OUR LADY OF FATIMA UNIVERSITY

QUEZON CITY
COLLEGE OF BUSINESS AND ACCOUNTANCY
AUDITING AND ASSURANCE PRINCIPLES
MIDTERM EXAMINATION
FIRST SEMESTER, AY–2020-2021

GENERAL DIRECTIONS

1. Read and understand every statements very carefully and choose the letter of the
correct answer.

I. MULTIPLE CHOICE : Choose the 3. The concept of materiality is applied

letter of the correct answer by the auditor : EXCEPT
A. Planning
1. The purpose of an audit of financial B. Performing and audit
statements is to enhance the degree of C. Considering an initial audit
confidence of intended users of the engagement
financial statements. This objective is D. Evaluating the effect of identified
achieved through the following , misstatements on the audit and of
EXCEPT uncorrected misstatements
A. Expression of an opinion by the
auditor whether the financial statements 4. ISAs require the auditor to exercise
are prepared, in all material respects in professional judgment and maintain
accordance with an applicable financial professional skepticism throughout the
reporting framework planning and performance of an audit
B. An audit was conducted in and among other things also include ,
accordance with International Standards EXCEPT
of Auditing A. Identify and assess risks of material
C. An audit was conducted in misstatements, whether due to fraud or
accordance with relevant regulatory and error based on understanding of the
accounting standards which enables the entity and its environment including the
auditor to form an audit opinion entity’s internal control;
D. An audit was conducted with relevant B. Assess and evaluate the entity’s
ethical requirements to enable the internal control and create strategies
auditor tom form an audit opinion. and courses of action to rectify and
correct weaknesses in internal control
2. Professional judgment is essential to implementation
the proper conduct of an audit because C. Obtain sufficient appropriate audit
it is necessary in particular regarding evidence about whether material
decisions about: EXCEPT misstatements exist, through designing
A. The nature, timing and extent of and implementing appropriate responses
audit procedures used to meet to assessed risks
requirements of the ISAs and gather D. Form an opinion on the financial
audit evidence statements
B. The evaluation of internal control and
selecting appropriate applicable financial 5. The auditor’s opinion on the financial
reporting framework statements deals whether the financial
C. Evaluating whether sufficient statements are prepared in all material
appropriate audit evidence has been respects, with an applicable financial
obtained and whether more needs to be reporting framework, however,
done to achieve the objectives of the the auditor does not assure about
ISAs and overall objectives of the determining the future viability of the
auditor entity nor efficiency and effectiveness
D. Drawing of conclusions based on the with which management conducted the
audit evidence obtained affairs. These perspective is constrained
because in planning the audit the
auditor considers:

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 A. Only appropriate and applicable audit B. Responsibilities of the auditor
procedures C. Law or regulations prescribes in
B. Appropriate and applicable audit sufficient detail applicable to the terms
procedures of the engagement
C. Limitation if the scope of the audit D. Responsibilities of management
D. Materiality factor
12. If the auditor has determined that
6. The fundamental ethical principles the financial reporting framework
that the auditor must comply in relation prescribed by law or regulation would be
to an audit of financial statements are , unacceptable but for the fact that it is
EXCEPT prescribed by law or regulation, the
A. Professional skepticism auditor shall accept the audit
B. Integrity engagement on if the conditions are
C. Professional Behavior present, EXCEPT
D. Objectivity A. Management agrees to provide
additional disclosures in the financial
7. The risk of material misstatement statements requires to avoid the
refers to the risks of material financial statements being misleading
misstatements that relate pervasively to B. The auditor’s report on the financial
the financial statements as a whole and statements will incorporate an Emphasis
potentially affect many assertions of Matter paragraph, drawing user’s
8. It is a function of the effectiveness of attention to the additional disclosures
the design, implementation and C. The auditor may issue a disclaimer of
maintenance of internal control by an opinion
management to address identified risks D. Unless the auditor is required by law
that threaten the achievement of the or regulation to express the auditor’s
entity’s objectives relevant to the opinion on the financial statements by
preparation of the financial statements using the phrases “present fairly, in all
9. The risks of material misstatement material respects” or “ give a true and
determine the nature, timing and extent fair view “ in accordance with the
of further audit procedures necessary to applicable financial reporting framework
obtain sufficient appropriate evidence
10. This relates to the nature, timing 13. A condition for acceptance of an
and extent of audit procedures that are assurance engagement are suitable and
determined by the auditor to reduce available to intended users. Criteria are
audit risk to an acceptably low level suitable if : EXCEPT
A. they can be used as benchmarks to
Answers to Statements 7, 8, 9 and evaluate or measure the subject matter
10 B. Benchmarks for presentation or
A. Inherent risk disclosure
B. Detection risk C. Benchmarks to obtain sufficient and
C. Risk of Material Misstatement overall appropriate evidence in formulating the
financial statement auditor’s opinion
D. Control risk D. Can be used by the auditor to audit
E. Risk of Material Misstatement at financial statements including where
assertion level for classes of relevant to fair presentation
transactions, account balances and
disclosures 14. Factors that are relevant to the
auditor’s determination of the
11. The auditor shall agree the term of acceptability of the financial reporting
the audit engagement with management framework to be applied in the
and those charged with governance . preparation of the financial statements
The agreed audit engagement shall be include : EXCEPT
recorded and written in an audit A. Nature of the entity
engagement letter which shall include , B. Purpose of the financial statements ,
EXCEPT whether they are prepared to meet the
A. Objective and scope of the audit common financial information needs of
engagement specific users

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 D. Controls that have been implemented
over journal entries and other
C. Going concern status of the entity adjustments
D. Nature of the financial statements
whether it will be a complete sets of 20. The auditor shall include in the audit
financial statements or a single documentation of the auditor’s
statement understanding of the entity and its
environment which shall include
15. International Financial Reporting ,EXCEPT
Standards are promulgated by A. Significant decisions reached during
A. International Accounting Standards the discussion among the engagement
Board team regarding the susceptibility of the
B. International Federation of entity’s financial statements to material
Accountants misstatement
C. International Financial Reporting B. Communication with management
Standards Board and those charged with governance
D. International Auditing and Assurance C. Identified and assessed risks of
Board material misstatements due to fraud at
the financial statement and at the
Relevant Matters in Identifying and assertion level
Selecting Journal Entries and Other D. Results of audit procedures including
Adjustments for Testing those designed to address the risk of
16. Inappropriate journal entries or management override of controls
other adjustments often have unique
identifying characteristics. Such II. TRUE OR FALSE : Analyze and
characteristics may include entries (a) determine whether the following
made to unrelated , unusual or seldom statements are “True” or “False”
used accounts; (b) made by individuals
who typically do not make journal 1. International Standards of Auditing
entries; (c) recorded at the end of the (ISA) 200 deals with the independent
reporting period or as post-closing auditor’s overall responsibilities when
entries that have little or no explanation conducting an audit of financial
or description statements in accordance with ISAs.

17. Inappropriate journal entries or 2. Fraud may involve sophisticated and

adjustments may be applied to accounts carefully organized schemes to conceal
that (a) contain transactions that are it, audit procedures used to gather audit
complex or unusual in nature (b) contain evidence may be effective for detecting
significant estimates and period-end an intentional misstatement that may
adjustments ; (c) have prone to involve fraudulent activity.
misstatements in the past; (d) have not
been reconciled on a timely basis or 3. In general, misstatements including
contain unreconciled differences omissions are considered to be material
if they are aggregated amount only the
18. For man y entities routine at could be reasonably expected to
processing of transactions involves a influence economic decisions of users
combination of manual and automated taken on the basis of the financial
steps and procedures. The processing of statements
journal entries and other adjustments
may involve both manual and 4. Judgment about materiality are made
automated procedures and controls in the light of the surrounding
circumstances and are affected by the
19. Effective controls over the auditor’s perception of the financial
preparation and posting of journal needs of the users of the financial
entries and other adjustments may statements and the size or nature of a
reduce the extent of substantive testing misstatement but not in combination or
Answers for Statements 16, 17, 18 both.
and 19
A. Nature and complexity of accounts
B. Characteristics of Fraudulent Journal
Entries or other adjustments
C. Entity’s financial reporting process
and the nature of evidence that can be
obtained

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 5. The overall objectives of an auditor in wide range of users are referred to a
conducting an audit of financial special purpose financial statements
statements is to obtain reasonable
assurance about whether the financial
statements are free from material
misstatements , whether due to fraud or
error and thereby enabling the auditor 12. An audit in accordance with ISAs is
to express an opinion on whether the conducted on the premise that
financial statements are prepared in all management has acknowledged and
material respects in accordance with an understands that it has the
applicable financial reporting framework responsibilities specified by law or
regulation , ISAs do not override law
6. Law and regulation may establish the and regulation.
responsibilities of management and
where appropriate those charged with 13. ISA 580 requires the auditor to
governance. The extent of the request management to provide a
responsibilities differ across jurisdictions, written representations that it has
An audit in accordance with ISAs is fulfilled certain of its responsibilities .
conducted on the premise that The auditor should make management
management where appropriate be aware that written representations
including those charged with are required by ISAs to support other
governance should acknowledged and audit evidence relevant to the financial
understand that they have responsibility statements or one more specific
for the preparation of the financial objectives of the financial statements
statements in accordance with
applicable financial reporting framework 14. Management maintains such internal
including relevant fair presentation as control as it determines is necessary to
provided by the ISA. enable the preparation of the financial
statements that are free from material
7. Where conflicts exist between the misstatement whether dure to fraud or
financial reporting framework and the error.
sources from which direction on its
application may be obtained, among 15. The size, complexity and ownership
other sources that encompass the characteristics of the entity have a
financial reporting framework , the significant influence on the consideration
source with the higher authority prevails of relevant fraud risk factors .

8. The auditor cannot be expected to

disregard past experience of honesty MIDTERM QUIZ
and integrity of the entity’s management
and those charged with governance, Matching : Choose the letter of the
nevertheless, a belief that management best answer.
and those charged with governance are
honest and have integrity relieve the 1. Information used by the auditor in
auditor of the need to maintain arriving at a conclusions on which the
professional skepticism or allow the auditor’s opinion is based .
auditor to be satisfied with less then 2. Financial reporting framework that
persuasive audit evidence when requires compliance with the
obtaining reasonable assurance requirements of the framework
3. risk that the procedures performed by
9. On recurring audits, the auditor need the auditor to reduce audit risk to an
not assess whether circumstances acceptably low level will not detect a
require the terms of the audit misstatement that exists and that could
engagement to be revised be material
4. The auditor should exercise this
10. The auditor shall not agree to a judgment in planning and performing an
change in the terms of the audit audit of financial statements
engagement where there is no 5. The risk that a misstatement could
reasonable justification for doing so. occur in an assertion about a class of
transaction , account balance or
11. Financial statements prepared in disclosure. Misstatements will not be
accordance with a financial reporting prevented or detected and corrected on
framework designed to meet the a timely basis by the entity’s internal
common financial information needs of a control.

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 6. Information expressed in financial
terms in relation to a particular entity,
derived primarily from the entity’s
accounting system about economic
events occurring in the past time
periods.
7. Susceptibility of an assertion about
class of transactions , account balance
of disclosure to a misstatement is
material , either individually or when
aggregated with other misstatements
before consideration of any related
controls
8. Audit of financial statements are high
but not absolute , level of assurance
9. The risk that financial statements are
materially misstated prior to audit.
10. Financial reporting framework
adopted by management in the
preparation of financial statements

A. Audit risk
B. Audit evidence
C. Fair presentation framework
D. Detection risk
E. Inherent risk
F. Professional judgment
G. Control Risk
H. Historical Financial Information
I. Limited assurance
J. Reasonable assurance
K. Risk of material misstatement
L. Applicable financial reporting
framework

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