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AUDITING
According to Philippine Standards on Auditing (PSA), _____ defines by stating
the objective of a financial statement audit; that is, to enable the auditor to express an opinion on whether the financial
statements are prepared, in all material
respects, in accordance with the applicable financial reporting framework.
AUDIT
According to American Accounting Association, _____ is a systematic process of
objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain
the degree of correspondence between
these assertions and established criteria
and communicating the results to interested users.
ASSERTIONS
Representations made by an entity about
economic actions and events.
ESTABLISHED CRITERIA
These are needed to judge the validity of
the assertions.
FINANCIAL STATEMENT AUDIT
Conducted to determine whether the financial statements of an entity are fairly
presented in accordance with the applicable financial reporting framework.
COMPLIANCE AUDIT
Involves a review of an organization's
procedures to determine whether the organization has adhered to specific procedures, rules, or regulations.
OPERATIONAL AUDIT
A study of a specific unit of an organization for the purpose of measuring its
performance.
PERFORMANCE AUDIT or MANAGEMENT AUDIT
Operational audit is also known as
_______ or ______.
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These are independent CPAs who ofEXTERNAL AUDITORS or INDEPENfer their professional services to different
DENT AUDITORS
clients on a contractual basis.
FINANCIAL STATEMENT AUDITS
External auditors are the ones who generally perform ______ audits.
INTERNAL AUDITORS
These are entity's own employees who
investigate and appraise the effectiveness and efficiency of operations and
internal controls.
OPERATIONAL AUDITS
Internal auditors usually perform ______
audits.
GOVERNMENT AUDITORS
These are government employees
whose main concern is to determine
whether persons or entities comply with
government laws and regulations.
COMPLIANCE AUDIT
Government auditors usually conduct
_________ audits.
MANAGEMENT
The ______ is responsible for preparing
and presenting the financial statements
in accordance with the applicable financial reporting framework.
AUDITOR
The ______ is responsible to form and
express an opinion on these financial
statements based on the audit results.
MANAGEMENT
It is _____'s responsibility to adopt and
implement adequate accounting and internal control systems that will help ensure the preparation of reliable financial
statements.
NOT A GUARANTEE
The auditor's opinion in the FS is ____
that the FS are dependable.
REASONABLE ASSURANCE
An audit conducted in accordance with
the PSAs is designed to provide only
____ that the FS taken as a whole are
free from material misstatements.
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INHERENT LIMITATIONS
There are ______ of an audit that affect the auditor's ability to detect material
misstatements.
NO ABSOLUTE ASSURANCE
Even if the auditor examines all evidence
available, there is _____ that material
misstatement in the FS will be detected.
PROFESSIONAL JUDGMENT
It is essential to the proper conduct of the
audit.
AUDIT EVIDENCE
It is needed to support the opinion expressed in the auditor's report.
PROFESSIONAL SKEPTICISM
Auditor makes a critical assessment,
with a questioning mind, of the validity of audit evidence obtained and is
alert to audit evidence that contradicts or
bring into questions the reliability of documents or management representations.
1. Auditing is a systematic process
2. An audit involves obtaining and evaluating evidence about assertions regarding economic actions and events.
3. An audit is conducted objectively.
(5) AUDIT DEFINITION CONVEYS THE
4. Auditors ascertain the degree of corre- FF. THOUGHTS:
spondence between assertions and established criteria.
5. Auditors communicate the audit results to various interested users.
1. Financial Statement Audit
2. Compliance Audit
3. Operational Audit
(3) THREE MAJOR TYPES OF AUDIT
1. Systematic examination and evaluation of evidence
(2) ALL AUDITS POSSESS THE SAME
2. Communication of the results of the GENERAL CHARACTERISTICS
examination (written report)
1. Responsibility for the financial statements
2. Assurance provided by the auditor
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3. Nature of the procedures
4. Nature of financial reporting
5. Nature of evidence
(5) THE INDEPENDENT FINANCIAL
STATEMENT AUDIT
1. The use of testing or sampling risk
(2) PRACTICAL AND INHERENT LIMI2. Error in the application of judgment or TATIONS ON THE AUDITOR'S ABILITY
non-sampling risk
TO OBTAIN EVIDENCE
1. The auditor should comply with the
relevant ethical requirements
2. The auditor should conduct an audit
in accordance with Philippine Standards
on Auditing (PSAs)
3. The auditor should apply professional
judgment in planning and performing the (5) GENERAL REQUIREMENTS WHEN
AUDITING FINANCIAL STATEMENTS
audit
4. The auditor should obtain sufficient
appropriate audit evidence to reduce the
audit risk to an acceptably low level
5. The auditor should plan and perform
the audit with an attitude of professional
skepticism
1. Conflict of interest between management and users of FS
(4) NEED FOR AN INDEPENDENT FI2. Expertise
NANCIAL STATEMENT AUDIT
3. Remoteness
4. Financial consequences
1. Audit junction operates on the assumption that all financial data are verifiable
2. The auditor should always maintain
independence with respect to the FS under audit
(7) THEORETICAL FRAMEWORK OF
3. There should be no long-term conflict
AUDITING
between the auditor and the client management
4. Effective internal control system reduces the possibility of material misstatements of the FS
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able financial reporting framework such
as the PFRS results in fair presentation
of FS
6. What was held true in the past will
continue to hold true in the future in the
absence of known conditions to the contrary
7. An audit benefits the public
When auditing financial statements, the
primary concern is with
a. Determining whether recorded information property reflects the economic
a. Determining whether recorded inforevents that occurred during the accountmation property reflects the economic
ing period.
events that occurred during the accountb. Determining if fraud has occurred.
ing period.
c. Determining if taxable income has
been calculated correctly.
d. Analyzing the financial information to
be sure that it complies with government
requirements.
c. accounting.
Recording, classifying, and summarizing
economic events in logical manner for
the purpose of providing financial information for decision making is commonly
called:
a. finance.
b. auditing.
c. accounting.
d. economics.
The trait that distinguishes auditors from
accountants is the:
d. auditor's accumulation and interpretation of evidence related to a company's a. auditor's ability to interpret accounting
financial statements.
standards
b. auditor's education beyond the Bachelor's degree.
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c. auditor's ability to interpret FASB
Statements.
d. auditor's accumulation and interpretation of evidence related to a company's
financial statements.
The subject matter of any audit consists
of
a. Assertions about economic actions
and events
a. Assertions about economic actions
and events
b. Economic data
c. Financial statements
d. Operating data
An audit involves ascertaining the degree of correspondence between assertions and established
criteria. In the case of financial statement
audit, which of the following is not a valid
criterion?
a. Philippine Standards on Auditing
a. Philippine Standards on Auditing
b. International Accounting Standards
c. Authoritative financial reporting framework
d. Accounting standards generally accepted in the Philippines
The criteria for evaluating quantitative information vary. For example, in the case
of an independent
audit of financial statements by CPA
firms, the criteria are usually the
b. Philippine financial Reporting Standards
a. Philippine Standards on Auditing
b. Philippine financial Reporting Standards
c. National internal Revenue Code
d. Regulations of the Securities and Exchange Commission
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Most of the independent auditor's work
in formulating an opinion on the financial
statements consists of
a. Obtaining and examining evidence
a. Obtaining and examining evidence
b. Examining cash transactions
c. Comparing recorded accountability
with assets
d. Studying and evaluating internal control
An audit of financial statements is conducted to determine if the
a. Organization is operating efficiently
and effectively
c. Overall financial statements are stated b. Client is following specific procedures
in accordance with an identified financial or rules set down by some higher authorreporting framework.
ity
c. Overall financial statements are stated
in accordance with an identified financial
reporting framework.
d. Client's internal control is functioning
as intended.
An audit involves ascertaining the degree of correspondence between assertions and established
criteria. In the case of an audit of financial
statements, which of the following would
not be a valid
c. Philippine Financial Reporting Stancriterion?
dards
a. International Standards on Auditing
b. Philippine Standards on Auditing
c. Philippine Financial Reporting Standards
d. Quality Control Standards
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In financial statement audits, the audit
process should be conducted in accordance with
b. The Philippine Standards on Auditing a. The audit program
b. The Philippine Standards on Auditing
c. The Philippine Accounting Standards
d. The Philippine Financial Reporting
Standards
Which of the following types of audit uses
laws and regulations as its criteria?
c. Compliance audit
a. Operational audit
b. Financial statement audit
c. Compliance audit
d. Performance Audit
An audit designed to provide reasonable
assurance of detecting violations of a
specific provisions of contracts or grant
agreements would be called a(n):
d. Compliance audit
a. Performance audit
b. Management audit
c. Operational audit
d. Compliance audit
c. Operational audit
An audit that involves obtaining and evaluating evidence about the efficiency and
effectiveness of an
entity's operating activities in relation to
specified objectives is a(n):
a. External audit
b. Compliance audit
c. Operational audit
d. Financial statement audit
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Which of the following is more difficult to
evaluate objectively?
a. Efficiency and effectiveness of operations
a. Efficiency and effectiveness of opera- b. Compliance with applicable governtions
ment regulations
c. Presentation of financial statements in
accordance with the applicable financial
reporting criteria
d. All the given criteria are equally difficult
to evaluate objectively
Which of the following best describes an
operational audit?
a. It attempts of verifying the fair presentation of a company's results of operations.
c. It concentrates on seeking out aspects b. It concentrates on implementing finanof operations in which waste would be cial and accounting control in a newly
reduced by the
organized company.
introduction of controls.
c. It concentrates on seeking out aspects
of operations in which waste would be
reduced by the
introduction of controls.
d. It requires a constant review of the
administrative control: by internal auditors as they relate to operations of the
company.
A typical objective of an operational audit
is to determine whether an entity's.
c. Specific operating units are function- a. Internal control structure is adequately
operating as designed
ing efficiently and effectively
b. Operational information is in accordance with generally accepted accounting principles
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c. Specific operating units are functioning
efficiently and effectively
d. Financial statements present fairly the
results of operations
One objective of an operational audit is
to:
a. Determine whether the financial statements fairly present the entity's operac. Make recommendations for improving tions.
performance.
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
The auditor communicates the results of
his or her work through the medium of
the
b. Audit report.
a. Engagement letter.
b. Audit report.
c. Management letter.
d. Financial statements.
When performing an operational audit,
the internal audit team must first determine that:
a. A financial audit has been performed
d. Specific criteria are developed to de- by an independent auditor.
fine effectiveness.
b. A financial audit has been performed
by an internal auditor.
c. A review was performed by either an
independent or an internal auditor.
d. Specific criteria are developed to define effectiveness.
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Which of the following types of auditing is
performed most commonly by CPA's on
a contractual
basis?
d. External auditing
a. Internal auditing
b. Income tax auditing
c. Government auditing
d. External auditing
An examination of part of an organization's procedures and methods for the
purpose of evaluating efficiency and effectiveness is what type of audit?
a. Operational audit.
a. Operational audit.
b. Compliance audit.
c. Financial statement audit.
d. Production audit.
Which of the following is not one of the
major differences between financial and
operational auditing?
c. Financial audits deal with the information on the financial statements, but operational audits are concerned with the
information in the ledgers and journals.
a. The financial audit is oriented to the
past, but an operational audit concerns
performance for the future.
b. The financial audit report has widespread distribution, but the operational
audit report has limited distribution.
c. Financial audits deal with the information on the financial statements, but operational audits are concerned with the
information in the ledgers and journals.
d. Financial audits are limited to matters that directly affect the fairness of
the financial statement presentation, but
operational audits cover any aspect of
efficiency and effectiveness.
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The overall objective of internal auditing
is to
a. Attest to the efficiency with which resources are employed
d. Assist members of the organization in
b. Ascertain that controls are costs justithe effective discharge of their responsified
bilities.
c. Provide assurance that financial data
have been accurately recorded.
d. Assist members of the organization in
the effective discharge of their responsibilities.
c. Management and the board of directors
Internal auditing is an independent appraisal function established within an organization to examine and evaluate its
activities. To that end, internal auditing
provides assistance to
a. External auditors
b. Stockholders
c. Management and the board of directors
d. Government
Internal auditors' independence is enhanced when they report to
a. The audit committee of the board of
directors
a. The audit committee of the board of
directors
b. The head of the finance department
c. The external auditors
d. The president of the Company
Which of the following groups could not
be involved in an operational audit?
d. All of the above could be involved.
a. External auditors
b. Internal auditors
c. Government auditors
d. All of the above could be involved.
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Which of the following statements is not
a distinction between independent auditors and internal auditors?
a. External auditors represent third party users external to the auditee entity,
whereas internal auditors report directly
to management.
b. Although External auditors strive for
b. Although External auditors strive for
both validity and relevance of evidence,
both validity and relevance of evidence,
internal auditors are concerned almost
internal auditors are concerned almost
exclusively with validity.
exclusively with validity.
c. Internal auditors are employees of the
auditee, whereas independent auditors
are independent contractors.
d. The internal auditor's span of coverage
goes beyond financial auditing to encompass operational and performance auditing.
The objective of the ordinary examination by the independent auditor id the
expression of an opinion on
a. The fairness of the financial statements
b. The accuracy of the financial statements
c. The accuracy of the annual report
d. The balance sheet and income statement
a. The fairness of the financial statements
Auditors accumulate evidence to
d. Enable them to reach conclusions
about the fairness of the financial statements and issues an appropriate audit
report.
a. Defend themselves in the event of a
lawsuit
b. Justify the conclusions they have otherwise reached
c. Satisfy the requirements of the Securities and Exchange Commission
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d. Enable them to reach conclusions
about the fairness of the financial statements and issues an appropriate audit
report.
The responsibility for the preparation of
the financial statements and the accompanying notes belongs to
b. The management
a. The auditor
b. The management
c. Both management and the auditor
equally
d. The management for the statements
and the auditor for the notes
Independent auditing can best be described as a
a. Professional activity that measure and
communicates financial accounting data
c. Professional activity that attests to the
b. Subsets of accounting
fair presentation of the financial statec. Professional activity that attests to the
ments
fair presentation of the financial statements
d. Regulatory activity that prevents the
issuance of misleading financial information
An audit of the financial statements of
JMV Corporation is being conducted by
an external auditor. The external auditor
is expected to
a. Express an opinion as to the fairness
a. Express an opinion as to the fairness
of JMV's financial statements.
of JMV's financial statements.
b. Express an opinion as to the attractiveness of JMV for investment purposes
c. Certify the correctness of JMV's financial statements
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d. Examine all evidence supporting
JMV's financial statements.
Which of the following statements about
independent financial statement audit is
correct?
a. The audit of financial statements relieves management of Its responsibilities
tor the financial statements.
b. An audit is designed to provide limited
d. The auditor's opinion is not an asassurance that the financial statements
surance as to the future viability of the
taken as a whole are free from material
entity as well as the effectiveness and
misstatement.
efficiency with which management has
c. The procedures required to conduct an
conducted the affairs of the entity
audit in accordance with PSAs should be
determined by the client who engaged
the services of the auditor.
d. The auditor's opinion is not an assurance as to the future viability of the
entity as well as the effectiveness and
efficiency with which management has
conducted the affairs of the entity.
The primary purpose of an independent
financial statement audit is to
a. Provide a basis for assessing management's performance
d. Provide users with an unbiased opin- b. Comply with government regulatory
ion about the fairness of information re- requirements.
c. Assure management that the financial
ported in the financial statements.
statements are unbiased and free from
material error
d. Provide users with an unbiased opinion about the fairness of information reported in the financial statements.
The level of assurance provided by an
auditor when expressing an opinion on
the financial statements is
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a. Low
b. Reasonable
c. Limited
d. None
b. Reasonable
By providing high level of assurance on
audit reports on financial statements, the
auditor
a. Guarantees the fair presentation of the
financial statements
c. Enhances the credibility of the finanb. Confirms the accuracy of the financial
cial statements.
statements.
c. Enhances the credibility of the financial
statements.
d. Assures the readers that fraudulent
activities of employees have been detected.
The reason an independent auditor gathers evidence is to
a. Form an opinion on the financial state- a. Form an opinion on the financial statements.
ments.
b. Detect fraud.
c. Evaluate management's performance.
d. Evaluate the entity's internal control.
Theoretically, it is possible to provide an
infinite range of assurance from a very
low level ofassurance to an absolute level
of assurance. In practice, the professional accountants cannot provide absolute
c. The auditor usually lacks the expertise
assurance because of the following exnecessary to verity the financial statecept
ments
a. There are inherent limitations of audit
that cannot be eliminated
b. The auditor employs testing process
when performing audit procedures
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c. The auditor usually lacks the expertise
necessary to verity the financial statements
d. The auditor uses professional judgement in gathering evidence and drawing
conclusions based on that evidence
Which of the following is not one of the
limitations of an audit?
b. Limitations imposed by client
a. The use of testing
b. Limitations imposed by client
c. Human error
d. Nature of evidence obtained
Which of the following statements does
not properly describe limitation of an audit?
a. Many audit conclusions are made on
the basis of examining a sample of evidence.
d. Many financial statement assertions
b. Some evidence supporting peso repcannot be audited.
resentation in the financial statements
must be obtained by oral or written representation of management.
c. Can cause auditors to overlook pertinent evidence
d. Many financial statement assertions
cannot be audited.
Which of the following is one of the limitations of an audit?
a. The possibility that management may
c. The fact that most audit evidence is
prevent the auditor from performing the
persuasive rather than conclusive in nanecessary audit procedures.
ture.
b. The likelihood that the auditor may not
be able to detect material misstatements
in the financial statements because the
auditor is engaged only after year-end.
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c. The fact that most audit evidence is
persuasive rather than conclusive in nature.
d. The risk that the auditor may not
possess the training and proficiency required by the engagement
The primary reason for an audit by an
external audit firm is
a. To satisfy governmental regulatory requirements.
c. To provide increased assurance to
b. To guarantee that there are no misusers as to the fairness of the financial
statements in the financial statements
statements.
c. To provide increased assurance to
users as to the fairness of the financial
statements.
d. To ensure that any fund will be discovered.
The independent audit is important to
readers of financial statement because it
a. Determines the future stewardship of
the management of the company whose
financial statements are audited.
c. Involves the objective examination of
b. Measures and communicates financial
and reporting on management prepared
and business data involved in financial
statements.
statements.
c. Involves the objective examination of
and reporting on management prepared
statements.
d. Reports on the accuracy of all information in the financial statements.
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The best statement of the responsibility
of the auditor with respect to audited financial statement is
a. The auditor's responsibility on fair presentation of financial statements is limited only up to the date of the audit report.
b. The auditor's responsibility is confined
b. The auditor's responsibility is confined
to the expression of opinion on the finanto the expression of opinion on the financial statements audited.
cial statements audited.
c. The responsibility over the financial
statements rests with the management
and the auditor assumes responsibility
with respect to the notes of financial
statements.
d. The auditor is responsible only to his
unmodified opinion but not for any other
types of opinion.
Which of the following is incorrect about
responsibility for financial statements?
a. Management is responsible for fair
presentation of the financial statements.
d. Fair presentation of financial stateb. Auditor is responsible for expressing
ments is an implicit part of the auditor's
an opinion on the financial statements.
responsibility.
c. Audit of financial statements does not
reduce management's responsibility.
d. Fair presentation of financial statements is an implicit part of the auditor's
responsibility.
Which of the following statements about
independent financial statement audit is
incorrect?
d. The risk that the auditor will fail to uncover material misstatement is eliminat- a. Scope of the audit refers to audit procedures deemed necessary in the circumstances to achieve the objective of
the audit.
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b. The auditor's opinion enhances the
credibility of the financial statements.
c. The phrase used to express the auditor's opinion is "present fairly, in all mateed when the auditor conducts the audit
rial respects".
in accordance with PSAs
d. The risk that the auditor will fail to uncover material misstatement is eliminated when the auditor conducts the audit
in accordance with PSAs
Which of the following statements does
not properly describe a limitation of an
audit?
a. Many audit conclusions are made on
the basis of examining a sample of evid. Most of the items in the financial statedence.
ments do not have supporting evidence.
b. The work undertaken by the auditor is
permeated by judgment.
c. The auditor might misinterpret the evidence obtained.
d. Most of the items in the financial statements do not have supporting evidence.
Which of the following is one of the limitations of an audit?
a. Nature of evidence obtained
b. Inadequacy of the accounting records
c. Confidentiality of information
d. Scope limitations imposed by the entity
a. Nature of evidence obtained
The assumption underlying an audit of
financial statements is that they will be
used by
a. Different groups for different purposes.
a. Different groups for different purposes.
b. The general public in making investment decisions.
c. The board of directors as basis of de-
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claring cash dividends.
d. The regulatory agencies to verify information that is relevant to their supervisory functions
The procedures deemed necessary in
the circumstances to achieve the objective of a financial statement audit shall be
determined by the
b. Independent auditor
a. Client management
b. Independent auditor
c. Internal Auditor
d. Those charged with governance
Which one of the following is an example
of management expectations that independent auditors?
a. An active participant in management
decision making
c. An expert providing written communib. An internal source expertise of financation as the product of the engagement.
cial and other matters.
c. An expert providing written communication as the product of the engagement.
d. Individuals who perform day-to-day accounting functions on behalf of the company.
Which of the following is not one of the
general principles governing the audit of
financialstatements?
b. The auditor should obtain sufficient
appropriate evidence primarily through
inquiry and analytical procedures to be
able to draw reasonable conclusions.
a. The auditor should plan and perform
the audit with an attitude of professional
skepticism.
b. The auditor should obtain sufficient
appropriate evidence primarily through
inquiry and analytical procedures to be
able to draw reasonable conclusions.
c. The auditor should conduct the audit in
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accordance with PSA.
d. The auditor should comply with the
Philippine Code of Professional Ethics
Which one of the following is not among
the conditions that give rise to a demand
by external users for independent audits
of financial statements?
b. Complexity of making economic decia. Remoteness of users
sions
b. Complexity of making economic decisions
c. Potential conflict of interest between
users and preparers of the statements
d. Consequence for making decisions
Which of the following would not represent one of the primary problems that
would lead the users to demand for independent audit of a company's financial
statements?
a. The downsizing of business and finana. The downsizing of business and financial markets.
cial markets.
b. Management bias in preparing financial statements
c. The complexity of transactions affecting financial statements.
d. The remoteness of the user to directly obtain financial information from the
company.
The need for independent audits of financial statements can be attributed to all of
the following conditions except:
d. Validity
a. Remoteness
b. Consequence
c. Complexity of subject matter
d. Validity
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Which of the following best describes the
reason why an independent auditor reports on financial statements?
a. A management fraud may exist and it
is more likely to be detected by independent auditors.
b. Different interests may exist between
b. Different interests may exist between
the company preparing the statements
the company preparing the statements
and the persons using the statements.
and the persons using the statements.
c. A misstatement of account balances
may exist and is generally corrected as
the result of the
independent auditor's work.
d. A poorly designed internal control system may be in existence.
Which of the following statement does
not describe a condition that creates a
demand for auditing?
a. Conflict between an information preparer and a user can result in biased
d. Users can directly assess the quality information.
of information.
b. Information can have substantial economic consequences for a decision-maker
c. Expertise is often required for information preparation and verification
d. Users can directly assess the quality
of information.
There are-four conditions that give rise to
the need for independent audits of financial statements. One of these conditions
is consequence. In this context, consequence means that the:
a. Users of the statements may not fully understand the consequences of their
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actions.
b. Auditor must anticipate all possible
consequences of the report issued.
d. Financial statements are used for im- c. Impact of using different accounting
methods may not be fully understood by
portant decisions.
the users of the statements.
d. Financial statements are used for important decisions.
One of the conditions that give rise to
a demand for an external audit of financial statements isexpertise. Which of the
following best describes the meaning of
expertise as used in this context?
a. Auditors usually rely on the work of an
expert as a basis for evaluating some assertions embodied in the financial statec. Users usually lack the necessary exments.
pertise to verify the reliability of the finanb. The readers of the financial statements
cial information.
must possess the necessary expertise
to be able to understand the financial
statements.
c. Users usually lack the necessary expertise to verify the reliability of the financial information.
d. As experts, auditors are expected to
detect all material misstatements in the
financial statements
Upon completion of a financial statement
audit, the auditor has
a. No assurance that the financial statec. Reasonable assurance that all matements are fairly presented.
rial errors and irregularities have been
b. Absolute assurance that the financial
detected.
statements are fairly presented.
c. Reasonable assurance that all material errors and irregularities have been
detected.
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d. A low level of assurance that all material errors and irregularities have been
found.
An auditor should recognize tat the application of auditing procedures may produce evidential matter indication the possibility of errors or fraud and therefore
should
a. Plan and perform the engagement a. Plan and perform the engagement with
with an attitude of professional skepti- an attitude of professional skepticism
cism
b. Not depend on internal accounting
control features that are designed to prevent or detect errors or fraud
c. Design audit tests to detect unrecorded transactions
d. Extend the work to audit most recorded transactions and records of an entity.
An attitude that includes a questioning
mind and a critical assessment of audit
evidence is referred to as
b. Professional skepticism
a. Due professional care
b. Professional skepticism
c. Reasonable assurance
d. Supervisions
Professional skepticism requires that an
auditor assume that management is
c. Neither honest nor dishonest
a. Honest, in the absence of fraud risk
factors
b. Dishonest until completion of audit test
c. Neither honest nor dishonest
d. Offering reasonable assurance of honesty
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Which of the following is not one of the
reasons why auditors provide only reasonable assurance onthe financial statements?
a. The auditor commonly examines a
sample, rather than the entire population
of transactions.
d. The auditors are usually prevented by
b. The nature of the financial reporting
the client from verifying certain accounts
frameworks usually requires the use of
in the financial statements.
complex estimates which involve uncertainty
c. The fact that most audit evidence is
only persuasive and not conclusive in
nature
d. The auditors are usually prevented by
the client from verifying certain accounts
in the financial statements.
Which of the following one of the assumptions when auditing financial statements?
a. The data in the financial statements
c. Effective internal control system conare verifiable.
tributes little to the reliability of financial
b. Compliance to PFRS results in fair
statements.
presentation of financial statements.
c. Effective internal control system contributes little to the reliability of financial
statements.
d. The auditor should be independent.
Which of the following statements does
not properly describe an element of theoretical framework of auditing?
c. Auditors act on behalf of the managea. The data to be audited can be verified
ment
b. Short-term conflicts may exist between
managers who prepare the data and auditors who examine the data
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c. Auditors act on behalf of the management
d. An audit benefits the public
Auditing is based on the assumption that
financial data are verifiable. Data are verifiable when two or more qualified individuals,
b. Working independently, each reach
similar conclusions.
a. Working together, can prove, beyond
doubt, the accuracy of the data.
b. Working independently, each reach
similar conclusions.
c. Working independently, can prove, beyond reasonable doubt, the truthfulness
of the data
d. Working together, can agree upon the
accuracy of the data
Which of the following statements is true
when the CPA has been engaged to da
an audit engagement?
a. The CPA firm is engaged and paid by
the client; therefore, the firm has primary
responsibility to be an advocate for the
client.
b. The CPA firm is engaged and paid by
b. The CPA firm is engaged and paid by the client, but the primary beneficiaries
the client, but the primary beneficiaries of the audit are the statement users.
c. Should a situation arise where there
of the audit are the statement users.
is no convincing authoritative standard
available, and there is a choice of actions which could impact client's financial
statements either positively or negatively, the CPA is free to endorse the choice
which is in the client's interest
d. As long as CPA firms are competent,
it is not required that they remain unbiased.
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In determining the primary responsibility
of the external auditor for an audit of a
company's financial statements, the auditor owes primary allegiance to:
a. Stockholders, creditors and the investing public.
b. The management of the audit client
a. Stockholders, creditors and the invest- because the auditor is hired and paid by
ing public.
management.
c. The Auditing and Assurance Standards Council because it determines auditing standards and auditor's responsibility.
d. The audit committee of the audit client
because that committee is responsible
for coordinating and reviewing all audit
activities within the company.
Which of the following has the primary
responsibility for the fairness of the representations made in the financial statements?
a. Client's management
a. Client's management
b. Audit committee
c. Independent auditor
d. Board of Accountancy
Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?
a. Making suggestions that are adopted
b. An auditor may draft an entity's financial statements based on information about the form and content of an entity's
from management's accounting system. financial statement impairs an auditor's
independence
b. An auditor may draft an entity's financial statements based on information
from management's accounting system.
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c. The fair presentation of audited financial statements in conformity with PFRS
is an implicit part of the auditor's responsibilities
d. An auditor's responsibilities from audited financial statements are not confined
to the expression of the auditor's opinion.
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