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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 41 Ÿ May 2021 CPA Licensure Examination Ÿ Week No. 1

AUDITING (Auditing Theory) J. Ireneo Ÿ M. Ngina Ÿ F. Tugas Ÿ F. Yabut

AT-02: INTRODUCTION TO AUDITING


1. Which of the following statements refers to the definition of auditing?
a. A service activity which function is to provide quantitative information primarily financial in nature about
economic entities that is intended to be useful in making economic decisions.
b. The art of recording, classifying and summarizing in a significant manner and in terms of money,
transactions and events which are in part at least of a financial character and interpreting the results
thereof.
c. The process of identifying, measuring and communicating economic information to permit informed
judgment and decisions by users of the information.
d. A systematic process of objectively obtaining and evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of correspondence between these assertions and
established criteria and communicating the results thereof.
2. Which statement relates more to auditing than to accounting?
a. Recording of financial transactions
b. Preparation of financial information
c. Analysis of evidence supporting an assertion
d. All of the above relates more to auditing than accounting
3. Complete this statement:
In an organization, managers are considered _____, while shareholders and financial statements auditor
are considered _____ and _____, respectively.
a. Principal, Principal, Independent c. Agent, Principal, Independent
b. Agent, Principal, Independence d. Principal, Agent, Independent
4. This happens when managers generally have more information about the financial position and operations
of the entity compared to other stakeholders
a. Information asymmetry c. Agency problem
b. Stakeholder theory d. Value relevance theory
5. This type of audit involves a review of an organization’s procedures to determine whether the
organization has adhered to specific procedures, rules or regulations set down by some higher
authority.
a. Financial statement audit c. Compliance audit
b. Operational audit d. Internal audit
6. This type of audit goes beyond the usual financial statement audit, to include audits of compliance with
laws and regulations, operations of governmental entities, and the proper disbursement and
management of public funds.
a. External or independent auditing. c. Government auditing.
b. Internal audit function. d. Compliance auditing.
7. A governmental audit may extend beyond an examination leading to the expression of an opinion on the
fairness of financial presentation to include
Program results Compliance Economy and efficiency
a. Yes Yes No
b. Yes Yes Yes
c. No Yes Yes
d. No No Yes
8. 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 is a (an)
a. Economy audit c. Program results audit
b. Efficiency audit d. Financial related audit
9. A typical objective of an operational audit is to determine whether an entity's
a. Internal control structure is adequately operating as designed
b. Operational information is in accordance with generally accepted accounting principles.
c. Specific operating units are functioning efficiently and effectively.
d. Financial statements present fairly the results of operations
10. Which of the following is an independent appraisal activity established within an entity as a service to the
entity?
a. External auditing c. Financial auditing
b. Internal auditing d. Compliance auditing
11. To provide for the greatest degree of independence in performing internal auditing functions, an internal
auditor most likely should report to
a. Board of Directors. c. Corporate Controller.
b. Vice-President for Finance. d. Corporate Stockholders.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY AT-02
Week No. 1: INTRODUCTION TO AUDITING

12. Internal auditing is considered to be part of an organization's:


a. Accounting system. c. Control activities.
b. Monitoring. d. External controls.
13. A structured representation of historical financial information, including related notes, intended to
communicate an entity’s economic resources or obligations at a point in time or the changes therein
for a period of time in accordance with a financial reporting framework.
a. Annual report c. Accounting records
b. Engagement documentation d. Financial statements
14. Which of the following types of audits is performed to determine whether an entity's financial
statements are fairly stated in conformity with generally accepted accounting principles?
a. Operational audit c. Financial statement audit
b. Compliance audit d. Performance audit
15. 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 assurance as to the future viability of the entity whose financial statements are being
audited.
c. To express an assurance about the management's efficiency or effectiveness in conducting the
operations of entity.
d. To express an opinion whether the financial statements are prepared, in all material respect, in
accordance with an identified financial reporting framework.
16. An operating committee of a company's board of directors that is in-charge of overseeing financial
reporting and disclosure.
a. Governance c. Control environment
b. Audit committee d. Management
17. An attitude that includes a questioning mind, being alert to conditions which may indicate possible
misstatement due to error or fraud, and a critical assessment of evidence.
a. Professional skepticism c. Conservative advocacy
b. Materiality d. Reasonable assurance
18. This term refers to the application of relevant training, knowledge and experience, within the context
provided by auditing, accounting and ethical standards, in making informed decisions about the
courses of action that are appropriate in the circumstances of the audit engagement
a. Professionalism c. Professional judgment
b. Conservatism d. Materiality
19. This term refers to the possibility of harm or loss or danger. It can also refer to a factor, thing, or
element or course involving uncertain danger; or a hazard.
a. Materiality b. Jeopardy c. Contingency d. Risk
"Whatever the mind conceives, the body can achieve" - Napolleon Hill
“As a man thinks in his heart, so is he.” - Proverbs 23:7
“To be a top performer you have to be passionately committed to what you're doing and insanely confident
about your ability to pull it off."

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MBN

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