RED SIRUG
INTRODUCTION TO AUDITING
1. An
a.
b.
c.
d.
2. An
a.
b.
c.
d.
independent audit aids in the communication of economic data because the audit
Confirms the accuracy of management's financial representation.
Guarantees that financial data are fairly presented.
Assures the readers of financial statements that any fraudulent activity has been corrected.
Lends credibility to the financial statements.
d. Congress.
10. The independent auditor of the past differs from the auditor of today in that the past auditor
was more concerned with the
a. Validity of the income statement.
b. Determination of fair presentation of financial statements.
c. Improvement of accounting system.
d. Detection of fraud or irregularities.
11. 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. Securities and Exchange Commission Regulations
12. An audit in accordance with PSAs is performed on the premise that management and, where
appropriate, those charged with governance have responsibilities that are fundamental to the
conduct of the audit. Which of the following is not one of those responsibilities?
a. To provide the auditor with all information, such as records and documentation, and
other matters that are relevant to the preparation and presentation of the financial
statements.
b. To provide unrestricted access to those within the entity from whom the auditor
determines it necessary to obtain audit evidence.
c. To comply with all relevant PSAs in the preparation and presentation of
the entity's financial statements.
d. To design, implement, and maintain internal control relevant to the preparation and
presentation of financial statements that are free from material misstate ment,
whether caused by fraud or error.
13. 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.
14. Professional judgment:
a. Is necessary in the evaluation of management's judgments in applying
the entity's applicable financial reporting framework.
b. Should be exercised in planning and performing an audit of financial statements but
need not be documented.
c. Can be used as the justification for the decisions made by the auditor that are not
supported by the facts and circumstances of the engagement.
d. Is not used in making decisions about materiality and audit risk.
15. The primary responsibility for the adequacy of disclosure in the financial statements rests with the:
a. Partner assigned to the audit engagement.
b. Management of the company.
c. Securities and Exchange Commission.
d. Auditor in charge of the field work.
16. Which of the following statements is correct concerning an auditor's responsibilities regarding
financial statements?
a. Making suggestions that are adopted about the form and content of an entity's financial
statements impairs an auditor's independence.
b. An auditor's responsibilities for audited financial statements are confined to
the expression of the auditor's opinion.
c. The fair presentation of audited financial statements in accordance with an
applicable financial reporting framework is an implicit part of the auditor's
responsibilities.
d. The auditor's report should provide an assurance as to the future viability of the entity.
17. The auditor's judgment concerning the overall fairness of presentation of financial position, results of
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independent audit is important to readers of financial statements because of the following except:
Lends credibility to the financial statements.
Objectively examines and reports on management's financial statements
Measures and communicates the financial data included in financial statements
Provide users with an unbiased opinion about the fairness of information reported in the
financial statements
19. The auditor's judgment concerning the overall fairness of presentation of financial
position, results of operation, and changes in cash flow is applied within the framework of
a. Generally accepted auditing standards which include the concept of materiality
b. Generally accepted accounting principles.
c. Philippine Financial Reporting Standards
d. Quality control
20. In financial statement audits, the audit should be conducted in accordance with
a. Philippine Accounting Standards / Philippine Financial Reporting Standards
b. Generally accepted auditing standards
c. Code of Ethics for CPAs in the Philippines
d. Philippine Standards on Auditing
21. Which of the following statements does not properly describe an element of the theoretical
framework of auditing?
a. An audit benefits the public.
b. The data to be audited are verifiable.
c. Auditor should maintain independence with respect to the audit client.
d. Remoteness of users.
22. The auditor is required to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to fraud or error. In all cases when
reasonable assurance cannot be obtained, the auditor's report should contain a/an:
a. Unmodified opinion
b. Qualified or disclaimer of opinion
c. Qualified or adverse opinion
d. Disclaimer of opinion
23. The benefits of an operational audit generally include all of the following except:
a. Decreased costs.
b. Increased revenue
c. Increased reliability of the financial statements.
d. Increased productivity.
24. The auditor is required to comply with all PSAs relevant to the audit of an entity's financial
statements. A PSA is relevant to the audit when:
I. The PSA is in effect.
II. The circumstances addressed by the PSA exist.
a. I only
b. II only
c. Either I or II
d. Both I and II
25. One of the conditions that give rise to a demand for an external audit of financial
statements is expertise. 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 statements.
b. Users usually lack the necessary expertise to verify the reliability of the
financial information.
c. As experts, auditors are expected to detect all material misstatements in the financial statements.
d. The readers of the financial statements must possess the necessary expertise to
be able to understand the financial statements.
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26. 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. Fatigue and human weaknesses can cause auditors to overlook pertinent evidence.
c. Many financial statement assertions cannot be audited.
d. The work, under taken by the auditor is permeated by judgment.
27. An audit designed to evaluate the efficiency and effectiveness of an organization or some
or part thereof would not come under the title of
a. Performance audit.
b. Compliance audit.
c. Management audit.
d. Operational audit.
28. Inherent limitations in an audit stem from the following factors except
a. Incompetence of the auditor.
b. Most audit evidence is persuasive rather than conclusive.
c. Internal control limitation.
d. Use of testing.
29. Auditing services may include which of the following?
a. Attesting to financial statements
b. Evaluation of a divisions performance for management
c. Examination of the economy and efficiency of governmental operations
d. All of the above
30. Which of the following represents the highest to lowest level of assurance provided by
auditors in the performance of the engagement?
a. An audit; a compilation; a review.
b. An audit; a review; a compilation.
c. A review; an audit; a compilation.
d. A compilation; a review; an audit.
31. The statement that the reviewer "is not aware of any material modification that should be
made to the financial statements in order for them to be in conformity with GAAP" is
known as:
a. Reasonable assurance.
b. Positive assurance.
c. Negative assurance.
d. Negligent performance.
32. Which of the following is a major difference between a review and an audit of the financial statements?
a. The level of knowledge of professional standards needed to perform the procedures.
b. The type of accounting used -reviews are typically on
non-GAAP accounting, while audits are based upon
GAAP accounting.
c. The scope of the procedures performed and the assurance provided.
d. The type of company involved in reviews may only be publicly-held.
33. The review of unaudited financial statements consists of:
a. Inquiry of management and documentation of internal controls.
b. Inquiry of management and analytical procedures.
c. Analytical procedures and compliance with laws and regulations.
d. Internal control evaluation and management representation.
34. In an assurance engagement, this refers to the information obtained by the practitioner in
arriving at the conclusions on which the conclusion is based.
a. Generally accepted auditing standards
b. Assertions
c. Evidence
d. Criteria
35. If it is probable that the judgment of a reasonable person would have been changed or
influenced by the omission or misstatement of information, then the information is
a. Significant.
b. Material.
c. Relevant.
d. Pervasive.
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36. In performing a financial statement audit, which of the following would an auditor least likely consider?
a. Compliance with GAAP.
b. Quality of managements' business decisions.
c. Internal control.
d. Fairness of the financial statement amounts.
37. The Philippine Standards on Auditing issued by AASC:
a. Require that in no circumstances would an auditor may judge it necessary to depart from a
PSA, even though such a departure may result to more effective achievement of the
objective of an audit.
b. Apply to independent examination of financial statements of any entity when
such an examination is conducted for the purpose of expressing an opinion.
c. Need to be applied on all audit related.
d. Must not apply to other related activities of auditors.
38. Which of the following is not an assurance that the auditors give to the parties who rely on
the financial statements?
a. Auditors know how the amounts and disclosures in the financial statements were produced.
b. Auditors give assurance that the financial statements are accurate.
c. Auditors gathered enough evidence to provide a reasonable basis for forming an opinion.
d. If the evidence allows the auditors to do so, auditors give assurance in the form of opinion,
as to whether the financial statements taken as a whole are fairly presented in conformity
with GAAP.
39. The term that describes the role of persons entrusted with the supervision, control and
direction of an entity is
a. Management.
b. Administration.
c. Governance.
d. Government.
40. 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 criterion?
a.
b.
c.
d.
41. Which of the following statements about independent financial statement audit is correct?
a. The audit of financial statements relieves management of its responsibilities for die
financial statements.
b. 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.
c. An audit is designed to provide limited assurance that the financial statements taken as a
whole are free from material misstatement.
d. The procedures required to conduct an audit in accordance with PSAs should be
determined by the client who engaged the services of the auditor.
42. The reason an independent auditor gathers evidence is to
a. Detect fraud
b. Form an opinion on the financial statements
c. Evaluate management
d. Evaluate internal controls
43. The auditor communicates the results of his or her work through the medium of the
a. Engagement letter.
b. Audit report.
c. Management letter.
d. Audited financial statements.
44. The auditor's judgment concerning the overall fairness of presentation of financial position,
results of operation, and changes in cash flow is applied within the framework of
a. Quality control
b. Generally accepted auditing standards which include the concept of materiality
c. The auditor's evaluation of the audited company's internal control.
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financial statement audits, the audit process should be conducted in accordance with
Philippine Accounting Standards
The audit program
Philippine Standards on Auditing
Philippine Financial Reporting Standards
53. Which of the following is not one of the general principles governing the audit of financial statements?
a. The auditor should obtain sufficient appropriate evidence primarily through
inquiry and analytical procedures to be able to draw reasonable conclusions.
b. The auditor should plan and perform the audit with an attitude of professional skepticism.
c. The auditor should conduct the audit in accordance with PSA.
d. The auditor should comply with the Philippine Code of Professional Ethics.
54. 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 data and auditors who
examine the data.
c. Auditors act on behalf of management.
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d. Performance audit
65. Which of the following has the primary responsibility for the fairness of the representations
made in the financial statements?
a. Client's management
b. Audit committee
c. Independent auditor
d. Board of Accountancy
66. 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 to the expression of opinion on the
financial 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 qualified opinion but not for any other type of opinion.
67. An
a.
b.
c.
68. By
a.
b.
c.
d.
providing high level of assurance on audit reports on financial statements, the auditor
Guarantees the fair presentation of the financial statements.
Confirms the accuracy of the financial statements.
Enhances the credibility of the financial statements.
Assures the readers that fraudulent activities of employees have been detected.
69. Most of the independent auditor's work in formulating an opinion on financial statements
consists of
a.
b.
c.
d.
70. Audits of financial statements include an expression of a conclusion about which of the
following financial statement characteristics?
a. Governance.
b. Reliability.
c. Relevance.
d. Timeliness.
71. The essence of the attest function is to
a. Detect fraud.
b. Examine individual transactions so that the auditor can certify as to their validity.
c. Determine whether the client's financial statements are fairly stated.
d. Ensure the consistent application of correct accounting procedures.
72. 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 actions.
b. Auditor must anticipate all possible consequences of the report issued.
c. Impact of using different accounting methods may not be fully understood by the users of
the statements.
d. Financial statements are used for important decisions.
73. One of the conditions that give rise to a demand for an external audit of financial statements
is expertise. 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 statements.
b. The readers of the financial statements 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
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information.
d. As experts, auditors are expected to detect all material misstatements in the financial statements.
74. An
a.
b.
c.
d.
75. The assumption underlying an audit of financial statements is that they will be used by
a. The regulatory agencies to verify information that is relevant to their supervisory functions.
b. The board of directors as basis of declaring cash dividends.
c. The general public in making investment decisions.
d. Different groups for different purposes.
76. 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, under taken 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.
77. Financial statements audits:
a. Reduce the cost of capital
b. Report on compliance with laws and regulations
c. Assess management's efficiency
d. Overlook information risk
78. In relation to auditing, which of the following is an incorrect phrase?
a. Auditing is a systematic process.
b. Auditing subjectively obtains and evaluates evidence.
c. Auditing evaluates evidence regarding assertions.
d. Auditing communicates results to interested users.
79. Broadly defined, the subject matter of any audit consists of
a. Economic data
b. Financial statements
c. Assertions about economic actions and events
d. Operating data
80. As
a.
b.
c.
d.
a.
b.
c.
d.
94. In
a.
b.
c.
d.
Program audit
Compliance audit
Financial statement audit
Operational audit
government auditing, the three elements of expanded scope auditing are
Pre-audit, post-audit, internal audit.
Goal analysis, audits of operations, audit of systems.
Financial and compliance, economy and efficiency, program results.
National government audit, local government audit, corporation audit.
101.
a.
b.
c.
d.
Which of the following types of audit uses laws and regulations as its criteria?
Operational audit
Financial statement audit
Compliance audit
Performance audit
102. 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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103.
a.
b.
c.
d.
104.
a.
b.
c.
d.
105. Operational audit differs in many ways from an audit of financial statements. Which of
the following is the best example of one of these differences?
a. The usual audit of the financial statement covers four basic statements, whereas
operational audit is usually limited either the statement of financial position or the
income statement.
b. Operational audit do not necessarily result in the preparation of a report.
c. The operational audit deals with pre-tax income.
d. The boundaries of an operational audit are often drawn from an organization
chart and are not limited to a single accounting period.
106. Which of the following best describes the scope of internal auditing as it has developed to date?
a. Internal auditing has evolved to verifying the existence of assets and reviewing
the means of safeguarding assets.
b. Internal auditing has evolved to more of an operational orientation from
a strictly financial orientation.
c. Internal auditing involves appraising the economy and efficiency with which resources are
employed.
d. Internal auditing involves evaluating compliance with policies, plans,
procedures, laws, and regulations.
107. Which of the following actions would be an appropriate response by companies to
improve the public's perception of their financial reporting?
a. Requiring internal auditors to report all significant findings of fraud and illegal activity to
the company president.
b. Increased adoption of audit committees.
c. Keeping external and internal auditing work separated to maintain independence.
d. None of the above.
108.
a.
b.
c.
Which of the following is considered a primary reason for creating an internal audit department?
To safeguard resources entrusted to the organization.
To evaluate and improve the effectiveness of control processes.
To ensure the accuracy, reliability, and timeliness of financial and operating
data used in management's decision making.
d. To relieve management of the responsibility for establishing effective controls.
109.
a.
b.
c.
d.
110.
a.
b.
c.
d.
111. Internal auditors review the adequacy of the company's internal control system primarily to
a. Help determine the nature, timing, and extent of tests necessary to achieve audit objectives.
b. Determine whether the internal control system ensures that financial statements are fairly
presented.
c.
Determine whether the internal control system provides reason
company's objectives and goals are met efficiently and econom
d.
Ensure that material weaknesses in the system of internal control are
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112.
a.
b.
c.
d.
Internal auditors should review the means of physically safeguarding assets from losses arising from
Procedures that are not cost justified.
Exposure to the elements.
Underusage of physical facilities.
Misapplication of accounting principles.
113.
a.
b.
c.
d.
114.
a.
b.
c.
d.
115.
a.
b.
c.
d.
116. Operational audits generally have been conducted by internal and COA auditors, but
may be performed by certified public accountants. A primary purpose of an operational
audit is to provide:
a. A measure of management performance in meeting organizational goals.
b. The results of internal examinations of financial and accounting matters to a company's
top-level management.
c. Aid to the independent-auditor, who is conducting the examination of the financial statements.
d. A means of assurance that internal accounting controls are functioning as planned.
117. Governmental auditing often extends beyond examinations leading to the expression of
opinion on the fairness of financial presentation and includes audits of efficiency, economy,
effectiveness, and also:
a.
b.
c.
d.
Accuracy
Evaluation
Compliance
Internal control
118. What is the responsibility of an auditor who is engaged to audit the financial
statements of a government entity?
a. Assess control risk with respect to each component of internal control.
b. Assume responsibility for assuring that the entity complies with applicable laws and regulations.
c. Obtain an understanding of the possible financial statement effects of laws
and regulations having direct and material effects on amounts reported.
d. Design the audit to provide reasonable assurance that the statements are free
of material misstatements resulting from illegal acts having direct or indirect
effects.
119. The objective of governmental effectiveness or program auditing is to determine if the
desired results of a program are being achieved. What is the first step in conducting such an
audit?
a. Identify the legislative intent of the program being audited.
b. Collect quantifiable data on the program's success or failure.
c. Determine the time frame to be audited.
d. Evaluate the system used to measure results.
120. Which of the following statements is a standard applicable to financial statement
audits in accordance with Government Auditing Standards?
a. An auditor should briefly describe in the auditor's report the method of statistical
sampling used in per forming tests of controls and substantive tests.
b. An auditor should report on the scope of the auditor's testing of internal control.
c. An auditor should determine the extent to which the entity's programs achieve the
desired level of results.
d. An auditor should assess whether the entity has reportable measures of
economy and efficiency that are valid and reliable.
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