Question

19.   Under to PSA 260, those matters that arise from the audit of financial statements and in the opinion of the auditor, are both important and relevant to those charged with governance in overseeing the financial reporting and disclosure process are called
a.   Audit matters of governance interest
b.   Significant audit matters
c.   Auditor findings
d.   Material misstatement in the financial statements

20.   Audit matters of governance interest to be communicated to those charged with governance ordinarily include
a.   Audit adjustments whether or not recorded by the entity that have, or could have material effect on its financial statements
b.   Expected modification to the auditor report
c.   Material uncertainties related to events and conditions that may cast significant doubt on the entity ability to continue as a going concern
d.   All of the above

21.   Which of the following statements best describes the auditor’s responsibility regarding the detection of material errors and frauds?

A.   The auditor is responsible for the failure to detect material errors and frauds only when such failure results from the misapplication of generally accepted accounting principles.
B.   The audit should be designed to provide reasonable assurance that material errors and frauds are detected.
C.   The auditor is responsible for the failure to detect material receivables or observe inventories.
D.   Extended auditing procedures are required to detect unrecorded transactions even if there is no evidence that material errors and frauds may exist.

22.   The auditor has considerable responsibility for notifying users as to whether or not the financial statements are properly stared.
This imposes upon the auditor a duty to

A.   Be an insurer of the fairness of the presentation of the financial statements.
B.   Be a guarantor of the fairness in the statements.
C.   Be equally responsible with management for the preparation of the financial statements.
D.   Provide reasonable assurance that material misstatements will be detected.

23.   Which of the following statement best distinguishes ordinary negligence from goes negligence?

A.   Failure to detect material errors, whether internal control is strong or weak, suggests gross negligence.
B.   Failure to exercise reasonable care denotes ordinary negligence, whereas failure to exercise minimal care indicates gross negligence.
C.   Gross negligence is most probable when the auditor fails to detect errors that occurred under conditions of strong internal control.
D.   The more material the undetected error is, the greater the likelihood of ordinary negligence being committed.

24.   The auditor’s responsibility for failure to detect fraud arises

A.   When such failure clearly results from non-compliance to generally accepted auditing standards.
B.   Whenever the amounts involved are material.
C.   Only when the examination was specifically designed to detect fraud.
D.   Only when such failure clearly results from negligence so gross as to sustain an inference of fraud on the part of the auditor.

25.   Which of the following statements is correct concerning the auditor’s responsibility with respect to noncompliance with laws and regulations? An auditor must design tests to:

A.   Obtain reasonable assurance of detecting material direct-effect noncompliance with laws and regulations.
B.   Detect both immaterial and material direct-effect noncompliance with laws and regulations.
C.   Detect both direct-effect and indirect-effect noncompliance with laws and regulations.
D.   Detect both material direct-effect and material indirect-effect noncompliance with laws and regulations.

26.   Most accounting and auditing professionals agree that when an audit has failed to uncover material misstatements, and the wrong type of audit opinion is issued, the audit firm.

A.   Has failed to follow Philippine standards on auditing (PSAs).
B.   Deserves to lose the lawsuit.
C.   Should be asked to defend the quality of the audit.
D.   Should not be held responsible for the financial loss suffered by others.

27.   What is the independent auditor’s responsibility prior to the completion of fieldwork when he believes that a material fraud may have occurred?

A.   Notify the appropriate law enforcements authority.
B.   Investigate the persons involved, the nature of the fraud, and the amounts involved.
C.   Reach an understanding with the appropriate client representatives as to the desired nature and extent of subsequent audit work.
D.   Continue to perform normal audit procedures and write the audit report in such a way to disclose adequately the suspicions of material fraud.

28.   The risk that an audit will fail to uncover a material misstatement is eliminated.

A.   If client has good internal control.
B.   If client follows generally accepted accounting principles.
C.   When the auditor has complied with generally accepted auditing standards.
D.   Under no circumstances.

29.   The auditor’s evaluation of the likelihood of material employee fraud is normally done initially as a part of

A.   The assessment of whether to accept the audit engagement.
B.   Understanding the entity’s internal control structure.
C.   The tests of controls.
D.   The test of transactions.

30.   In connection with the examination of financial statements, an independent auditor could be responsible for failure to detect a material fraud if

A.   statistical sampling techniques were not used on the audit engagement
B.   the auditor planned the work in a hasty and inefficient manner
C.   accountants performing important parts of the work failed to discover a close relationship between the treasurer and the cashier
D.   the fraud was perpetrated by one client employee, who circumvented the existing internal control

31.   A CPA is criminally liable if he

A.   Refuses to turn over the schedules or working papers prepared by the client staff to the client
B.   Performs an audit in a negligent manner
C.   Intentionally allows an omission of a material fact required to be stated in a financial statement
D.   Was not able to submit the audited financial statements on time

32.   Audit standards require an auditor to:

A.   Perform procedures that are designed to detect all instances of fraud
B.   Provide reasonable assurance that the financial statements are not materially misstated
C.   Issue an unqualified opinion only when the auditor is satisfied that no instances of fraud have occurred
D.   Design the audit program to meet financial statement users expectations concerning fraud

33.   If a specific information comes to an auditor’s attention that implies the existence of possible noncompliance with laws and regulations that could have a material, but indirect effect on the financial statements, the auditor should next

A.   Apply audit procedures specifically directed to ascertaining whether a noncompliance with laws and regulations has occurred
B.   Seek the advice of an informed expert qualified to practice law as to possible contingent liabilities
C.   Report the matter to an appropriate level of management at least one level about those involved
D.   Discuss the evidence with the client’s audit committee, or others with equivalent authority

34.   Which of the following statements is true?
A.   It is usually easier for the auditor to uncover irregularities than errors
B.   It is usually easier for the auditor to uncover errors than irregularities
C.   It is usually equally difficult for the auditor to uncover errors or irregularities
D.   Usually, none of the given statements is true

35.   An auditor who believes that a material irregularity may exist should initially
A.   Discuss the irregularity to the person who caused it
B.   Discuss the matter with a higher level of management
C.   Withdraw from the engagement
D.   Consult legal counsel

Answer 1

Answer: Question 19:

Under to PSA 260, those matters that arise from the audit of financial statements and in the opinion of the auditor, are both important and relevant to those charged with governance in overseeing the financial reporting and disclosure process are called
a.   Audit matters of governance interest

Auditors are required by PSA 260 to communicate audit matters of governance interest to those charged with governance. It is important that those charged with governance have an understanding of all significant issues that have arisen from the audit process.