College of Business, Entrepreneurship & Accountancy
1st Semester/S.Y. 2020-2021
AUDITING AND ASSURANCE PRINCIPLE
Midterm Examination
NAME: ​ LEAH MARIZ VILLANUEVA BUSTILLO
COURSE: ​BS ACCOUNTANCY
DATE: ​10/13/2020
RAW SCORE:___________
Multiple Choice: Encircle the letter of the correct answer
​1.Assurance services
a.
b.
c.
d.
Include tax services, compliance audits, and review engagements.
Are contracts in which the assuror reports on or improves the quality of the information.
Are offered only by members of the American Institute of Certified Public Accountants.
Are contracts in which one party makes recommendations on how another party might use
information.
2. The essence of the attest function is to
a. Offer assurance about subject matter that is the responsibility of another party.
b. Examine individual transactions and certify as to the validity of each.
c. Ensure the consistent application of correct accounting principles.
d. Detect fraud in the client’s financial statements.
3 The market for auditing services is driven by
a. The regulations of the Securities and Exchange Commission.
b. A demand by external users of financial statements.
c. Pronouncements issued by the Auditing Standards Board.
d. Congress at the federal level and elected legislative bodies at the state level.
4. Which of the following statements is an example of an assertion made by management in an entity's financial statements?
a. The financial statements were prepared in an unbiased manner.
b. Reported inventory balances reflect all related transactions for the period.
c. Reported accounts receivable does not include any uncollectible accounts.
d. The scope of the auditors' investigation was not limited in any way by management.
5 An independent audit report
a. Confirms the accuracy of management's financial statements.
b. Guarantees that financial statements are accurate.
c. Assures the readers of financial statements that any fraudulent activity has been corrected.
d. Provides written assurance that the financial statements are fairly presented.
6 In a review engagement, a public accounting firm
a. Provides limited assurance about whether an entity’s financial statements conform to
GAAP.
b. Has as a client a large, public company.
c. Compiles financial information into the form of financial statements, providing no
assurance.
d. Performs procedures, which are agreed upon in advance with the client.
7. The reason an independent auditor gathers evidence is to
a. Evaluate internal controls.
b. Detect fraud.
c. Evaluate management.
d. Form an opinion on the financial statements.
8. An independent audit is important to readers of financial statements because it
a. Reports on the accuracy of information in the financial statements.
b. Measures and communicates the financial data included in financial statements.
c. Provides a measure of management's stewardship function.
d. Objectively examines and reports on the fair presentation of the financial statements.
9. Which of the following criteria is unique to the independent auditor's attest function?
a. Independence.
b. Familiarity with the particular industry of each client.
c. Due professional care.
d. General competence.
10. An auditor strives to achieve the appearance of independence in order to
a. Become independent in fact with respect to a client.
b. Maintain the professional’s reputation as a trustworthy party.
c. Comply with the generally accepted standards of fieldwork.
d. Reduce risk and liability to the auditing firm
11. In an audit of financial statements, due professional care requires
a. The exercise of error-free judgment.
b. The examination of all corroborating evidence available.
c. Testing the system of internal control.
d. A responsibility to exercise reasonable care.
12. The first general standard requires that the audit of financial statements be performed by a person or persons having
adequate technical training and
a. Objectivity as an auditor.
b. Proficiency as an auditor.
c. Exercising professional care.
d. Independence from the client.
13 The “prudent practitioner” or “reasonable person” does all of the following except
a. Takes steps to foresee unreasonable risk or harm to others.
b. Keeps current with developments in the chosen area of expertise.
c. Plans for unfamiliar situations and takes appropriate precautions.
d. Assumes that the client circumstances will be very similar to the previous year.
14.An objective of the fourth generally accepted standard of reporting, relating to the expression of the auditor’s opinion, is to
a. Prohibit the auditor from issuing a report that does not include an opinion on the financial
statements taken as a whole.
b. Inform users that the financial statements and related notes are the joint responsibility of
the auditor and management.
c. Prevent users of financial statements from misinterpreting the degree of responsibility
assumed by the auditor.
d. Ensure adequate informative disclosures by management in the financial statements.
15.Which of the following best describes what is meant by generally accepted auditing standards?
a. Acts to be performed by the auditor on every audit engagement.
b. Measures of the quality of an auditor's performance.
c. Procedures used to gather evidence to support financial statements.
d. Objectives for audit engagements.
16 The generally accepted standards of reporting encompass all of the following except
a. Consideration of an entity's system of internal control.
b. Consistent application of accounting principles.
c. Informative disclosures.
d. Conformity of the financial statements with GAAP.
17. Inclusion of which of the following in a promotional brochure published by a public accounting firm would be most likely
to result in a violation of the PICPA rules of conduct?
a. Reprints of newspaper articles that praise the firm's expertise.
b. Services offered and fees for such services, including hourly rates and fixed fees.
c. Educational and professional attainments of partners.
d. Testimonials and endorsements.
.18. According to the PICPA Code of Professional Conduct, a member who has a financial interest in a partnership that invests in
a potential client is considered to have
a. An indirect financial interest in the client.
b. A direct financial interest in the client.
c. No financial interest in the client.
d. A partial financial interest in the client.
19 In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has
been retained as the auditor of a brokerage firm
a. Which owes the CPA audit fees for more than one year.
b. In which the CPA has a large active margin account.
c. In which the CPA's brother is the controller.
d. Which owes the CPA audit fees for services in the current year and has just filed a petition
for bankruptcy.
20 In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has
been retained as the auditor of a
a. Charitable organization in which an employee of the CPA serves as treasurer.
b. Municipality in which the CPA owns $25,000 of the $2,500,000 indebtedness of the
municipality.
c. Cooperative apartment house in which the CPA owns an apartment and is not part of the
management.
d. Company in which the CPA's investment club owns a one-tenth interest.
21 Which of the following most completely describes how independence has been defined by the profession?
a. Performing an audit from the viewpoint of the public.
b. Avoiding the appearance of significant interests in the affairs of an audit client.
c. Possessing the ability to act with integrity and objectivity.
d. Accepting responsibility to act professionally and in accordance with a professional code
of ethics.
22. The appearance of independence of a CPA, or that CPA's firm, could be impaired if the CPA
a. Owns a unit in a cooperative apartment house where each unit has a vote in the
cooperative, and the CPA, who does not participate in the management, has been retained
as the auditor for the cooperative.
b. Joins a trade association that is a client and serves in a non-management capacity.
c. Accepts a gift from a client.
d. None of the above.
23. Which of the following is not a management assertion?
a. Allocation.
b. Disclosure.
c. Accuracy.
d. Completeness.
24. Evidential matter consists of both underlying accounting data and corroborating information, which support the
accounting data. Which of the following is considered corroborating information?
a. Data files.
b. Records of electronic fund transfers.
c. Subsidiary ledgers.
d. The general ledger.
25.As the acceptable level of detection risk decreases, an auditor may change the
a. Timing of substantive tests by performing them at an interim date rather than at year-end.
b. Nature of substantive tests from a less effective to a more effective procedure.
c. Timing of tests of controls by performing them at several dates rather than at one time.
d. Assessed level of inherent risk to a higher amount.
26. Which of the following is not an audit procedure?
a. Comparisons.
b. Documentation.
c. Completeness.
d. Inquiries.
27. Which of the following is the least persuasive type of audit evidence?
a. Documents mailed by outsiders to the auditor.
b. Correspondence between the auditor and the client’s attorney.
c. Copies of sales invoices inspected by the auditor.
d. Computations made by the auditor.
28. The purpose of analytical procedures performed as substantive tests is to
a. Review the reasonableness of the account balances.
b. Direct attention to likely misstatements.
c. Support or refute the fairness of the account balances.
d. Adhere to PCAOB requirements.
29. Which of the following best describes the primary purpose of audit procedures?
a. To detect fraud.
b. To comply with generally accepted accounting principles.
c. To gather corroborative evidence to support the audit opinion.
d. To verify the accuracy of account balances.
30. Analytical procedures are
a. Substantive tests designed to evaluate a system of internal control.
b. Tests of controls designed to evaluate the validity of management's representation letter.
c. Substantive tests designed to evaluate the reasonableness of financial information.
d. Tests of controls designed to evaluate the reasonableness of financial information.
31 Which of the following is designed to detect possible material Peso misstatements in the financial statements?
a. Tests of controls.
b. Analytical procedures.
c. Computer controls.
d. Post audit working paper review.
32. In testing for lower-of-cost-or-market, the auditor is gathering evidence to support which of the following assertions?
a. Pricing.
b. Accuracy.
c. Valuation.
d. Rights and obligations.
33.In a typical audit, which of the following steps is performed first?
a. Interim audit work.
b. Perform subsequent event work.
c. Gain an understanding of the client’s strategies.
d. Consider audit risk.
34.The client is the:
a. Audit committee.
b. SEC.
c. Management.
d. Investment community.
35. Which of the following is not a recommendation for an audit committee to be effective?
a. The committee should monitor whether management uses the best accounting principles.
b. The committee is primarily responsible to support management.
c. Audit committee members should not have financial ties to the company.
d. The committee should have a written charter.
36.Responsibilities of audit committees include all of the following except:
a. Review of disclosures in the financial statements.
b. Selection of the external auditor.
c. Resolving differences between the controller and the financial vice-president.
d. Oversight of the internal audit activity.
37. The understanding with the client should include all of the following except:
a. The type of opinion, which will be issued.
b. Management’s responsibilities.
c. The objective of the engagement.
d. The limitations of the engagement.
38. In a financial statement audit, management is responsible for:
a. Providing staff to assist the auditor on the engagement.
b. Making all financial records and information available to the auditor.
c. Reporting to the audit committee.
d. Proposing adjusting journal entries based on the audit results.
39. Early appointment of the auditor enables preliminary work to be performed by the auditor, which benefits the client in that
it permits the examination to be performed in
a. A more efficient manner.
b. A more thorough manner.
c. Accordance with quality control standards.
d. Accordance with generally accepted auditing standards.
40. Engagement letters
a. Are mandated for audit engagements.
b. Are recommended for all professional engagements.
c. Are signed by members of the audit committee.
d. Include an analysis of the results of the audit.
41. Engagement letters
a. Help to minimize misunderstandings between the client and the auditor.
b. Are required to be in writing.
c. Contain management’s representations concerning waived adjusting journal entries.
d. Are signed by the client’s legal counsel.
42. With regard to adjusting journal entries proposed by the auditor,
a. The audit committee must book all proposed adjusting journal entries.
b. The engagement letter must include a list of them all.
c. Management is required to confirm in the representation letter that unrecorded adjusting
journal entries are immaterial.
d. The SEC must be notified of the details of each.
END OF EXAMINATION
Prepared By:
Reviewed and Checked By:
Mr. August J. San Antonio,CPA
Faculty-CBEA
Ms. Alma C. Centeno, CPA,DBA
Program Head - Accountancy
Approved By:
Dr. Maria Corazon D. Segismundo, CPA,FRIAcc
Dean - CBEA