age men t   an d   the   CPA. prepare e the   statem ents   from the d. The   CPA   may prepar  books but may not   assist   in   adju stin g   and   closin g the   b ook s. 60. 60. Whi Which ch   of    the following following   engagements   do   not   r equ ir e d  p d c ? n e e n e n e i I.  A gr ee eed-u po n   pr ocedur e es s II .   Com pilation III .   Au dit I V.   R eview a . I a nd  IV   c. I, II   an d   IV  b. I an d II d. I,   II ,  I II   and   I V

61.   A   report   issued   in c onn ection   with   th e of    financial   inf orm ation   other than in de p en den t   au dit   of   an   au ditor 's   report on   f in anc ial   statem en ts. a.   Sp ecial pur  p  po oseau ditor 'srepor reportt b.  po Compilation   r e p or t c.   Annu al  r e p  po or t  po d.   Modified  a u ditor  s  r e p or t ’

repo o rrtt o n   summ ar ized   financial 62. 62. The The   auditor  s   rep statements sh ould   in clu de a.   An   o pinion   as to whethe whether  r   th e   in f orm ation   in th the e summ ar ized   f in an cial   statements   is   pr ese esented f air ly,   in   all  m ater ial  r es pect s.  b.   An   o pinion   as to whe whethe ther  r   the   in f orm ation   in   th e summ ar ized   financial   statements   is   consistent with   the   au dited   f in an cial   statements   from which it  was d er ived. c.   A  statement  of   neg ative assur an ce. d.   A   descr i ption   of    the   au ditor  s   f actu al f in dings  including   of    suff icien t detail s   and  e xce ption s  f oun d. err or s ’

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 p oth etic al   assum ption s,   a 63. Gi Gi ve ven one or mor more   h y po r e  p  po n  b   p a ar r t ty y m es s o si le ay   pre pre p pa a rre e , to th the e   best   of  its   k n ow ledg e an d belief ,   an   en tity s   expected esults   of    o per ation s,   and financial   p osition ,   r es and cash ash stat tatemen ements ts are flows.   Su ch   pr os pective   financial   s known as a.   Pro forma  f in an cial  s tatem en ts  b.   Fin an cial   pr o jection s c.   Par tial   pr ese esen tation s d.   Financial   f or ec asts ’

64. 64. Wh Which ich   of    the the follow following ing   is a   pr os pective   financial statement stat ement for   gen er al   use   u pon   which   an accountant accountant may ma y   a pp r o op p r iately   r e po r t? a.   Fin an cial  p r o jection  b.   Par tial  p r ese esen tation c.   Pro forma   f in an cial   statem ents d.   F inan cialf or ecasts 65. Regardles Regardlesss   of    the the assess assessed ed   level   of    con tr ol   r isk ,   an auditor  would perform   som e a. Tests  of    of    contr ols   to   determ ine   the eff ectiven ess   of  in tern al  c on tr ol  p olicies.  b.   An alytical   pr ocedur e es s   to to ve veri rify fy   th e   design   of  in tern al  c on tr ol. c.   S u bstantive   tests   to r e es str ict   detection r isk for   signif ic an t tr an saction   classes.

 po d.   Du al- pur  p ose   tests   to   evalu ate   both   th e   r isk  k    of  m o n e ta ry m isstatem en t   and pr elim in ar y c on tr ol r isk .

66.   A   wr itten r equ est   and   ack n owledg em en t   r equ ir in g   a event   of   a   discr e pancy letter r e p ly only in the event a.   neg ativec onf irm ation  b.   positive  c on f irm ation c.   letter   of  c on f irm ation d.   clien t s  r e pr ese esen tation   letter  ’

67.

Which   of    t he he follo w wiing   com bin ations   of   pr ocedur e an   au ditor m o s t   lik ely es s   would  perf orm to   o btain   eviden ce   abou aboutt fixe fixed d   asset i i

add t on s? a.   In s pectin g   documents documents and   ph ysic ally   exam inin g assets  b.   R ecom pu ting   c alculation s   and   o btainin g   wr itten management   r e pr ese esen tations Observin ing g oper ating   activities an d   com par in g c.   Observ  b alan ces  t o   pr ior   per iod b alan ces  bo Con nfirming own er shi p   an d   c orr o b or atin g d.   Co tr an saction s   through   inquir ies  of   of    clien t  p er sonn el

68.   O penin g b alan ces   means those those   acco cc oun t   b alan ces which   exist   at the   beginn ing   of   th e   per iod .   These are  b ased   up upon on the the   closing bal an ces   of    the   pr ior   per iod  and r ef lect th e  effects of : I.   Curr en t tr ansactions (e.g e.g. stock dividends)   th at will   be  g iven r etr o active eff ect  r ec og n ition . II.   T r ansactions  of   of    pr ior   per iods. cc oun ting  policies   a pp lied  in the   pr ior   per iod. III.   Acco a.   All of  of    these c . I on l y  b. I and II only d. IIan d III only 69. The   au ditor   should  adopt one or a   com bin ation   of  of    the cc oun tin g following   a pp r oach es   in   the   au dit   of    an   acco estim ate: I. Review and   test   tth he pr oc e s s us e d by management to   develo p   the   estim ate. II. II. Use Use an   in de pen den t   estim ate   f or   com par ison   with that prepared by m an agem en t. III. III. Revi Review ew   su bsequ en t   events   w hich   con f irm   the es tim ate  m ade. a.   An yof th eabovec.   Eith er I or II  b. None  of   th e ab o v e d . I  o n ly 70. Which Which of   of    the following following events most   lik ely   in dicates   the e xisten ce  of    r elated par ties? a. Bo Borr rrow owin ing g a   lar ge   sum   of    mone money y a att a   var ia ble rate  of    in ter es est  b. Selling   r ea a   pr ice   th at eal   estate   at diff er s  significantly from   its  book v alu e c.   Mak ing   a   lo an   with ou t   scheduled   terms   of 

un n ds   with   a  c om pany   that   is  a   the   f u d.   repayment Discu ssin g    of  merger terms c om p etitor  major   co

71.   T oler a ble err or m ean s a.   An   err or    th that at ar aris ises es from from an   isolated   event that that ha ass n o ott   r ecurr ed   oth er    th an   on sp speci ecifi fical cally ly iden tif ia ble   o cc asion s   and   is   th er ef or e   n ot  in n   the  p o pu lation . r e pr ese esen tative  of    err or s  i  b.   An   err or   that the au ditor expects to   be   pr ese esen t   in the   pop ulation . c. The   m aximum   err or    iin n a popu lation   that that th the e  willing ng to   acc e pt. auditor   is  willi d. The possi bility   t ha hat the au ditor 's   con clusion ,  b ased   on a   sam ple   may ma y   be   diff er en t   from the   c on clu sion reach reached ed   if    the   en tir e   p o pulation were su bj ected   to   th e  same   audit  p r o ced ur e. 72. Proper  Proper    au th or ization   of    wr ite-off s   of    un collecti b le accounts   sh ou ld   be app appro roved ved   in   which   of    the following followin g d e p ar tm ents? cc oun ts  r eceiva ble.   c.   Acco cc oun ts  p aya ble. a.   Acco   C r  d .   d .   T r   b. e it easur er . eas public   pr actice   are   r equir ed   to   r eg ister    wi th 73.   CPAs   in public the   QAR   Program under   th e   pr e es scr i bed  category.   CPA  pr actition er s   h an dlin g   clien ts   th that at us use e th the e IFRS IFRS   f or 

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SMEss or    their    Philippine   equ ivalen ts sh ou ld   r egister  SME un der  a. Cate Catego gory ry A  A   c. Cate Catego gory ry C  b.   Categor yB   d. Cate Catego gory ry D

7 4. 4. T h he e pr in ci ple   of    obj ectivity   imposes   which   of    the following foll owing ob ligations  o n pr of ess ession al   acc cco oun tan ts? a.   To   m aintain   professional   k n owledg e an d   skill   at the   level   r equir ed   to ensur ensure e   th at   clien ts   or   co om peten t   professional   advice em ployer s  r eceive  c  b.   To   r ef rr  ain   from d isclosing   c on f iden tial in f orm ation ob tain ed   as a   r e profession sional al and bu sin ess es sult   of   profes r elation shi ps c.   To   c om ply   with r elevan t   laws an d   r egu lations   and avoid   any   situ ation   th at   may   br in g discr ed it   to the  pr of ess ession d. Not to   c om pr om ise   professional   or    busin ess  judg men t beca use   of   of    bias,   con f li lict   of    in ter e es st   or  undue   inf lu en ce  o f  o ther s 75. Examples Examples   of   of   cir cum stan ces   that that may   cr ea eate   advocacy threat   in clude a. Undue   depe depend ndenc ence e on   total   f ees ees   f ro ro m an assurance   client.  b. Conc ern abo ut the p ossi b  bility of    losin g   the e n gagem ent. c. a an nd db d.   neith er an or  b 76. Examples Examples   of   of   cir cum stan ces   that may   cr e ea ate   f amiliar ity threat   inclu de a.   Con tingent   fees   r elating   to   assur an ce en g agem en ts  b.   A   member    of    the assur assurance ance   team   givin giving g an imm ediate   f am ily   m em b er    or    close   family m em ber    who   is a   dir ector    or of offi fice cer  r    of  th e  assurance   client. c. a an nd db d.   n either a nor b

77. Whi Which ch   of    the the follo followin wing g   is a   ch ar acter istic   of    an in tegr ated  system   f or  data   pr ocessin g? a.   An   integr ated  system   is a   r e ea al-tim e   system system where f i le s for     diff er en t   f u un n ction s   with   similar  in f orm ation   ar e se par ated.  b.   A   sin gle   in pu t   record   descr i bin g   a tr an saction   initiates   the   u pd atin g   of    all   files associated   with  t he   tr an saction. c.   Par allel   oper ations   strengthen   in tern al   contr ol over the comput computer  er  processing   processing   f u un n ction. d. Fi File less are are   m ain tained   acco cc or din g   to or g an ization al f u un n ctions   such   as   pur ch asin g,   accounts   paya ble, sales,   etc. computer” the   au ditor  78 78.. In “ au ditin g around the computer” a. Proc Proces esse sess   test   d a att a o n t he he   client s   computer  system as part   of   the check of   intern al  c on tr ols.  b. Processes   test   d a t a o n a   se p ar ate   computer  system as part   of   the check of   intern al  c on tr ols. and pe err fo fo rms rms   acco cc oun t c. T e essts   tr an saction s   and ver if ication   pr ocedur e es s   as in  n on-E DP   system s. d.   U ses   the   clien t s   computer    pr ogr am rerun on clien t s  EDP   f acilities. ’

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79. Which Which   of  of    the fol followi lowing ng   methods   of    testing   a pp lication c ontr ols   utilizes utilizes a   gen er aliz ed   au dit   software package  prepa red   by   th e au ditor s? a.   Par allelsimu lation .  b.   In tegr ated   testin g   f acility  approach. c.   Test data   a pp r oach . d.   E xce ption report report   tests. 8 0. T h he e gr an df ath er -f ath er -son ap appr proa oach ch   to pr o ov vi d i n g  pr otection   for    im p  po r  n   c m  p u r    files o ta t o te   is   a conceptthat   is   most often found   in a.   On-line,   r ea eal-tim e  systems  b.   Pun ched-c ar d   systems c.   Magn eticta pesystems d. Magn etic   drum systems

End  o f E xamina tion Thank you for participating in the 2011 National Mock CPA  B oar d E xam inations!

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