BAUDPRIX: Auditing and Assurance Principles
QUIZ No. 1 – Midterm Period
1st Term SY 2020-2021
INSTRUCTIONS: Choice the letter of the correct answer and write it on the space provide at the left side of the
test paper. (Allotted Time: 90 minutes)
1. Which one of the following is not part of the attest
process?
a. Gathering evidence about assertions.
b. Proving the accuracy of the books and
records.
c. Evaluating evidence against objective criteria.
d. Communicating the conclusions reached.
2. Which of the following would best be described
as an assurance service?
a. Preparing a report representing a client’s
position during a BIR audit.
b. Working with a client to develop a more
efficient method of processing financial
transactions.
c. Offering an opinion concerning the accuracy
of statements made on a client’s web site
relating to the client’s online privacy policies.
d. Assisting a client in identifying potential
sources of capital for potential acquisitions.
3. Which of the following refers to direct reporting
type of assurance engagement?
a. The objective is a reduction in assurance
engagement risk to an acceptably low level as
the basis for positive form of expression of the
practitioner’s conclusion.
b. The objective is a reduction in assurance
engagement risk to a level that is acceptable in
the circumstances of the engagement, but
where that risk is greater than for a reasonable
assurance engagement, as the basis for a
negative form of expression of the
practitioner’s conclusion.
c. The evaluation or measurement of the subject
matter is performed by the responsible party,
and the subject matter information is in the
form of assertion by the responsible party that
is made available to the intended users.
d. The practitioner either directly performs the
evaluation or measurement of the subject
matter, or obtains a representation from the
responsible party that has performed the
evaluation or measurement that is not
available to the intended users. The subject
matter information is provided to the intended
users in the assurance report.
4. It is the risk that the practitioner expresses an
inappropriate conclusion when the subject matter
information is materially misstated.
a. Business risk
b. Assurance engagement risk
c. Detection risk
d. Audit risk
5. Statement I: The objectives of internal auditors are
considerably broader than the objectives of
external auditors.
Statement II: The demand for assurance
engagements arises because the interests of the
users of information may be different from that of
the interests of those responsible for providing
information.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Both statements are incorrect.
6. The single feature that most clearly distinguishes
auditing, assertion-based assurance, and assurance
is
a. Type of service
b. Training required to perform the service
c. Scope of services
d. CPA’s approach to the service
7. Which of the following statements is not true with
respect to assurance, assertion-based assurance
and audit services?
a. These services are applied only to financial
statements and financial statement accounts.
b. These services all involve obtaining and
evaluating evidence.
c. These services all involve determining the
correspondence of some information to set of
criteria.
d. These services all involve issuing a report.
8. An attestation engagement
a. Has as its primary source of standards the
assurance standards.
b. Includes a report on subject matter, or on an
assertion about subject matter.
c. Includes search and verification procedures
for all major accounts.
d. Is ordinarily an examination, review, or
compilation engagement.
9. Which of the following elements is most likely to
be a component of direct reporting assurance
engagement?
a. Low level of assurance
b. Absolute assurance
c. A written assertion
 d. Auditor independence
10. Which of the following refers to “evidence”
element of assurance engagement?
a. Benchmarks used to evaluate or measure the
subject matter.
b. Information obtained by the practitioner in
arriving at the conclusions on which the
opinion is based.
c. Contains a conclusion that conveys the
assurance obtained about the subject matter
information.
d. The subject matter, and the subject matter
information of an assurance engagement.
11. Which of the following is not a key attribute
needed to perform assurance?
a. Subject matter knowledge
b. Independence
c. Established criteria or standards
d. Accounting skills
12. An assurance engagement should exhibit the
following elements except
a. A three party relationship
b. A conclusion
c. Appropriate professional fee
d. A subject matter
13. The subject matter of an assurance engagement
may take many forms, including
a. Data
b. Systems and processes
c. Behavior
d. All of these
14. Unlike consulting services, assurance services
a. Make recommendations to management
b. Report on how to use information
c. Report on the quality of information
d. Are two-party contracts
15. Assurance services do not include which of the
following?
a. Attesting to financial statements.
b. Examination of the economy and efficiency of
governmental operations.
c. Evaluation of a division’s performance for
management.
d. Engagements that include professional
opinions not intended to be an assurance
report.
16. Statement I: The purpose of assurance
engagements is to improve the quantity of the
information provided.
Statement II: To help them remain independent of
the operations they audit, internal auditors should
report directly to the controller.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Both statements are incorrect.
17. Auditing is a systematic process that includes all
of the following except
a. Communicating results to users
b. Procuring and evaluating evidence
c. Providing important managerial decisions for
a client
d. Comparing evidence regarding assertions to
certain established criteria.
18. The definition of auditing includes both a(n)
a. Documentation process and an evaluation
process.
b. Evaluation process and a reporting process.
c. Investigative process and a reporting process.
d. Documentation process and a reporting
process.
19. Operational auditing is primarily oriented toward
a. Future improvements to accomplish the goals
of management.
b. The accuracy of data reflected in
management’s financial records.
c. The verification that a company’s financial
statements are fairly presented.
d. Past protection provided by existing internal
control.
20. An audit designed to determine the extent to
which the desired results of an activity established
by the legislative or other authorizing body are
being achieved.
a. Financial-related audit
b. Program results audit
c. Efficiency audit
d. Economy audit
21. An operational audit differs in many ways from an
audit of financial statements. Which of the
following is the best example of one of 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.
b. The boundaries of an operational audit are
often drawn from an organization chart and
are not limited to a single accounting period.
c. Operational audits do not ordinarily result in
the preparation of a report.
d. The operational audit deals with pre-tax
income.
22. The purpose of a compliance audit for a
governmental entity is to determine whether
a. Financial statements comply with GAAP and
whether the entity is operating efficiently.
b. Financial statements comply with GAAP and
the entity has complied with applicable laws
and regulations.
c. The entity has complied with applicable laws
and regulations.
d. Financial statements comply with GAAP.
23. Which type of auditor may perform a financial
statement audit?
a. External auditor
b. Internal auditor
c. Governmental auditor
d. Both a and c
24. Statement I: Financial statements audit reduces
information risk and cost of capital.
Statement II: A CPA automatically qualifies as an
assurance provider in all areas of business.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Both statements are incorrect.
25. Which of the following statements is not true
about internal auditing?
a. Internal auditing is an objective evaluation
function.
b. Internal auditing is established within an
organization.
c. Internal auditing’s purpose is to provide
assurance regarding the company’s
compliance with stated policies and
procedures.
d. Internal auditing is established as an
independent service to regulatory bodies and
creditors.
26. For an internal auditor to render impartial and
unbiased judgments, he or she must be
independent of the entity’s
a. Stockholders
b. The line functions of the organization.
c. Independent auditors.
d. Board of directors.
27. Which of the following statements relating to
internal and external audits is false?
a. The execution of solutions to issues brought
to light by internal auditors are the
responsibility of management of the
organization.
b. The objectives of internal auditors are
considerably broader than the objectives of
external auditors.
c. For financial auditing, the audit report
typically goes to many users of financial
statements, whereas operational audit reports
are intended primarily for management.
d. Independence is a fundamental ethical
principle for internal auditors.
28. Which of the following statements is not a
distinction between independent auditing and
internal auditing?
a. Independent auditors represent third party
users external to the auditee entity, whereas
internal auditors report directly to
management.
b. Although independent auditors strive for both
validity and relevance of evidence, internal
auditors are concerned almost exclusively
with validity.
c. Internal auditors are employees of the auditee,
whereas independent auditors are independent
contractors.
d. The internal auditor’s span of coverage goes
beyond financial auditing to encompass
operational and performance auditing.
29. Which of the following best describes the
fundamental, underlying reason why there is
demand for an independent auditor to report on
financial statements?
a. A management fraud may exist and it is more
likely to be detected by auditors if they are
independent.
b. Different interests may exist between the
company preparing the statements and the
parties using the statements.
c. A misstatement of account balances may exist
and it is the independent auditor’s
responsibility to ensure that financial
statements are not misstated.
d. A poorly designed internal control system
may be in place.
30. Audit can have significant effect on information
risk. Information risk refers to the risk of financial
information being unreliable. The main way(s) to
reduce information risk is to have
a. The user verify the information.
b. The user share the information risk with
management.
c. Audited financial statements provided.
d. All of the above
31. Financial statement users often receive unreliable
financial information from companies. Which of
the following is not a common reason for this
increased information risk?
a. Complex business transactions.
b. Large amounts of data.
 c. Lack of firsthand knowledge about the
business.
d. Each of these choices is a common reason for
unreliable financial information.
32. It refers to the audit procedures deemed necessary
in the circumstances to achieve the objective of
the audit.
a. Scope of the audit
b. Audit program
c. Objective of an audit
d. Reasonable assurance
33. Assertions are
a. Audited by the auditors.
b. Declarations made by management.
c. Declarations made by the auditor.
d. Both a and b
34. Which of the following are assertions about
classes of transactions and events in the financial
statements?
a. Occurrence, cut-off, classification,
completeness and accuracy.
b. Existence, rights and obligations,
completeness and valuation and allocation.
c. Occurrence and rights and obligations,
completeness, classification and
understandability and accuracy and valuation.
d. All of the above
35. Accuracy and valuation assertions about
presentation and disclosure means
a. Disclosed events, transactions, and other
matters have occurred and pertain to entity.
b. All disclosures that should have been included
in the financial statements have been
included.
c. Financial information is appropriately
presented and described, and disclosures are
clearly expressed.
d. Financial and other information are disclosed
fairly and at appropriate amounts.
36. Assertions are representations of management that
are embodied in financial statement component.
They can be either explicit or implicit. Which of
these assertions is not about valuation or
allocation?
a. Property is recorded at historical cost.
b. Trade accounts receivable in the balance sheet
are stated at net realizable value.
c. Notes payable in the balance sheet include all
such obligations of the entity.
d. Property cost is systematically allocated to
appropriate accounting period.
37. If the auditor were responsible for making certain
that all of management’s assertions in the
financial statements were absolutely correct
a. Bankruptcies could no longer occur.
b. Bankruptcies would be reduced to a very
small number.
c. Audits would be much easier to complete.
d. Audits would not be economically feasible.
38. Which of the following least likely limits the
auditors ability to detect material misstatement?
a. Most audit evidence is conclusive rather than
being persuasive.
b. The inherent limitations of any accounting
and internal control system.
c. Audit is based on testing.
d. Audit procedures that are effective in
detecting ordinarily misstatements are
ineffective in detecting intentional
misstatements.
39. Statement I: Agreed-upon and compilation
services are examples of non-assurance
engagements and known as related services.
Statement II: Assertions are relevant to the audit
process because they are the representations of
management embodied in the financial statements.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Both statements are incorrect.
40. The existence of the audit risk is recognized by
the statement in the auditor’s standard report that
the auditor
a. Obtains reasonable assurance about whether
the financial statements are free of material
misstatement.
b. Assesses the accounting principles used and
also evaluates the overall financial statement
presentation.
c. Realizes some matters, either individually or
in the aggregate, are important while other
matters are not important.
d. Is responsible for expressing an opinion on
the financial statements, which are the
responsibility of management.
41. Which of the following is not a distinguishing
feature of risk-based auditing?
a. Identifying areas posing the highest risk of
financial statement errors.
b. Analysis of internal control.
c. Collecting and evaluating evidence.
d. Concentrating audit resources in those areas
presenting the highest risk of financial
statement errors.
42. A “clean” audit report states that
a. There are no errors in the financial statements.
b. The internal control environment is operating
well.
c. The auditors evaluated evidence.
d. All of the above.
43. When an auditor issues a qualified opinion, the
implication is that the auditor
a. Does not know if the financial statements are
fairly presented.
b. Does not believe the financial statements are
fairly presented.
c. Is satisfied that the financial statements are
presented fairly except for a specific aspect of
them.
d. Is satisfied that the financial statements are
presented fairly.
44. An auditor would issue an adverse opinion if
a. The auditor encounters attitudes toward the
auditor on the part of client management.
b. A qualified opinion cannot be given because
the auditor is not qualified to do so.
c. An immaterial misstatement is present.
d. The statements taken as a whole do not fairly
present the financial condition and results of
operations of the company.
45. The auditor has no responsibility to plan and
perform audit to obtain reasonable assurance that
misstatements, whether caused by errors or fraud,
that are not __________ are detected.
a. Important to the financial statements
b. Statistically significant to the financial
statements
c. Material to the financial statements.
d. Identified by the client.
46. Which of the following attributes most clearly
differentiates a CPA who audits management’s
financial statements as contrasted to management?
a. Integrity
b. Competence
c. Independence
d. Keeping informed on current professional
developments
47. The “hallmark” of auditing is
a. Available audit technology
b. Generally accepted auditing standards
c. Professional judgment
d. Materiality and audit risk
48. In which of the following circumstances the
auditor’s professional judgment is unnecessary?
a. Determining materiality and audit risk level.
b. Nature, timing and extent of audit procedures,
and evaluating whether the sufficiency and
appropriateness of evidence obtained.
c. Evaluating management judgments in
applying the applicable GAAP.
d. Making accounting estimates for the financial
statements.
49. An auditor who is professionally skeptical will do
which of the following?
a. Critically question contradictory audit
evidence.
b. Carefully evaluate the reliability of audit
evidence, especially in situations in which
fraud risk is high.
c. Reasonably question the authenticity of
documentation.
d. All of the above.
50. Statement I: The CPA firm is engaged and paid by
the client, but the primary beneficiaries of the
audit are those who rely on the financial
statements.
Statement II: Th auditor would ordinarily expect
to find evidence to support management
representations and assume they are necessarily
correct.
a. Only statement I is correct.
b. Only statement II is correct.
c. Both statements are correct.
d. Both statements are incorrect.
 ****END****
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