1.

The two major factors affecting acceptable audit risk are:

A. inherent risk and the intended uses of the FS
B. control risk and the intended uses of the FD
C. the likely statement users and the intended uses of the statements
D. the audit firm and the intended uses of the statements

2. If an auditor is requested to perform nonaudit services for a public company audit client, who is
responsible for agreeing to those services with the audit firm?

A. the client's management

B. the client's CEO
C. the client's CFO
D. the client's audit committee

3. Which is true regarding communications between predecessor and successor auditors?

A. the burden of initiating the communication rests with the predecessor

B. the predecessor's response can be limited to stating that no info will be provided
C. the predecessor should communicate with the successor only if the client is public
D. the predecessor auditor of a public company doesn't need permission from the client before
communicating with successor auditor

4. Most auditors assess inherent risk as high for related parties and related-party transactions
because:

A. of the unique classification of related-party transactions required on the balance sheet

B. the lack of independence between the parties
C. of the unique classification of related-party transactions required on the income statement
D. it is required by GAAP

5. The audit team gathers info about a new client's business and industry in order to obtain:

A. an understanding of the clients internal control system for financial reporting

B. an understanding of how economic events and transactions have an effect on the
company's FS
C. info about control risk
D. info regarding whether the company is engaging in FS fraud

6. The auditor determines that Mathews Company occupies the 3rd floor of an office tower for
which it pays no rent. The most likely explanation is:

A. they got lucky the landlord hasn't noticed the lack of payments
B. landlord has weak internal controls over billings
 C. a related party transaction is which a major shareholder owns the office tower
D. Mathews company is engaging in fradulent activities

7. The risk the auditor may express the wrong opinion

A. Audit Risk
B. Control Risk
C. Detection Risk
D. Inherent Risk

8. The maximum amount of misstatement (or omission) the auditor can tolerate and still
issue a clean opinion
A. Materiality
B. Substance
C. Evidence
D. Control

9. It provides an independent assessment on governance, risk mgt, and control processes for
the organization.
A. Assurance Services
B. Attestation
C. Consultation
D. None of the above

10. The auditor is not liable to his client for

A.Negligence.
B. Bad faith.
C.Errors of judgment
D. .Dishonesty.

11-12. In connection with your audit of Caloocan Corporation for the year ended December 31, 2006, you
gathered the following:
1. Current account at Metrobank P2,000,000
2. Current account at BPI (100,000)
3. Payroll account 500,000
4. Foreign bank account – restricted (in equivalent pesos) 1,000,000
5. Postage stamps 1,000
6. Employee’s post dated check 4,000
7. IOU from controller’s sister 10,000
8. Credit memo from a vendor for a purchase return 20,000
9. Traveler’s check 50,000
10. Not-sufficient-funds check 15,000
11. Money order 30,000
12. Petty cash fund (P4,000 in currency and expense receipts for P6,000) 10,000
13. Treasury bills, due 3/31/07 (purchased 12/31/06) 200,000
14. Treasury bills, due 1/31/07 (purchased 1/1/06) 300,000

11. The cash equivalents amounted to

A. 200000
B. 300000
C. 500000
D. 250000

12. Based on the above information and the result of your audit, compute for the cash and cash equivalent
that would be reported on the December 31, 2006 balance sheet.
A. P2,784,000
B. P2,790,000
C. P3,084,000
D. P2,704,000
13. Sales
A. 7,461,300
B. 7,455,900
C. 7,449,600
D. 7,487,100

14. Inventories
A. 354,000
B. 363,300
C. 348,000
D. 357,300
15. Chicken’s December 31, 2012, inventory should be increased by
A. 8000
B. 40000
C. 66000
D. 61640
16. Which of the errors described in “a to g” will not affect the company’s net income for 2012?
A. Item a
B. Item g
C. Item e
D. Item b
17. What is adjusted net income for the year 2012?
A. 1565800
B. 1607160
C. 1615800
D. 1666800
18. Purchase cutoff procedures test the cutoff and completeness assertions. A company should
include goods in its inventory if it
A. Has sold the goods
B. Holds legal title to the goods
C. Has physical possession of the goods
D. Has paid for the goods
19. When title to erchandise in transit has passed to the audit client, the auditor engaged in the
performance of a purchase cutoff will encounter the greatest difficulty in gaining assurance with
respect to the
A. Quantity
B. Quality
C. Price
 D. Terms

20. What is the correct cash balance at December 31 2006

A. P 1,493,000
B. P 1,123,000
C. P 793,000
D. P 423,000