Multiple Choice Questions Audit in General 1. Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing nancial information for decision maing is commonly called! a. nance ". auditing c. accounting d. economics #. An audit involves ascertaining the degree of correspondence "et$een assertions and esta"lished criteria. %n the case of nancial statement audit, $hich of the follo$ing is not a valid criterion& a. 'hilippine (tandards on Auditing ". %nternational Accounting (tandards c. Authoritative nancial reporting frame$or d. Accounting standards generally accepted in the 'hilippines ). *roadly dened, the su"+ect matter of any consists of a. inancial (tatement ". -conomic data c. Assertion d. perating data /. 0henever a C'A professional is engaged to perform an audit of nancial statements according to 'hilippine (tandard on Auditing, he is reuired to comply $ith those standards in order to a. -liminate audit ris ". 2ave a measure of the uality of audit performance c. 3o reduce the auditor4s responsi"ility d. -liminate the professional +udgment in resolving audit issues 5. 3he criteria for evaluating uantitative information vary. or e6ample, in the case of an independent audit of nancial statements "y C'A rms, the criteria are usually the a. 'hilippine (tandards on Auditing ". 'hilippine inancial Reporting (tandards c. 7ational %nternal Revenue Code d. Regulations of the (ecurities and -6change Commission 8. %n 9auditing: nancial accounting data, the primary concern is $ith!
a. determining $hether recorded information properly re;ects the economic events that occurred during the accounting period. ". determining if fraud has occurred. c. determining if ta6a"le income has "een calculated correctly. d. analysing the nancial information to "e sure that it complies $ith government reuirements. <. An audit of nancial statements is conducted to determine if the a. rganization is operating e=ciently and e>ectively ". Auditee is follo$ing specic procedures or rules set do$n "y some higher authority c. verall nancial statements are stated in accordance $ith an identied reporting frame$or. d. Client4s internal control is functioning as intended. ?. %n determining the primary responsi"ility of the e6ternal auditor for an audit of a company4s nancial statements, the auditor o$es primary allegiance to! a. (tocholders, creditors and the investing pu"lic. ". 3he management of the audit client "ecause the auditor is hired and paid "y management. c. 3he Auditing and Assurance (tandards Council, "ecause it determines auditing standards and auditor4s responsi"ility. d. 3he audit committee of the audit client "ecause that committee is responsi"le for coordinating and revie$ing all audit activities $ithin the company. @. An auditing involves ascertaining the degree of correspondence "et$een assertions and esta"lished criteria. %n the case of an audit of nancial statements, $hich of the follo$ing $ould not "e a valid criterion& a. %nternational Accounting (tandards ". 'hilippines inancial Reporting (tandards 'R(B c. Generally accepted auditing standards d. 'R( for (M-s 1. Most of the independent auditor4s $or in formulating an opinion on nancial statements consists of a. (tudying and evaluating internal control ". "taining and e6amining evidence c. -6amining cash transactions d. Comparing recorded accounta"ility $ith assets 11. 0hich of the follo$ing is more di=cult to evaluate o"+ectively& a. -=ciency and e>ectiveness of operations
". Compliance $ith applica"le government regulations c. 'resentation of nancial statements in accordance $ith the applica"le nancial reporting criteria d. All the given criteria are eually di=cult to evaluate o"+ectively 1#. An audit that involves o"taining and evaluating evidence a"out the e=ciency and e>ectiveness of an entity4s operating activities in relation to specied o"+ective is a nB! a. -6ternal audit ". Compliance audit c. perational audit d. inancial statements audit 1). %n nancial statements audits, the audit process should "e conducted in accordance $ith a. 3he audit program ". 'hilippine (tandards on Auditing c. 'hilippine Accounting (tandards d. 'hilippine inancial reporting (tandards 1/. %nternal auditors are e6pected to add value to the organization through improved operational e>ectiveness. %n addition, their responsi"ilities include all the follo$ing e6cept! a. revie$ing the relia"ility and integrity of information ". ensuring compliance $ith the company4s accounting policies c. verifying accounting information for e6ternal users d. ensuring compliance $ith applica"le government regulations. 15. 0hich of the follo$ing types of audit uses la$s and regulations as its criteria& a. perational audit ". inancial statement audit c. Compliance audit d. 'erformance audit 18. 0hich of the follo$ing "est descri"es an operational audit& a. %t attempts of verifying the fair presentation of a company4s results of operations. ". %t concentrates on implementing nancial and accounting control in a ne$ly organized company. c. %t concentrates on seeing out aspects of operations in $hich $aste $ould "e reduced "y the introduction of controls. d. %t reuires a constant revie$ of the administrative controls "y internal auditors as they relate to operations of the company.
1<. A typical o"+ectives of an operational audit is to determine $hether an entity4s a. %nternal control structure is adeuately operating as designed ". perational information is in accordance $ith generally accepted accounting principles. c. (pecic operating units are functioning e=ciently and e>ectively d. inancial statements present fairly the results of operations 1?. ne o"+ective of an operational audit is to! a. determine $hether the nancial statements fairly present the entity4s operations. ". evaluate the feasi"ility of attaining the entity4s operational o"+ectives. c. mae recommendations for improving performance. d. report on the entity4s relative success in attaining prot ma6imization. 1@. An audit designed to provide reasona"le assurance of detecting violations of specic provisions of contracts or grant agreements $ould "e called a aB! a. performance audit ". management audit c. operational audit d. compliance audit #. 3he auditor communicates the results of his or her $or through the medium of the a. -ngagement letter ". Audit report c. Management letter d. inancial statements #1. 0hen performing an operational audit, the internal audit team must rst determine that! a. a nancial audit has "een performed "y an independent auditor ". a nancial audit has "een performed "y an internal auditor. c. a revie$ $as performed "y either an independent or an internal auditor d. specic criteria are developed to dened e>ectiveness ##. 0hich of the follo$ing types of auditing is performed most commonly "y C'A4s on a contractual "asis& a. %nternal auditing ". %ncome ta6 auditing c. Government auditing d. -6ternal auditing #). An e6amination of part of an organization4s procedures and methods for the purpose of evaluating e=ciency and e>ectiveness is $hat type of audit&
a. perational audit. ". Compliance audit. c. inancial (tatement audit. d. 'roduction audit. #/. 0hich of the follo$ing is not one of the ma+or di>erences "et$een nancial and operational auditing& a. 3he nancial audit is oriented to the past, "ut an operational audit concerns performance for the future. ". 3he nancial audit report has $idespread distri"ution, "ut the operational audit report has limited distri"ution. c. inancial audits deal $ith the information on the nancial statements, "ut operational audits are concerned $ith the information in the ledgers and +ournals. d. inancial audits are limited to matters that directly a>ect the fairness of the nancial statement presentation, "ut operational audits cover any aspect of e=ciency and e>ectiveness. #5. %ndependent e6ternal auditing can "est "e descri"es as a a. professional activity that measures and communicates nancial accounting data. ". su"set accounting. c. professional activity that attests to the fair presentation of nancial statements. d. regulatory activity that the issuance of misleading nancial information. #8. 0hich one of the follo$ing is 73 a ma+or di>erence "et$een operational and nancial auditing& a. purpose of the audit ". distri"ution of the report c. testing the e>ectiveness of internal controls d. audits of nonD nancial areas. #<. 3he overall o"+ective of internal auditing is to a. Attest to the e=ciency $ith $hich resources are employed ". Ascertain that controls are costs +ustied c. 'rovide assurance that nancial data have accurately recorded d. Assist mem"ers of the organization in the e>ective discharge of their responsi"ilities #?. %nternal auditors report to! a. the audit committee of the "oard of directors.
". management c. e6ternal auditors d. the government regulators. #@. 0hich of the follo$ing is not a similarity "et$een e6ternal and internal auditors& a. *oth must "e independent of the company ". *oth must "e competent. c. *oth follo$ similar methodology in performing their audits. c. *oth consider ris and materiality deciding the e6tent of their tests and evaluating results. ). %nternal auditing is an independent appraisal function esta"lished $ithin an organization to e6amine and evaluate its activities. 3o that end, internal auditing provides assistance to a. -6ternal auditors ". (tocholders c. Management and the "oard of directors d. Government )1. 0hich of the follo$ing groups could not "e involved in an operational audit& a. -6ternal auditors ". %nternal auditors c. Government auditors d. All of the a"ove could "e involved. )#. 0hich of the follo$ing statements is not a distinction "et$een independent auditors and internal auditors& a. %ndependent auditors represent third party users e6ternal to the auditee entity, $hereas internal auditors report directly to management. ". Although independent auditors strive for "oth validity and relevant of evidence, internal auditors are concerned almost e6clusively $ith validity. c. %nternal auditors are employee of the auditee, $hereas independent auditors are independent contractors. d. 3he internal auditor4s span of the coverage goes "eyond nancial auditing to encompass operational and performance auditing. Financial Statement Audit )). 0hich of the follo$ing has the primary responsi"ility for the fairness of the representations made in the nancial statements& a. Client4s management ". Audit committee c. %ndependent auditor d. *oard of Accountancy
)/. An audit of the nancial statements of EMF Corporation is "eing conducted "y an e6ternal auditor. 3he e6ternal auditor is e6pected to a. -6press an opinion as to the fairness of EM4s nancial statements. ". -6press an opinion as to the attractiveness of EM for investment purposes. c. Certify the correctness of EM4s nancial statements. d. -6amine all evidence supporting EM4s nancial statements. )5. 0hich of the follo$ing statements a"out independent nancial statement audit is correct& a. 3he audit of nancial statements relieves management of any responsi"ilities for the nancial statements. ". An audit designed to provide limited assurance that the nancial statements taen as a $hole are free from material misstatement. c. 3he procedures reuired to conduct an audit in accordance $ith '(As should "e determined "y the client $ho engaged the services of the auditor. d. 3he author4s opinion is not an assurance as to the future via"ility of the entity as $ell as the e>ectiveness and e=ciency $ith $hich management has conducted the a>airs of the entity. )8. 3he primary purpose of an independent nancial statement audit is to a. provide a "asis for assessing management4s performance. ". comply $ith government regulatory reuirements. c. assure management that the nancial statements are un"iased and free from material error. d. provide users $ith an un"iased opinion a"out the fairness of information reported in the nancial statements. )<. inancial statements need to "e prepared in accordance $ith one, or a com"ination of!
a. ". c. d.
Philippine Standards On Auditing yes no no yes
Philippine Accounting Standards yes yes yes no
Other authoritative or comprehensive fnancial reporting ramework Standards yes yes yes yes no yes no no
Philippine Financial Reporting
)?. *y providing high level of assurance on audit reports on nancial statements, the auditor a. Guarantees the fair presentation of the nancial statements ". Conrms the accuracy of the nancial statements. c. -nhances the credi"ility of the nancial statements. d. Assures the readers that fraudulent activities of employees have "een detected.
)@. 3he reason an independent auditor gathers evidence is to a. form an opinion on the nancial statements. ". detect fraud. c. evaluate management4s performance d. evaluate the entity4s internal control /. 3he trait that distinguishes auditors from accountants is the! a. auditor4s a"ility to interpret accounting standards. ". auditor4s education "eyond the *achelor4s degree. c. auditor4s a"ility to interpret. d. auditor4s accumulation ant interpretation of evidence related to a company4s nancial statements. /1. 3he level of assurance provided "y an auditor on an audit repost is! a. lo$ ". high c. moderate d. none /#. 3heoretically, it is possi"le to provide an innite range of assurance from a very lo$ level of assurance to an a"solute level of assurance. %n practice, the professional accountants cannot provide a"solute assurance "ecause of the follo$ing e6cept, a. 3he internal control has its inherent limitations ". 3he professional accountants employ testing process. c. 3he lac of e6pertise of the professional accountants in doing a systematic engagement process. d. 3he use of +udgement in gathering evidence and dra$ing conclusions "ased on that evidence. /). 0hich of the follo$ing is not one of the limitations of an audit& a. 3he use of testing ". Himitations imposed "y client c. 2uman error d. 7ature of evidence that the auditor o"tains //. 0hich of the follo$ing statements does not properly descri"e a limitation of an audit& a. Many audit conclusions are made on the "asis of e6amining a sample of evidence. ". (ome evidence supporting peso representation in the nancial statements must "e o"tained "y oral or $ritten representation of management. c. atigue can cause auditors to overloo pertinent evidence.
d. Many nancial statement assertions cannot "e audited. /5. 0hich of the follo$ing is one of the limitations of an audit& a. 3he possi"ility that management may prevent the auditor from performing the necessary audit procedures. ". 3he lielihood that the auditor may not "e a"le to detect material misstatement in the nancial statements "ecause the auditor is engaged only after yearD end. c. 3he fact that most audit evidence is persuasive rather than conclusive in nature. d. 3he ris that the auditor may not possess the training and prociency reuired "y the engagement. /8. 3he independent audit is important to readers of nancial statement "ecause it a. Ietermines the future ste$ardship of the management of the company $hose nancial statements are audited. ". Measures and communicates nancial and "usiness data involved in nancial statements. c. %nvolves the o"+ective e6amination of and reporting on management prepared statements. d. Reports on the accuracy of all information in the nancial statements. /<. 3he primary reason for an audit "y an e6ternal audit rm is a. 3o satisfy government regulatory reuirements. ". 3o guarantee that there are no misstatements in the nancial statements. c. 3o provide increased assurance to users as to the fairness of the nancial statements. d. 3o ensure that any fraud $ill "e discovered. /?. 0hich of the follo$ing is not one of the general principles governing the audit of nancial statements& a. 3he auditor should plan and perform the audit $ith an attitude of professional scepticism. ". 3he auditor should o"tain su=cient appropriate evidence primarily through inuiry and analytical procedures to "e a"le to dra$ reasona"le conclusions. c. 3he auditor should conduct the audit in accordance $ith '(A. d. 3he auditor should comply $ith the 'hilippine Code of 'rofessional -thics. /@. inancial statement users often receive unrelia"le nancial information from companies. 0hich of the follo$ing is not a common reason for this& a. Comple6 e6change transactions. ". oluminous data. c. *ias in the preparation of nancial statements. d. -ach of these choices is a common reason for unrelia"le nancial information. 5. 0hich one of the follo$ing is not among the conditions that give rise to a demand "y e6ternal users for independent audits of nancial statements&
a. remoteness of users ". comple6ity of maing economic decisions c. potential con;ict of interest "et$een users and preparers of the statements d. conseuence for maing decisions 51. 0hich of the follo$ing $ould not represent one of the primary pro"lems that4s $ould lead the users to demand for independents audits of a company4s nancial statements& a. 3he do$nsizing of "usiness and nancial marets. ". Management "ias in preparing nancial statements. c. 3he comple6ity of transactions a>ecting nancial statements. d. 3he remoteness of the user to directly o"tain nancial information from the company. 5#. 3he need for independent audits of nancial statements can "e attri"uted to all of the follo$ing conditions e6cept! a. remoteness ". conseuence c. comple6ity of su"+ect matter d. validity 5). 0hich of the follo$ing "est descri"es the reason $hy an independent auditor reports nancial statements& a. A management fraud may e6ist and it is more liely to "e detected "y independent auditors. ". Ii>erent interests may e6ist "et$een the company preparing the statements and the persons using the statements. c. A misstatement of account "alances may e6ist and is generally corrected as the result of the independent auditor4s $or. d. A poorly designed internal control system may "e in e6istence. 5/. 0hich of the follo$ing statements does not descri"e a condition that creates a demand for auditing& a. Con;ict "et$een information preparer and a user can result in "iased information. ". %nformation can have su"stantial economic conseuences for a decisionDmaer. c. -6pertise is often reuired for information preparation and verication d. Jsers can directly assess the uality of information. 55. 3here are four conditions that give rise to the need for independent audits of nancial statements. ne of these conditions is conseuence. %n this conte6t, conseuence means that the! a. users of the statements may not fully understand the conseuences of their actions.
". auditor must anticipate all possi"le conseuences of the report issued. c. impact of using di>erent accounting methods may not "e fully understood "y the users of the statements. d. nancial statements are used for important decisions. 58. 0hich of the follo$ing statements does not properly descri"e an element of theoretical frame$or of auditing& a. 3he data to "e audited can "e veried ". (hortDterm con;icts may e6ist "et$een managers $ho prepare the data and auditors $ho e6amine the data. c. Auditors act on "ehalf of the management d. An audit "enets the pu"lic 5<. Auditing is "ased on the assumption that nancial data are veria"le. Iata are veria"le $hen t$o or more ualied individuals. a. $oring together, can prove, "eyond dou"t, the accuracy of the data. ". $oring independently, each reach essentially similar conclusions. c. $oring independently, can prove, "eyond reasona"le dou"t, the truthfulness of the data. d. $oring together, can agree upon the accuracy of the data. 5?. 3he "est statement of the responsi"ility of the auditor $ith respect to audited nancial statement is! a. 3he auditor4s responsi"ility on fair presentation of nancial statement is limited only up to the date of the audit report. ". 3he auditor4s responsi"ility is conned to the e6pression of opinion on the nancial statements audited. c. 3he responsi"ility over the nancial statements rests $ith the management and the auditor assumes responsi"ility $ith respect to the notes of nancial statements. d. 3he auditor is responsi"le only to his unmodied opinion "ut not for any other types of opinion. 5@. 0hich of the follo$ing is incorrect a"out responsi"ility for nancial statements& a. Management is responsi"le for fair presentation of the nancial statements. ". Auditor is responsi"le for e6pressing an opinion on the nancial statements. c. Audit of nancial statements does not reduce management4s responsi"ility d. air presentation of nancial statements is an implicit part of the auditor4s responsi"ility. 8. 0hich of the follo$ing one of the assumptions $hen auditing nancial statements& a. 3he data in the nancial statements are veria"le. ". Compliance to 'R( results in fair presentation of nancial statements. c. ->ective internal control system contri"utes little to the relia"ility of nancial information.
d. 3he auditor should "e independent. 81. 0hich of the follo$ing statements a"out independent nancial statement audit is incorrect& a. (cope of the audit refers to audit procedures deemed necessary in the circumstances to achieve the o"+ective of the audit. ". 3he auditor4s opinion enhances the credi"ility of the nancial statements. c. 3he phrase used to e6press the auditor4s opinion is 9present fairly in all material respects:. d. 3he ris that the auditor $ill fail to uncover material misstatement is eliminated $hen the auditor conducts the audit in accordance $ith '(As. 8#. 0hich of the follo$ing statements does not properly descri"e a limitation of an audit& a. Many audit conclusions are made on the "asis of e6amining a sample of evidence. ". 3he $or undertaen "y the auditor is permeated "y +udgment. c. 3he auditor might misinterpret the evidence o"tained. d. Most of the items in the nancial statements do not have supporting evidence. 8). 0hich of the follo$ing limitations of an audit& a. 7ature of evidence o"tained ". %nadeuacy of information c. Condentiality of information d. (cope limitations imposed "y the entity 8/. 3he assumption underlying an audit of nancial statements is that they $ill "e used "y a. Ii>erent groups for di>erent purposes. ". 3he general pu"lic in maing investment decisions c. 3he "oard of directors as "asis of declaring cash dividends. d. 3he regulatory agencies to verify information that is relevant to their supervisory functions. 85. 3he procedures deemed necessary in the circumstances to achieve the o"+ective of a nancial statement audit shall "e determined "y the a. Client management ". %ndependent auditor c. %nternal Auditor d. 3hose charged $ith governance 88. 0hich of the follo$ing is an e6ample of management e6pectations from independent auditors& a. An active participant in management decision maing.
". An internal source of e6pertise of nancial and other matters. c. An e6pert providing a $ritten communication as the product of the engagement d. %ndividuals $ho perform dayDtoDday accounting functions on "ehalf of the company. 8<. ne of the conditions that give rise to a demand for an e6ternal audit of nancial statements is e6pertise. 0hich of the follo$ing "est descri"es the meaning of e6pertise as used in this conte6t& a. Auditors usually rely on the $or of an e6pert as a "asis for evaluating some assertions em"odies in the nancial statements. ". 3he readers of the nancial statements must process the necessary e6pertise to "e a"le to understand the nancial statements. c. Jsers usually lac the necessary e6pertise to verify the relia"ility of the nancial information. d. As e6perts, auditors are e6pected to detect all material misstatements in the nancial statements. 8?. Jpon completion of a nancial statement audit, the auditor has a. 7o assurance that the nancial statements are fairly presented. ". A"solute assurance that the nancial statements are fairly presented. c. Reasona"le assurance that all material errors and irregularities have "een detected. d. A lo$ level of assurance that all material errors and irregularities have "een found. 8@. 0hich of the follo$ing is not one of the reasons $hy auditors provide only reasona"le assurance on the nancial statements& a. 3he auditor commonly e6amines a sample, rather than the entire population of transactions. ". Accounting presentations contain comple6 estimates $hich involve uncertainty. c. raudulently prepared nancial statements are often di=cult to detect. d. Auditors "elieve that reasona"le assurance is su=cient in the vast ma+ority of cases.
CHAPTER 1
AUDITING THEORY SUBMITTED BY:
VALMORIA, JENNILYN C. PECATOSTE, ANNABELLE D. SUBMITTED TO:
MR. DELFIN AQUITANIA