Auditing Theory

Instructions:
Select the correct answer for each of the following questions. Mark only one answer
for each item by shading the box corresponding to the letter of your choice on the
answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil No. 2 only.

1. The subject matter of auditing consists of:

a. Financial statement assertions
b. Established criteria
c. Evidence
d. Written reports
2. A typical objective of an operational audit is for the auditor to:
a. Determine whether the financial statements fairly present the entitys
operations and financial condition
b. Evaluate the feasibility of attaining the entitys operational objectives
c. Make recommendations for improving operations of the company
d. Assembling and filing tax returns and related supplemental information
3. Which of the following best describes the assurance process?
a. Proving the accuracy of the books and records
b. Gathering evidence about specific and known assertions
c. Assisting management in the successful operations of the company
d. Assembling and filing tax returns and related supplemental
information.
4. The accounting and the cash receipts functions should be handled by which
department?
a. Both functions should be under the control of the companys treasurer
b. Both functions should be under the control of the companys controller
c. The controller should have control of control of accounting functions
and the Treasurer should have control of cash receipt functions
d. The Treasurer should have control of control of accounting functions
and the Controller should have control of cash receipt functions
5. Public accountants are not prohibited from providing which of the following
services for public audit clients?
a. Audit of the effectiveness of internal controls
b. The function of the internal auditors
c. Selection and implementation of an accounting information system
d. Quarterly financial statements bookkeeping
6. Assurance services involve all of the following, except:
a. Improving the quality of the information for decision making 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

7. In forming an opinion on financial statements, the auditor:
a. Should evaluate the conclusions drawn from the audit evidence
obtained during the course of the audit
b. Evaluates whether there is a reasonable assurance about whether the
financial statements are free from any misstatements
c. Considers whether sufficient, appropriate audit evidence has been
obtained to eliminate the risk of material misstatements
d. Verify that all errors and fraud in the financial statements have been
resolved by the client to the satisfaction of the auditor.
8. If the auditor encounters circumstances that lead him to conclude that
compliance with a specific requirement results to financial statements that
are fairly stated, the auditor: m
a. Considers the need to appropriately modify the auditors report
b. Does not need to modify the report
c. Needs to issue a qualified opinion
d. Needs to disclaim his opinion
9. An expectation of the public is that the auditor will recognize that the primary
users of audit services are:
a. The employees of the entity
b. The securities and exchange commission
c. The investors and creditors of the entity
d. Those charged with governance of the entity
10.Which of the following represents a situation in which an auditor is reasonably
independent of the client?
a. The auditor is paid a professional fee by the client organization rather
than the users of the financial statements
b. The auditor takes a personal loan from the president of the company
c. The auditors dependent son holds 25 ordinary shares of the client
corporation
d. The auditor has not received payment for the previous years audit
services
11.Auditor independence is required by PSQC No.1 and PSA 220 for audits of
financial statements. A CPA firm is considered independent when it performs
which
a.
b.
c.

of the following services for a publicly traded audit clients?

Serving as a member of the clients board of directors
Determining which accounting policies will be adopted by the client
Designing and implementing the clients accounting information

system
d. Preparation of the tax return based on data approved by the clients
board of directors.

12.Which of the following best describes how the detailed audit program of the
CPA who is engaged to audit the financial statements of a large publicly-held
company compares with the audit clients comprehensive internal audit
program?
a. The comprehensive internal audit program is more detailed and covers
areas that would normally not be reviewed by the CPA.
b. The comprehensive internal audit program is more detailed although it
covers less areas than would normally be covered by the CPA
c. The comprehensive internal audit program is substantially identical to
the audit program used by the CPA because both review substantially
identical areas
d. The comprehensive internal audit program is less detailed and covers
less areas than would normally review by the CPA.
13.Which of the following represents a procedure the auditor may use because
plausible relationships among financial statement balances are expected to
exist?
a. Attribute testing
b. Enterprise Risk management
c. c. Inherent test of control
d. d. Analytical procedures
14.One of the central offices created by the Commission on Audit is the National
Government Audit Office. Its function is to:
a. Advise and assist the chairman on matters pertaining to the audit of
departments, regions, bureaus, and offices of the National Government
b. Exercise technical supervision over government accounting system
c. Formulate long range and annual plans and programs for the
commission
d. Provide the Commission with services related to personnel, records,
supplies, security, general and other related services
15.Managements responsibility for the financial statement is:
a. Implicitly represented in the auditors standard report
b. Explicitly represented in the opening paragraph of the auditors
standard report
c. Explicitly represented in the management responsibility paragraph of
the auditors standard report
d. Explicitly represented in the opinion paragraph of the auditors
standard report.
16.