Auditing Theory on Philippine Standards

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Fundamentals Level – Skills Module

Auditing Theory
(Philippine Standards)

Final Departmental Examination

Time allowed
Reading and planning: 10 minutes
Writing:1 hour and 50 minutes

Do NOT open this paper until instructed by the proctor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the proctor.

This subject tests the candidates’ conceptual knowledge and understanding of assurance and related services performed by professional accountants. Candidates should know and understand the nature of assurance and related services particularly independent audits of financial statements, the responsibilities of professional accountants; the audit process; audit objectives, evidence, procedures, auditing standards, and the elements of the independent auditors’ report. In all the areas included, the candidate shall apply the Philippine Standards on Auditing (PSA) and other regulatory laws and regulations in effect at the time of examination.

Each examination will contain a minimum of 80 and a maximum of 100 multiple-choice questions, equitably.

This question paper contains one section.

All questions are compulsory and MUST be attempted.

This question paper must not be removed from the examination room.

University of the East - Manila
College of Business Administration

1. Which of the following underlies the application of Philippine Standard on Auditing (PSA), particularly the standards of fieldwork and reporting? a. The elements of materiality and relative risk. b. The element of internal control.

c. The element of internal control.
d. The element of reasonable assurance.
2. Which of the following publications does not qualify as a source of generally accepted accounting principles? a. Accounting interpretations issued by the FASB. b. PSA Concepts Statements.

c. PSA Concepts Statements.
d. Statements of Financial Standards issued by the FASB 3. In developing a preliminary audit strategy, an auditor should consider a. Whether the allowance for sampling risk exceeds the achieved upper precision limit. b. Findings from substantive test performed at interim dates. c. Whether the inquiry of the client’s attorney identifies any litigation, claims, or assessments not disclosed in the financial statements. d. The planned assessed level of control risk. 4. W. P. Montangue, in a classic work on the ways of acquiring eveidence, offers an insightful scheme that includes five of what Montague called “the ways of knowing.” The five ways of acquiring evidence, all applied to the assurance services, are as follows: a. Authoritarianism, mysticism, rationalism, empiricism and pragmatism b. Ratio analysis, product comparison, customer satisfaction, contract confirmation, and examination c. Observation, examination, recomputation, review, and inquiry d. Representativeness, availability, anchoring-and-adjustment, source credibility and insensitivity 5. Tests of controls offer evidence about ________, and substantive tests offer evidence about _________. a. Audit risk; Risk of material misstatement

b. Detection risk; control risk
c. Control risk; detection risk
d. Risk of material misstatement; detection risk 6. As the acceptable level of detection risk decreases, the assurance directly provided from a. Substantive test should increase.

b. Substantive test should decrease
c. Tests of controls should increase.
d. Tests of controls should decrease.
7. It measures management’s effectiveness in managing available...
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