AUDITING THEORY

1. As an auditor which of the following would be classified as an error?

a. Intentional omission of the recording of a transaction to benefit a third party.

b. Misappropriation of assets for the benefit of management.

c. Misinterpretation by management of the facts that existed when the financial statements were prepared.

d. Preparation of records by employee to cover a fraudulent transactions.

2. Which of the following circumstances least likely indicate the possibility of fraud or error?

a. Unrealistic time deadlines for audit completion imposed by management.

b. Limitation in audit scope imposed by management.

c. Conservative application of accounting principles.

d. Significant difficult-to-audit figures in the accounts.

3. Which of managements concerns with respect to implementing internal controls is the auditor primarily concerned?

a. Efficiency of operations.

b. Reliability of financial reporting.

c. Effectiveness of operations.

d. Compliance with applicable laws and regulations

4. Which of the following statements is not correct?

a. The principal purpose in conducting a study and evaluation of the existing internal control system is for the independent auditor to maintain a state of independence in mental attitude in all matters related to the audit.

b. Working papers can be destroyed after corporate and statutory retention requirements are met. c. The audit program contains the list of specific tasks to be performed and estimated time required.

d. An audit program would not contain the documentation of system being reviewed.

5. Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entitys ability to continue as a going concern?

a. Cash flows from operating activities are negative.

b. Research and development projects are postponed. c. Significant related party transactions are pervasive.

d. Stock dividends replace annual cash dividends.

6. Competence as an independent auditor includes all of the following except a. Having the technical qualifications to perform the engagement b. Possessing the ability to supervise and evaluate the quality of staff work c. Warranting the infallibility of the work performed d. Consulting others if additional technical information is needed

7. Which of the following engagements do not require independence?

a.Assurance.c. Audit.

b.Compilation.d. Review

8. What assurance does the auditor provide that the following will be detected?

Fraudulent

FinancialMisappropriation of

ErrorsReportingassets

a.LimitedReasonableLimited

b.LimitedLimitedReasonable

c.ReasonableLimitedLimited

d.ReasonableReasonableReasonable

9. If permission from client to discuss its affairs with the proposed auditor is denied by the client, the predecessor auditor should:

a. Keep silent of the denial. b. Disclose the fact that the permission to disclose is denied by the client. c. Disclose adequately to proposed auditor all noncompliance made by the client. d. Seek legal advice before responding to the proposed auditor

10. Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding

a. Disagreements the predecessor had with the client concerning auditing procedures and accounting principles.

b. The predecessors evaluation of matters of continuing accounting significance.

c. The degree of cooperation the predecessor received concerning the inquiry of the clients lawyer.

d. The predecessors assessments of inherent risk and judgments about materiality.

11. Tracing shipping documents to prenumbered sales invoices provides evidence that

a. No duplicate shipments or billings occurred.

b. Shipments to customers were properly invoiced.

c. All goods ordered by customers were shipped.

d. All prenumbered sales invoices were accounted for.

12. Which of the following is not a component of an entitys internal control?

a.Control risk.c.Monitoring.

b.Control activities.d.Control environment.

13. The permanent file of an auditors working papers generally would not include

a. Bond indenture agreements.

b. Lease agreements.

c. Working trial balance.

d. Flowchart of internal control

14. The audit working paper that reflects the major components of an amount reported in the financial statements is the

a. Interbank transfer schedule. b. Carry forward schedule. c. Supporting schedule. d. Lead schedule.

15. Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about managements assertion of

a.Presentation.c. Rights.

b.Completeness.d. Existence.

16. Which of the following is not an expert upon whose work an auditor may rely?

a.Actuary.c. Internal auditor.

b.Appraiser.d. Engineer.

17. A purpose of a management representation letter is to reduce

a. Audit risk to an aggregate level of misstatement that could be considered material. b. An auditors responsibility to detect material misstatements only to the extent that the letter is relied on.

c. The possibility of a misunderstanding concerning managements responsibility for the financial statements. d. The scope of an auditors procedures concerning related-party transactions and subsequent events.

18. The primary reason an auditor requests letters of inquiry be sent to a clients attorneys is to provide the auditor with

a. The probable outcome of asserted claims and pending or threatened litigation.

b. Corroboration of the information furnished by management about litigation, claims, and assessments. c. The attorneys opinions of the clients historical experiences in recent similar litigation. d. A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.

19. When an auditor has chosen a random sample and is using nonstatistical attributes sampling, that auditor a. Need not consider the risk of assessing control risk too low. b. Has committed a nonsampling error.

c. Will have to use discovery sampling to evaluate the results. d. Should compare the deviation rate of the sample to the tolerable deviation rate.

20. The accounts payable department receives the purchase order form to accomplish all of the following except to a. Compare invoice price to purchase order price

b. Ensure that the purchase had been properly authorized

c. Ensure that the goods had been received by the party requesting the goods

d. Compare quantity ordered to quantity purchased

21. When comparative financial statements are presented, the fourth standard of reporting, which refers to financial statements "taken as a whole," should be considered to apply to the financial statements of the a. Periods presented plus the one preceding period

b. Current period only

c. Current period and those of the other periods presented

d. Current and immediately preceding period only

22. Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? a. Inspecting title documents to verify whether any assets are pledged as collateral

b. Confirming with third parties the details of arrangements to maintain financial support

c. Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation

d. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry

23. When the auditor is unable to determine the amounts associated with the illegal acts of client personnel because of an inability to obtain adequate evidence, the auditor should issue a(n) a. Qualified opinion

b. Disclaimer of opinion

c. Adverse opinion d. Unqualified opinion with a separate explanatory paragraph

24. The predecessor auditor, after properly communicating with the successor auditor, has reissued a report because the audit client desires comparative financial statements. The predecessor auditor's report should make

a. No reference to the report or the work of the successor auditor b. Reference to the work of the successor auditor in the scope paragraph

c. Reference to both the work and the report of the successor auditor in the opinion paragraph d. Reference to the report of the successor auditor in the scope paragraph

25. Absolute assurance is provided for in a. An audit engagement b. A compilation engagement c. A review engagement

d. None of the above

26. During a review of the financial statements of a nonpublic entity, the CPA finds that the financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the problem, the CPA should

a. Disclose the departure in a separate paragraph of the report b. Issue an adverse opinion

c. Attach a footnote explaining the effects of the departure

d. Issue a compilation report

27. Compilations provide which of the following types of assurance about the fair presentation of financial

statements?

a.No assurancec. Limited assurance

b.Negative assuranced. Reasonable assurance

28. Which of the following statements is true regarding the performance of an assurance service on information systems reliability by a CPA?

a. The CPA is not permitted to provide any other services for the client if he or she is to perform the service

b. The service will require the CPA to apply all of the attestation and auditing standards

c. The service provides information regarding whether the information system provides reliable information for internal operating decisions d. Performing the service will not require the collection of evidence

29. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that a. Distribution of the report is to be restricted to the specified users involved

b. The prospective financial statements also are examined

c. Responsibility for the adequacy of the procedures performed is taken by the accountant

d. Negative assurance is expressed on the prospective financial statements taken as a whole

30. The party responsible for assumptions identified in the preparation of prospective financial statements is usually a. A third-party lending institution

b. The client's management

c. The reporting accountant

d. The client's independent auditor 31. Responding to a question such as "What would happen if" is an attribute of which of the following types of engagements? a. Financial projection

b. Financial forecast

c. Financial forecast and financial projection

d. Review

32. Preliminary engagement activities include:

a. Evaluating internal controls.

b. Assessing audit risk at the account balance level.

c. Setting materiality.

d. Determining engagement team requirements.

33. The auditor's report is generally addressed to the: a. Chief operating officer. b. Securities and Exchange Commission. c. Stockholders of the company.

d. Chief financial officer.

34. When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to

a. Identify areas of relatively high risk of misstatement and plan the audit accordingly. b. Provide suggestions for improvement to the client. c. Serve as a basis for setting audit risk and materiality. d. Decide whether to perform an audit for the client.

35. Before accepting an engagement to audit a new client, an auditor is required to

a. Make inquiries of the predecessor auditor. b. Tell the client whether or not the auditor is willing to issue a "clean" opinion.

c. Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. d. Become a member of the client's board of directors.

36. The accuracy of information included in footnotes accompanying the audited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of

a. The stock exchange officials

b. The independent auditor c. The company's management d. The Securities and Exchange Commission

37. Which of the following best describes the concept of risk assessment on which auditors can provide independent assurance?

a. The risk that financial statements are misstated because of fraud

b. The risk that financial statements are misstated because of error or fraud c. Whether management has systems in place to evaluate and effectively manage the entity's business risks

d. Developing client acceptance and continuance practices that minimize the likelihood of lawsuits against the auditor

38. A typical objective of an operational audit is for the auditor to

a. Determine whether the financial statements present fairly the entity's operations

b. Evaluate the feasibility of attaining the entity's operational objectives

c. Make recommendations for improving performance

d. Report on the entity's relative success in attaining profit maximization

39. Governmental auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficiency, effectiveness, and

a.Monetary stimulusc. Accuracy

b.Evaluationd. Compliance

40. Which is not an attribute of an external auditor?

a. Independence

b. Client advocacy

c. Objectivity

d. Concern for the public interest

41. What is the general character of the work conducted in performing a forensic audit for a company?

a. Providing assurance that the financial statements are not materially misstated

b. Detecting or deterring fraudulent activity

c. Offering an opinion on the reliability of the specific assertions made by management

d. Identifying the causes of an entity's financial difficulties

42. Which of the following is NOT a requirement of the Sarbanes-Oxley Act?

a. Audit firms cannot provide most types of nonaudit services to their public company audit clients

b. Audit firms are required to rotate audit partners off audit engagements every five years for public company audits

c. Firms that audit public companies are subject to inspection by the PCAOB

d. A certain number of hours, which is based on the size of the company being audited, must be spent on each audit engagement

43. With regard to detecting fraud, auditing standards require auditors to a. Perform procedures designed to detect all instances of fraud that might affect the financial statements

b. Provide reasonable assurance that the financial statements are not materially misstated because of fraud 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

44. An internal auditor is likely to be more concerned with _________________ than the external auditor. a. Internal administrative procedures

b. Cost accounting procedures c. The efficiency of operations

d. Internal control

45. Which of the following is not included in the broad category of assurance services? a. operational audit b. reporting on internal control

c. accounting or review services

d. evaluation of the client's risk management framework

46. Which of the following best describes the role of corporate governance?

a. Management decides which accounting principles are the most appropriate. b. Shareholders vote to decide who should be members of the board of directors.

c. Holding the management team accountable to shareholders and other constituents for the utilization of the entity's resources.

d. Management often is compensated based on the company's profitability.

47. Which of the following would an auditor most likely use in determining the auditor's planning materiality?

a. The anticipated sample size for planned substantive procedures b. The entity's annualized interim (i.e. quarterly) financial statements c. The results of the internal control questionnaire d. The contents of the management representation letter

48. Tolerable misstatement is

a. Materiality allocated to an assertion

b. Materiality for the balance sheet as a whole

c. Materiality for the income statement as a whole

d. Materiality allocated to a specific account

49. Which of the following is not a qualitative factor that may affect an auditor's establishment of materiality?

a. Potential for fraud

b. The company is close to violating loan covenants

c. Firm policy sets materiality at 4% of pretax income

d. A small misstatement would interrupt an earnings trend

50. Engagement risk can be eliminated by

a. Establishing policies for client acceptance and continuance

b. Lowering audit risk

c. Lowering materiality

d. Engagement risk cannot be eliminated

51. The achieved (actual) level of audit risk

a. Can always be accurately assessed by the auditor

b. Should be greater than or equal to acceptable audit risk

c. Can never be known with certainty

d. Is the same for all audit clients

52. The risk of material misstatement differs from detection risk in that it

a. Arises from the misapplication of auditing procedures b. May be assessed in either quantitative or qualitative terms c. Exists independently of the actions of the auditor d. Can be changed at the auditor's discretion

53. When an auditor increases the assessed level of risk of material misstatement because certain control procedures were determined to be ineffective, the auditor would most likely increase the

a. Extent of tests of controls

b. Level of detection risk c. Extent of substantive tests d. Level of inherent risk

54. The risk of material misstatement includes which of the following: a.Detection riskc. Inherent risk

b.Audit riskd. Nonsampling risk

55. Which of the following procedures would not be used to obtain an understanding of the entity and its environment?

a. Observe entity operations b. Reperform entity processes c. Verify proper valuation of inventory subject to technological obsolescence

d. Review prior year's audit documentation

56. In general, material frauds perpetrated by which of the following are most difficult to detect?

a.Internal auditor c.Cashier

b.Keypunch operatord. Controller

57. All of the following represent an increased opportunity to commit fraud except: a. Significant related party transactions

b. The auditor's relationship with management is strained c. Management is dominated by a single person d. The financial statements included highly subjective estimates

58. As the acceptable level of detection risk decreases, an auditor may change the

a. Timing of tests of controls by performing them at an interim date rather than at year-end

b. Nature of substantive procedures from less effective to more effective procedures

c. Timing of tests of controls by performing them at several dates rather than at one time

d. Assessed level of risk of material misstatement to a higher amount

59. The auditor is most likely to presume that a high risk of a fraud exists if

a. The entity is a multinational company that does business in numerous foreign countries

b. The entity does business with several related parties

c. Inadequate segregation of duties places an employee in a position to perpetrate and conceal theft

d. Inadequate employee training results in lengthy EDP exception reports each month

60. Which of the following is correct concerning required auditor communications about fraud?

a. Fraud that involves senior management should be reported directly by the auditor to the audit committee regardless of the amount involved

b. Fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission

c. Any requirement to disclose fraud outside the entity is the responsibility of management and not that of the auditor

d. The professional standards provide no requirements related to the communication of fraud, but the auditor should use professional judgment in determining communication responsibilities

61. Which of the following statements is not correct about materiality?

a. The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important

b. An auditor considers materiality for the aggregate level of misstatements that could be material to any one of the financial statements individually

c. Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments

d. An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements

62. An example of audit evidence with a medium level of reliability is:

a.Scanning.c.Observation.

b.Recalculation.d.All of the above.

63. Audit documentation prepared on audits of publicly held clients is the property of the a. Shareholders b. The auditor

c. The management of the entity being audited d. The SEC

64. All of the following are typically in the current file except a. Adjusting journal entries b. Copies of the audit report c. Chart of accounts

d. Lead schedules

65. You are auditing a store that sells merchandise. Some of the store merchandise is held on consignment. Which account balance assertion for inventory should you be most concerned about verifying?

a. Existence or occurrence b. Completeness c. Rights and obligations

d. Valuation or allocation

66. Each of the following might, by itself, form a valid basis for an auditor to reduce substantive testing except for the

a. Difficulty and expense involved in testing a particular item b. Assessment of control risk at a low level c. Low inherent risk involved d. Relationship between the cost of obtaining evidence and its usefulness

67. Your audit client is under intense pressure to meet an earnings target. Which transaction assertion for transactions within the purchasing process are you most concerned with? a. Existence or occurrence

b. Completeness

c. Rights and obligations

d. Presentation and disclosure

68. Which of the following are ordinarily designed to detect possible material monetary errors in the financial statements? a. Tests of controls

b. Analytical procedures

c. Computer controls

d. Post-audit review of audit documents

69. Which of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement? a. Analysis of balance sheet accounts

b. Analysis of income statement accounts

c. All matters of continuing accounting significance

d. Facts that might bear on management integrity

70. In assessing the competence of an internal auditor, an independent CPA most likely would obtain information about the a. Quality of the internal auditor's work

b. Organization's commitment to integrity and ethical values

c. Influence of management on the scope of the internal auditor's duties d. Organizational levels to which the internal auditor reports

71. The auditor generally gives most emphasis to ratio and trend analysis in the examination of the a. Statement of Changes in Stockholders' Equity and Retained earnings b. Income Statement

c. Balance Sheet d. Statement of Cash Flows

72. Which of the following would be least likely to be comparable between similar corporations in the same industry or line of business?

a. Earnings per share b. Return on total assets before interest and taxes c. Accounts receivable turnover

d. Operating cycle

73. In correct order, general types of audit tests include: a. Substantive procedures, tests of controls, and risk assessment procedures. b. Substantive procedures, risk assessment procedures, and tests of controls. c. Risk assessment procedures, tests of controls, and substantive procedures. d. Risk assessment procedures, substantive procedures, and tests of controls.

74. An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowcharts

a. Identify whether segregation of duties prevent collusion

b. Provide a visual depiction of clients' activities c. Indicate whether controls are operating effectively d. Reduce the need to observe clients' employees performing routine tasks

75. Which of the following audit tests would be regarded as a test of controls? a. Tests of the specific items making up the balance in a given general ledger account b. Tests comparing inventory pricing to vendors' invoices

c. Tests of the signatures on canceled checks to the board of director's authorizations d. Tests of the additions to property, plant, and equipment by physical inspections

76. Which of the following input controls is a numeric value computed to provide assurance that the original value has not been altered in construction or transmission?

a.Hash totalc. Encryption

b.Parity checkd. Check digit

77. General controls include all of the following except

a. Organizational controls

b. Data validation controls

c. Access security controls

d. Application system acquisition controls

78. A limit test is a

a. Test to ensure that a numerical value does not exceed some predetermined value

b. Check to ensure that the value in a field falls within an allowable range of values

c. Check to ensure that the data in a field have the proper arithmetic sign

d. Check on a field to ensure that it contains either all numeric or alphabetic characters

79. A field test is a

a. Test to ensure that a numerical value in a field does not exceed some predetermined value

b. A check to ensure that the value in a field falls within an allowable range of values

c. A check to ensure that the data in a field have the proper arithmetic sign

d. A check on a field to ensure that it contains either all numeric or alphabetic characters

80. An auditor's primary consideration regarding an entity's internal controls is whether the policies and procedures

a. Affect the financial statement assertions b. Prevent management override c. Relate to the control environment d. Reflect management's philosophy and operating style

81. An effective control environment a. Allows management to identify all relevant risks b. Creates a commitment to competence

c. Guarantees that all controls are followed as prescribed d. Requires an internal audit department

82. An IT specialist is least likely to be necessary when a. Data is shared extensively among systems b. The entity participates heavily in electronic commerce

c. The system has not changed from the prior year d. Significant audit evidence is in electronic form

83. A substantive strategy differs from a reliance strategy in that a substantive strategy includes a. Increased implementation of detailed tests of transactions and balances b. Extra tests of controls c. Increased emphasis on verbal representations from management

d. Setting control risk at a minimum level

84. Walkthroughs usually involve all of the following audit procedures except

a.Reperformancec. Observation

b.Inquiryd. Inspection

85. Which of the following is a general control that would most likely assist an entity whose systems analyst left the entity in the middle of a major project?

a. Grandfather-father-son record retention

b. Input and output validation routines c. Systems documentation d. Check digit verification

86. A deficiency that implies that there is reasonable possibility of misstatement in the financial statements that is significant but not material is a. A material weakness

b. A significant deficiency

c. An insignificant deficiency

d. A probable deficiency

87. As a result of tests of controls, an auditor over relied on internal control and decreased substantive testing. This overreliance occurred because the true deviation rate in the population was a. Less than the risk of assessing control risk too low on the auditor's sample

b. Less than the deviation rate in the auditor's sample

c. More than the risk of assessing control risk too low on the auditor's sample

d. More than the deviation rate in the auditor's sample

88. For an attributes sampling plan, the tolerable deviation rate is 4%, the computed upper deviation rate is 7%, the sample deviation rate is 3% and the desired confidence level is 95%. What is the allowance for sampling risk included in the computed upper deviation rate?

a.2%c. 4%

b.3%d. 5%

89. Statistical sampling provides a technique for

a. Exactly defining materiality

b. Greatly reducing the amount of substantive testing

c. Eliminating judgment in testing

d. Measuring the sufficiency of evidential matter

90. An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods

a. Afford greater assurance than a nonstatistical sample of equal size b. Provide an objective basis for quantitatively evaluating sample risks c. Can more easily convert the sample into a dual-purpose test useful for substantive testing

d. Eliminate the need to use judgment in determining appropriate sample sizes 91. In all of the following situations except one, a person is deemed to be engaged in professional accounting practice. Which of them is the exception?

a. Performing audits or verification of financial transactions and records for more than one client. b. Employed as the department chairman that supervises the BSA program of an educational institution.

c. Employment as controller of a private business enterprise and such employment requires that the holder thereof should be a CPA.

d. Appointment in the government where first grade civil service eligibility is a prerequisite.

92. Any position in any business or company in the private sector which requires supervising the recording of financial transactions, preparation of financial statements, coordinating with the external auditors for the audit of such financial statements and other related functions shall be occupied only by a duly registered CPA. Provided (choose the incorrect one)

a. That the business or company where the above position exists has a paid-up capital of at least P5,000,000 and/or an annual revenue of at least P10,000,000.

b. The above provision shall apply only to persons to be employed after the effectivity of the Implementing Rules and Regulations of RA 9298.

c. The above provision shall not result to deprivation of the employment of incumbents to the position.

d. None of the above.

93. The following statements relate to CPA examination ratings. Which of the following is incorrect?

a. To pass the examination, candidates should obtain a general weighted average of 75% and above, with no rating in any subject less than 65%.

b. Candidates who obtain a rating of 75% and above in at least four subjects shall receive a conditional credit for the subjects passed.

c. Candidates who failed in four complete examinations shall no longer be allowed to take the examinations the fifth time.

d. Conditioned candidates shall take an examination in the remaining subjects within two years from the preceding examination.

94. Which of the following is not one of the grounds for proceedings against a CPA?

a. Gross negligence or incompetence in the practice of his profession.

b. Engaging in public practice while being employed in a private enterprise.

c. Insanity.

d. Immoral or dishonorable conduct.

95. Below are the names of three CPA firms and pertinent facts relative to each firm. Unless otherwise indicated, the individuals named are CPAs and partners, and there are no other partners. Which firm name and related facts indicates a violation of the IRR of RA 9298?

a. A, B and C, CPAs (A died about 10 years ago, B and C are continuing the firm)

b. D and E, CPAs ( the name of F a third active partner is omitted in the firm name)

c. F and G, CPAs (F died 25 months ago, G is continuing the firm as a sole proprietor)

d. H and I, CPAs (I died 3 years ago, J was admitted into the partnership 2 months after Is death.)

96. May a CPA hire for the CPAs public accounting firm a non-CPA systems analyst who specializes in developing computer systems? a. Yes, provided the CPA is qualified to perform each of the specialists tasks.

b. Yes, provided the CPA is able to supervise the specialist and evaluate the specialists end product.

c. No, because non-CPA professionals are not per- mitted to be associated with CPA firms in public practice.

d. No, because developing computer systems is not recognized as a service performed by public accountants.

97. Juan Dela Cruz is a CPA who is working as a controller for Bayabas Corporation. Which statement is true?

a. He may use the CPA designation on his business cards if he also puts his employment title on them.

b. He may use the CPA designation on his business cards as long as he does not mention Bayabas Corporation or his title as controller.

c. He may use the CPA designation on company transmittals but not on his business cards. d. He may not use the CPA designation because he is not in public practice.

98. According to the standards of the profession, which of the following activities would most likely not impair a CPAs independence?

a. Providing advisory services for a client. b. Contracting with a client to supervise the clients office personnel.

c. Signing a clients checks in emergency situations. d. Accepting a luxurious gift from a client.

99. On June 1, 2011, a CPA obtained a P1,000,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPAs net worth. The CPA paid the loan in full on December 31, 2012. On April 3, 2012, the client asked the CPA to audit the clients financial statements for the year ended December 31, 2012. Is the CPA considered independent with respect to the audit of the clients December 31, 2012 financial statements?

a. Yes, because the loan was fully secured. b. Yes, because the CP A was not required to be independent at the time the loan was granted. c. No, because the CPA had a loan with the client during the period of a professional engagement. d. No, because the CPA had a loan with the client during the period covered by the financial statements.

100. Based on the Code of Ethics for Professional Accountants, threats to compliance with fundamental principles arise from all of the following except:

a. Self interest.

b. Advocacy.

c. The audit relationship. d. Intimidation.