Description : Which of the following statements is incorrect about materiality? a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with ... s perception of the needs of a reasonable person who will rely on the financial statements
Last Answer : An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements
Description : The concept of materiality would be least important to an auditor when considering the a. Decision whether to use positive or negative confirmations of accounts receivable. b. Adequacy of disclosure of a ... . d. Effects of a direct financial interest in the client upon the CPA's independence.
Last Answer : Effects of a direct financial interest in the client upon the CPA's independence.
Description : Which of the following statements is incorrect? a. In an audit, the independent auditor attempts to corroborate assertions made by the company's management in connection with each account, class ... assurance that material misstatements do not exist in any of the assertions made by management.
Last Answer : Because of the attest functionfinancial statements are the responsibility of the independent audito
Description : PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February 2008, applies to a. Reviews of any historical financial information of an audit client. b. Reviews of ... d. Reviews of any historical financial information by a practitioner other than the entity's auditor.
Last Answer : Reviews of any historical financial information by a practitioner other than the entity's auditor.
Description : The factor that distinguishes an error from an irregularity is a. Whether it is peso amount or a process. b. Whether it is a caused by the auditor or the client. c. Materiality. d. Intent.
Last Answer : Intent.
Description : The factor that distinguishes an error from fraud is a. Materiality. b. Intent. c. Whether it is peso amount or a process. d. Whether it is a caused by the auditor or the client
Last Answer : Intent
Description : Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding a. Disagreements the predecessor had with the client concerning auditing ... lawyer. d. The predecessor's assessments of inherent risk and judgments about materiality
Last Answer : Disagreements the predecessor had with the client concerning auditing procedures and accounting principles.
Description : When determining whether independence is impaired because of an ownership interest in client company,' materiality will affect whether ownership is a violation of rule of independence a. In all circumstances. b. Only for direct ownership. c. Only for indirect ownership. d. Under no circumstances.
Last Answer : Only for indirect ownership
Description : When determining whether independence is impaired because of an ownership interest in client company, materiality will affect whether ownership is a violation of rule of independence a. In all circumstances. b. Only for direct ownership. c. Only for indirect ownership. d. Under no circumstances.
Description : After an auditor had been engaged to perform the first audit for a nonpublic entity, the client requested to change the engagement to a review. In which of the following situations would ... determined that an unqualified opinion was warranted, but there was a disagreement concerning the audit fee.
Last Answer : The client's bank required an audit before committing to a loan, but the client subsequently acquired alternative financing.
Description : In determining independence with respect to any audit engagement, the ultimate decision as to whether or not the auditor is independent must be made by the a. Auditor. b. Client. c. Audit committee. d. Public.
Last Answer : Auditor
Description : If an auditor had a substantial stock investment in a client that s(he) was auditing, which of the following would be true? a. The auditor would lack independence. b. The auditor ... be violating the Institute of Management Accounting standards d. The auditor would be violating the IIA standards
Last Answer : The auditor would lack independence
Description : Which of the following statements does not properly describe an element of the theoretical framework of auditing? a. Remoteness of users. b. An audit benefits the public. c. The data to be audited are verifiable. d. Auditor should maintain independence with respect to the audit client
Last Answer : Remoteness of users
Description : The Philippine Standards on Auditing issued by AASC a. Need to be applied on all audit related. b. Require that in no circumstances would an auditor may judge it necessary to depart from a PSA, ... for the purpose of expressing an opinion. d. Must not apply to other related activities of auditors
Last Answer : Apply to independent examination of financial statements of any entity when such an examination is conducted for the purpose of expressing an opinion.
Description : The Philippine Standards on Auditing issued by the Auditing and Assurance Standards Council (AASC) a. Are interpretations of generally accepted auditing standards b. Are the equivalent of laws for ... optional guidelines which an auditor may choose to follow or not follow when conducting an audit
Last Answer : Are interpretations of generally accepted auditing standards
Description : The Philippine Standards on Auditing issued by the Auditing and Assurance Standards Council (AASC) a. Must be followed in all situations. b. Are interpretations of generally accepted auditing standards c. ... not follow when conducting an audit. d. Are the equivalent of laws for audit practitioners
Description : The Philippine Standards on Auditing issued by AASC: a. Apply to independent examination of financial statements of any entity when such an examination is conducted for the purpose of expressing an ... though such a departure may result to more effective achievement of the objective of an audit
Last Answer : Apply to independent examination of financial statements of any entity when such an examination is conducted for the purpose of expressing an opinion
Description : Which of the following underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting? a. Element of corroborating evidence b. Element of reasonable assurance c. Elements of materiality and risk d. Element of internal control
Last Answer : Elements of materiality and risk
Description : Orange Corp. has a few large accounts receivable that total P2,000,000. Yellow Corp. has a large number of small accounts receivable that also total P2,000,000. The importance of an error in ... auditor's concept of: a. Materiality. b. Reasonable assurance. c. Comparative analysis d. Relative risk
Last Answer : Materiality.
Description : The exercise of due professional care requires that an auditor a. Uses error-free judgment. b. Considers internal control, including tests of controls. c. Examines all corroborating evidence available. d. Be responsible for fulfilling his or her duties diligently and carefull
Last Answer : Be responsible for fulfilling his or her duties diligently and carefull
Description : The exercise of due professional care requires that an auditor a. Uses error-free judgment. b. Considers internal control, including tests of controls. c. Be responsible for fulfilling his or her duties diligently and carefully. d. Examines all corroborating evidence available.
Last Answer : Be responsible for fulfilling his or her duties diligently and carefully.
Description : Which of the following statements is true with regard to the relationship among audit risk, audit evidence, and materiality? a. The lower the inherent risk and control risk, the lower ... inherent risk. d. Aggregate materiality thresholds should not change under conditions of changing risk levels
Last Answer : Under conditions of high inherent and control risk, the auditor should place more emphasis on obtaining external evidence and should reduce reliance on internal evidence
Description : Why should the auditor plan more work on individual accounts as lower acceptable levels of both audit risk and materiality are established? a. To find smaller errors b. To find larger errors c. To increase the tolerable error in the accounts d. To decrease the risk of overreliance
Last Answer : To find smaller errors
Description : Which statement is incorrect regarding procedures and evidence obtained in a review engagement? a. The auditor should apply judgment in determining the specific nature, timing and extent of review procedures. ... the needs of those relying on that information, not to the level of assurance provided
Last Answer : There is a greater risk that misstatements will not be detected in an audit than in a review.
Description : It is the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of ... as a whole. a. Lower materiality b. Lesser materiality c. Performance materiality d. Materiality
Last Answer : Performance materiality
Description : An auditor should consider materiality when I. Determining the nature, timing, and extent of audit procedures. II. Evaluating the effect of misstatements. a. I only b. II only c. Both I and II d. Neither I nor II
Last Answer : Both I and II
Description : In planning the audit engagement, the auditor should consider each of the following, except a. Matters relating to the entity's business and the industry in which it operates. b. Materiality level and ... or adverse) that is likely to be expressed. d. The entity's accounting policies and procedures.
Last Answer : The kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed
Description : Professional judgment:a. Is not used in making decisions about materiality and audit risk. b. Is necessary in the evaluation of management's judgments in applying the entity's applicable financial ... made by the auditor that are not supported by the facts and circumstances of the engagement
Last Answer : Is necessary in the evaluation of management's judgments in applying the entity's applicable financial reporting framework
Description : The firm should obtain acceptance and continuance information as it considers necessary in the following circumstances: a. When accepting an engagement with a new client b. When deciding whether to continue ... engagement c. When accepting a new engagement with an existing client d. All of these
Last Answer : All of these
Description : .Prior to beginning the field work on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA should a. Reduce audit risk by lowering ... the industry. d. Obtain a knowledge of matters that relates to the nature of the entity's business
Last Answer : Obtain a knowledge of matters that relates to the nature of the entity's business
Description : What assurance is provided by the auditor in an agreed-upon procedures engagement? a. No assurance. b. Low. c. Moderate. d. Reasonable
Last Answer : No assurance
Description : Reasonable assurance means: a. Gathering of all available corroborating evidence for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole. ... necessary for the auditor to conclude that there are no material misstatements in the financial
Last Answer : Gathering of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements, taken as a whole
Description : Which of the following is not one of the general principles governing the audit of financial statements? a. The auditor should conduct the audit in accordance with PSA. b. The ... appropriate evidence primarily through inquiry and analytical procedures to be able to draw reasonable conclusions.
Last Answer : The auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical procedures to be able to draw reasonable conclusions
Description : What assurance is provided by the auditor in an agreed-upon procedures engagement? a. No assurance. b. Low. c. Moderate. d. Reasonable.
Last Answer : No assurance.
Description : Which of the following statements is correct concerning the auditor's responsibility with respect to illegal acts? a. An auditor must design tests to detect both direct-effect and indirect- ... auditor must design tests to detect both material direct-effect and material indirect-effect illegal acts
Last Answer : An auditor must design tests to obtain reasonable assurance of detecting material direct-effect illegal acts.
Description : Of the following statements, which best distinguishes ordinary negligence from gross negligence? a. The more material the undetected error the greater the likelihood of ordinary negligence. ... care denotes ordinary negligence, whereas failure to exercise minimal care indicates gross negligence
Last Answer : Failure to exercise reasonable care denotes ordinary negligence, whereas failure to exercise minimal care indicates gross negligence
Description : The auditor has considerable responsibility for notifying users as to whether or not the statements are properly stated. This imposes upon the auditor a duty to a. Provide reasonable assurance ... statements. d. Be equally responsible with management for the preparation of the financial statements
Last Answer : Provide reasonable assurance that material misstatements will be detected.
Description : Which of the following statements best describes the auditor's responsibility regarding the detection of material errors and frauds? a. The auditor is responsible for the failure to detect material ... unrecorded transactions even if there is no evidence that material errors and frauds may exist
Last Answer : The audit should be designed to provide reasonable assurance that material errors and frauds are detected
Description : Which of the following statements reflects an auditor's responsibility for detecting misstatements due to errors and fraud? a. An auditor is responsible for detecting employee errors and simple fraud, ... due to errors and fraud unless the application of GAAS would result in such detection.
Last Answer : An auditor should design the audit to provide reasonable assurance of detecting misstatements due to errors and fraud that are material to the financial statements.
Description : What is the responsibility of an auditor who is engaged to audit the financial statements of a government entity? a. Assess control risk with respect to each component of internal ... the statements are free of material misstatements resulting from illegal acts having direct or indirect effects
Last Answer : Obtain an understanding of the possible financial statement effects of laws and regulations having direct and material effects on amounts reported.
Description : Which of the following statements best describes the auditor's responsibility to detect material errors and fraud? a. The auditor is responsible for the failure to detect material errors and ... detect unrecorded transactions even if there is no evidence that material errors and frauds may exis
Last Answer : The audit should be designed to provide reasonable assurance that material errors and fraud are detected.
Description : Which of the following statements reflects an auditor's responsibility for detecting fraud and error? a. An auditor is responsible for detecting employee errors and simple fraud, but not for ... detecting errors and fraud unless the application of PSAs and PAPs would result in such detection
Last Answer : An auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements.
Description : A CPA firm would be reasonable assured of meeting its responsibility to provide professional services that conform with professional standards by: a. Adherence to GAAS b. Maintaining an ... appropriate a system of quality control. d. Joining professional societies that enforce ethical standards
Last Answer : Having an appropriate a system of quality control.
Description : A CPA establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose ... resulting from failure to detect irregularities in client financial statements association with clients whose
Last Answer : To minimize the likelihood of association with clients whose management lacks integrity
Description : Which of the following best describes the purpose of the engagement letter? a. The engagement letter conveys to management the detailed steps to be applied in the audit process. b. The engagement letter ... be signed by both the client and the CPA and should be used only for independent audits
Last Answer : By clearly defining the nature of the engagement, the engagement letter helps avoid and resolve misunderstandings between CPA and client regarding the precise nature of the work to be performed and the type of report to be issued
Description : The understanding between the client and the auditor as to the degree of responsibilities to be assumed by each is normally set forth in a(an) a. Management letter. b. Representation letter. c. Engagement letter. d. Comfort letter
Last Answer : Engagement letter
Description : Which of the following will an auditor least likely discuss with the former auditors of a potential client prior to acceptance? a. Disagreements with management regarding accounting principles b. Integrity of management c. Fees charged for services d. Reasons for changing audit firms
Last Answer : Fees charged for services
Description : Which of the following is the most likely first step an auditor would perform at the beginning of an initial audit engagement? a. Prepare a rough draft of the financial statements and of ... and review the work of the predecessor auditor prior to discussing the engagement with the client management
Last Answer : Tour the client's facilities and review the general records
Description : The auditor's defense of contributory negligence is most likely to prevail when a. Third party injury has been minimal. b. The client is privately held as contrasted with a public company ... statements. d. The auditor fails to detect fraud resulting from management override of the control structure
Last Answer : The auditor fails to detect fraud resulting from management override of the control structure
Description : Privity of contract exists between the a. Auditor and the Securities and Exchange Commission. b. Auditor and client. c. Auditor and third parties. d. All of the above
Last Answer : Auditor and client