Auditing. Quiz No.

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MULTIPLE CHOICE QUESTIONS 

1. Which of the following statements does not properly describe an element of the
theoretical  framework of auditing? 
a. An audit benefits to public. 
b. Auditors act on behalf of management. 
c. Short-term conflicts may exist between managers who prepare data and
auditors who  examine the data. 
d. The data to be audited can be verified. 

2. Which of the following is an incorrect phrase? 

a. Auditing subjectively obtains and evaluates evidence. 
b. Auditing is a systematic process. 
c. Auditing evaluates evidence regarding assertions. 
d. Auditing communicates results to interested users. 

3. The auditor gathers evidential matter in order to 

a. Form an opinion with respect to financial assertions. 
b. Evaluate management’s stewardship. 
c. Eliminate detection risk. 
d. Detect fraud and irregularity. 

4. Evidence is defined as any information used by the auditor to determine whether

the  quantifiable information being audited is stated in accordance with the
established criteria.  Evidence takes many different forms, including 
a. Written communication (confirmation) with outsiders. 
b. Oral representation (testimony) of the client management. 
c. Observation made by the auditor. 
d. All of these. 

5. Which of the following least likely limits the auditor’s ability to detect material
misstatement? a. The inherent limitations of any accounting and internal control
system.
b. Most audit evidences are conclusive rather than being persuasive. 
c. Audit procedures that are effective in t=detecting ordinary
misstatements are  ineffective in detecting intentional
misstatements. 
d. Audit is based on testing. 
6. As used in auditing, which of the following statements best describes
“assertions”? a. Assertions are the representations of management as to the
reliability of the  information system. 
b. Assertion are the representation of management as to the fairness of the
financial  statements. 
c. Assertions are the auditor’s finding to be communicated in the audit report.

d. Assertions are found only in the footnotes to the financial statements. 

7. Which of the following is an example of an assertion made by management in an

entity’s  financial statements? 
a. The scope of the auditor’s investigations is not limited in any way by
management.
b. The financial statements are prepared in an unbiased manner. 
c. Reported inventory balances reflect all related transactions for
the period.
d. Reported accounts receivables do not include any uncollectible
accounts. 

8. It refers to the level of auditor’s satisfaction as to the reliability of an assertion being

made by  one party for use by another party. 
a. Tolerable level. 
b. Reasonable level. 
c. Confidence level. 
d. Assurance level. 

9. A financial statement audit aids in the communication of economic data because the
audit

a. Lends credibility to the financial statements. 

b. Guarantees that financial data are fairly presented. 
c. Confirms the accuracy of management’s financial representations. 
d. Assures the readers of financial statements that any fraudulent activity
has been  corrected. 

10. In all cases, audit report must 

a. Inform readers of the degree of correspondence between the quantifiable
information  and the established criteria. 
b. Communicate the auditor’s finding to the general public. 
c. Certify the accuracy of the quantitative information which was audited. 
d. Be signed by the individual who performed the audit procedures. 
 11. Which of the following statements best describes operational audits? 
a. This type of audit is performed to determine whether an entity’s financial
statements  are fairly stated in conformity with generally accepted
accounting principles. b. This type of audit is performed in order to determine
the degree of adherence to  specific procedures and rules set down by some
higher authority. 
c. This type of audit involves a review of an organization’s procedures and methods
for the  purpose of evaluating efficiency and effectiveness of operations, and
identifying areas  for improvement. 
d. All of these statements describe operational audits. 

12. Which of the following best describes the operational audits? 

a. It requires the constant review by internal auditors of the administrative control
as they  relate to operations of the company.
b. In concentrates on seeking out aspects of operations in which waste would be
reduced  by the introduction of controls. 
c. It concentrates on implementing financial and accounting control in a newly
organized  company. 
d. Attempts and is designed to verify the fair presentation of a company’s
results of  operations. 

13. An audit of financial statements is conducted to determine if the  

a. Overall financial statements are stated in accordance with
specified criteria. b. Organization is operating efficiently and
effectively. 
c. None of these. 
d. Auditee is following specific procedures or rules set down by some higher authority. 

14. An audit is an assurance engagement. One of the elements of an assurance is suitable

criteria.  The criteria for evaluating quantitative information vary. For example, in the
audit of historical  financial statements by CPA firms, the criteria are usually 
a. Regulations of the Securities and Exchange Commission. 
b. Regulations of the Bureau of Internal Revenue. 
c. Generally accepted auditing standards. 
d. Generally accepted accounting principles.
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Classification: Public 
Auditing. Quiz No.2 

15. An audit involves ascertaining the degree of correspondence between assertions and 
established criteria. In the cases of financial statement audit, which of the following is
not a valid  criterion? 
a. Philippine Standard on Auditing. 
b. International Accounting Standard. 
c. Authoritative financial reporting framework. 
d. Accounting standard generally accepted in the Philippines. 

16. The Auditor communicates the results of his or her work through the medium
of the a. Audit report. 
b. Engagement letter. 
c. Financial statements. 
d. Management letter. 

17. The auditor’s opinion: 

a. Certifies the correctness of the financial statements. 
b. Enhances the credibility of the financial statements. 
c. Is an assurance as to the efficiency with which management has conducted the
affairs of  the entity, but not effectiveness. 
d. Is an assurance as to the future viability of the entity. 

18. An audit which is undertaken in order to determine whether the auditee is following
specific  procedures or rules laid down by some higher authority is classified as a(n) 
a. Production audit. 
b. Operational audit. 
c. Compliance audit. 
d. Audit of financial statements. 

19. Which of the following types of audit uses as its criteria laws and
regulations? a. Operational audit. 
b. Financial statement audit. 
c. Financial audit. 
d. Compliance audit. 

20. Which of the following is more difficult to evaluate objectively? 

a. Presentation of financial statements in accordance with GAAP. 
b. Efficiency and effectiveness of operations. 
c. Compliance with government regulations 
 d. All the three above are equally difficult. 

21. Which of the following statements is true concerning a compliance audit?

a. Risks such as inherent risk, control risk, and detection risk are not
appropriate in the  planning and performance of a compliance audit. 
b. Materiality is difficult to measure in a compliance audit.
c. Compliance audits are only performed by government auditors. 
d. A report on compliance can only include negative assurance. 

22. A review of any part of an organization’s procedures and methods for the purpose of
evaluating  efficiency and effectiveness is classified as a(n) 
a. Operational audit. 
b. Operation audit. 
c. Compliance audit. 
d. Audit of financial statements. 

23. An operational audit is designed to 

a. Determine whether the audit committee of the board of directors is
effectively  discharging its responsibility to oversee management’s
operations. 
b. Determine whether the management has complied with applicable
laws and  regulations. 
c. Assets the presentation of management’s financial statements in
accordance with  generally accepted accounting principles. 
d. Assets the efficiency and effectiveness of management’s operating procedures. 

24. A typical objective of an operational audit if for auditor to 

a. Report on the entity’s relative success in maximizing its profits. 
b. Make recommendations to client for improving its performance. 
c. Evaluate the feasibility of attaining the client entity’s operational
objectives. d. Determine whether the financial statements fairly
present the clients entity’s  operations. 

25. Governmental effectiveness (program) auditing seeks t determine whether the desired
results  are being achieved and objectives are being met. The first step in the
performance of such an  audit would be to 
a. Collect and analyze quantifiable data. 
b. Determine the sampling frame to use in studying the system. 
c. Evaluate the system used to measure results. 
d. Identify the legislative intent of the program being audited. 
26. Which of the following best describes the objective of an audit of financial statements?
a. To express an opinion whether the financial statements are prepared in
accordance  with prescribed criteria. 
b. To express an opinion whether the financial statements are prepared, in all
material  respect, in accordance with an identified financial reporting
framework. 
c. To express an assurance as to the future viability of the entity whose
financial  statements are being audited. 
d. To express an assurance about the management’s efficiency or
effectiveness in  conducting the operations of entity.

27. The primary purpose of an independent audit of financial statement is to

a. Provide users with an unbiased opinion about the fairness of information presented
in  the financial statement. 
b. Provide a basis for assessing management’s performance. 
c. Comply with rules and regulations. 
d. Assure management that the financial statements are unbiased and free from
material  misstatements. 

28. The primary reason for a financial statement audit by an independent CPA is to
a. Guarantee that there are no misstatements in the financial statements and ensure
that  any fraud will be discovered. 
b. Provide increased assurance to users as to the fairness of the financial
statements.
c. Relieve management of responsibility for the financial statements. 
d. Satisfy government regulatory responsibility. 

29. The purpose of an audit of financial statements is to 

a. Assure the future viability of the entity by expressing an opinion on the entity’s
financial  statement. 
b. Enhance the degree of confidence of intended users in the financial
statements.
c. Obtain an absolute level of assurance that the financial statements as a
whole are free  from material misstatement. 
d. Relieve management or those charged with the governance of the
responsibility for the  preparation and presentation of the financial statements
in accordance with the  e. applicable financial reporting framework. 

30. Services provided by CPAs may be classified into those services which are covered by
PSAs.  Which covers the objective and general principles governing an audit of
financial statements? a. PSA 210. 
b. PSA 200. 
c. PSA 120. 
d. PSA 100. 
 31. The following statements pertain to the general principles governing an audit of
financial  statements. Which one is incorrect? 
a. The auditor would ordinarily expect to find evidence to support
management  representations and assume they are necessarily
correct. 
b. The auditor should plan and perform an audit with an attitude of
professional  skepticism recognizing that circumstances may exist that
the cause the financial  statements to be materially misstated. 
c. The auditor should conduct an audit in accordance with PSAs. 
d. The auditor should comply with the “Code of Ethics for Professional Ethics for
Certified  Public Accountants” promulgated by the Philippine Professional
Regulation Commission.

32. Because an external auditor is paid a fee by a client company, he or she 

a. Must receive approval of the Securities and Exchange Commission before
conducting an  audit. 
b. May be sufficiently independent to conduct an audit. 
c. Is never considered to be independent. 
d. Is absolutely independent and may conduct an audit. 

33. Because an examination in accordance with Philippine Standard on Auditing is

influenced by the  possibility of material errors, the auditor should conduct the
examination with an attitude of a. Professional skepticism. 
b. Professional responsiveness. 
c. Objective judgement. 
d. Consecutive advocacy. 

34. Professional skepticism dictates that when the management makes a statement to the
auditors,  the auditors should 
a. Require that the statement be put in writing. 
b. Disregard the statement because it ranks low of the evidence quality scale.
c. Corroborate the evidence with other supporting documentation whenever
possible.
d. Believe the statement in order to maintain the professional client-auditor
relationship. 

35. Which of the following criteria is unique to the independent auditor’s attest
function?
a. Independence. 
b. General competence. 
c. Familiarity with the particular industry of each client. 
d. Due professional care. 
 36. In order to conduct an audit in accordance with PSAs, the auditor considers which
procedures  must be performed in order to achieve the objective an audit. Which of the
following terms  refers to “the audit procedures deemed necessary in the circumstances
to achieve the objective  of the audit”? 
a. Audit program. 
b. Reasonable assurance. 
c. Scope of audit. 
d. Sufficiency of procedures. 

37. Which of the following are sources of procedures to be considered by the auditor to
conduct an  audit in accordance with PSAs? 
a b c d 
Legislation and regulation No No Yes Yes
Philippine Standard on Auditing Yes No No Yes
Terms of audit engagement (as agreed with the client No Yes Yes Yes
Type of opinion No Yes No NO

38. Which of the following matters would an auditor most likely consider when
establishing the  scope of the audit? 
a. Audit areas where there is a higher risk of material misstatement. 
b. The discussion with the entity’s management concerning the expected
communications  on the status of audit work throughout the engagement and
the expected deliverables  resulting from the audit procedures. 
c. The entities time table for reporting, such as interim and final stages. 
d. The expected audit coverage, including the number and locations of the
entity’s  components to be included. 

39. The assumption underlying an audit of financial statements is the key will be
used by a. Different groups for different purposes. 
b. The board of directors as basis of declaring cash dividends. 
c. The general public in making investment decisions. 
d. The regulatory agencies to verify information that is relevant to their
supervisory  functions. 

40. An independent audit is important to readers of financial

statement because it
a. Measures and communicates the financial statements. 
b. Objectively examines and reports on management’s financial
statements.
c. Provides a measure of management’s stewardship function. 
d. Reports on the accuracy of information in the financial statements. 
41. Why does a company choose to have an independent auditor report on its financial
statements? a. An independent audit is designed to search for deficiencies in the
company’s internal  controls. 
b. Independent auditors guarantee the accuracy of the financial
statements. c. Independent auditor will always detect
management fraud. 
d. The company’s management preparing the statements may have a vested
interest in  reporting certain results. 

42. Users of financial statements demand independent audit because 

a. Management may not be objective in reporting. 
b. Management relies on the auditor to improve internal control. 
c. Users demand assurance that fraud does not exist. 
d. Users expect auditors to correct management errors. 

43. Which of the following best describes why an independent auditor reports on
financial  statements? 
a. Competing interests may exist between management and the users of the
statement.
b. Independent auditors are likely to detect fraud. 
c. Ineffective internal controls may exist. 
d. Misstated account balances are generally corrected by an
independent audit.

44. Which of the following is a cause of information risk?

a. Biases and motives of the provider of information. 
b. Each of these is a cause of information risk. 
c. Remoteness of the provider of the information. 
d. Voluminous data. 

45. The main way(s) to reduce information risk is to have 

a. Audited financial statements provided. 
b. The users share the information risk with management. 
c. The users verify the information. 
d. All of the above. 

46. Financial statement audit 

a. Asses management’s efficiency. 
b. Overlook information risk. 
c. Reduce cost of capital. 
d. Report on compliance with laws and regulations. 
47. Which of the following is responsible for an entity’s financial
statements? a. The entity’s audit committee. 
b. The entity’s board of directors. 
c. The entity’s internal auditors 
d. The entity’s management. 

48. The best statement of the responsibility of the auditor with respect to audited
financial  statement is: 
a. The audit of the financial statements relieves management of its
responsibilities. b. The auditor is responsible only to his unqualified opinion
but not for any other type of  opinion. 
c. The auditor’s responsibility is confined to his expression of opinion about the
audited  financial statements. 
d. The responsibility over the financial statements rests with the management
and the  auditor assumes responsibility with respect to the notes of the
financial statements. 

49. In determining the primary responsibility of the external auditor for an audit of a
company’s  financial statements, the auditor owes primary allegiance to: 
a. Stockholders, creditors, and the investing public. 
b. The audit committee of the audit client because that committee is
responsible for  coordinating and reviewing all audit activities within the
company. 
c. The auditing and Assurance Standard Council, because it determines auditing
standards  and auditor’s responsibility. 
d. The management of the audit client because the auditor is hired and
paid by  management. 

50. When to compared to an audit performed prior to 1900, an audit today

a. Has bank loan officers as the primary financial statement user group. 
b. Includes a more detailed examination of all individual transactions. 
c. Is less likely to include consideration of the effectiveness of
internal control.
d. Is more likely to include tests of compliance with laws and
regulations. 

51. The expertise that distinguishes the auditors from accountants is in the 
a. Requirement to possess education beyond the Bachelor’s degree. 
b. Accumulation and interpretation of evidence. 
c. Ability to interpret generally accepted accounting principles. 
d. Ability to interpret AASC Statements. 

52. Because an external auditor is paid a fee by a client company, he or she 

a. Is absolutely independent and may conduct an audit. 
b. Is never considered to independent. 
 c. May be sufficiently independent to conduct an audit. 
d. Must receive approval of the Securities and Exchange Commission before
conducting an  audit. 

53. The word auditing comes from the Latin audire, which means: 
a. To see b. To believe c. To hear d. To test 

54. Independent auditing can be best describe as a 

a. Regulatory function that prevents the issuance of improper financial
information.
b. Professional activity that measures and communicates financial and
business data.
c. Discipline that attest to the results of accounting and other operations
and data.
d. Branch of accounting. 

55. A financial statement audit 

a. Assures that fraud had been detected. 
b. Confirms that financial statement assertions are accurate. 
c. Guarantees that financial statements are presented fairly. 
d. Lends credibility to the financial statements. 

56. In “auditing” accounting data, the concern is with 

a. Analyzing the financial information to be sure that it complies with
government  requirements. 
b. Determine if fraud has occurred. 
c. Determine if taxable income has been calculated correctly. 
d. Determining whether recorded information properly reflects the economic
events that  occurred during the accounting period.

57. Certain fundamental beliefs called “postulates” underlie auditing theory. Which of the
following  is not a postulate of auditing? 
a. An audit has a benefit only to the owners. 
b. Economic assertions can be verified. 
c. No long-term conflict exists between the auditor and the management of the
enterprise  under audit. 
d. The auditor acts exclusively as an auditor. 

58. Which of the following is correct statement relating to the theoretical framework of
auditing? a. An audit has a benefit only to the owners. 
b. Auditors do not necessarily need independence. 
c. Short-term conflicts do not exist between managers who prepare data and
auditors who  examine data. 
d. The financial data to be audited can be verified. 
 59. Internal auditors cannot be independent 
a. As long as an employer-employee relationship exists. 
b. Because they don’t audit financial statements. 
c. Since they do not possess the CPA license. 
d. Unless their immediate supervisor is a CPA. 

60. In comparison to the independent auditor, an internal auditor is more likely to be

concerned  with 
a. Operational auditing. 
b. Legal and regulatory compliance. 
c. Internal control. 
d. Cost accounting procedures. 

61. A government auditor evaluates a disbursement to determine if it is necessary, excessive

or  extravagant and if it is in accordance with existing rules and regulations. What kind of
audit is he  conducting? 
a b c d 
Economy audit No Yes Yes No 
Economy audit Yes Yes No No 

62. Which of the following types of audit is performed to determine whether an entity’s
financial  statements are fairly stated in conformity with the Philippine Financial
Reporting Standards? a. Performance audit. 
b. Operational audit. 
c. Financial statement audit. 
d. Compliance audit.

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Classification: Public 
Auditing. Quiz No.2 

63. Which of the following types of auditing is performed most commonly by CPA’s on a
contractual  basis? 
a. Internal auditing. 
b. Government auditing. 
c. External auditing. 
d. BSP bank auditing. 
64. The underlying conditions that create a demand by users for reliable information
include the  following except: 
a. Decisions are not time sensitive. 
b. Financial decisions that are important to investors and users. 
c. Transactions that are numerous and complex. 
d. Users separated from the providers of the information by distance and time. 

65. Which of the following types of audits is performed most frequently by CPAs on a fee
basis and  for more than one client? 
a. Government audits. 
b. Internal audits. 
c. Financial statement audits. 
d. Compliance audits. 

66. Which of the following statements does not describe a condition that creates a
demand for  auditing? 
a. Users can directly asses the quality of information. 
b. Information can have substantial economic consequences for a decision
maker.
c. Expertise is often required for information preparation and verification.
d. Conflict between an information provider and a user can result in biased
information. 

67. Which of the following problems would not represent one of the primary problems
that would  lead to the demand for independent audits of a company’s financial
statements? a. Management bias in preparing financial statements. 
b. The complexity of transactions affecting financial statements. 
c. The downsizing of business and financial markets. 
d. The remoteness of the user from the organization and thus the inability of the
user to  directly obtain financial information from the company. 

68. An audit can have a significant effect on 

a. Business risk. 
b. Information risk. 
c. The risk-free interest rate. 
d. All of these.

69. Information risk refers to the risk that 

a. Errors and frauds would not be detected by the auditor’s procedures.
b. The auditor may express an unqualified opinion on financial
statements that area  materially misstated. 
c. The client entity may not be able to remain in business. 
d. The client’s financial statements may be materially false and misleading. 
 70. Which of the following is not an element of an assurance
engagement? a. Appropriate professional fees. 
b. Sufficient appropriate evidence. 
c. A written assurance report. 
d. A subject matter.

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Classification: Public