Professional Documents
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Mod
Mod
AUDITING CONCEPTS
C. Assure management that the financial statements are unbiased and free from
material misstatements.
A. Disregard the statement because it ranks low of the evidence quality scale.
A. Internal control.
A. Absolute assurance.
B. High assurance.
C. Negative assurance.
D. Reasonable assurance.
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6. An audit involves ascertaining the degree of correspondence between assertions and
established criteria. In the case of financial statement audit, which of the following is
not a valid criterion?
7. Which of the following statements is (are) true regarding the provision of assurance
services?
I. The third party who receives the assurance generally pays for the assurance
received.
II. Assurance services always involve a report by one person to a third party on
which an independent organization provides assurance.
A. I and II.
B. I and III.
C. III only.
9. The broad range of assurance engagements includes all, but which of the following?
A. 2, 4, 5
B. 2, 4, 6
C. 2, 5, 6
D. 4, 6
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10. Which statement does not accurately describe an assurance engagement?
A. A subject matter.
B. Suitable criteria.
C. A conclusion.
D. A two-party relationship.
A. Majority
B. Ten
C. Eight
D. Twelve
13. Theoretically, it is possible to provide an infinite range of assurance form a very low
level of assurance to an absolute level of assurance. In practice, the professional
accountants cannot provide absolute assurance because of the following, except:
A. The intended user is the person or class of persons for whom the professional
accountant prepares the report for a specific use or purpose.
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15. Which of the following is least likely a subject matter of an assurance engagement?
A. Data.
16. The practitioner’s report on an assurance engagement should always include the
following except:
I. Criteria to be used.
B. I, II, III, V.
D. I, III, V, VI.
18. How many members of AASC are needed to approve the exposed draft as Philippine
Standards on Auditing?
B. At least eight.
C. At least ten.
D. At least twelve.
19. Which of the following is required if the professional accountant uses experts who are
not professional accountants?
C. The professional accountant must take steps to see that such experts are
aware of the ethical requirements of the profession.
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D. Experts who are not professional accountants need not be informed of the
ethical requirements because they are not members of the Accountancy
profession.
B. AASC should normally expose its opinion on specific queries form a practicing
CPA.
21. Which one of the following is not a key attribute that is essential to perform an
assurance service?
B. Independence
D. Accounting skills
23. The suitability of the criteria to which the professional accountant will base his
evaluation of the subject matter partly depends on:
A B C D
Relevance YES YES YES NO
Reliability YES YES YES YES
Understandability YES NO YES NO
Neutrality NO NO YES YES
24. How did the framework of Philippine Standards on Auditing conceptually describe an
assurance?
25. It provides a threshold or cutoff point rather that being a primary qualitative
characteristic which information must have if it is to be useful.
A. Materiality
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B. Reliability
C. Relevance
D. Misstatement
QUIZZERS
1. The difference between what the public expects to get from the audited financial
statements and what the public is actually getting is known as:
A. Credibility gap
B. Audit gap
C. Expectation gap
2. Which of the following statements does not properly describe an element of the
theoretical framework of auditing?
B. Short-term conflicts may exist between the managers who prepare the data
and the auditors who examine them.
4. Which of the following statements does not describe a condition that creates a
demand for auditing?
5. Why does a company choose to have an independent auditor report on its financial
statements?
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6. Which of the following criteria is unique to the independent auditor’s attest function?
A. General competence.
D. Independence.
7. Which of the following best describes the main reason why the independent auditors
report on an entity’s financial statements?
B. The management that prepares the statements and the persons who use the
statements may have conflicting interests.
D. The management that prepares the statements may have overlooked a poorly
designed system of internal control.
A. Determine whether the financial statements fairly present the client entity’s
operations.
11. Which of the following types of audit is performed in order to determine whether an
entity’s financial statements are fairly stated, in all material respects, in conformity
with the generally accepted accounting principles?
A. Operational audit
C. Compliance audit
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D. Performance audit
13. Which of the following types of audit uses laws and regulations as its criteria?
A. Operational audit
C. Compliance audit
D. Financial audit
14. Which of the following types of auditing is performed most commonly by CPAs on a
contractual basis?
A. Internal auditing
B. Government auditing
D. External auditing
15. The primary goal of the CPA in performing the attest function is to
A. Detect fraud.
16. An independent audit aids in the communication of economic date because the audit
D. Assures the readers of financial statements that any fraudulent activity has
been detected and its effect has been corrected.
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18. The assumption underlying an audit of financial statements is that they will be used
by
B. The reported inventory balances reflect all related transactions for the period.
A. Recognition of independence.
A. Information risk.
B. Business risk.
D. All of these.
A. Voluminous data.
D. All of these.
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A. Audit.
B. Review.
C. Compilation.
D. Management consulting.
A. Total assurance that all material errors and irregularities have been found.
B. High level of assurance that all material errors and irregularities have been
found.
C. A low level of assurance that all material errors and irregularities have been
found.
D. No assurance that all material errors and irregularities have been found.
26. The single feature that most clearly distinguishes auditing, attestation, and
assurance is the
C. Scope of services.
27. Which of the following attributes is more closely associated with assurance services
performed by a CPA firms than with other lines of professional work?
A. Integrity
B. Competence
C. Independence
28. An investor, while reading the financial statements of Silver Corporation, learned that
the statements are accompanied by an unqualified auditor’s report. From this the
investor may conclude that:
A. Any disputed over significant accounting issued have been settled to the
auditor’s satisfaction.
D. The auditor has ascertained that Silver’s financial statements have been
prepared accurately.
29. A CPA should maintain objectivity and be free of conflicts of interest when
performing:
C. All attestation and tax services, but not other professional services
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30. A summary of findings rather than assurance is most likely to be issued on which
engagement?
A. Agreed-upon procedures
B. Compilation
C. Examination
D. Review
31. Which of the following professional has primary responsibility for the performance of
an audit?
32. Which of the following services provides the highest level of assurance to third
parties about a company’s financial statements?
A. Audit.
B. Review.
C. Compilation.
A. Adverse opinion.
B. Disclaimer of opinion.
C. Qualified opinion.
D. Unqualified opinion.
34. 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
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D. Analyzing the financial information to be sure that it complied with
government requirement.
37. Which one of the following is an example of management expectations from the
independent auditors?
38. When providing consulting services, the CPA acts primarily as a(n):
A. Independent accountant.
C. Technology specialist
A. Improve the quality of information, or its context, for better use of the decision
makers.
41. 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
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A. Oral representation (testimony) from the client management.
D. All of these.
42. Because the client company pays the external auditor a professional fee, he
45. 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)
B. Compliance audit.
C. Operational audit.
D. Production audit.
D. All of these.
47. Which of the following is a difference between attestation and auditing standards?
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B. Attestation standards do not require independence in metal attitude.
C. Auditing standards apply only to CPAs while attestation standards apply to all
accountants.
49. The audit committee of the board of directors of accompany is responsible for
B. Risks such as inherent risk, control risk, and detection risk are not appropriate
in the planning and performance of a compliance audit.
A. Governance.
B. Reliability.
C. Relevance.
D. Timeliness.
C. Concludes with the issuance of a report expressing the CPA’s opinion as to the
fairness of the statements.
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B. Requires a complete review of all transactions during the period under
examination.
A. Assertions.
B. Operating data.
C. Financial statements.
D. Economic data.
55. The expertise that distinguishes auditors from accountants is in terms of the
57. Attestation risk is limited to a low level in which of the following engagement(s)?
58. An engagement in which a CPA firm arranges for a critical review of its practices by
another CPA firm is referred to as a(n):
D. Attestation engagement
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C. Has similar cope as an audit and adds similar credibility to the statements
60. The risk associated with a company’s survival and profitability is referred to as:
A. Business risk
B. Information risk
C. Detection risk
D. Control risk
61. An operational audit differs in many ways from an audit of financial statements.
Which of the following is the best example of these differences?
A. The usual audit of financial statement covers the four basic financial
statements whereas the operational audit is usually limited either the balance
sheet or the income statement.
D. The operational audit deals with operating profit while financial audit
considers both the operating and net profits.
62. The audit of historical financial statements should be conducted by the CPA
professionals in accordance with
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65. 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. The management of the audit client because the auditor is hired and paid by
management.
B. The audit committee of the audit client because that committee is responsible
for coordinating and reviewing all audit activities within the company.
66. Which of the following would not represent one of the primary problems that would
lead the users to demand for independent audits of a company’s financial
statements?
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. Which of the following is the broadest and most inclusive concept?
C. Assurance services.
D. Compilation services.
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D. Are two-party contracts.
72. A summary of findings rather than assurance is most likely to be included in a(n):
B. Compilation report
C. Examination report
D. Review report
73. The risk associated with a company’s survival and profitability is referred to as:
A. Business risk
B. Information risk
C. Detection risk
D. Control risk
74. An engagement in which a CPA firm arranges for a critical review of its practices by
another CPA firm is referred to as a(n):
D. Attestation Engagement
75. Attestation risk is limited to a low level in which of the following engagement(s)?
76. An operational audit differs in many ways from an audit of financial statements.
Which of the following is the best example of one these differences?
A. The usual audit of financial statements covers the four basic statements,
whereas the operational audit is usually limited to either the balance sheet or
the income statement
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77. The review of a company’s financial statements by a CPA firm:
79. Which of the following professionals has primary responsibility for the performance of
an audit?
81. The auditor of financial statements must make very difficult interpretations regarding
authoritative literature. Additionally, the auditor must
A. Proceed beyond PFRS to assess how the economic activity is portrayed in the
financial statements.
82. Which one of the following is not a part of the attest process?
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83. Which one of the following in not a reason why the users of financial statements
desire for an independent assessment of the financial statement presentation?
84. Independent professional services that are provided on financial or other information
that improve the quality of decision making are known as
A. Internal auditing.
B. Financial auditing.
C. Assurance auditing.
D. Attestation auditing.
85. An audit which determines whether organizational policies are being followed and
whether external mandates are being met is known as
A. A financial audit.
B. A compliance audit.
C. An operational audit.
87. May a CPA hire for the CPA’s public accounting firm a non-CPA systems analyst who
specializes in developing computer systems?
A. Yes, provided the CPA is qualified to perform each of the specialist’s tasks.
B. Yes, provided the CPA is able to supervise the specialist and evaluate the
specialist’s end product.
88. Which of the following services may a CPA perform in carrying out a consulting
service for a client?
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I. Analysis of the client’s accounting system
A. I and II only
89. Which of the following describes how the objective of a review of financial statements
differs from the objective of a compilation engagement?
90. Which of the following factors most likely would cause a CPA to decline a new audit
engagement?
A. The CPA does not understand the entity’s operations and industry.
B. Management acknowledges that the entity has had recurring operating losses.
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