1. The auditor must a. Be qualified to understand the criteria used. b.

Be competent to know the types and amount of evidence to accumulate. c. Have an independent mental attitude. d. Possess a, b, and c. 2. The independent auditor lends credibility to client financial statements by a. Stating in the auditors management letter that the examination was made in accordance with GAAS. b. Maintaining a clear-cut distinction between managements representations and the auditors representations. c. Attaching an auditors opinion to the clients financial statements. d. Testifying under oath about clients financial information. 3. 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 the company preparing the statements and the person using the statements. c. A misstatement of account balance may exist and is generally corrected as a result of the independent auditors work. d. A poorly designed internal control system may be in existence. 4. Independent auditors of financial statements perform audits that reduce and control: a. The business risks by investors. b. The information risk faced by investors. c. The complexity of financial statements. d. Quality reviews performed by other CPA firms. 5. The main way/s to reduce information risk is to have a. The user verifies the information. b. The user shares the information risk with management. c. Audited financial statements provided. d. All of the above. 6. The most important benefit of having an annual audit by a CPA firm is to: a. Provide assurance to investors and other outsiders that the financial statements are dependable. b. Enable officers and directors to avoid personal responsibility for any misstatement in the financial statements. c. Meet the requirements of government agencies. d. Provide assurance that illegal acts, if any exist, will be brought to light. 7. Operational audits often have an objective of determining whether an entitys: a. Internal control is adequately operating as designed. b. Operational information is in accordance with generally accepted governmental auditing standards. c. Financial statements present fairly the results of operations. d. Specific operating units are functioning efficiently and effectively. 8. What is the proper organizational role of internal auditing?

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a. To serve as an independent, objective assurance and consulting activity that adds value to operations. b. To assist the external auditor in order to reduce external audit fees. c. To perform studies to assist in the attainment of more efficient operations. d. To serve as the investigative arm of the audit committee of the board if directors. Broadly defined, the subject matter of any audit consists of a. Financial statements b. Economic data c. Assertions d. Operating data 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 a. Philippine Standards on Auditing b. Philippine Financial Reporting Standards c. National Internal Revenue Code d. Regulations of the Security and Exchange Commission Which of the following types of audit uses laws and regulations as its criteria? a. Operational audit b. Financial statements audit c. Compliance audit d. All of the above In financial statement audits, the audit process should be conducted in accordance with a. The audit program b. Philippine Standards on Auditing c. Philippine Accounting Standards d. Philippine Financial Reporting Standards The purpose of an audit is to a. Detect fraud, technical errors and errors of principle. b. Add credibility to the financial statements of a business organization. c. Both a and b d. Either a or b The following are information risk, except a. Potential bias and motives of information provider b. Voluminous data c. Complex exchange transactions d. Allow users to verify information Which of the following types of audit has recommendation or suggestion on how to improve operations in the auditors report? a. Operational audit b. Performance audit c. Management audit d. All of the above