AT

ReSA PW B48
 ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AT Preweek
CPA Review Batch 48  October 2024 CPALE  Pre-Week Summary Lecture Batch 48 – October 2024 CPA Licensure Examination
AUDITING THEORY IRENEO  ALLAUIGAN  ARAÑAS  TUGAS  YABUT
8. Early appointment of the independent auditor will enable:
A. a more thorough examination to be performed.
B. a proper study and evaluation of internal control to be performed.
AT PRE-WEEK LECTURE C. sufficient competent evidential matter to be obtained.
D. a more efficient examination to be planned.
1. Which of the following activities would be most helpful to a CPA in deciding whether to accept a new
audit client? 9. The principal reason for developing a written audit program is to help assure that the
A. Reviewing industry benchmarking data. A. Audit work is properly supervised.
B. Evaluating the CPA's ability to properly service the client. competense B. Work of different auditors is properly coordinated.
C. Evaluating the most recent peer review of the client's previous auditor. C. Audit work is properly planned and documented.
D. Considering the client's compensation methods. D. Audit report contains only significant findings.

2. Which of the following factors most likely would lead a CPA to conclude that a potential audit 10. Holding other planning considerations equal, a decrease in the amount of misstatement in a class of ↓ misstatement = more strict

engagement should not be accepted? transactions that an auditor could tolerate most likely would cause the auditor to
A. Internal control activities requiring the segregation of duties are subject to management A. Apply the planned substantive tests prior to the balance sheet date. interim
override. B. Perform the planned auditing procedures closer to the balance sheet date.
B. There are significant related-party transactions that management claims occurred in the C. Increase the assessed level of control risk for relevant financial statement assertions.
ordinary course of business. D. Decrease the extent of auditing procedures to be applied to the class of transactions.
C. It is unlikely that sufficient appropriate evidence is available to support an opinion on the
financial statements. 11. Why do auditors establish a preliminary judgment about materiality?
D. Management continues to employ an inefficient system of information technology to record A. To determine the appropriate level of audit experience required for the work.
financial transactions. B. So that the client can know what records to make available to the auditor.
C. To plan the appropriate audit evidence to accumulate and develop an overall audit strategy.
3. One purpose of establishing quality management policies and procedures for acceptance and D. To finalize the assessment of control risk.
continuance of client relationships and specific engagements is to
A. Provide reasonable assurance that personnel will be adequately trained to fulfill their 12. Which of the following statements is not true?
assigned responsibilities. A. Inherent risk is the auditor’s assessment of the likelihood that errors exceeding a tolerable
B. Undertake engagements only that the accounting firm is competent to perform. amount exist in a segment before considering the effectiveness of internal controls.
C. Monitor significant deficiencies in the design and operation of the client’s internal control. B. Inherent risk is inversely related to detection risk.
D. Identify noncompliance with aspects of contractual agreements that affect the financial C. Inherent risk is the susceptibility of the financial statements to material error, assuming no
statements. internal controls.
D. Inherent risk is inversely related to evidence. direct a more evidence
4. Within the context of quality management, a primary purpose of the engagement performance
element is to help ensure that 13. In an audit of financial statements in accordance with generally accepted auditing standards, an
A. CPA firm personnel have adequate technical training. auditor is required to
B. Engagements are adequately supervised. A. Determine whether controls are suitably designed to prevent or detect material
C. The CPA firm undertakes only those engagements it is competent to perform.
& acceptance
incidental
[ misstatements.
B. Search for significant deficiencies in the operation of internal control.
D. CPA firm personnel comply with relevant ethical requirements.
C. Perform tests of controls to evaluate the effectiveness of the entity’s internal control. X PSAT00
5. The auditor with final responsibility for an engagement and one of the assistants have a difference D. Document the auditor’s understanding of the entity’s internal control.
of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be
disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to 14. A primary objective of procedures performed to obtain an understanding of internal control is to
A. Refer the disagreement to the IAASB's Quality Review Committee. provide an auditor with
B. Discuss the disagreement with the entity's management or its audit committee. A. A basis for modifying tests of controls.
C. Document the details of the disagreement with the conclusion reached. B. Evidence to use in assessing inherent risk.
D. Report the disagreement to an impartial peer review monitoring team. C. Knowledge necessary to assess the risks of material misstatements.
D. An evaluation of the consistency of application of management’s policies.
6. The audit work performed by each assistant should be reviewed to determine whether it was
adequately performed and to evaluate whether the 15. Which of the following is correct with respect to the use of analytical procedures?
A. Auditor's system of quality control has been maintained at a high level. A. Analytical procedures may be used in evaluating balances in the testing phase as long as the
B. Results are consistent with the conclusions to be presented in the auditor's report. auditor also uses them in assessing the going concern assumption.
C. Audit procedures performed are approved in the professional standards. B. Analytical procedures must be used throughout the audit.
D. Audit has been performed by persons having adequate technical training and proficiency as C. Analytical procedures used in the testing phase of the audit are primarily used to direct an
auditors. auditor’s attention so that the auditor’s understanding of the business is improved.
D. Analytical procedures are performed by studying plausible relationships between financial and
7. PSQM 2 requires firms to establish policies or procedures that specify cooling-off, as a condition for nonfinancial data.
eligibility, before the engagement partner can assume the role of engagement quality reviewer. How
long before can an engagement partner assume the role of quality reviewer? 16. After assessing control risk, an auditor desires to seek a further reduction in the assessed level of
A. Between one to two years. control risk. At this time, the auditor would consider whether
B. Less than two years A. The entity’s controls have been implemented.
C. Two years or a longer period if required by relevant ethical requirements, B. Additional audit evidence sufficient to support a further reduction is likely to be available.
D. Depends on the policy established by the person with overall responsibility for the system of C. It would be efficient to obtain an understanding of the entity’s information system.
quality management. D. The entity’s controls pertain to any financial statement assertions.

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Batch 48 – October 2024 CPA Licensure Examination Batch 48 – October 2024 CPA Licensure Examination

17. Assessing control risk at a low level most likely would involve 25. Which of the following actions should the auditor take in response to discovering a deviation from
A. Performing more extensive substantive tests with larger sample sizes than originally planned. the prescribed control procedure? ↑ CR reliance
B. Identifying specific controls relevant to specific assertions. A. Make inquiries to understand the potential consequence of the deviation. might be error
an
only
C. Reducing inherent risk for most of the assertions relevant to significant account balances. B. Assume that the deviation is an isolated occurrence without audit significance.
D. Changing the timing of substantive tests by omitting interim-date testing and performing the C. Report the matter to the next higher level of authority within the entity. - Fraud
tests at year-end. more strict D. Increase sample size of tests of controls. more reliance
18. Which of the following statements best describes the auditor’s responsibility regarding the detection
26. Alpha Company uses its sales invoices for posting perpetual inventory records. Inadequate controls
of material errors and fraud?
over the invoicing function allow goods to be shipped that are not invoiced. The inadequate controls
A. The auditor is responsible for the failure to detect material errors and fraud only when such
could cause an in records the
inuty did not moved
failure results from the nonapplication of generally accepted accounting principles.
,

A. Understatement of revenues, receivables, and inventory.

B. Auditing procedures may or may not need to be extended if the auditor’s analysis indicates
B. Overstatement of revenues and receivables, and an understatement of inventory.
the existence of fraud risk factors.
C. Understatement of revenues and receivables, and an overstatement of inventory.
C. The auditor is responsible for the failure to detect material errors and fraud only when the
D. Overstatement of revenues, receivables, and inventory.
auditor fails to confirm receivables or observe inventories.
D. Extended auditing procedures are required to detect unrecorded transactions even if there is
27. Which of the following types of evidence would an auditor most likely examine to determine whether
no evidence that material errors and fraud may exist.
controls are operating as designed?
19. While performing their audit, the audit team uncovers fraud that is likely to have an immaterial effect A. Confirmations of receivables verifying account balances.
on the financial statements taken as whole. In this case the auditors should B. Letters of representations corroborating inventory pricing. J si-monetary
A. Plan on additional audit procedures to determine the exact amount of the fraud. C. Attorneys’ responses to the auditor’s inquiries. completing the audit
B. Disclose the fraud to the appropriate level of management or to the audit committee. D. Client records documenting the use of computer programs.
C. Communicate with legal authorities as to the identity of the fraudsters.
D. Call the whistleblower hotline and name the suspected individuals. 28. When an auditor tests a computerized accounting system, which of the following is true of the test
data approach?
20. An auditor who discovers that client employees have committed an illegal act that has a material A. Several transactions of each type must be tested.
effect on the client's financial statements most likely would withdraw from the engagement if B. Test data are processed by the client’s computer programs under the auditor’s control.
A. The illegal act is a violation of generally accepted accounting principles. C. Test data must consist of all possible valid and invalid conditions.
B. The client does not take the remedial action that the auditor considers necessary. D. The program tested is different from the program used throughout the year by the client.
C. The illegal act was committed during a prior year that was not audited.
D. The auditor has already assessed control risk at the maximum level. 29. Auditing by testing the input and output of a computer system instead of the computer program itself
will auditing around
21. An auditor suspects that a client’s cashier is misappropriating cash receipts for personal use by A. Not detect program errors which do not show up in the output sampled.
lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, B. Detect all program errors, regardless of the nature of the output. only those who wish to test
the auditor most likely would compare the C. Provide the auditor with the same type of evidence as tests of application controls.
A. Daily cash summaries with the sums of the cash receipts journal entries. D. Not provide the auditor with confidence in the results of the auditing procedures. depending on the risk
B. Individual bank deposit slips with the details of the monthly bank statements.
C. Dates checks are deposited per bank statements with the dates remittance credits are 30. On the basis of audit evidence related to internal control, an auditor decides to increase the assessed
recorded. level of the risk of material misstatement from that originally planned. To achieve an overall audit
D. Dates uncollectible accounts are authorized to be written off with the dates the write-offs are risk level that is substantially the same as the planned audit risk level, the auditor would
actually recorded. A. Decrease substantive testing.
B. Decrease detection risk.
22. A client maintains perpetual inventory records in both quantities and pesos. If the assessed level of
C. Increase materiality levels.
control risk is high, an auditor would probably more strict
D. Increase the inherent risk.
A. Insist that the client perform physical counts of inventory items several times during the year.
B. Request the client to schedule the physical inventory count at the end of the year.
31. When an auditor discovered that certain control activities were ineffective, the auditor should increase
C. Apply gross profit tests to ascertain the reasonableness of the physical counts.
A. Level of detection risk. less strict
D. Increase the extent of tests of controls of the inventory cycle.
B. Extent of tests of details. ST
23. An audit client failed to maintain copies of its procedures manuals and organizational flowcharts. C. Level of inherent risk.
What should the auditor do in an audit of financial statements? D. Extent of tests of controls. ineffective
A. Issue a qualified opinion on the basis of a scope limitation.
32. While testing a sample of an audit client's bank reconciliations during the year under audit, an
B. Document the auditor’s understanding of internal control.
auditor notices that several immaterial deposits in transit did not clear the bank in a timely manner.
C. Assess control risk at the maximum level.
The auditor suspects there may be fraud. Which of the following audit responses is most appropriate
D. Restrict the auditor’s responsibility to assess the effectiveness of controls in the audit
in this situation?
engagement letter.
A. Because the findings are not material, the auditor should project the errors to the population
24. After obtaining an understanding of internal control and assessing the risk of material misstatement, and consider the materiality of the projected misstatement in the auditor's concluding
an auditor decided to perform tests of controls. The auditor most likely decided that prelim CR less
: than
high procedures.
A. An increase in the assessed level of risk of material misstatement is justified for certain B. The auditor should consider the implications for the integrity of management or employees
financial statement assertions. and the possible effect on other aspects of the audit.
B. Additional evidence to support a further reduction in the risk of material misstatement is not C. The auditor should focus on material misstatements and not consider these immaterial
available. findings or potential errors further.
C. It would be efficient to perform tests of controls that would result in a reduction in planned D. The auditor should report the finding to the appropriate level of management immediately.
substantive tests.
D. There were many internal control weaknesses that could allow misstatements to enter the
accounting system.

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Batch 48 – October 2024 CPA Licensure Examination Batch 48 – October 2024 CPA Licensure Examination

33. Auditors may identify conditions during fieldwork that change or support a judgment about the initial 42. Analytical procedures used in the overall review stage of an audit generally include
assessment of fraud risks. Which of the following is not a condition which should alert an auditor that A. Gathering evidence concerning account balances that have not changed from the prior year.
the initial assessment should be changed? B. Retesting control procedures that appeared to be ineffective during the assessment of control
A. Preliminary assessment of control risk has been modified risk. TOC
B. Discrepancies in the accounting records C. Considering unusual or unexpected account balances that were not previously identified.
C. Unusual relationships between the auditor and management D. Performing tests of transactions to corroborate management's financial statement assertions. ST
D. Missing or conflicting evidence
43. In the auditing profession, there is a need for uniformity in reporting in order to
TOC & ST & the same time : 34. The objective of tests of details of transactions performed as tests of controls is to I. Avoid confusion
A. Monitor the design and use of entity documents such as prenumbered shipping forms. II. Promote credibility in the global marketplace
dual purpose test B. Determine whether controls have been implemented. J RAP "design" A. I only
C. Detect material misstatements in the account balances of the financial statements. ST B. II only
D. Evaluate whether controls operated effectively. TOC C. Both I and II
D. Neither I nor II
35. The negative form of accounts receivable confirmation request is particularly useful except when ) less strict)
A. A large number of small balances are involved. 44. An audit report contains the following paragraph: “Since the company did not take physical
B. Control procedures surrounding accounts receivable are considered to be effective. inventories and we were not able to apply auditing procedures to satisfy ourselves as to inventory
C. Individual account balances are relatively large. positive confirmation quantities and the cost of property and equipment, the scope of our work was not sufficient to enable
D. The auditor has reason to believe the persons receiving the requests are likely to give them us to express, and we do not express, an opinion on these financial statements.” This paragraph
consideration. amount being confirmed
reply disagree
:
illustrates a (an) scope limitation
no reply : agreed A. Disclaimer of opinion due to uncertainty
36. When obtaining evidence regarding litigation against a client, the CPA will be least interested in B. Disclaimer of opinion due to scope restrictions
determining? C. Adverse audit opinion
A. The probability of an unfavorable outcome D. Audit opinion qualified for material scope restrictions.
B. An estimate of when the matter will be resolved
C. The period in which the underlying cause of the litigation occurred 45. Tatsuki is the external auditor for Heavenly Host Enterprises. The company provided him with the
D. An estimate of the potential loss statement of cash flows, statement of financial position and statement of comprehensive income.
The company did not provide him the statement of retained earnings and statement of changes in
37. Auditors may identify conditions during fieldwork that change or support a judgment about the initial equity. If the omission proves to be somewhat close to the level of materiality, what should be
assessment of fraud risks. Which of the following is not a condition which should alert an auditor that Tatsuki's opinion? "
immaterial"
the initial assessment should be changed? A. Qualified
A. The auditor’s lack of independence B. Unqualified
B. Discrepancies in the accounting records C. Adverse
C. Unusual relationships between the auditor and management D. Disclaimer of Opinion
D. Missing or conflicting evidence
46. An entity ordinarily issues on an annual basis a document which includes its financial statements
38. Auditors who prefer statistical sampling to non-statistical sampling may do so because statistical together with the audit report thereon. This document is frequently referred to as the
sampling helps the auditor A. Annual report
A. Measure the sufficiency of the evidential matter obtained B. Annual document
B. Minimize the failure to detect errors and irregularities. C. Annual financial statement
C. Eliminate subjectivity in the evaluation of sampling results D. Audit report
D. Reduce the level of tolerable error to a relatively low amount.
47. CPA Firm A has performed most of the audit of Consolidated Company’s financial statements and
39. Alpha risk in statistical sampling is (efficiency) qualities as the principal auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume
A. Related to non-sampling risk. full responsibility for Firm B’s work. Which of the following statements is CORRECT?
B. The risk that a material misstatement will occur in a financial statement assertion and the audit A. In such circumstances, when appropriate requirements have been met, Firm A should issue an
will not detect it. unqualified opinion on the financial statements but should make appropriate reference to the
C. The risk of deciding a book balance is materially misstated when it is fairly stated. Firm B in the audit report.
D. The risk of selecting a sample that is too small. B. In such circumstances, when appropriate requirements have been met, Firm A should issue a
unqualified opinion on the financial statements.
40. To determine whether internal control effectively minimized errors of failure to bill a customer for a C. Such assumption of responsibility violates the profession’s standards
shipment, the auditor would select a sample of transactions from the population represented by the D. CPA Firm A should normally qualify its audit report on the basis of the scope limitation involved
A. Subsidiary customer accounts ledger when another CPA firm in involved.
B. Customer order file
C. Shipping records file 48. Which of the following material events occurring subsequent to the December 31, 2023, reporting
D. Sales invoice date would not ordinarily result in an adjustment to the financial statements before they are issued
on March 2, 2024? non-adjusting
41. When considering the use of management’s written representations as audit evidence about the A. Write-off of a receivable from a debtor who had suffered from deteriorating financial condition
completeness assertion, an auditor should understand that such representations complementary for the past 6 years. The debtor filed for bankruptcy on January 23, 2024.
A. Complement, but not replace, substantive tests designed to support the assertion B. A 3 for 5 reverse stock split consummated on January 23, 2024. adjust but memo entry
B. Are not part of the audit evidence considered to support the assertion C. Acquisition of a subsidiary on January 23, 2024. Negotiations had begun in December 2023. disclosure
C. Replace a low assessed level of control risk as audit evidence to support the assertion D. Settlement of extended ligation of January 23, 2024 in excess of the recorded year-end liability.
D. Constitute sufficient appropriate audit evidence to support the assertion when considered in
combination with a sufficiently low assessed level of control risk

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Batch 48 – October 2024 CPA Licensure Examination Batch 48 – October 2024 CPA Licensure Examination

49. On February 25, a CPA issued an auditor’s report expressing an unqualified opinion on financial 55. S1: When encountering such non-compliance or suspected non-compliance, the accountant shall
statements for the year ended January 31. On March 2, the CPA learned that on February 11, the obtain an understanding of those legal or regulatory provisions and comply with them, including any
entity incurred a material loss on an uncollectible trade receivable as a result of the deteriorating requirement to report the matter to an appropriate authority and any prohibition on alerting the
financial condition of the entity’s principal customer that led to the customer's bankruptcy. client.
Management then refused to adjust the financial statements for this subsequent event. The CPA S2: A self-interest or intimidation threat to compliance with the principles of integrity and professional
determined that the information is reliable and that there are creditors currently relying on the behavior is created when a professional accountant becomes aware of non-compliance or suspected
financial statements. The CPA’s next course of action most likely would be to noncompliance with laws and regulations.
A. Notify the entity’s creditors that the financial statements and the related auditor’s report should A. False, true
no longer be relied on. B. True, false
B. Issue revised financial statements and distribute them to each creditor known to be relying on C. True, True
the financial statements. D. False, false
C. Notify each member of the entity’s board of directors about management’s refusal to adjust the
financial statements. 56. In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing
D. Issue a revised auditor’s report and distribute it to each creditor known to be relying on the any confidential information about a client?
financial statements. A. An inquiry by a disciplinary body of a CPA society requests confidential client information.
B. Confidential client information is made available as part of a quality review of the CPA’s
50. An auditor’s report on financial statements prepared in accordance with another comprehensive basis practice by a peer review team authorized by law or regulation.
of accounting should include all of the following except C. A major stockholder of a client company seeks accounting information from the CPA after
A. Reference to the note to the financial statements that describes the basis of presentation. management declined to disclose the requested information.
B. An opinion as to whether the financial statements are presented fairly in conformity with the D. The CPA is issued a summons enforceable by a court order which orders the CPA to present
comprehensive basis of accounting. confidential information.
C. A statement that the basis of presentation is a comprehensive basis of accounting other than
generally accepted accounting principles. 57. Independence is linked to the principles of
D. An opinion as to whether the basis of accounting used is appropriate under the circumstances. A. Objectivity, integrity and confidentiality
B. Objectivity and integrity
51. Harris, CPA, has been asked to audit and report on the balance sheet of Fox Co. but not on the C. Objectivity
statements of income, retained earnings, or cash flows. Harris will have access to all information D. Integrity and due care
underlying the basic financial statements. Under these circumstances, Harris may
A. Not accept the engagement because it would be tantamount to rendering a piecemeal opinion. 58. Which of the following statements about independence in assurance engagements is false?
B. Accept the engagement but should disclaim an opinion because of an inability to apply the A. A firm shall document conclusions regarding its compliance with the independence
procedures considered necessary. requirement of the Code, and the substance of any relevant discussions that support such
C. Accept the engagement because such engagements merely involve limited reporting objectives. conclusions.
D. Not accept the engagement because it would constitute a violation of the profession’s ethical B. Independence is linked to the principles of objectivity and integrity. It comprises
standards. independence of mind and independence in appearance.
C. There is no threat to independence if a non-assurance service was provided to an audit client
during or after the period covered by the financial statements, but before the engagement
52. Which of the following is a prospective financial information for general use upon which an accountant
team begins to perform the audit, and the service would not be permitted during the
may appropriately report?
engagement period.
I. Financial projection D. Independence shall be maintained during both the engagement period and the period
II. Pro forma financial statement covered by the financial statements. assurance & independence :
synonymous
III. Financial forecast
59. Which threat/s might be created if, before the period covered by the audit report, a team member
A. I only
had served as a director of officer of an audit client or was an employee in apposition to exert
B. III only
significant influence over the preparations of the client’s accounting records or financials attempts on
C. I and III only
which the firm will express an opinion?
D. All of these.
A. Self-interest
B. Self-review
53. In relation to offering and accepting of inducements when performing professional services, a
C. Familiarity
professional shall take into consideration the provision of the Code. Which of the following statements
D. All of these
is/are true?
I. An inducement is an object, situation, or action that is used to influence another individual’s
60. Which of the following threats is most likely created when an individual is involved in an audit
behavior, with the sole intent to improperly influence that individual’s behavior. not necessarily
engagement over a long period of time?
II. The offering or accepting of inducements that is not prohibited by laws and regulations might
A. Advocacy and familiar threats.
still create threats to compliance with the fundamental principles.
B. Familiarity threat.
A. Statement I C. Self-interest threat.
B. Statement II D. Familiarity and self-interest threats.
C. Both statements
D. Neither I nor II
END OF PREWEEK LECTURE GAR
54. The exercise of due professional care requires that an auditor
,
CPA
A. Examine all available corroborating evidence.
B. Critically review the judgment exercised at every level of supervision.
C. Reduce control risk below the maximum.
D. Attain the proper balance of professional experience and formal education.
L
professional competence

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