Midterm Specialized Industries PDF

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L-NU AA-23-02-01-LYCEUM-NORTHWESTERN UNIVERSITYTapuac District, Dagupan CityCOLLEGE OF BUSINESS EDUCATIONMIDTERM EXAMINATION – ACCTG 2 | Auditing and Assurance: Specialized Industries 1 st Semester, AY 2020 – 2021 Prepared by: Amie Jane R. Miranda, CPAName:_____________________________________ Score...

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L-NU AA-23-02-01-18

LYCEUM-NORTHWESTERN UNIVERSITY Tapuac District, Dagupan City COLLEGE OF BUSINESS EDUCATION MIDTERM EXAMINATION – ACCTG 2 | Auditing and Assurance: Specialized Industries 1st Semester, AY 2020 – 2021 Prepared by: Amie Jane R. Miranda, CPA Name:_____________________________________ Student No.:

_______________

Score:____________________

Year/Section:___________ Date of Exam: ____________

I. MULTIPLE CHOICE. Choose the best answer from the choices and encircle your answer. Strictly “NO ERASURES”. 1. Means wanton or reckless disregard of the duty of due caro in complying with generally accepted auditing standards (GAAP). a. Error b. Material Information c. Gross Negligence d. Audit Engagement Letter 2. The engage,ment partner/parher- partne,r who is responsible for signing the audit roport on the consolidated financial statements of the audit client, and whree relevant, the individual audit report of any entity whose financial statements form part of the consolidated financial statements. a. Associate b. Partner c. Concurring partner d. Lead partner 3. Error means an unintentional mistake in financial statements such as, except: a. Mathematical or clerical mistake in the underlying records and accounting data. b. Oversight or misinterpretation of facts c. Recording of fransactions without substancs. d. Misapplicdion of accounting policies 4. Any director, officer, manager or any person occupying a similar status or performing similar functions in the audit firm including employees performing supervisory role in the auditing process. a. Partner b. Concurring partner c. Associate d. Lead partner 5. Information whose omission or misstatement could influence the economic decisions of users. a. Gross Negligence b. Risk c. Error d. Material Information 6. The team leader of the audit engagement a. Auditor-in-charge b. Concurring partner c. Associate d. Lead partner 7. Means either the partners of a firm providing audit services or a sole practitioner providing audit services, as appropriate. a. Employee b. External Auditor c. Auditing Firm d. Management

8. Means an intentional act by one or more individuals among management, employees, or third parties, which results in a misrepresentation of financial statements a. Error b. Fraud

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c. Mistake d. Negligence 9. The accreditation of an external auditor and/or auditing firm shall expire or it shall be automatically delisted after a period of a. three (3) years from date of approval of his accreditation b. three (3) years from date of submission of his application c. two (2) years from date of approval of his accreditation d. five (5) years from date of approval of his accreditation 10. The firm and/or the external auditor shall comply with the following, excludes, a. International accounting standards(IAS) b. Terms of its engagement letter and is undertakings, in accordance with the submitted documents c. Generally accepted auditing standards (GAAS) d. Philippine Insurance Institute (PII) 11. Before accepting an audit engagement, a CPA should evaluate whether conditions exist that raise questions as to the integrity of management. Which of the following conditions most likely would raise such questions? a. There are significant differences between the entity's forecasted financial statements and the financial statements to be audited. b. The CPA will not be permitted to have access to sensitive information regarding the salaries of senior management. c. There have been substantial inventory write-offs just before the year end in each of the past four years. d. The CPA becomes aware of the existence of related party transactions while reading the draft financial statements. 12. Which of the following factors most likely would cause a CPA not to accept a new audit engagement? a. Management reputation for failing to provide schedules to prior auditors on a timely basis. b. The CPA's inability to review the predecessor auditor's working papers. c. Management's unwillingness to make all financial records available to the CPA. d. The CPA's lack of understanding of the entity's operations and industry. 13. Which of the following statements would most likely appear in an auditor's engagement letter? a. Management is responsible for reporting to us any inadequate provisions for the safeguarding of assets. b. We will identify internal controls relevant to specific assertions that may prevent or detect material misstatements. c. Management agrees to correct all deficiencies in internal control activities identified by us. d. Management is responsible for making all financial records and related information available to us 14. Which of the following activities is not an element of a CPA firm's quality control system to be considered in establishing quality control policies and procedures? a. Deciding whether to accept or continue a client relationship. b. Selecting personnel for advancement who have the necessary qualifications. c. Assessing a client's ability to establish effective internal controls. d. Monitoring the effectiveness of professional development activities. 15. The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to a. Provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities. b. Minimize the likelihood of associating with clients whose management lacks integrity. c. Document the matters that are required to be communicated to the audit committee. d. Enhance the auditor's understanding of the client's business and its industry 16. Which of the following is an element of a CPA firm's quality control policies and procedures applicable to the firm's auditing practice? a. Acceptance of a client relationship. b. Professional skepticism of management. c. Computer information processing. d. Efficiency of organizational structures. 17. Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?

a. b. c. d.

The audit committee's approval of the initial selection of accounting principles. A lack of competition in the entity's industry, accompanied by increasing profit margins. Management's disclosure of unresolved litigation and contingent liabilities. Year-end adjustments by the entity that significantly affect financial results.

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18. Responsible for maintaining, monitoring and evaluating the adequacy and effectiveness of the internal control system on an ongoing basis, and for reporting on the effectiveness of internal controls on a periodic basis? a. Internal Auditor b. Management c. Audit Committee d. Convered Institution 19. The objectives of the external auditor are, except: a. Express that opinion clearly through a written report that also describes the basis for the opinion. b. Identify and assess the risks of material misstatement in the Cl's financial statements, taking into consideration its operations, control environment and its components as well as the Cls financial reporting systems c. Oversight on the Cl's disclosure practices d. Form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework based on an evaluation of the conclusions drawn from the audit evidence obtained 20. The main goal of Insurance Commission is that: a. Lends credibility to the financial statements of a CI b. To conduct the audit in accordance with internationally recognized ethical and auditing standards, including those calling for independence, objectivity, professional competence, due care and adequate planning and supervision. c. To protect the policyholders' and planholders' interests and maintain the stability of the insurance and pre-need industries d. Adequate governance structures and control processes for areas or exposures that may pose significant risk to a Cl such as fair value measurement and financial instrument 21. Responsible for providing oversight over the Cl's audit functions a. Audit Committee b. Internal Auditor c. Management d. External Auditor 22. ln addition to the duties expected of the Audit Committee under lC Circular No. 31-2005, a Cl's Audit Committee shall, likewise, perform the following functions: a. Appropriate management information systems are established b. Adequate governance structures and control processes related to the different activities of the Cls are established and complied c. Regularly review and monitor the external auditor's technical competence, independence, objectivity and overall effectiveness of the external audit process d. Financial statements are prepared in accordance with accounting standards on the prescribed financial reporting framework. 23. The external auditor shall evaluate whether, in view of the requirements of the applicable financial reporting framework a. The accounting estimates made by management are reasonable b. Assessment of the adequacy of, and compliance with, the Cl's established policies and procedures and assurance as to the adequacy, effectiveness and sustainability of the Cl's risk management and control procedures and infrastructure c. Responsible for maintaining, monitoring and evaluating the adequacy and effectiveness of the internal control system on an ongoing basis, and for reporting on the effectiveness of internal controls on a periodic basis d. Maintain effective communication channels with the external auditor through regular and structured dialogues in the course of the external audit 24. The lC is primarily concerned with? a. Maintenance of a sound system of internal control as a basis for safe and prudent management of the Cl's business b. Satisfied that each Cl maintains adequate records prepared consistently in accordance with applicable international accounting standards and practices to enable it to appraise its financial condition and the profitability of its business, and that the Cl publishes or makes available on a regular basis financial statements that fairly reflect its condition.

c. Maintaining the stability of the insurance system and fostering the safety and soundness of individual Cl in order to protect the interests of the policyholders/planholders

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d. Utilizes audits to complement the supervisory process, including its use as an early warning system for emerging supervisory issues. 25. The external auditor can benefit from the work of the lC such as, choose the best answer? a. Significant supervisory issues raised by the lC will also aid on the external auditor's assessment of the financial condition b. Determining the extent of its audit procedures in ascertaining the carrying value of the assets and identification and adequate disclosure in the financial statements of all material commitments and liabilities, and the corresponding capital position of Cls c. Provision in their audit engagement letters that contents of the lC Reports of Examination shall be treated appropriately a confidentially d. Views and judgments on significant transactions, valuation and impairment methodologies, accounting policies 26. ln determining reasonable fees the following may be considered, except? a. Complexity of the activities and structure of the company b. Level of external audit assistance c. Level of fees being charged by other audit firms d. Quality of audit services 27. The external auditor should promote a two-way communication with those charged with the governance of the Cl. The subject of the communication may include a. Recognizing that circumstances may exist that cause the financial statements to be materially misstate b. Assessment of the going concern assumption, particularly in the evaluation of the liquidity and solvency of the Cl c. Valuations of financial instruments, including disclosures about the valuation methodologies, and the extent of off-balance sheet risks to which CIs are expose d. The responsibilities of the external auditor in relation to the financial statement audit, and an overview of the planned scope and timing of the audit 28. The auditor uses professional judgment in areas such as, except? a. Assessing inherent and control risk and the risk of material misstatement due to fraud or error b. Deciding upon the nature, timing and extent of the audit planning c. Evaluating the results of those procedures d. Assessing the reasonableness of the judgments and estimates made by management in preparing the financial statements. 29. While the external auditor has the sole responsibility for the audit report and for determining the nature, timing and extent of audit procedures,he can use the work of the internal auditor? a. True b. False c. Either True or False d. Neither True nor False 30. Regulatory requirements which in certain instances influence the accounting principles that a Cl shall follow, include except? a. Risk based capital requirements b. Minimum paid-up capital and networth required of insurance companies c. Insurance/reinsurance brokers as well as the trust fund reserve requirements for pre-need companies d. Adequacy and propriety of disclosures on related party transactions 31. The primary responsibility for establishing and maintaining an internal control rests with a. The external auditors b. The internal auditors c. Management and those charged with governance d. The controller or the treasurer 32. The fundamental purpose of an internal control is to a. Safeguard the resources of the organization b. Provide reasonable assurance that the objectives of the organization are achieved c. Encourage compliance with organization objectives

d. Ensure the accuracy, reliability and timeliness of information 33. Which of the following is not one of the three primary objectives of effective internal control? a. Reliability of financial reporting

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b. Efficiency and effectiveness of operations c. Compliance with laws and regulations d. Assurance of elimination of business risk. 34. Which of the following internal control objectives would be most relevant to the audit? a. Operational objective b. Compliance objective c. Financial reporting objective d. Administrative control objective 35. An act of two or more employee to steal assets and cover their theft by misstating the accounting records would be referred to as: a. Collusion b. A material weakness c. A control deficiency d. A significant deficiency 36. Which of the following is not one of the components of an entity’s internal control? a. Control risk b. Control activities c. Information and communication d. The control environment 37. The overall attitude and awareness of an entity’s board of director concerning the importance of the internal control usually is reflected in its a. Computer-based controls b. System of segregation of duties c. Control environment d. Safeguard over access of assets 38. In evaluating the design of the entity’s internal control environment, the auditor considers the certain subcomponents of control environment and how they have been incorporated into the entity’s processes. Subcomponents of control environment would include a. Integrity and ethical values b. Commitment to competence c. Organizational structure d. Information and communications systems 39. Which of the following components of an entity’s internal control structure includes the development of employee promotion and training policies? a. Control activities b. Control environment c. Information and communication d. Quality control system 40. Which of the following subcomponents of the control environment define the existing lines of responsibility and authority? a. Organizational structure b. Management philosophy and operating style c. Human resource policies and practices d. Management integrity and ethical values 41. Which of the following is not one of the subcomponents of the control environment? a. Management philosophy and operating style b. Organizational structure c. Adequate separation of duties d. Commitment to competence 42. Which of the following deal with ongoing or periodic assessment of quality of internal control by management? a. Quality control activities b. Monitoring activities c. Oversight activities d. Management activities 43. The policies and procedures that help ensure that management directives are carried out are...