FUNDAMENTALS OF AUDITING AND ASSURANCE SERVICES
Introduction to Assurance Engagements
1.
The auditor’s opinion
a. Guarantees the credibility of the financial statements
b. Is an assurance as to the future viability of the entity
c. Is not an assurance as to the efficiency with which management has conducted the affairs of the entity
d. Certifies the correctness of the financial statements.
2.
Which of the following is responsible for the fairness of representations made in financial statements?
a. The independent auditor.
b. The internal auditor.
c. The client's management.
d. The audit committee.
3.
The decision of whether the criteria are suitable involves considering whether the subject matter of the assurance
engagement is capable of reasonably consistent evaluation or measurement using such criteria. Which of the
following characteristics is not considered necessary in determining whether the criteria are suitable?
a. Relevance
b. Neutrality
c. Reliability
d. Sufficiency
4.
Which of the following statements is true concerning in an assurance engagement?
a. Sufficiency is the measure of the quantity of evidence
b. Appropriateness is the measure if the quality of evidence, that is , its reliability and persuasiveness
c. The reliability of evidence is influenced not by its nature but by its source
d. Obtaining more evidence may compensate for its poor quality.
5.
Objective of a review engagement (PSRE 2400)
a. For the auditor to carry out procedures of an audit nature to which the auditor and the entity and any
appropriate third parties have agreed and to report on factual findings
b. To enable the auditor to express an opinion whether the financial statements are prepared, in all material
respects, in accordance with Philippine Financial Reporting Standards.
c. To enable an auditor to state whether, on the basis of procedures which do not provide all the evidence
that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to
believe that the financial statements are not prepared, in all material respects, in accordance with Philippine
Financial Reporting Standards
d. For the auditor to use accounting expertise, as opposed to auditing expertise, to collect, classify and
summarize financial information
6.
Assurance services may include which of the following except?
a. Attesting to financial statements
b. Examination of the economy and efficiency of governmental operations
c. Evaluation of a division’s performance for management
d. Tax preparation services
7.
The type of assurance provided in a review engagement is
a. Reasonable
b. Negative
c. Absolute
d. High
8.
Which of the following statements is correct?
a. Practice statements have the same authority as assurance standards.
b. In the compilation of other than historical financial information, the PSAE is the primary standard to govern.
c. In prospective financial information, forecasts primarily relate to expected events while projections primarily
relate to events based on hypothetical assumptions.
d. Agreed upon procedures engagement requires a report and an assurance to be conveyed in the report.
9.
Main standards to govern review engagements
a. PSAs
b. PSREs
c. PSRSs
d. PSAEs
10. Which of the following provides a positive form and high level of assurance?
a. An audit report on prospective financial information.
b. A review report on historical financial statements containing a phrase stating that nothing comes to
reviewer’s attention that would lead him to believe that the information is misleading.
c. A compilation report on 3-year financial statements.
d. An audit report on external financial statements on which an adverse opinion is expressed.
11. Assurance services least likely involve
a. Improving the quality of information for decision purposes.
b. Improving the quality of the decision model used.
c. Improving the relevance of information.
d. Implementing a system that improves the processing of information.
12. Assurance engagements may include
a. Review engagements and examination of prospective financial information
b. The preparation of tax returns where no conclusion conveying assurance is expressed
c. Consulting (or advisory) engagements, such as management and tax consulting
d. Engagements covered by Philippine Standards for Related Services, such as agreed-upon procedures
engagements and compilations of financial or other information
13. Which of the following is broadest in scope?
a. Assurance services.
b. Attestation services.
c. Internal control audit.
d. Audits of financial statements.
14. Which of the following is least likely an application of maintaining an attitude of professional skepticism?
a. The auditor does not consider representations from management as substitute for obtaining
sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base
the audit opinion.
b. In planning and performing an audit, the auditor assumes that management is dishonest.
c. The auditor is alert to audit evidence that contradicts or brings into question the reliability of
documents or management representations.
d. The auditor makes a critical assessment, with a questioning mind, of the validity
15. Which of the following statements does not properly describe an element of the theoretical framework of
auditing?
a. The data to be audited can be verified
b. Short-term conflicts may exist between managers who prepare the data and auditors who examine
the data
c. Auditors act on behalf of management
d. An audit benefits the public
16. The primary purpose of an independent financial statement audit is to
a. Provide a basis for assessing management's performance.
b. Comply with government regulatory requirements.
c. Assure management that the financial 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.
17. The objective of the ordinary examination of financial statements is the expression of an opinion on the
accuracy of such financial statements.
The independent auditor’s opinion is an assurance as to the future viability of the entity.
a.
b.
c.
d.
The first statement is false, the second statement is true
The first statement is true, the second statement is true
The first statement is false, the second statement is false
The first statement is true, the second statement is false
18. The independent auditor lends credibility to client financial statements by
a. Stating in the auditor’s management letter that the examination was made in accordance with
generally accepted auditing standards
b. Maintaining a clear-cut distinction between management’s representation and the auditor’s
representations
c. Attaching an auditor’s opinion to the client’s financial statements
d. Testifying under oath about client financial information
19. Which of the following statements is (are) true regarding the provision of assurance services?
(I) The third party who receives the assurance general ly pays for the assurance received
(II) Assurance services always involve a report by one person to a third party on which an independent
organization provides assurance.
(III) Assurance services can be provided either on information or processes.
The subject matter of an assurance engagement may take many forms, including: Ans. All of the above
i. Nonfinancial performance or condition
ii. Behavior
iii. Financial performance or condition
iv. Physical characteristics
v. Systems and Processes
20. The characteristics for determining whether criteria are suitable include: i-iv
i. Relevance
ii. Reliability
iii. Completeness
iv. Neutrality
v. Comparability
vi. Feedback value
21. Assurance services are best described as
a. Services designed for the improvement of operations, resulting in better outcomes.
b. Independent professional services that improve the quality of information, or its context, for
decision makers.
c. The assembly of financial statements based on assumptions of a reasonable party.
d. Services designed to express an opinion on historical financial statements based on the results of
an audit.
22. Which of the following services would be most likely to be structured as an assurance engagement?
a. Advocating a client’s position in tax matter
b. A consulting engagement to develop a new data base system for the revenue cycle.
c. An engagement to issue a report addressing an entity ’s compliance with requirements of specified
laws.
d. The compilation of a client’s forecast information.
23. Which statement is correct regarding assurance engagements?
a. It is an engagement in which a practitioner expresses a conclusion designed to enhance the degree
of confidence of the intended users other than the responsible party about the outcome of the
evaluation or measurement of a subject matter against criteria.
b. All engagements performed by professional accountants are assurance engagements.
c. Whether a particular engagement is an assurance engagement will depend upon whether it exhibits
all the following elements - a three party relationship, a subject matter and a suitable criter ia.
d. All of the above statements are correct
24. Level of assurance in a review engagement
a. High
b. Reasonable
c. Positive
d. Moderate
25. Which of the following services is the broadest and most inclusive?
a. Audit
b. Attestation
c. Assurance
d. Compliance
26. The document defines the elements and objectives not, by itself, establish standards or provide procedural
requirements for the performance of assurance engagements.
a. Philippine framework for Assurance Engagements
b. Philippine Standards on Auditing
c. Philippine Standards on Review Engagements
d. Philippine Auditing Practice Statements
27. The Philippine Framework for Assurance Engagements
a. Contains basic principles, essential procedures, and related guidance for the performance of
assurance engagements.
b. Defines and describes the elements and objectives of an assurance engagement, and identifies
engagements to which PSAs, PSREs, and PSAEs apply.
c.
Provides a frame of reference for CPAs in public practice when performing audits, reviews, and
compilations of historical financial information.
d. Establishes standards and provides procedural requirements for the performance of assurance
engagements.
28. After accepting an assurance engagement, a practitioner is not allowed to change the engagement to a
non-assurance engagement, or from a reasonable assurance engagement to a limited assurance
engagement, except when there is reasonable justification for the change. Which of the following
ordinarily will justify a request for a change in the engagement?
I. A change in circumstances that affects the int ended users’ requirements.
II. A misunderstanding concerning the nature of the engagement.
Ans: Both I and II
Elements Of Assurance Engagements
1.
Which of the following is incorrect regarding the three party relationship element of assurance
engagement?
a. The responsible party is generally the addressee of the professional accountant results.
b. The responsible party and the intended user will often be from separate organizations.
c. The responsible party may not be the party who engages the professional accountant.
d. The responsible party may also be one of the intended users.
2.
Which of the following is not one of the elements of an assurance engagement?
a. Sufficient appropriate evidence
b. A subject matter
c. Suitable criteria
d. An opinion about whether the subject matter conforms, in all material respects, with the identified
criteria.
3.
Suitable criteria are required for reasonably consistent evaluation or measurement of the subject matter
of an assurance engagement. Which of the following statements concerning the characteristics of suitable
criteria is correct?
a. Reliable criteria contribute to conclusions that are clear, comprehensive, and not subject to
significantly different interpretations.
b. Relevant criteria allow reasonably consistent evaluation or measurement of the subject matter
including, where relevant, presentation and disclosure, when used in similar circumstances by
similarly qualified practitioners.
c. Neutral criteria contribute to conclusions that are free from bias.
d. Criteria are sufficiently complete when they contribute to conclusions that are clear,
comprehensive, and not subject to different interpretations.
4.
Which of the following is incorrect regarding the three party relationship element of assurance
engagement?
a. The intended user is generally the addressee of the professional accountant’s report.
b. The responsible party and the intended user will often be from separate organizations.
c. The responsible party may also be one of the intended users.
d. All of the above statements are correct
5.
Which of the following is an example of an assurance engagement?
a. Management advisory services
b. Reporting on financial statements prepared using other comprehensive basis of accounting.
c. Compilation of financial information
d. Preparation of tax returns
6.
Which one of the following is not a key attribute needed to perform assurance?
a. Subject matter knowledge
b. Independence
c. Established criteria or standards
d. Accounting skills
7.
In an assurance engagement, the outcome of the evaluation or measurement of a subject matter against
criteria is called
a. Subject matter information
b. Subject matter
c. Assurance
d. Conclusion
8.
It refers to the level of satisfaction as to reliability of an assertion being made by one party for use by
another party
a. Confidence level
b. Assurance level
c. Reasonableness level
d. Tolerable level
9.
Subject matter of an assurance engagement may take many forms i ncluding
(1) Data
(2) Systems
(3) Behavior
Ans: All of the above
10. All assurance engagements contain five basic elements. Which of the following is not one of these
elements?
a. A three party relationship involving a practitioner, a responsible party, and intended users
b. A written assurance report in the form appropriate to a reasonable assurance engagement or a
limited assurance engagement
c. Engagement acceptance
d. Suitable criteria
11. Which one of the following is not a key attribute needed to perform assurance?
a. Subject matter knowledge
b. Independence
c. Established criteria or standards
d. Accounting skills
12. Which of the following elements is most likely to be a component of a direct reporting assurance
engagement?
a. Low level of assurance
b. Absolute assurance
c. A written assertion
d. Auditor independence
13. In performing an attestation engagement, a CPA typically
a. Supplies litigation support services
b. Assesses control risk at a low level
c. Expresses a conclusion about an assertion
d. Provides management consulting advice
14. Which of the following is not a component of assurance services?
a. Information or a process on which the assurance services is provided.
b. Report to a third party
c. A user or a group of users who derive value from the service provided.
d. A service provider
Types of Assurance Engagements
1.
Which of the following statements best describes assurance services?
a. Independent professional services that are intended to enhance the credibility of information to
meet the needs of an intended user.
b. Services designed to express an opinion on the fairness of historical financial statements based
on the results of an audit.
c. The preparation of financial statements or the collection, classification, and summarization of
other financial information.
d. Services designed for the improvement of operations, resulting in better outcomes.
2.
The objective of an agreed-upon procedures engagement
a. Is to enable the auditor to express an opinion whether the financial statements are prepared in
all material respects, in accordance with an identified financial reporting framework
b. Is to enable the auditor to state whether, on the basis of procedures which do not provide all the
evidence that would be required in an audit, anything has come to the au ditor’s attention that
causes the auditor to believe that the financial statements are not prepared in all material
respects, in accordance with an identified financial reporting framework.
c. Is to carry out those procedures of an audit nature to which the a uditor and the entity and any
appropriate third parties have agreed and to report on factual findings.
d. Is to use accounting expertise as opposed to auditing expertise to collect, classify and summarize
financial information.
3.
Absolute assurance is generally not attainable as a result of such factors as:
(1)The use of testing
(2)The inherent limitations of internal control system
(3)The use of judgment
(4)Most audit evidence are persuasive rather than conclusive
Ans: All of the above
4.
What type of assurance engagement is involved when the practitioner expresses a negative form of
conclusion?
a. Reasonable assurance engagement
b. Negative assurance engagement
c. Assertion-based assurance engagement
d. Limited assurance engagement
5.
In some assurance engagements, the evaluation or measurement of the subject matter is performed by
the responsible party, and the subject matter information is in the form of an assertion by the
responsible party that is made available to intended users. These engagements are called
a. Direct reporting engagements
b. Assertion-based engagements
c. Non-assurance engagements
d. Recurring engagements
6.
Which statement is incorrect regarding related services?
a. Related services comprise agreed-upon procedures and compilation.
b. Audits and reviews are designed to enable the auditor to provide reasonable assurance and
limited assurance, respectively.
c. Engagement to undertake agreed-upon procedures is not intended to enable the auditor to
express assurance.
d. In a consultancy engagement, the accountant is engaged to use accounting expertise as opposed
to auditing expertise to collect, classify and summarize financial information.
7.
Which of the following is not an assurance service?
a. Examination of prospective financial information
b. Audit of historical financial statements
c. Review of financial statements
d. Compilation of financial information
8.
The Framework of PSA (PSA 120) applies to
a. Taxation
b. Consultancy
c. Agreed upon procedures
d. Accounting advice
9.
The following are assurance engagements, except
a. Reasonable assurance engagement
b. Other assurance engagements
c. Limited assurance engagement
d. Tax services
10. Different government agencies influence the practice of accountancy in the Philippines. Which of the
following statements is correct?
a. The Commission on Audit (COA) is principally tasked to keep the general accounts of the
government and preserve the vouchers and supporting papers thereto, and promulgate
accounting and auditing rules and regulations including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or
uses of government funds and properties.
b. The Auditing and Assurance Standards Council (AASC) has the power to conduct an oversight
into the quality of audits of financial statements through the review of the quality control
measures instituted by auditors.
c. The Department of Budget and Management (DBM) aims to maintain price stability conducive to
a balanced and sustainable economic growth, and to promote and preserve mone tary stability
and the convertibility of peso.
d. The Professional Regulatory Board of Accountancy (PRBOA) has the power, authority, and duty to
examine, audit, and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the
government, or any of its subdivisions, agencies, or instrumentalities, including government owned or controlled corporations and recommend measures to improve the efficiency and
effectiveness of government operations.
11. What type of assurance engagement is involved when the practitioner expresses a positive form of
conclusion?
a. Limited assurance engagement
b. Positive assurance engagement
c. Reasonable assurance engagement
d. Absolute assurance engagement
12. Which of the following audits can be regarded as being solely a “compliance” audit?
a. BIR examiners’ examinations of the returns of taxpayers
b. COA auditors’ evaluation of the computer operations of government units
c. An internal auditor’s review of his employer’s payroll authorization procedures
d. An independent CPA firm’s audit of the local school district
13. Engagements frequently performed by professional accountants that are not assurance engagements
include the following, except
a. Agreed upon procedures
b. Reasonable assurance engagement
c. MAS
d. Compilation of FS
14. CPAs engaged in public accounting practice render services in the following areas except
a. External audit
b. Management advisory services
c. Tax practice
d. Internal auditing
15. Which of the following services provides a moderate level of assurance about the client ’s financial
statements?
a. Forecasts and projections
b. Compliance with contractual agreement
c. Review
d. Compilation
16. According to PSA 120, which of the following is an appropriate combination of procedures required in
completing a review engagement
a. Inquiry and observation
b. Inquiry and analytical procedures
c. Analytical procedures and inspection
d. Observation and analytical procedures
17. What are the three most commonly sought assurance services?
a. Audits, reviews and compilation
b. Audits, reviews and other assurance services
c. Reviews, compilations and other assurance services
d. Audits, compilations and other assurance services
INTRODUCTION TO AUDITING
Auditing: Nature, Philosophy and Objectives
1.
Which of the following statements concerning consulting services is false?
a. The performance of consulting services for audit clients does not, in and of itself, impair the
auditor’s independence
b. Consulting services differ fundamentally from the CPA ’s function f attesting to the assertions of
other parties
c. Consulting services ordinarily involve external reporting.
d. Most CPA’s, including those who provide audit and tax services, also pro vide consulting services
to their clients.
2.
Which of the following best describes an auditor’s professional skepticism?
a. Auditors must remember that they will be responsible for the financial statements once they are
audited.
b. Auditors should treat all management representations with suspicion until they are proven.
c. Auditors should make a critical assessment, with an inquisitive mind, of the sufficiency and
appropriateness of audit evidence obtained.
d. Auditors expect that there will be material misstatements i n the financial records being audited.
3.
Auditing is a systematic process that includes all of the following except:
a. Communicating results to users
b. Procuring and evaluating evidence
c. Providing important managerial decisions for client
d. Comparing evidence regarding assertions to certain established criteria
4.
Which of the following best describes why an independent auditor is asked to express an opinion n the
fair presentation of financial statements?
a. It is difficult to prepare financial statements that fairly p resent a company’s financial position and
changes in financial position and operations without the expertise of an independent auditor.
b. It is management’s responsibility to make available independent aid in the preparation of the
financial information shown in the financial statements.
c. The opinion of an independent party is needed because a company may not be objective with
respect to its own financial statements.
d. It is customary curtesy that shareholders of a company receive an independent report on
management’s status in managing affairs of the business.
5.
The primary reason for an audit by an independent, external audit firm is to
a. Satisfy government regulatory requirements
b. Guarantee that there are no misstatements in the financial statements and ens ure that any fraud
will be discovered
c. Relieve management of responsibility for the financial statements
d. Provide increased assurance to users as to the fairness of the financial statements
6.
The five major phases in conducting a risk- based audit process are: baedc
a. planning and risk assessment activities
b. Preliminary engagement activities
c. Completing the audit and post- audit responsibilities
d. Reporting and communication
7.
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 evidence.
b. The work undertaken by the auditor is permeated by judgment.
c. Fatigue and human weaknesses can cause auditors to overlook pertinent evidence.
d. Many financial statement assertions cannot be audited. (PSA 200 par. 9 and 10)
8.
The purpose of an audit of FS is to
a. Enhance the knowledge and skills of external auditors
b. Enhance understanding of the stakeholders of the company
c. Enhance the degree of confidence of intended users of the FS
d. Provide government agencies, such as BIR with basis for assessments
9.
An audit of the financial statements of Camden Corporations being conducted by an external auditor. The
external auditor is expected to
a. Express an opinion as to fairness of Camden’s financial statements.
b. Express an opinion as to attractiveness of Camden for investment purposes.
c. Certify to the correctness of Camden’s financial statements.
d. Critique the wisdom and legality of Camden’s business decisions.
10. The auditor is required to maintain professional skepticism throughout the audit. Which of the following
statements concerning professional skepticism is false?
a. A belief that management and those charged with governance are honest and have integrity
relieves the auditor of the need to maintain professional skepticism.
b. Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate
assumptions in determining the nature, timing, and extent of the audit procedures and evaluating
the results thereof.
c. Professional skepticism is necessary to the critical assessment of audit evidence.
d. Professional skepticism is an attitude that includes questioning contradictory audit evidence
obtained.
11. The following are the general principles governing audit of financial statements
i. Loyalty
ii. Confidentiality
iii. Objectivity
iv. Professionalism
v. Professional Behaviour
vi. Independence
Ans: II, III , V and VI only
12. Which of the following professionals has primary responsibility for the performance of an audit?
a. The managing partner of the firm.
b. The senior assigned to the engagement.
c. The manager assigned to the engagement.
d. The partner in charge of the engagement.
13. Ethical principles governing audit of financial statements do not include:
a. Independence
b. competence and due care
c. technical standards
d. professional responsiveness
14. Which one of the following is not a management expectation for independent auditors?
a. An outside source of expertise on accounting matters
b. Individuals who perform tests and draw conclusions in assertions
c. A participant in management decision making
d. A provider of a written communication
15. Which of the following is not one of the limitations of an audit?
a. the use of testing
b. error in the application of judgment
c. inherent limitation of internal control
d. scope limitations imposed by the entity
16. The objective of an audit of financial statements is
a. To assist an entity in the preparation of financial statements.
b. To express an opinion whether the financial statements are prepared, in all material respects, in
accordance with an identified financial reporting framework.
c. To enable an auditor to state whether, on the basis of the procedures performed, anything has
come to the auditor’s attention that causes the auditor to believe that the financial statements are
not prepared, in all material respects in accordance with an identified financial reporting
framework.
d. To prevent the issuance of highly optimistic financial information.
17. Which of the following is a false statement about audit objectives?
a. There should be a one-to-one relationship between audit objectives and procedures.
b. Audit objectives should be developed in light of management assertions about the financial
statement components.
c. Selection of tests to meet audit objectives should depend upon the understanding of int ernal
control.
d. The auditor should resolve any substantial doubt about any of management ’s material financial
statement assertions.
18. Which of the following statements about independent financial statement audit is incorrect?
a. The term “scope of the audit” refers to audit procedures deemed necessary in the circumstances
to achieve the objective of the audit.
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 material respects”.
d. The risk that the auditor will fail to uncover material misstatement is eliminated when the auditor
complies with PSA
19. According to PSA 200, the specific procedures deemed necessary in the circumstances to achieve the
objective of the audit are referred to as the
a. substantive tests
b. audit objectives
c. scope of the audit
d. audit technique
20. Theoretically, it is possible to provide an infinite range of assurance from a very low level of assurance to
an absolute level of assurance. In practice, the professional accountants cannot provide absolute assurance
because of the following, except:
a. The professional accountants employ testing process
b. The internal control has inherited limitations.
c. The use of judgement in gathering evidence and drawing conclusions based on that evidence
d. The lack of expertise of the professional accountants in doing a systematic engagement process.
21. A practitioner is associated with financial information when
I.
The practitioner attaches a report to that financial information.
II.
The practitioner consents to the use of his/her name in a professional connection.
Answer: Either I or II
22. The overall objectives of the auditor in conducting an audit of financial statements are
i. To obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether caused by fraud or error.
ii. To report on the financial statements.
iii. To obtain conclusive rather than persuasive evidence.
iv. To detect all misstatements, whether due to fraud or error.
Ans: I and II only
23. Which of the following is not one of the general principles governing an audit of financial statements?
a. The auditor should plan and perform the audit with an attitude of professional skep ticism.
b. The auditor should obtain sufficient appropriate evidence primarily through inquiry and analytical
procedures to be able to draw conclusions.
c. The auditor should conduct the audit in accordance with PSA.
d. The auditor should comply with the Philippine Code of Professional Ethics.
24. Audit can have significant effect on information risk. Information risk refers to the risk of financial
information being unreliable. The main way (s) to reduce information risk is to have
a. The user verify the information
b. The user share the information risk with management
c. Audited financial statements provided
d. All of the above
25. The proper sequence in applying the above steps is: baedc
26. The primary objective of the ordinary examination of financial statements by a CPA is the expression of an
opinion.
a. The competence of management in accounting matters which is implied by whether the opinion is
qualified or not
b. The conformity of financial statements with the books of accounts
c. The conformity of financial statements with generall y accepted auditing standards applied on a
basic consistent with that of the preceding year
d. The fairness with the financial statements present financial position and results of operations
27. Which of the following least likely limits the auditor’s ability to detect material misstatement?
a. Most audit evidences are conclusive rather than being persuasive.
b. The inherent limitations of any accounting and internal control system.
c. Audit is based on testing
d. Audit procedures that are effective in detecting ordinary mis statements are ineffective in detecting
intentional misstatements.
28. Which of the following is most likely to be unique to the audit work of CPs as compared to work performed
by practitioners of other professions?
a. Due professional care.
b. Competence
c. Independence
d. Complex body knowledge
29. Why does company choose to have an independent auditor report on its financial statements?
a. Independent auditor will always detect management fraud
b. The company’s management preparing the financial statements may have a v ested interest in
reporting certain results.
c. Independent auditors guarantee the accuracy of the financial statements.
d. An independent audit is designed to search for deficiencies in the company’s internal control
30. The independent auditor’s responsibility in a regular audit is to express an opinion on the financial
statements. The auditor’s opinion;
a. Helps the company adopt sound accounting policies
b. Assist the company in maintaining an adequate and effective system of accounts.
c. Helps establish the credibility of the financial statements
d. Helps management safeguard the company assts.
31. Which of the following is incorrect about responsibility for financial statements?
a. Management is responsible for fair presentation of the financial s tatements.
b. Auditor is responsible for expressing an opinion on the financial statements
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.
32. Auditing is important in a free market because
a. The public requires CPAs functioning as divisions of regulatory bodies.
b. Auditors detect all errors and fraud made by company employee
c. It provides reliable information based upon which to judge economic performance
d. The auditor is an amiable insurance policy for investors
Types of Audit
1.
A primary purpose of an operational audit is to provide
a. a means of assurance that internal accounting controls are functioning as planned
b. The results of internal examination of financial and accounting matters to a company ’s top level
management.
c. A measure of management performance in meeting organizational goal.
d. Aid to the independent auditor, who is conduction the examination of the financ ial statements.
2.
Usually an operational audit is performed
a. By independent external auditors
b. By a team consisting of an equal number of external and internal auditors.
c. Only when an operating division is experiencing declines in productivity of profitability.
d. By internal auditors at the request of top management or the board of directors.
3.
Which of the following best describes the operational audit?
a. It requires the constant review by internal auditors of the administrative controls as they relate to
operations of the company
b. It concentrates on implementing financial and accounting control newly organized company.
c. It attempts and is designed to verify the fair presentation of a company ’s results f operations.
d. It concentrates on seeking out aspects of operations in which would be reduced by the introduction
of controls.
4.
Internal auditing relates to an
a. Audit which is performed by professional practitioner as an independent contractor
b. Audit which is incidentally concerned with the detection and preven tion of fraud
c. Audit wherein the auditor should be independent of management both in fact and in mental
attitude
d. Audit which serves the needs of management
5.
Users of the audit report can reasonably expect the audited financial statements to be
a. Include complete information and contain all financial disclosures
b. Presented fairly according to the substance of GAAP
c. Free from all errors
d. All of the above
6.
An audit designed to determine to extent to which the desired results of an activity established by the
legislative or other authorizing body are being achieved.
a. Financial-related audit
b. Program results audit
c. Efficiency audit
d. Economy audit
*note: there are sample questions on the pdf of this topic
Types of Auditor
1. What are the two most important qualities for an operational auditor
a.
b.
c.
d.
Academic background and sufficient experiences
Independence ad competence
Competence and technical training
Personality and appearance
2. Internal auditors review the adequacy of the company’s internal control system primarily to
a.
b.
c.
d.
Help determine the nature, timing, and extent of tests necessary to achieve audit objectives
Determine whether the internal control system provides reasonable assurance that the company ’s
objectives and he goals are met efficiently and economically
Ensure that material weaknesses in the system of internal control are corrected.
Determine whether the internal control
MODULAR QUESTIONS-NEW
1.
Which one of the following is not a provider of assurance services?
a. CPAs
b. Internal auditors
c. Government auditors
d. PICPA
2.
The independent auditor’s opinion helps establish the credibility of the financial statements.
The independent auditor’s opinion is an assurance as to the efficiency or effectiveness with which
management has conducted the affairs of the entity.
a.
b.
c.
d.
3.
The first statement is false, the second statement is true
The first statement is true, the second statement is true
The first statement is false, the second statement is false
The first statement is true, the second statement is false
The best description f the scope of internal auditing is that it encompasses
a. Primarily operational auditing
b. Both financial and operational auditing
c. Primarily the safeguarding of assets are verifying the existence of such assets
d. Primarily financial auditing.