University of Perpetual Help System Laguna – Isabela Campus

Minante 1, Cauayan City, Isabela

College of Business and Accountancy

Auditing and Assurance: Concepts and Applications

I. True or False. Write “True” if the statement is correct. Otherwise, write “False”. 2
points each.
1. Fraud can be difficult to detect because it often involves concealment through
falsification of documents or collusion.
2. To express an opinion on financial statements, the auditor obtains reasonable
assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error.
3. Limited assurance engagement aims at reducing risks to a level that is acceptable in
the circumstances but the risk is less than for a reasonable assurance engagement, as
the basis for a negative conclusion.
4. Test of Controls and Substantive test are both required for reasonable and limited
assurance engagements.
5. Appropriateness is the measure of the quantity of evidence.
6. The PSRS are to be applied to non-assurance services such as compilation, audit and
management advisory services.
7. In an assertion-based engagement, the management is responsible for the subject
matter information (the assertion), and may be responsible for the subject matter.
8. Reliable criteria allow reasonably consistent evaluation or measurement of the subject
matter including, where relevant, presentation and disclosure, when used in similar
circumstances by similarly qualified practitioners.
9. Auditor’s Expert is a person who masters accounting and auditing.
10. Compilation engagement is an example of an assurance service.

II. Multiple Choice Questions. Select the letter of the answer being asked each
question. 2 points each.

1. Which of the following is generally not true when evaluating the persuasiveness of
evidence?
A. Verified by internally maintained documents rather than by written inquiry of
third party.
B. Obtained under conditions of strong controls rather than weak controls.
C. . Known by an auditor’s personal knowledge rather than from a third-party
confirmation.
D. Obtained from an external source rather than from an internal source.

2. An internal auditor takes a photograph of the auditee’s workplace. The photograph is a

form of what kind of evidence?
 University of Perpetual Help System Laguna – Isabela Campus
Minante 1, Cauayan City, Isabela
College of Business and Accountancy
A. Physical
B. Testimonial
C. Documentary
D. Analytical

3. All of the following are examples of assurance services except:

A. Financial engagement
B. Compliance engagement
C. Due diligence engagement.
D. Training engagement.

4. All of the following are examples of consulting services except:

A. Legal counsel engagement.
B. System security engagement.
C. Advice engagement.
D. Facilitation engagement.

5. Ensuring internal audit teams have the right competencies with right level of work
experience and designing effective internal audit procedures can reduce the risk of which
of the following?
A. Business risk
B. Audit failures
C. Audit false assurance
D. Audit reputation risk

6. Which of the following actions would be a violation of auditor independence?

A. Continuing on an audit assignment at a division for which the auditor will soon be
responsible as the result of a promotion.
B. Reducing the scope of an audit due to budget restrictions.
C. Participating on a task force which recommends standards for control of a new
distribution system.
D. Reviewing a purchasing agent’s contract drafts prior to their execution.

7. An auditor, nearly finished with an audit, discovers that the director of marketing has a
gambling habit. The gambling issue is not directly related to the existing audit, and there
is pressure to complete the current audit. The auditor notes the problem and passes the
information on to the chief audit executive but does no further follow-up. The auditor’s
actions would:
A. Be in violation of the IIA Code of Ethics for withholding meaningful information.
 University of Perpetual Help System Laguna – Isabela Campus
Minante 1, Cauayan City, Isabela
College of Business and Accountancy
B. Be in violation of the Standards because the auditor did not properly follow-up on
a red flag that might indicate the existence of fraud.
C. Not be in violation of either the IIA Code of Ethics or the Standards.
D. Both a and b

Which of the following is

not
a type of auditors' opinion? 

A.Adverse.
B.Ordinary.
C.Qualified.
D.Unmodified.
8. Which of the following is not a type of auditors' opinion?
A. Adverse
B. Ordinary
C. Qualified
D. Unmodified

9. An attitude that includes a questioning mind, being alert to conditions that may indicate
possible misstatements, and a critical assessment of audit evidence is referred to as:
A. Reasonable assurance
B. Professional Skepticism
C. Audit neutralism
D. Auditing mindset

10. An audit should be designed to obtain reasonable assurance of detecting material

misstatements due to:
A. fraud
B. error
C. fraud, error and non-compliance with regulatory requirements
D. fraud and error

11. When the auditors express an opinion on financial statements, their responsibilities
extend to:
A. The underlying wisdom of their client's management decisions
B. Whether the results of their client's operating decisions are fairly presented in the
financial statements.
C. Active participation in the implementation of the advice given to their client.
D. An ongoing responsibility for their client's solvency
 University of Perpetual Help System Laguna – Isabela Campus
Minante 1, Cauayan City, Isabela
College of Business and Accountancy
12. Which of the following best describes what is meant by generally accepted auditing
standards?
A. Acts to be performed by the auditors
B. Measures of the quality of the auditors' performance
C. Procedures to be used to gather evidence to support financial statements
D. Audit objectives generally determined on audit engagements

13. The primary responsibility for the adequacy of disclosure in the financial statements of a
publicly held company restss with the:
A. Partner assigned to the audit engagement.
B. Management of the company.
C. Auditor in charge of the fieldwork.
D. Securities and Exchange Commission

14. Within the context of quality control, the primary purpose of continuing professional
education and training activities is to enable a CPA firm to provide personnel within the
firm with:
A. Technical training that assures proficiency as an auditor.
B. Professional education that is required in order to perform with due professional care.
C. Knowledge required to fulfill assigned responsibilities and to progress within the
firm.
D. Knowledge required in order to perform a peer review

15. When the auditor is an employee of the organization being audited (auditee), the audit is
classified as a/an _________ quality audit.
A. internal
B. external
C. compliance
D. Both A & B

16. Each of the three parties involved in an audit _________,________ and ________plays a
role that contributes to its success.
A. the client, the auditor, and the auditee
B. the client, the auditor, and the auditee
C. the client, the moderator, and the auditee
D. the client, the auditor, and the auditee

17. Professional skepticism requires that the auditor assume that management is
A. reasonably honest
B. neither honest nor dishonest
 University of Perpetual Help System Laguna – Isabela Campus
Minante 1, Cauayan City, Isabela
College of Business and Accountancy
C. not necessarily honest
D. dishonest unless proved otherwise

18. An auditor obtains knowledge about a new client’s business and its industry to
A. Make constructive suggestions concerning improvements to the client’s internal
control system
B. Evaluate the appropriateness of audit evidence obtained
C. Understand the events and transactions that may have an effect on client’s financial
statements.
D. All of the above

19. An auditor who accepts an audit but does not possess the industry expertise of the
business entity should
A. engage experts
B. obtain knowledge of matters that relate to the nature of entity’s business
C. inform management about it
D. take help of other auditors

20. The audit engagement letter, general y, should include a reference to each of the
following except
A. Limitations of auditing
B. Responsibilities of management with respect to audit work
C. Expectation of receiving a written management representation letter.
D. A description of the auditor’s method of sample selection.

21. The risk that the auditor will not detect a material misstatement is
A. control risk
B. inherent risk
C. expected misstatement
D. audit risk

22. The concept of _________ recognizes that the cost of an entity's internal control system
should not exceed the benefits that are expected to be derived
A. materiality
B. substantive testing
C. reasonable assurance
D. cost-benefit relationship

23. Which of the following is not a kind of audit?

A. Statutory and private audit.
 University of Perpetual Help System Laguna – Isabela Campus
Minante 1, Cauayan City, Isabela
College of Business and Accountancy
B. Government and continuous audit.
C. Continuous, final, Interim, Cash, Cost and Management audit.
D. None of these.

24. For which of the following, Audit is optional?

A. Trusts
B. Joint stock companies.
C. Proprietorship concern.
D. None of the above

25. Audit means ___________.

A. Recording business transactions.
B. Preparing the final accounts.
C. Examination of books, accounts, vouchers etc.
D. Preparing final accounts.

26. Auditor shall report on the accounts examined by him __________.

A. To the shareholders.
B. To the court.
C. To the bank.
D. To the general public.

27. The auditor of a government company shall be appointed by ________.

A. The government company itself.
B. The central government.
C. The shareholders.
D. The debenture holders.

28. The _____ certify or guarantee that the financial statements are correct.
A. management
B. board of governors
C. auditor
D. auditor does not

29. When the auditor decides to select less than 100 percent of the population for testing, the
auditor is said to be using
A. Audit sampling.
B. Representative sampling.
C. Poor judgment.
D. None of the above.
 University of Perpetual Help System Laguna – Isabela Campus
Minante 1, Cauayan City, Isabela
College of Business and Accountancy

30. The auditor is likely to accumulate more evidence when the audit is for a company
A. Whose stock is publicly held.
B. Which has extensive indebtedness.
C. Which is to be sold in the near future.
D. All three of the above.

31. Broadly defined, the subject matter of any audit consist of:
A. Financial statements
B. Economic data
C. Assertions
D. Operating data

32. The auditor communicates the results of his or her work through the medium of the
A. Engagement letter
B. Audit report
C. Management letter
D. Financial statement

33. Which of the following types of auditing is performed most commonly by CPAs?
A. Internal auditing
B. Income tax auditing
C. Government auditing
D. External auditing

34. Independent auditing can best be describe as

A. Professional activity that measures and communicates financial
accounting data
B. Subset accounting
C. Professional activity that attest to the fair presentation of financial
statement
D. Regulatory activity that presents the issuance of improper financial
information

35. What standard governs non-assurance services?

A. Philippine Standard on Related Services
B. Philippine Standards on Auditing
C. Philippine Framework for Assurance Engagements
D. International Auditing Standards Board
 University of Perpetual Help System Laguna – Isabela Campus
Minante 1, Cauayan City, Isabela
College of Business and Accountancy
III. Enumeration. Enumerate the items being asked. 5 points each.

 What are the 5 contents of an Audit Report?

 Enumerate and explain the elements of an assurance engagement.