Question 1

 Auditing came from the Greek word "audire" which means "to hear". F
Question 2
 Inherent risk is a risk that the auditor gives an inappropriate audit opinion. F
Question 3
 The knowledge of the business may be general or particular. T
Question 4
 The risk of material misstatement is composed of Inherent risks, Control risks, and Detection
risk. F
Question 5
 The Overall Audit Plan sets out in broad terms the nature, timing, and extent of the audit
procedures to be performed. T
Question 6
 Materiality refers to the analysis of significant ratios and trends including the resulting
investigation of fluctuations and relationships that are inconsistent with other relevant
information or which deviate from predicted amounts. F
Question 7
 The objective of audit is “to enhance the degree of confidence” of intended users in the
financial statements F
Question 8
 Enhancing the auditor’s understanding of the client’s business is an analytical procedure
performed at the execution stage. F
Question 9
 Materiality provides a threshold or cut-off point. T
Question 10
 Establishing whether the preconditions for an audit are present is an essential planning
requirement. F
Question 1
 In conducting an audit of financial statements, the overall objectives of the auditor are:

Financial statements are free from material misstatement and it’s prepared using applicable
financial reporting framework
Question 2
 Which of the following best describes the objective of an audit of financial statements?

1. To obtain reasonable assurance whether the financial statements are free from material
misstatement and it’s prepared using applicable financial reporting framework 2. To report on
the financial statements and communicate auditor’s findings as required
Question 3
 When engaged in the practice of public accounting, the most fundamental and cornerstone of
the philosophical structure of auditing is: Independence
Question 4
 The essence of the audit function is to:
Determine whether the client’s financial statements are fairly stated

Question 5
 An independent auditor aids in the communication of economic data because the audit,
Lends credibility
Question 6
 The financial reporting framework adopted by management and, where appropriate, those
charged with governance in the preparation and presentation of the financial statements that is
acceptable in view of the nature of the entity and the objective of the financial statements, or
that is required by law or regulation.
Applicable financial reporting framework
Question 7
 It refers to person(s) with executive responsibility for the conduct of the entity's operations.
Management
Question 8
 A concept relating to the accumulation of the audit evidence necessary for the auditor to
conclude that there are no material misstatements in the financial statements taken as a
whole.
Reasonable assurance
Question 1

 There four (4) management's assertions in conducting an audit. F

Question 2

 This kind of opinion should be worded as being “except for the effects (or possible effects) of
the matter to which the qualification relates”. QUALIFIED OPINION
Question 3

 A disclaimer opinion is an unmodified type of opinion. F

Question 4

 Rights and Obligations is when the management asserts that the entity has property rights to
control over all recorded assets, and that all liabilities represent obligations at the reporting
date. T
Question 5
 If the auditor is unable to obtain sufficient appropriate audit evidence on which to base the
opinion and that the possible effects on the financial statements of undetected misstatements,
if any, could be material but not pervasive, an adverse opinion is expressed. F
Question 6

 It is existence when the management asserts that all assets, liabilities and equity reported in
the financial statements are complete at the reporting date and that reported income is earned
and reported expenses are incurred during the reported period. F
Question 7

 It is not possible not to have an opinion. F

Question 8

 This kind of opinion should be expressed when the effects of misstatements are both material
and pervasive. ADVERSE
Question 9

 It is an opinion when the auditor concludes that the financial statements are presented fairly,
in all material respects, with the applicable financial reporting framework. UNMODIFIED

PRE1 – 1ST QUIZ

1. Which of the following is not a recommendation usually made following the completion of
operational audit?
Answer: Attesting to the fairness of the Financial Statement

2. What is the term used to identify the risk that the client’s Financial Statements materially
false and misleading?
Answer: Information Risk

3. The Audit objective that all the transactions and accounts presented in the financial
statements represents real assets, liabilities, revenues and expenses is related most closely to
which of the PCAOB assertions?
Answer: Existence and Occurrence

4. To be proficient as an auditor, a person must first be able to accomplish which of these tasks
in decision making process?
Answer: Recognize the financial assertion made in managements Financial statements and
footnotes

5. The Audit objective that all transactions and accounts that should be presented in the
Financial statements are in fact included is related to which of the PCAOB assertion?
Answer: Completeness

6. Which of the following is not included in the American Accounting Association (AAA)
definition of auditing?
Answer: Potential conflict of Interest

7. The Audit objective that all transactions are recorded in the proper period is related most
closely to which of the Audit Standards Board (ASB) transaction assertion?
Answer: Cutoff

8. which of the following is an underlying condition that in part creates the demand by users for
reliable information?
Answer: All of the given answers are correct

9. in order to be considered as external auditors with respect to government agencies, GAO

auditors must be
Answer: Organizationally Independent

10. Which of the following is the essential purpose of the audit function?
Answer: Determination of whether the client’s financial statement assertion are fairly stated.

PRE1 – 2ND QUIZ

1. The auditor communicates the result of his or her work through the medium of the
Answer: Audit Report

2. The framework for auditing and related services as addressed by PSA excludes
Answer: Tax Services

3. Which of the following is an objective of a review engagement?

Answer: Reporting whether material modifications should be made to such financial statements
to make them conform with generally accepted accounting principles.

4. The single feature that most clearly distinguishes auditing, attestation, and assurance is
Answer: Scope of services

5. The three types of attestation services are

Answer: Audits, review and other attestation services

6. Any services in which the CPA firm issues a written communication that express a conclusion
with respect to the reliability of a written assertion that is the responsibility of another party is
a(n)
Answer: Attestation service

7. The criteria for evaluating quantitative information vary. For example, in the audit of
historical financial statements by CPA firms, the criteria are usually
Answer: Generally accepted accounting principles
8. Certain fundamental beliefs called “postulates” underlie auditing theory. Which of the
following is not a postulate of auditing?
Answer: An audit has a benefit only to the owners.

9. According to Philippine Standard on Auditing, the procedures employed in doing compilation

are:
Answer: Not designed to enable the accountant to express any form of assurance.

10. Which of the following criteria is unique to the independent auditor’s attest function?
Answer: Independence

11. The expertise that distinguishes auditors from accountant is in the

Answer: Accumulation and interpretation of evidence.

12. It refers to the level of auditor’s satisfaction as to the reliability of an assertion being made
bu one party for use by another party.
Answer: Assurance level

13. Assurance engagement

Answer: Is an engagement intended to enhance the credibility of information about a subject
matter by evaluating whether the subject matter conforms in all material respects with suitable
criteria, thereby improving the likelihood that the information will meet the needs of an
intended user.

14. Which of the following is true of the report based on agreed-upon-procedures?

Answer: The report is restricted to those parties who have agreed to the procedure to be
performed.

15. In all cases, audit report must

Answer: Inform readers of the degree of correspondence between the quantifiable information
and the established criteria.

16. Which of the following is not primary category of attestation report?

Answer: Compilation report

17. As used in auditing, which of the following statements best describes “assertions”?
Answer: Assertions are the representations of management as to fairness of the financial
statements.

18. Which of the following types of audit uses as its criteria and regulations?
Answer: Compliance audit

19. A review of any part of an organization’s procedures and methods for the purpose of
evaluating efficiency and effectiveness is classified as a(n)
Answer: Operational audit

20. The primary goal of the CPA in performing the attest function is to
Answer: Determine whether the client’s assertions are fairly stated
PRE1 - 3RD QUIZ

 Before accepting an audit engagement, a successor auditor should make specific inquiries
of the predecessor auditor regarding the predecessor’s
Answer: Understanding as to the reasons for the change of auditors.

 A successor auditor most likely would make specific inquiries of the predecessor auditor
regarding
Answer: Disagreements with management as to auditing procedures.

 An audit engagement letter least likely includes

Answer: Identification of specific audit procedures that the auditor needs to undertake.

 Which of the following is a NOT valid reason for a change of the engagement to a lower
“level of assurance”?
Answer: Restriction on the scope of the engagement.

 The following are valid reasons why an auditor sends to his clients an engagement letter:
I. Avoid misunderstanding with respect to engagement
II. Confirms the auditor’s acceptance of the appointment
III. Objective and scope of audit
IV. Assures CPA’s compliance to GAAS
Answer: Only reasons I, II and III are valid

 Which of the following least likely requires the auditor to send a new engagement letter?
Answer: A recent change in the audit firm’s management.

 Which of the following is appropriately included in an audit engagement letter?

I. Because of the test nature and other inherent limitations of an audit, together with the
inherent limitations of any accounting and internal control system, there is an unavoidable risk
that even some material misstatements may remain undiscovered.
II. The audit will be made with the objective of expressing an opinion on the financial
statements.
III. An audit also includes assessing the accounting procedures used and significant estimates
made by management.
Answer: I and II

 According to PSA 210, which of the following statements is correct?

Answer: The auditor may agree to a change of engagement where there is reasonable
justification for doing so.

 The objective and scope of the audit and the extent of the auditor’s responsibilities to the
clients are best documented in
Answer: Audit engagement letter
 Which of following least likely influence the auditor’s decision to send a separate
engagement letter to a component of parent entity client?
Answer: Location of the principal place of business of the component entity

 When an independent auditor is approached to perform an audit for the first time, he or
she should make inquiries of the predecessor auditor. Inquiries are necessary because the
predecessor may be able to provide the successor with information that will assist the
successor in determining whether
Answer: The engagement should be accepted.

 Which of the following is least likely included in an audit engagement letter?

Answer: The objective of financial reporting.

 Prior to the acceptance of an audit engagement with a client who has terminated the
services of the predecessor auditor, the CPA should
Answer: Advise the client of the intention to contact the predecessor auditor and request
permission for the contact.

 If permission from client to discuss its affairs with the proposed auditor is denied by the
client, the predecessor auditor should:
Answer: Disclose the fact that the permission to disclose is denied by the client.

 Which of the following should an auditor obtain from the predecessor auditor prior to
accepting an audit engagement?
Answer: Facts that might bear on the integrity of management.

PRE1 – 4TH QUIZ

 Which of the following statements is not correct about materiality?

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.

 Which of the following is an aspect of scheduling and controlling the audit engagement?
Answer: Including in the audit program a column for estimated and actual time.

 The risk that the assertion contains material misstatements that, when aggregated with
misstatements in other assertions, could make the entire financial statements materially
misstated is:
Answer: Individual audit risk

 Which of the following is required documentation in an audit in accordance with

generally accepted auditing standards?
Answer: An audit program setting forth in detail the procedures necessary to accomplish
the engagement’s objectives
 Which of the following is an effective audit planning and control procedures that helps
prevent misunderstandings and inefficient use of audit personnel?
Answer: Arrange a preliminary conference with the client to discuss audit objectives, fees,
timing, and other information.

 Analytical procedures used in planning an audit should focus on

Answer: Enhancing the auditor’s understanding of the client’s business.

 Which of the following statements is correct concerning analytical procedures?

Answer: Analytical procedures used in planning an audit generally use data aggregated at a
high level.

 The development of general strategy and a detailed approach for the expected nature,
timing, and extent of audit refers to:
Answer: Planning

 Which of the following would a successor auditor normally perform after acceptance of
an audit client?
Answer: Review of predecessor auditor working papers

 The auditor should consider the nature, extent, and timing of the work to be performed
and should prepare a written audit program for every audit. Which audit standard is
most closely related to this requirement?
Answer: The work is to be adequately planned and assistants, if any, are to be properly
supervised.

 Incremental risk is the increased risk that errors may not to be detected at the balance
sheet date because:
Answer: Audit procedures were performed at an interim date

 To obtain an understanding of a continuing client’s business in planning an audit, an

auditor most likely would
Answer: Review prior-year working papers and the permanent file for the client

 Which of the following procedures would an auditor most likely perform in planning a
financial statement audit?
Answer: Comparing the financial statements to anticipated results.

 Analytical procedures, which means the analysis of significant ratios and trends
including the resulting investigation of fluctuations and relationships that are consistent
 with other relevant information or which deviate from predicted amounts, are not
required to be applied
Answer: As substantive procedures

 Which of the following is an engagement attribute for an audit of an entity that

processes most of its financial data in electronic form without any paper
documentation?
Answer: Performance of audit tests on a continuous basis.