ACCTG 14 QUIZ #1

Instructions: Please indicate the letters of your answers in a separate word file and send it to me
via Edmodo.

1. 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. Stockholders, creditors and the interesting public

b. The management of the audit client because the auditor is hired and paid by
management
c. The Auditing and Assurance Standards Council because it determines auditing
standards and auditor’s responsibility
d. The audit committee of the audit client because the committee is responsible for
coordinating and reviewing all audit activities within the company.

2. An audit involves ascertaining the degree of correspondence between assertions and

established criteria. In the case of an audit of financial statements, which of the following
would not be a valid criterion?

a. International Accounting Standards

b. Philippine Financial Reporting Standards
c. Generally accepted auditing standards
d. PFRS for SMEs

3. Most of the independent auditor’s work in formulating an opinion on Financial statements

consists of

a. Studying and evaluating internal control

b. Obtaining and examining evidence
c. Examining cash transactions
d. Comparing recorded accountability with assets

4. Which of the following is more difficult to evaluate objectively?

a. Efficiency and effectiveness of operations

b. Compliance with applicable government regulations
c. Presentation of financial statements in accordance with the applicable financial
reporting criteria
d. All the given criteria are equally difficult to evaluate objectively

5. An audit that involves obtaining and evaluating evidence about the efficiency and
effectiveness of an entity’s operating activities in relation to specified objectives is a (n)

a. External audit
b. Compliance audit
 c. Operational audit
d. Financial statement audit

6. Independent auditors of financial statements perform audits that reduce and control

a. The business risks faced by investors

b. The information risk faced by investors
c. The complexity of financial statements
d. Qualify reviews performed by other CPA firms

7. In “auditing” accounting data, the concern is with

a. Determining whether recorded information properly reflects the economic events that occurred
during the accounting period.
b. Determining if fraud has occurred
c. Determining if taxable income has been calculated correctly
d. Analyzing the financial information to be sure that it complies with government re5uirements

8. The expertise that distinguishes auditors from accountants is in the

a. Ability to interpret financial reporting standards

b. Requirement to possess education beyond the Bachelor’s degree
c. Accumulation and interpretation of evidence
d. Ability to interpret PAS

9. An audit of financial statements is conducted to determine if the

a. Organization is operating efficiently and effectively

b. Auditee is following specific procedures or rules set down by some higher authority
c. Overall financial statements are stated in accordance with specified criteria
d. None of the above

10. When a professional accountant learns of a material error or omission in a tax return of a
prior year, he/ she has the responsibility to do the following, except

a. Promptly advise the client or employer of the error or omission and recommend that disclosure
be made to the revenue authorities.
b. Promptly inform the revenue authorities even without the permission of the client.
c. Advice the employer to correct the error and recommend that disclosure be made to the
revenue authorities.
d. Consider discontinuing the association with the client if the client does not correct the error.

11. This threat to independence occurs when a firm or a member of the Assurance firm has a
direct financial interest or material indirect financial interest in an assurance client.

a. Self-Review threat.
b. Advocacy threat.
c. Intimidation threat.
d. Self-interest threat.

12. In which of the following situations would a public accounting firm have violated the code of
ethics in determining its fees

a. a fee is based on whether or not the public accounting firm’s audit report leads to the approval
of the client application for bank is financing.
b. fee is to be established at a later date by the bankruptcy court.
c. a fee is based upon the nature of the engagement rather than upon the actual time spent on the
engagement.
d. fee is based on the fee charged by the client’s former auditors.

13. A public accounting firm would least likely be considered in violation of the independence
rules in which of the following instances?

a. A partner’s checking account, which is fully insured by the Philippine Deposit Insurance
Corporation, is held at a Financial institution for which the public accounting Firm performs
attest services.
b. A manager of the firm donates services as vice president of a charitable organization that is an
audit client of the firm.
c. An attest client owes the firm fees for this and last year’s annual engagement.
d. A covered member’s dependent son owns stock in an attest client.

14. Juan, a CPA, has a public accounting practice. He wishes to establish a separate to offer data
processing services to the public and other public accountants.

a. Juan cannot be a partner in any separate partnership which offers data processing services.
b. Juan may form a separate partnership
c. Juan may form a separate partnership as long as partners are CPAs.
d. Juan may form a separate partnership, but he must give up his public accounting practices

15. The auditor’s responsibility for failure to detect fraud arises

a. When such failure clearly results from failure to comply with auditing standards.
b. Whenever the amounts involved are material.
c. Only when the examination was specifically designed to detect fraud.
d. Only when such failure clearly results from negligence so gross as to sustain an interference of
fraud on the part of the auditor.

16. The risk that the audit will fail to uncover a material misstatement is eliminated

a. If client has good internal control.

b. If client follows financial reporting standards.
c. When the auditor has complied with Standards on Auditing.
d. Under no circumstances.

17. Most accounting and auditing professionals agree that when an audit has failed to uncover
material misstatements, and the wrong type of audit opinion is issued, the audit firm

a. has failed to follow Standards on Auditing.

b. deserves to lose the lawsuit.
c. should be asked to defend the quality of the audit.
d. should not be held responsible for the financial loss suffered by others.

18. In rare cases auditors have been held liable for criminal acts. A criminal conviction against
an auditor can result only when it is demonstrated that the auditor

a. Was negligent.
b. Was grossly negligent.
c. Intended to deceive or harm others.
d. Caused a financial loss to an innocent third-party.

19. The primary reason why a CPA firm establishes quality control policies and procedures for
human resources is to

a. comply with the continuing educational re5uirements imposed for all staff accountants in CPA
firms.
b. establish in fact as well as in appearance that sta4 accountants are increasing their knowledge
of accounting and auditing matters.
c. provide a forum for staff accountants to exchange their experiences and views concerning firm
policies and procedures.
d. provide reasonable assurance that staff personnel will have the capability, competence and
commitment to ethical principles required to enable them to fulfill their responsibilities in
accordance with professional standards and regulatory and legal requirements.

20. The primary factor that should be considered in determining the extent of supervision needed
by an assistant is the assistant’s

a. Willingness to exercise due care

b. Competence
c. Professional certification
d. Independence

21. Which of the following statements best describes assurance services?

a. Independent professional services that are intended to enhance the credibility of information to
meet the needs of an intended user.
b. Services designed to express an opinion on the fairness of historical financial statements based
on the results of an audit.
c. The preparation of financial statements or the collection, classification, and summarization of
other financial information.
d. Services designed for the improvement of operations, resulting in better outcomes.

22. The Philippine Standards on Auditing issued by AASC

a. Apply to independent examination of financial statements of any entity when such

examination is conducted for the purpose of expressing an opinion.
b. Must not apply to other related activities of auditors.
c. Need to be applied on all audit related.
d. Require that in no circumstances would an auditor may judge it necessary to depart from a
PSA, even though such a departure may result to more effective achievement of the objective of
an audit.

23. The primary goal of the CPA in performing the attest function is to

a. Detect fraud.
b. Examine individual transactions so that the auditor may certify as to their validity.
c. Determine whether the client’s assertions are fairly stated.
d. Assure the consistent application of correct accounting procedures.

24. The following are the elements of an assurance engagement except:

a. Suitable criteria
b. An appropriate subject matter.
c. A two-party relationship involving a practitioner and intended users.
d. Sufficient appropriate evidence

25. The Philippine Framework for Assurance Engagements identifies two types of assurance
engagement a practitioner is permitted to perform: a reasonable assurance engagement and a
limited assurance engagement. Which of the following is the objective of a reasonable
assurance engagement?

a. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of

the engagement as a basis for a negative form of expression of the practitioner’s conclusion.
b. A reduction in assurance engagement risk to a very low level in the circumstances of the
engagement as a basis for a disclaimer of the practitioner’s conclusion.
c. A reduction in assurance engagement risk to an acceptably low level that is acceptable in the
circumstances of the engagement as a basis for a positive form of expression of the practitioner’s
conclusion.
d. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of
the engagement as a basis for a qualified form of the practitioner’s conclusion.
26. When performing an assurance service, professional accountants use standards or
benchmarks to evaluate or measure the subject matter of an assurance engagement. This
element of an assurance engagement is called:

a. Criteria
b. Conclusion
c. GAAP
d. Assertion

27. In an assurance engagement, the person or class of persons for whom the professional
accountant prepares the report for a specific use or purpose is the:

a. Intended user.
b. Responsible party.
c. Management.
d. Client.

28. In the context of the Framework, the auditor’s satisfaction as to the reliability of an assertion
being made by one party for use by another party is called

a. Opinion.
b. Assurance.
c. Examination.
d. Verification.

29. When providing consulting services, the CPA acts primarily as a(n):

a. independent accountant
b. expert on compliance with industry standards
c. technology specialist
d. objective advisor on the use of information

30. The attest function:

a. Is an essential part of every engagement performed by a CPA.

b. Requires a complete review of all transactions during the period under examination.
c. Requires a review of a sample of transactions during the period under examination.
d. Includes the preparation of a written report of the CPA’s conclusion.

31. Which of the following is a correct statement?

a. An audit provides a limited assurance by attesting to the fairness of the client’s assertions.
b. A review provides positive assurance by attesting the reliability of the client’s assertions.
c. Management consulting services provide attestation in all cases.
d. Accounting services do not provide attestation.
32. Which of the following is responsible for an entity’s financial statements?

a. the entity’s management

b. the entity’s audit committee
c. the entity’s internal auditor
d. the entity’s board of directors

33. Independent auditing can be best described as

a. A branch of accounting.
b. A professional activity that measures and communicates financial and business data.
c. A discipline, which attests to the results of accounting and other functional operations and
data.
d. A regulatory function that prevents the issuance of improper financial information.

34. The Framework of Philippine Standards on Auditing distinguishes audits from related
services. Related services include all of the following, except:

a. Reviews
b. Agreed-upon procedures.
c. Compilations.
d. Management consulting.

35. The objective of the attest function is to

a. Ascertain the consistent application of GAAP.

b. Determine the validity of the transactions examined.
c. Express an opinion on the fairness of the financial statements.
d. Detect fraud.

36. It is the auditor’s duty

a. to prevent fraud and error.

b. to obtain reasonable assurance that material misstatements arising from fraud and error are
detected.
c. both “a” and “b”
d. neither “a” nor “b”

37. An assurance engagement

a. Is an engagement in which practitioner is engaged to issue, or does issue, a written

communication that expresses a conclusion about the reliability of a written assertion that is the
responsibility of another party.
b. Is an engagement involving a systematic process of objectively obtaining and evaluating
evidence regarding assertions about economic actions and events, to ascertain the degree of
correspondence between those assertions and established criteria, and communicating the results
to interested users.
c. Is an engagement in which the auditor provides a moderate level of assurance that the
information subject to the engagement is free of material misstatements.
d. Is an engagement intended to enhance the credibility of information about a subject matter by
evaluating whether the subject matter conforms in all material respects with suitable criteria,
thereby, improving the likelihood that the information will meet the needs of an intended user.

38. A practitioner should plan and conduct the assurance engagement in an effective manner to
meet the objective of the engagement. Which of the following matters need not be a concern
of the practitioner in planning the work?

a. Criteria to be used.
b. Engagement objective.
c. Personnel and expertise requirements.
d. Specific format of the assurance report.

39. When a CPA expresses an opinion on the financial statements, his responsibilities extend to

a. The underlying wisdom of the client’s management decision.

b. Active participation in the implementation of the advice given to the client.
c. An ongoing responsibility for the client’s solvency.
d. Whether the results of the client’s operating decisions are fairly presented in the financial
statements.

40. A financial statement audit aids in the communication of economic data because the audit

a. Assures the readers of the financial statements that any fraudulent activity has been corrected.
b. Guarantees that the financial data are fairly presented.
c. Lends credibility to the financial statements.
d. Confirms the accuracy of the management’s financial representations.

41. Level of assurance provided by the auditor’s opinion in an audit is

a. absolute
b. high
c. moderate
d. none

42. Level of assurance provided by the auditor’s opinion in a review is

a. absolute
b. high
c. moderate
d. none
43. Absolute assurance in auditing is not attainable because of

a. the need for judgment.

b. the use of testing
c. the inherent limitation and internal control systems
d. all of the above

44. The criteria for evaluating quantitative information vary. For example, in the audit of
historical financial statements by CPA firms, the criteria are usually

a. International accounting standards.

b. Generally accepted accounting principles.
c. Regulations of the Bureau of Internal Revenue.
d. Regulations of the Securities and Exchange Commission.

45. The framework for auditing and related services as addressed by PSA excludes

a. Review
b. Compilation
c. Management Advisory Services
d. Agreed upon Procedures

46. First Statement – In exceptional circumstances, an auditor may judge if necessary to depart
from a PSA in order to more effectively achieve the objective of an audit. When such situation
arises, the auditor is not required to justify the departure.

Second Statement – PSAs need only be applied to material matters.

a. Both statements are False

b. Both statements are True
c. First statement is True; Second Statement is False
d. First statement is False; Second Statement is True

47. According to PSA 120, a compilation presents information in the form of financial
statements, that is, the representation of management. The accountant who prepares the
compilation undertakes to express

a. limited assurance on the statements

b. minimal assurance on the statements
c. no assurance on the statements
d. full assurance on the statements

48. What best describes the word “assurance” in the context of the Philippine Standards on
Auditing?
a. Auditor’s satisfaction as to the reliability of an assertion being made by one party for use by
another party.
b. Level of assurance, which may be provided, is determined by the reporting objective.
c. Expressed positively in the report.
d. Assurance is of limited in nature.

49. Auditing standards differ from auditing procedures in that procedures relate to:

a. Measures of performance
b. Audit principles
c. Acts to be performed
d. Audit judgments

50. Every CPA professional is required to perform the audit of financial statements according to
PSAs in order to

a. Eliminate audit risk.

b. Eliminate the professional judgment in resolving audit issues.
c. Have a measure of the quality of audit performance.
d. To reduce the audit program to be prepared by the auditor.