ACC 139: Assurance and Audit Principles

Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

ACC 139: Assurance and Audit Principles Student Activity Sheet; calculator;
pencil with eraser, ball pen and
Second Periodical Exam Scantron Answer Sheet

Instruction: Kindly read each question and shade/input the letter of your choice on the answer sheet
provided. Answers with erasure or superimposition of any kind will be deemed incorrect.

1. The auditor should determine overall responses to address the risks of material misstatement at the
financial statement level. Such responses least likely include
a. Emphasizing to the audit team the need to maintain professional scepticism in gathering and
evaluating audit evidence.
b. Assigning more experienced staff or those with special skills or using experts.
c. Incorporating additional elements of unpredictability in the selection of further audit procedures to
be performed.
d. Performing substantive procedures at an interim date instead of at period end.

2. Which statement is incorrect regarding the nature of further audit procedures?

a. The nature of further audit procedures refers to their purpose and their type.
b. Certain audit procedures may be more appropriate for some assertions than others.
c. The higher the auditor’s assessment of risk, the less reliable and relevant is the audit evidence
sought by the auditor from substantive procedures.
d. All of the above.

3. Which statement is incorrect regarding the timing of further audit procedures?

a. The timing refers to when audit procedures are performed or the period or date to which the audit
evidence applies.
b. The auditor may perform test of controls or substantive procedures at an interim date or at period
end.
c. If the auditor performs tests of controls or substantive procedures prior to period end, the auditor
considers the additional evidence required for the remaining period.
d. All audit procedures can be performed prior to period end.

4. Which statement is incorrect regarding the extent of further audit procedures?

a. Extent includes the quantity of a specific audit procedure to be performed.
b. The extent of an audit procedure is determined by the judgment of the auditor after considering the
materiality, the assessed risk, and the degree of assurance the auditor plans to obtain.
c. The auditor ordinarily decreases the extent of audit procedures as the risk of material misstatement
increases.
d. All of the above.

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

5. The auditor should design and perform further audit procedures whose nature, timing, and extent are
responsive to the assessed risks of material misstatement at the assertion level. Which of the following
is the most important consideration in responding to the assessed risks?
a. The nature of the audit procedures
b. The extent of the audit procedures
c. The timing of the audit procedures
d. All of these are equally important

6. Reasons to evaluate internal control would not include

a. Basis for planning the audit
b. Determining the nature, timing and extent of substantive procedures
c. Basis for type of opinion to be rendered
d. Formulating constructive suggestions for improvements

7. An auditor uses the knowledge provided by the understanding of internal control and the assessed level
of control risk primarily to
a. Determine whether procedures and records concerning the safeguarding of assets are liable
b. Ascertain whether the opportunities to allow any person to both perpetrate and conceal fraud are
minimized.
c. Modify the initial assessments of inherent risk and preliminary judgments about materiality levels.
d. Determine the nature, timing, and extent of substantive tests for financial statement assertions.

8. After obtaining a sufficient understanding of internal control, the auditor assess

a. The need to apply PSA
b. Detection risk to determine the acceptable level of inherent risk
c. Detection risk and inherent risk to determine the acceptable level of control risk.
d. Control risk to determine the acceptable level of detection risk.

9. In the audit of a private company, the auditor will test control when control risk is initially assessed at:
LOW MODERATE HIGH
a. Yes No Yes
b. No No Yes
c. Yes Yes No
d. No Yes No

10. For the auditor to assess control risk for account balances at less than the maximum
a. No significant weaknesses must have occurred
b. The internal auditor must test and evaluate some of the controls
c. The external auditor must test and evaluate some of the controls
d. Management must test and evaluate some of the controls

11. Evaluate whether each of the following statements qualifies as sampling:

1.1 – Test performed on 100% of the items within a population
1.2 Selecting items over a certain amount

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

1.3 Selecting items for the total population on the basis that was expected to be representative
a. 1.1,1.2, 1.3 qualify
b. 1.1 and 1.2 qualify; 1.3 does not qualify
c. 1.1 and 1.2 do not qualify; 1.3 qualifies
d. 1.1, 1.2, 1.3 do not qualify

12. Audit sampling, which involves the application of audit procedures to less than 100 per cent of items
within a population of audit relevance such that all sampling units have a chance of selection, identifies
two general approaches to audit sampling. They are
a. Random and non-random
b. Statistical and non-statistical
c. Precision and reliability
d. Risk and nonrisk

13. An advantage of statistical sampling over non-statistical sampling is that statistical sampling helps an
auditor to
a. Minimize the failure to detect errors and irregularities
b. Eliminate the risk of non-sampling errors
c. Reduce the level of audit risk and materiality to a relatively low amount
d. Mathematically measures sampling risk

14. A non-statistical sampling can:

a. Overstate the estimate of sampling risk
b. Misdirect an auditor to unreliable sampling units
c. Replicate the results of a statistical sampling plan
d. Understate the degree of audit assurance desired

15. The risk that the auditor’s conclusion based on a sample may be different from the conclusion if the
entire population were subjected to the same audit procedure
a. Sampling risk
b. Confidence levels
c. Statistical sampling
d. Tolerable rate and the expected rate of deviation

16. At times a sample may indicate in the case of a test of controls, that controls are more effective than
they actually are. This situation illustrates the risk of
a. Over-reliance
b. Under-reliance
c. Incorrect precision
d. Incorrect rejection

17. At times a sample may indicate in the case of a test of details that a material misstatement does not
exist when in fact it does. This situation illustrates the risk of
a. Incorrect rejection

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

b. Incorrect acceptance
c. Over-reliance
d. Under-reliance

18. The risk likelihood of assessing control risk too low (risk of over-reliance) and risk of incorrect
acceptance relate to the
a. Efficiency of the audit
b. Effectiveness of the audit
c. Preliminary estimates of materiality levels
d. Allowable risk of tolerable misstatements

19. The risk that the auditor does not recognize misstatements or deviations included in the sample for
what they are
a. Sampling risk
b. Confidence levels
c. Statistical sampling
d. Non-sampling risk

20. Which of the following is not an element of non-sampling risk?

a. The auditor uses inappropriate procedures in auditing accounts receivable
b. The use of unreasonable small sample size
c. Misinterpretations of audit evidence
d. Auditor fails to recognize the error in the sample

21. For initial audit engagements, the auditor should obtain sufficient appropriate audit evidence that:
a. The opening balances do not contain misstatements that materially affect the current period’s
financial statements.
b. The prior period’s closing balances have been correctly brought forward to the current period or,
when appropriate, have been restated.
c. Appropriate accounting policies are consistently applied or changes in accounting policies have
been properly accounted for and adequately disclosed.
d. All of the above.

22. Statement 1: Opening balances include matters requiring disclosure that existed at the beginning of the
period, such as contingencies and commitments.

Statement 2: Initial audit engagement is an engagement in which the financial statements for
the prior period were not audited. It does not include an engagement in which the financial statements
for the prior period were audited by a predecessor auditor.

Statement 3: If the prior period’s financial statements were audited by a predecessor auditor
and there was a modification to the opinion, the auditor shall evaluate the effect of the matter giving rise
to the modification in assessing the risks of material misstatements in the current period’s financial
statements.

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

a. True, true, true

b. True, false, true
c. False, true, true
d. False, false, true

23. Which of the following is least considered in determining the sufficiency and appropriateness of the
audit evidence that the auditor will obtain regarding opening balances?
a. The materiality of the opening balances relative to the current period’s financial statements.
b. The accounting policies adopted by the entity.
c. The risk of misstatements of accounts.
d. The length of years in operations of the entity.

24. The following audit procedures may be deemed necessary by the auditor in obtaining sufficient
appropriate audit evidence regarding opening balances, except:
a. Reading the most recent financial statements, if any, and the predecessor auditor’s report
thereon, if any, for information relevant to opening balances, including disclosures.
b. Reviewing the predecessor auditor’s audit engagement letter.
c. Evaluating whether audit procedures performed in the current period provide evidence relevant
to the opening balances.
d. Performing specific audit procedures to obtain evidence regarding the opening balances.

25. Which of the following accounts is more difficult for the auditor to be satisfied as to the balance at the
beginning of the period?
a. Accounts receivable
b. Accounts payable
c. Inventory
d. Accrued interest payable

26. If, after performing necessary audit procedures, the auditor is unable to obtain sufficient appropriate
audit evidence concerning opening balances, the auditor’s report should include:
I. A qualified opinion
II. A disclaimer of opinion
III. An opinion which is qualified or disclaimed regarding the results of operations and cash
flows and unqualified regarding financial position
a. Any of the above
b. None of the above
c. Either I or II
d. I only

27. If the opening balances contain misstatements which could materially affect the current period’s
financial statements and the effect of the misstatement is not properly accounted for and adequately
disclosed, the auditor should express a
a. Unqualified opinion with explanatory paragraph’

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

b. Qualified or adverse opinion

c. Qualified or disclaimer of opinion
d. Adverse or disclaimer of opinion

28. If the current period’s accounting policies have not been consistently applied in relation to opening
balances and if the change has not been properly accounted for and adequately disclosed, the auditor
should express a
a. Unqualified opinion with explanatory paragraph
b. Qualified or adverse opinion
c. Qualified or disclaimer of opinion
d. Adverse or disclaimer of opinion

29. Which of the following statements is true with respect to Type I Report as referred to in PSA 402?
a. Report on the description and design of controls at a service organization
b. A report that comprises a description, prepared by management of the service organization, of
the service organization’s system, control objectives and related controls that have been
designed and implemented as at a specified date.
c. A report that comprises a report by the service auditor with the objective of conveying
reasonable assurance that includes the service auditor’s opinion on the description of the
service organization’s system, control objectives and related controls and the suitability of the
design of the controls to achieve the specified control objectives.
d. All of the above.

30. Which of the following statements is true with respect to Type 2 Report as referred to in PSA 402?
a. Report on the description, design, an operating effectiveness of controls at a service
organization.
b. A report that comprises a description, prepared by management of the service organization, of
the service organization’s system, control objectives and related controls, their design and
implementation as at a specified date or throughout a specified period and, in some cases, their
operating effectiveness throughout a specified period.
c. A report comprises a report by the service auditor with the objective of conveying reasonable
assurance that includes: (a) the service auditor’s opinion on the description of the service
organization’s system, control objectives and related controls, the suitability of the design of the
controls to achieve the specified control objectives, and the operating effectiveness of the
controls; and (b) a description of the service auditor’s tests of the controls and the results
thereof.
d. All of the above.

31. It means an approximation of the amount of an item in the absence of a precise means of
measurement
a. Accounting estimate
b. Accounting policy
c. Accounting error
d. Accounting change

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

32. In evaluating an entity’s accounting estimates, one of an auditor’s objectives is to determine whether
the estimates are
a. Not subject to bias
b. Consistent with industry guidelines
c. Based on objective assumptions
d. Reasonable in the circumstances

33. Which of the following procedures would an auditor ordinarily perform first in evaluating management’s
accounting estimates for reasonableness?
a. Develop independent expectations of management’s estimates.
b. Consider the appropriateness of the key factors or assumptions used in preparing the
estimates.
c. Test the calculations used by management in developing estimates.
d. Obtain an understanding of how management developed its estimates.

34. The auditor should adopt one or a combination of the following approaches in the audit of an
accounting estimate:
I. Review and test the process used by management to develop the estimate.
II. Use an independent estimate for comparison with that prepared by management.
III. Review subsequent events which confirm the estimate made.
a. Any of the above.
b. None of the above.
c. Either I or II.
d. I only

35. In evaluating the assumptions on which the estimate is based, the auditor would need to pay particular
attention to assumptions which are
a. Reasonable in light of actual results in prior periods
b. Consistent with those used for other accounting estimates
c. Consistent with management’s plans which appear appropriate
d. Subjective or susceptible to bias resulting in material misstatement

36. The degree to which a fair value measurement is susceptible to misstatement is a(an)
a. Audit risk
b. Inherent risk
c. Control risk
d. Detection risk

37. Regarding fair value measurements and disclosures, the auditor is not required to
a. Obtain evidence about management’s intent to carry out specific courses of action, and
consider its ability to do so, where relevant to the fair value.
b. Evaluate whether the entity’s method for its fair value measurements is applied consistently.
c. Use the work of an expert.

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

d. Test the entity’s fair value measurements and disclosures.

38. When testing the entity’s fair value measurements and disclosures, the auditor evaluates whether:
a. The assumptions used by management are reasonable.
b. The fair value measurement was determined using an appropriate model, if applicable.
c. Management used relevant information that was reasonable available at the time.
d. All of the above.

39. Which statement is incorrect regarding the auditor’s responsibilities and audit procedures regarding
related parties and transactions with such parties?
a. The auditor should perform audit procedures designed to obtain sufficient appropriate audit
evidence regarding the identification and disclosure by management of related parties and the
effect of related party transactions that are material to the financial statements.
b. An audit cannot be expected to detect all related party transactions.
c. The auditor is responsible for the identification and disclosure of related parties and transactions
with such parties.
d. The auditor needs to have a level of knowledge of the entity’s business and industry that will
enable identification of the events, transactions and practices that may have a material effect on
the financial statements.

40. When auditing related-party transactions, an auditor places primary emphasis on

a. Confirming the existence of the related parties
b. Verifying the valuation of the related-party transactions.
c. Evaluating the disclosure of the related-party transactions.
d. Ascertaining the rights and obligations of the related parties.

41. The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence that
all events occurring between the date of the financial statements and the date of the auditor’s report
that require adjustment of, or disclosure in, the financial statements have been identified. The auditor is
not, however, expected to perform additional audit procedures on all matters to which previously
applied audit procedures have provided satisfactory conclusions.

When the auditor identifies events that materially affect the financial statements, the auditor
shall determine whether such events are properly accounted for and adequately disclosed in the
financial statements.

a. True, True
b. False, False
c. False, True
d. True, False

42. Which of the following is least likely a procedure that would be performed by the auditor near the
auditor’s report date?

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

a. Reviewing the procedures that management has established to ensure that subsequent events
are identified and discussing with certain officers the current status of items in the financial
statements that were accounted for on the basis of tentative, preliminary, or inclusive data.
b. Inquiring of management as to whether any subsequent events have occurred which might
affect the financial statements.
c. Reading the minutes of the meetings of shareholders, the board of directors and audit executive
committees held throughout the audit year.
d. Reading/comparing the entity’s latest available interim financial statements.

43. A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the
auditor’s field work. The auditor should
a. Advise the management to adjust the balance sheet to reflect the acquisititon.
b. Issue pro forma financial statements giving effect to the acquisition as if it had occurred at year-
end.
c. Advise management to disclose the acquisition in the notes to the financial statements.
d. Disclose the acquisition in the opinion paragraph of the auditor’s report.

44. After an auditor has issued an audit report on a non-public entity, there is no obligation to make any
further audit tests or inquiries with respect to the audited financial statements covered by that report
unless
a. New information comes to the auditor’s attention concerning an event that occurred prior to the
date of the auditor’s report that may have affected the auditor’s report.
b. Material adverse events occur after the date of the report.
c. Final determination or resolution was made on matters that had resulted in a qualification in the
auditor’s report.
d. Final determination or resolution was made of a contingency that had been disclosed.

45. After an audit report containing an unqualified opinion on a non-issuer (non-public) client’s financial
statements was issued, the client decided to sell the shares of a subsidiary that accounts for 30% of its
revenue and 25% of its net income. The auditor should
a. Determine whether the information is reliable and, if determined to be reliable, request that
revised financial statements be issued.
b. Notify the entity that the auditor’s report may no longer be associated with the financial
statements.
c. Describe the effects of this subsequently discovered information in a communication with
persons known to be relying on the financial statements.
d. Take no action because the auditor has no obligation to make further inquiries.

46. If subsequent to the issuance of the audited financial statements, the auditor becomes aware of
material misstatements in the financial statements that exist prior to the date of the audit report, the
auditor should
a. Notify the parties who are currently relying on the financial statements.
b. Discuss the matter with management, and should take action appropriate in the circumstances.
c. Document such information in the audit plan for succeeding audit.

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

d. Submit a revised copies of the financial statements and audit report to the stockholders.

47. The auditor has no obligation to perform any audit procedures regarding the financial statements (FSs)
after the date of the auditor’s report. However, when, after the date of auditor’s report but before the
date the FSs are issued, the auditor becomes aware of a fact which may materially affect the FSs, the
auditor shall:
I. Determine whether management will amend FSs
II. Discuss the matter with management
III. Determine whether the FSs need amendment
a. I, II and III
b. II, I and III
c. II, III and I
d. III, I and II

48. In relation to the preceding number, if management amends the FS, the auditor shall:
I. Carry out the audit procedures necessary in the circumstances
II. Review the steps taken by management to ensure that anyone with receipt of the previously
issued FSs together with the auditor’s report thereon is informed of the situation
III. Issue a new auditor’s report on the amended FSs
a. I, II and III
b. I and III
c. II, III and I
d. III, I and II

49. After the financial statements (FSs) have been issued, the auditor has no obligation to perform any
audit procedures regarding such FSs. However, if after the FSs have been issued, the auditor becomes
aware of a fact that existed at the date of the auditor’s report and that, if known at that date, may have
caused the FSs to be amended or the auditor to modify the auditor’s report, the auditor shall
I. Discuss the matter with management
II. Determine the FSs need amendment
III. Determine whether management will amend the FSs
a. I, II and III
b. II, I and III
c. II, III and I
d. III, I and II

50. In relation to the preceding number, if the management amends the FSs, the auditor shall:
I. Carry out the audit procedures necessary in the circumstances
II. Review the steps taken by management to ensure that anyone in receipt of the previously
issued FSs together with the auditor’s report thereon is informed of the situation
III. Issue the new auditor’s report on the amended FSs
a. I, II and III
b. II, I and III
c. II, III and I

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

d. III, I and II

51. Which statement is (are) correct regarding assurance engagements?

a. It is an engagement in which a practitioner expresses a conclusion designed to enhance the
degree of confidence of the intended users other than the responsible party about the outcome
of the evaluation or measurement of a subject matter against criteria.
b. All engagements performed by professional accountants are assurance engagements.
c. Whether a particular engagement is an assurance engagement will depend upon whether it
exhibits all the following elements: a three party relationship, a subject matter, a suitable criteria.
d. All of the above.

52. Assurance services least likely involve

a. Improving the quality of information for decision purposes
b. Improving the quality of the decision model used
c. Improving the relevance of information
d. Implementing a system that improves the processing of information

53. Statement 1: CPAs are the exclusive providers of assurance engagements as the subject matter of
assurance engagements is limited only to financial information of a business entity.
Statement 2: Assurance engagements may be classified either as to level of assurance
provided (or conveyed) by the practitioner or as to structure of the engagement.
a. True, true
b. True, false
c. False, true
d. False, false

54. Which of the following refers to an assertion-based reporting engagement type of assurance
engagement?
a. The objective is a reduction in assurance engagement risk to an acceptably low level as the
basis for a positive form of expression of the practitioner’s conclusion.
b. The objective is a reduction in assurance engagement risk to a level that is acceptable in the
circumstances of the engagement, but where that is greater than for a reasonable assurance
engagement, as the basis for a negative form of expression of the practitioner’s conclusion.
c. In this type of engagement, the evaluation or measurement of the subject matter is performed
by the responsible party, and the subject matter information is in the form of assertion by the
responsible party that is made available to the intended users.
d. In this type of engagement, the practitioner either directly performs the evaluation or
measurement of the subject matter, or obtains a representation from the responsible party that
has performed the evaluation or measurement that is not available to the intended users. The
subject matter information is provided to the intended users in the assurance report.

55. Which of the following statements best describes the logical relationship among audits, attest
engagements, and assurance engagements?
a. All attest engagements are audits, but not all audits are attest engagements.

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

b. All assurance engagements, including audits, involve attestation.

c. An audit provides assurance but does not involve attestation.
d. All audits are attest engagements, but not all attest engagements are audits.

56. Auditing is a systematic process that include all of the following, except:
a. Communicating results to users
b. Obtaining and evaluating evidence
c. Providing important managerial decisions for a client
d. Comparing evidence regarding assertions to certain established criteria

57. The objective of an operational audit is to

a. Evaluate fairness of presentation of financial statements
b. Evaluate the effectiveness and efficiency with which resources are employed and identifying
areas for improvement
c. Evaluate whether laws have been broken by management
d. Evaluate compliances with company rules and regulations

58. The auditor’s judgment concerning the entity’s operations (or the “criteria” used)in an operational audit
should be based on
a. GAAP
b. Effectiveness and efficiency
c. Rules and regulations
d. Company policies

59. Which type of auditor typically performs operational audit?

a. External auditor
b. Government auditor
c. Internal auditor
d. Both B and C

60. Which type of auditor typically performs FSs audit?

a. External auditor
b. Internal auditor
c. Government auditor
d. Both A and C

61. The principal reason for an independent auditor to gather and evaluate audit evidence is to
a. Form an opinion on the financial statements
b. Detect fraud
c. Evaluate management
d. Evaluate internal control

62. Which statement is incorrect regarding audit evidence?

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

a. Audit evidence is all the information used by the auditor in arriving at the conclusions on which
the audit opinion is based.
b. Audit evidence includes information contained in the accounting records underlying the financial
statements and other information.
c. Audit evidence is cumulative in nature.
d. Auditors are expected to address all information that may exist.

63. Accounting records least likely include

a. The records of initial entries and supporting records.
b. The general and subsidiary ledgers.
c. Work sheets and spreadsheets supporting cost allocations.
d. Comparable data about competitors (benchmarking).

64. Other information that the auditor may use as audit evidence least likely includes
a. Minutes of meetings
b. Confirmation from third parties
c. Information obtained by the auditor from such audit procedures as inquiry, observation, and
inspection.
d. Adjustments to the financial statements that are not reflected in formal journal entries.

65. Which of the following would not be considered audit evidence?

a. Invoices received by the company and retained on the company’s IT system in electronic form.
b. The electronic work paper program package used by the auditor to produce the electronic work
papers.
c. Hard copy minutes of the Board of Directors and Audit Committee meetings.
d. Electronic images of the front and back of checks that the company has written.

66. Which of the following would an auditor least likely perform as part of the auditor’s preliminary
engagement activities or pre-planning or pre-engagement phase?
a. Perform procedures regarding the continuance of the client relationship and specific
engagement.
b. Evaluate compliance and ethical requirements, including independence.
c. Establish an understanding of the terms of the engagement.
d. Obtain understanding of the legal and regulatory framework applicable to the entity.

67. In making a decision to accept or continue with a client, the auditor should consider:
a. b. c. d.
Its competence Yes Yes Yes Yes
Its independence Yes No Yes No
Its ability to serve the client properly Yes Yes Yes No
The integrity of client’s management Yes Yes No Yes

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

68. The auditor will utilize many resources to assess management integrity in the client acceptance
process. Which of the following will an auditor most likely refrain from using in this search?
a. Predecessor auditor
b. Other professionals in the business community
c. Public databases
d. All of the above will typically be used by an auditor in the search.

69. Prior to the acceptance of an audit engagement with a client who has terminated the services of the
predecessor auditor, the CPA should
a. Contact the predecessor auditor without advising the prospective client and request a complete
report of the circumstances leading to the termination with the understandin that all information
disclosed will be kept confidential.
b. Accept the engagement without contacting the predecessor auditor since the CPA will include
procedures to verify the reason given by the client for termination.
c. Not communicate with the predecessor auditor because this would in effect be asking the
auditor to provide the confidential relationship between the auditor and client.
d. Advise the client of the intention to contact the predecessor auditor and request permission for
the contact.

70. In an audit situation, communication between successor and predecessor auditors should be
a. Authorized in an engagement letter
b. Acknowledged in a representation letter
c. Either written or oral
d. Written and included in the working papers

71. This involves establishing the overall audit strategy for the engagement and developing an audit plan,
in order to reduce audit risk to an acceptable low level.
a. Audit procedures
b. Audit planning
c. Audit program
d. Audit working papers

72. The overall audit strategy sets the scope, timing and direction of the audit, and guides the development
of the more detailed audit plan.

The audit plan is more detailed than the overall audit strategy and includes the nature, timing
and extent of audit procedures to be performed by engagement team members in order to obtain
sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.
a. True, true
b. True, false
c. False, false
d. False, true

73. The overall audit strategy should be updated and changed as necessary during the course of the audit.

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

The overall audit plan should be updated and changed as necessary during the course of the
audit.
a. True, true
b. False, true
c. False, false
d. True, false

74. In planning an audit engagement, the auditor is required to develop and document a(an)
I. Audit plan
II. Flowchart
III. Overall Audit Strategy
a. Both II and III
b. Both I and II
c. Both I and III
d. I, II and III

75. The nature and extent of planning will vary according to the following, except
a. Size of the auditing firm
b. Complexity of the entity
c. Auditor’s experience with the entity
d. Changes in circumstances that occur during the audit engagement

76. In audit of financial statements, it is considered in terms of the smallest aggregate level of
misstatements that could be considered material to any one of the statements that comprise the
financial statements, while in financial reporting, it provides a threshold or cutoff point rather than being
a primary qualitative characteristic which information must have if it is to be useful
a. Materiality
b. Reliability
c. Relevance
d. Misstatement

77. In considering materiality for planning purposes, an auditor believes that misstatements aggregating
P100,000 would have a material effect on an entity’s income statement, but that the misstatement
would have to aggregate P200,000 to materially affect the balance sheet. Ordinarily, it would be
appropriate to design auditing procedures that would be expected to detect misstatements that
aggregate
a. P100,000
b. P150,000
c. P200,000
d. P300,000

78. The preliminary judgment about materiality is the ______ amount by which the auditor believes the
statements could be misstated and still not affect the decisions of reasonable users.

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

a. Minimum
b. Maximum
c. Mean average
d. Median average

79. Auditors are _____ to decide on the combined amount of misstatements in the financial statements that
they would consider material early in the audit.
a. Permitted
b. Required
c. Not allowed
d. Strongly encouraged

80. Only the amount of misstatements need to be considered in assessing materiality.

Both the amount and the nature of misstatements need to be considered in assessing
materiality.
a. True, true
b. False, true
c. False, false
d. True, false

81. Which statement is incorrect regarding obtaining an understanding of the entity and its environment?
a. Obtaining an understanding of the entity and its environment is an essential aspect of
performing an audit in accordance with PSAs.
b. That understanding establishes a frame of reference within which the auditor plans the audit
and exercises professional judgment about assessing risks of material misstatement of the
financial statements and responding to those risks throughout the audit.
c. The auditor’s primary consideration is whether the understanding that has been obtained is
sufficient to assess the risks of material misstatement of the financial statements and to design
and perform further audit procedures.
d. The depth of the overall understanding that is required by the auditor in performing the audit is
equal to that possessed by management in managing entity.

82. The main purpose of risk assessment procedures is to

a. Obtain an understanding of the entity and its environment, including its internal control, to
assess the risks of material misstatements at the financial statement and assertion levels.
b. Test the operating effectiveness of controls in preventing, or detecting and correcting, material
misstatement at the assertion level.
c. Detect material misstatements at the assertion level.
d. All of the above

83. The auditor should perform the following risk assessment procedures to obtain an understanding of the
entity and its environment, including its internal control, except:
a. Inquiries of management and others within the entity
b. Confirmation

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

c. Analytical procedures
d. Observation and inspection

84. Inquiries directed towards those charged with governance may most likely
a. Relate to their activities concerning the design and effectiveness of the entity’s internal control
and whether management has satisfactorily responded to any findings from those activities
b. Help the auditor in understanding the environment in which the financial statements are
prepared
c. Relate to changes in the entity’s marketing strategies, sales trends or contractual arrangements
with its customers
d. Help the auditor in evaluating the appropriateness of the selection and application of certain
accounting policies

85. The auditor’s understanding of the entity and the environment consists of the following aspects
I. Industry, regulatory, and other external factors, including the applicable financial reporting
framework
II. Nature of the entity, including the entity’s selection and application of accounting policies
III. Objectives and strategies and the related business risks that may result in a material
misstatement of the financial statements
IV. Measurement and review of the entity’s financial performance
V. Internal control
a. All of the above
b. I, II and III
c. I, II, III and IV only
d. I and III only

86. The process designed and effected by those charged with governance, management, and other
personnel to provide reasonable assurance about the achievement of the entity’s objectives with regard
to reliability of financial reporting, effectiveness and efficiency of operations and compliance with
applicable laws and regulations.
a. Internal control
b. Accounting control
c. Administrative control
d. Control environment

87. The primary responsibility for designing, implementing and maintaining internal control, and the tone of
internal control typically originates, rests with
a. Internal auditors
b. The CFOs
c. The external auditor
d. The management/TCWG

88. Control environment component of internal control

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

a. Consist of the policies and procedures that help ensure that management directives are carried
out.
b. Includes the governance and management functions and the attitudes, awareness, and actions
of those charged with governance and management concerning the entity’s internal control and
its importance in the entity.
c. Is the entity’s process for identifying business risks relevant to financial reporting objectives and
deciding about actions to address those risks, and the results thereof
d. Consists of the procedures and records established to initiate, record, process, and report entity
transactions (as well as events and conditions) and to maintain accountability for the related
assets, liabilities and equity.

89. Which of the following factors are included in an entity’s control environment?
a. b. c. d.
Commitment to competence yes yes no yes
Integrity and ethical values yes no yes yes
Organizational structure no yes yes yes
Human resources policies and procedures yes no yes yes

90. Control activities constitute one of the five components of internal control. Control activities do not
encompass
a. Performance reviews
b. Information processing
c. Physical controls and authorization procedures
d. An internal audit function

91. A risk of material misstatement is

a. An identified and assessed risk of material misstatement that, in the auditor’s judgment, requires
special audit consideration.
b. A risk that may relate to the inaccurate or incomplete recording of routine and significant classes
of transactions or account balances, the characteristics of which often permit highly automated
processing with little or no manual intervention.
c. The risk that the financial statements are materially misstated prior to audit
d. The risk that relate pervasively to the financial statements as a whole, and potentially affect
many assertions that could be considered material.
92. Determine the most logical order of assessing the risks of material misstatements as indicated in PSA
315?
I. Consider the likelihood of misstatement, including the possibility of multiple misstatements, and
whether the potential misstatement is of a magnitude that could result in a material
misstatement.
II. Assess the identified risks (if it is a significant risk), and evaluate whether they relate more
pervasively to the financial statements as a whole and potentially affect many assertions
III. Identify risks throughout the process of obtaining an understanding of the entity and its
environment, including relevant controls that relate to the risks, and by considering the classes
of transactions, account balances, and disclosures in the financial statements

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

IV. Relate the identified risks to what can go wrong at the assertion level, taking account of relevant
control that auditor intends to test
a. I, II, III and IV
b. III, II, IV and I
c. III, II, I and IV
d. IV, III, I and II

93. The following are examples of conditions and events that may indicate the existence of risks of material
misstatement, except
a. Operations in regions that are economically stable
b. Pending litigation and contingent liabilities
c. Application of new accounting pronouncements
d. High degree of complex regulation

94. Which of the following conditions and events may most likely indicate the existence of risks of material
misstatements?
a. Having personnel with appropriate accounting and financial reporting skills
b. Accounting measurements that involve simple processes
c. Significant amount of routine or systematic transactions
d. Constraints on the availability of capital and credit

95. Which of the following conditions and events least likely indicate the existence of risks of material
misstatements?
a. Changes in the supply chain
b. Expanding into new locations
c. Inquiries to the entity’s operations or financial results by regulatory or government bodies
d. Consistency of the entity’s IT strategy and its business strategy

96. The following events and conditions indicate the existence of risks of material misstatements, except
a. Changes in key personnel including departure of key executives
b. Weaknesses in internal control, especially those not addressed by management
c. Installation of significant IT systems related to financial reporting
d. Operations that are subject to a low degree of complex regulation.

97. Audit risk consists of inherent risk, control risk and detection risk. Which of the following statements is
true?
a. Cash is more susceptible to theft than inventory of coal because it has a greater inherent risk.
b. The risk that material misstatement will not be prevented or detected on a timely basis by
internal control can be reduced to zero by effective controls.
c. Detection risk is a function of the efficiency of an auditing procedure.
d. The existing levels of inherent risk, control risk and detection risk can be changed at the
discretion of the auditor.

98. Inherent risk and control risk f=differ from detection risk in that inherent risk and control risk

This document is the property of PHINMA EDUCATION

 ACC 139: Assurance and Audit Principles
Student Activity Sheet #17

Name: JOHN LORENZ M. DAYANGHIRANG Class number: 019-0059

Section: 3A-A8 Schedule: FRIDAY 5:30-7:00PM Date: NOV/05/2021

a. Arise from the misapplication of auditing procedures

b. May be assessed in either quantitative or non-quantitative terms
c. Exist independently of the financial statement audit
d. Can be changed at the auditor’s discretion

99. Which of the following is an incorrect statement?

a. Detection risk cannot be changed at the auditor’s discretion
b. Detection risk bears an inverse relationship to inherent and control risk
c. The greater the inherent and control risks the auditor believes exists, the less detection risk that
can be accepted
d. The auditor might separate or combine assessments of inherent risk and risk

100. Inherent risk is often low for an account such as

a. Accounts receivable
b. Marketable securities
c. Cash
d. inventory

This document is the property of PHINMA EDUCATION