ReSA ‘Sampaioc, Manila ; 2c ; y 3969 / (0910) 439-1320, ‘The Review School of Accountancy #8735 580774268800) 430-1320 AUDITING THEORY Jose M.Ireneo-Fermin D. Yabut AT-02: INTRODUCTION TO AUDITING REQUIRED READINGS situa + Chapter 2, Auating and Assurance Principles, 12° Ea . enon (Revised and Redrafted) — Overall Objectives of the Independent Auditor and the Conduct of an Aud n Accordance with Philppine Standards on Auiting Which of the following is acorrect phrase regarding audit? A. Auditing is a systematic process. B. Auditing objectively obtains and evaluates evidence, Aaerin® ascertains the degree of correspondence between assertions and established © Ait the phrases above are correct, }« Representations by management, explicit or otherwise, that are embodied in the financial statements, as used by the auditor to consider the different types of potential misstatements 4 nis type of audit is performed to determine whether an entity’s financial statements are (arly presented in accordance with an identified finanaa) reporting framework Financial statement audit C. “Compliance audit Operational audit D. Internal audit Pr The auditor communicates the results of his or her work through the medium of the: A. Audit engagement letter. C. Management letter, Audit report, ©. Notes to the financial statements. §< The purpose of an audit of financial statements is to: 2: Enhance understanding of the stakeholders of the company G3, Provide government agencies, such as BIR with, basis for assessments 9 Ennance the degree of confidence of intended users of the financial statements Enhance the knowledge and skills of externet auditors nancial misstatements, due to fraud and error Stetements are free trom materia ments and communicate as required by Pas improvement, and making recor Operational audit a ranerlance auaie ternal audit ReSA ~ The Review School of Accountancy Page 1 of 2bs 7 entity: AT-02 x's procedures to determine whether Westor regulations set down by some ash: The Review Schoo! of Acoourieny Resting Theory: Introduction to AUSENS a audit involves @ review of an organization 10. Thi of RE ‘ea to specific procedures, Tul The organization has edhers baits Compliance audit MN Financial statement audit @ comelnce B. Operational audit sanished GIR) an entity as 2 service to the c. Government auditing. 1D. Compliance auditing. 41.7his ts an independent appraisal activity © ternal or independent auditing > internal auatt function. : ne usuat financial statement audit, to Include audits of “ris type of audit goes beyond the usual MNancet 1this type of aie and regulations, operations of government? erties, and the proper Gisbursement and management of public funds. External or independent auditing ©. Government auditing B. Internal audit function D. Compliance auditing 413.1n government auditing, the three elements of ‘expanded scope auditing are: seer analysts, audit of operations, audit of systems, Feet fal and’compliance, economy and efficiency, program results. C. Pre-audit, post-audit, internal audit. D._ National government audit, local government audit, corporation audit. Aa.an audit designed to determine the extent to which ths desired results of ar activity A ablished by the legislative or other authorizing body are being achieved. ‘A. Economy audit. Program results audit. B. Efficiency audit. D. Financial-related audit. 15. Which of the following types of audits are most similar? A, Operational audits and compliance audits. Independent financial statement audits and operational audits. ; Compllance audits and independent financial statement audits ~ 3 coomire, writer they D. internal audits and independent financiaf statement audits, CompLY gr wert {6.An intentional act by one or more individuals among management, tose chatged with Governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage. Non-compliance Cc. Misstatement Fraud D. Error 1/.A difference between the amount, classification, presentation, or disclosure of 4 reported fnoncial statement item and the amount, classification, presentation, or disclosure that Is required for the item to be in accordance with the Bs financial reporting framework. ). ‘A. Non-compliance Misstatement B. Fraud Error 18. An unintentional misstatement in financial st or disclosure ‘A... Non-compliance B. Fraud arements, including the omission of an amount Misstatement Error 12. The primary responsibilty forthe prevention end detection of fraud and error rests with ie external auditor, the company’s managenient, and those chart - nanagement, fed with c B, The company’s management ia bee ela Those charged with governance ‘The company’s management and those charged with governance 20. Which of the follwing best describes/ustates management aud? "an intentional act by one or more individuals involving the use of deception to obl eet aerate . ae Refers to fraud involving, the board of directors ~ pial fers to fraud involving only one emp! 7 je employee. 5. All of the above . nme* c -end of AT-02- ReSA8 735-9807 / 734-3989 / (0910) 439-320 Page 2 of 25° Floor CMFFI Building 813 Cor. R. Papa and S. Loyola Sis. cs Sampaioe, Mania i 7 anc) 15-9807 / 734-3989 / (0910) 439-132 The Review School of Accountancy s=7ss-sonr/ 724 $8 O010) 430-4320 AUDITING THEORY Jose M.Ireneo-Fermin D. Yabut TS AUDITS - OVERVIEW AT-03: FINANCIAL STATEME! REQUIRED READINGS Chapter 2, Auditing and Assurance Principles, 12" Edition PSA 200 (Revs an Redrafted) ~ Overall Objectives of the Independent Auditor and the Conduct of an Ault in Accordance with Philippine Standards on Auditing PSA Glossary of Terms ‘A structured representation of historical financial information, including related notes, intended to. communicate an entity's economic resources or obligations, at & pow in tere changes ‘herein for a period of time in accordance with a financial reporting fammevere A. Annual report C. Accounting records . B. Engagement documentation ©) Financial statements Sovcrection Of the entity and obligations related to the accountablity ote entity. Governance ©. Control environment Audit committee D. Management reapunstoiies or the ees, SOSEATY, Of terms, this eerm refers to persons with executive responsibilities for the conduct of entity’s operations. earl A. Top rank personnel ©. Board of directors Those charged with governance © Management repatting and disclosure A” Governance —~ ©. Control environment © Audit committee D. Management This term refers to the risk that a client’s financial Statements may be materially false and/or ‘misleading Ta ono Business risk ©. Client risk. x Information risk D. Risk assessment, Mach ar the following methods is most commonly used to A. Allow users to verify information © _ YESS share information risk with management Have the financial statements audited. D. Allow all users to prepare the statements, Feduce information risk? nancial iene conditions that create a demand from users for assurance financial information. eons A. Transactions that are numerous and complex, €_fraracrgParated from accounting records by distance and time Which of the following ie of 'Y dependent auditors report om financial n GHRnBUEreNE Froud may-exist and it Is more Uhkely €0 be detected by independent A meee denned itera ances may ere enetonce Sieepmrdee cre yore" Yen 70 eral areca a he reag or Berson ing a st Bebe te company preparing ie Statements and the audited financial ocegggte mataeat” % Po of ton tnenons mace vp to © fre medians sporty is canner veo Ee financial statements, Pression of opinion about the audited Page 1 of 2ReSA: The Review School of Recountney etiting Theory: Financial Statement Audi cle of Ethics for CP ‘A. Compliance with the Code of Sin A Comiance with Philippine Stenderee Oe AURIS cir 8. Complore performing the aust with Proves al (B_ Alor the cnoices appv 1. Pmlippine Standards on Austing (PSAS) sPOUE eS loaked upon Py aie teas to strive for, but which are Net aenievable, A Ideals to rerandards wien denote exception Maximum oy pe used on all ais, eviews, SP compttons, Benchmart sndards of performance wich must O° 2 42. The phrase used to express the auctor he phrasonee of material and pervasive (is weresent fairly, In alt material respects &) [preside reasonable, but not absolite 2s50rane : ane C7PreF tnese choices are acceptable phrases £0 expres the auditor's opinion practitioners as: each audit engagement (*) opinion is: Prestatements in the financial statements” 13: according to IAASB's Glossary of Terms, this refers to a high, but not, absolute evel of assurance gree as ye cre tatag atthude that includes 9 questioning ining, being SET to conditicns which may indicate Hossible misstatement due to error or fraud, and 2 ‘critical assessment of evidence. Sen a a eyative adVOCaCY Materiality D. Reasonable assurance Pe em nero ey eer aoe a ea eae ey are ero Ss or 1 F 46. Which of the following best describes aucitisk? which of the folewliny of an account balance or class of transactions & migstatement that could te material, individually or when aggregated with ‘misstatements in other balances of Classes, before consideration of any related controls. Be eS enat a misstatement that could occur in an account balance of class of transactions The Fisk tha ae material individually or in the aggregate, will net be prevented or and, thet Cot orrected on a timely basis by the company’s internal control, c. SRP Recmmrarr duator’s substantive procedures will noe Genecs © misstatement that exists Pepe ee cer belaieaet org lasekongcs secu ese oom oc ia individually or when aggregated with misstaternents in other balances oF la5ce Sea eat the auditor gives an ‘appropriate audit apinion when the financial statements are materially misstated. « af 18. Which of the following best describes detection risk? ‘nat tat an sudo’ sustontveprcotures i nak date» misstatement that exists Tae erent balance or clase of transactions that could be Material, individually or when aggregated with misstatemerits m other balances or classes. Bee eee eve ratsetatement that could occur in an account balance or class of transactions eee ie eae id be material individually or in the aggregate, will not be prevented or atrected and corrected on a timely basis by the company's'internal control. cc. Hetected ar ey of an account balance or class of transactions to misstatement that could ae eer individually or when aggregated with misstatements in other balances of classes, before consideration of any related controls. : D. The risk that the auditor gives an inappropriate audit are materially misstated pinion when the financial statements 19. This term refers to the application of relevant : cation of relevant taining, knowledge and experience, with Thi tr refers 6 the Sr oa a, Aareer an aking formed decisions ‘about the courses of action that f action that sumstances of the audit engagement he cc re appropriate in the cy Ag ccfessonaiann Professional judgment conservatism, Materiality 20. An audit has inherent li ns affect .as inherent limitations that affect the audizor’s ability to detect material misstatements. Which of the following is among the factors ti eee \g the factors that result to these inherent limitations? B. Inherent limitations of acco: Pn roe cen Evidence thats basen parasite thn cor Same Gat oocave eRe pa ee rare eae lehercie arrancones -end of AT-03- ReSAw735: 1807 / 734-3989 / (0910) 439-122 Page 2 of 2