OUR LADY OF THE PILLAR COLLEGE

CAUAYAN COLLEGE OF ACCOUNTANCY

OPERATIONS AUDITING

Exercises:
C 1. The word auditing comes from the Latin word audire, which means:
a. To see
b. To detect
c. To hear
d. To test

C 2. Which of the following is an incorrect phase?

a. Auditing is a systematic process.
b. Auditing objectively obtains and evaluates evidence.
c. Auditing evaluates evidence regarding assurance
d. Auditing ascertains the degree of correspondence between assertions and established criteria.

A 3. This type of audit is performed to determine whether an entity’s financial statements

are fairly presented in accordance with an identified financial reporting framework.
a. Financial statement audit
b. Operational audit
c. Compliance audit
d. Internal audit

C 4. 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
b. Operational audit
c. Compliance audit
d. Internal audit

B 5. This type of audit involves a review of an organization’s procedures and methods for
the purpose of evaluating efficiency and effectiveness of operations, identifying areas for
improvement and making recommendations to improve performance.
a. Financial statement audit
b. Operational audit
c. Compliance audit
d. Internal audit

C 6. Which of the following types of audits are most similar?

a. Operational audits and compliance audits
b. Independent financial statement audits and operational audits
c. Compliance audits and independent financial statements audit
d. Internal audits and independent financial statement audits
 OUR LADY OF THE PILLAR COLLEGE
CAUAYAN COLLEGE OF ACCOUNTANCY
OPERATIONS AUDITING

C 7. This type of audit goes beyond the usual financial statement audit, to include audits of
compliance with laws and regulations, operations of government entities and the proper
disbursement and management of public funds.
a. External or independent auditing
b. Internal audit function
c. Government auditing
d. Compliance auditing

D 8. The following are conditions that create a demand from users for assurance on
reliability of financial information:
a. Transactions that are numerous and complex
b. Users separated from accounting records by distance and time
c. Financial decisions that are important to investors and users
d. All of the choices are examples of the said conditions

A 9. 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
b. Materiality
c. Conservative advocacy
d. Reasonable assurance

C 10. 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
b. Conservatism
c. Professional judgement
d. Materiality

A 11. Misstatements in the financial statements can arise from fraud or error. The
distinguishing factor between fraud and error is whether the underlying action that results in the
misstatement of the financial statements is:
I. Intentional or unintentional
II. Rational or irrational
a. I only
b. II only
c. Both I and II
d. Neither I nor II
 OUR LADY OF THE PILLAR COLLEGE
CAUAYAN COLLEGE OF ACCOUNTANCY
OPERATIONS AUDITING

C 12. Error includes:

a. Engaging in complex transaction that are structured to misrepresent the financial position or
financial performance of the entity.
b. Concealing, or not disclosing, facts that could affect the amounts recorded in the financial
statements.
c. An incorrect accounting estimate arising from oversight or misinterpretation of facts.
d. Intentional misapplication of accounting policies relating to amounts, classification, manner or
presentation and disclosure.

A 13. Fraud involving one or more members of management and those charged with
governance is referred to as:
a. Management fraud
b. Employee fraud
c. Fraudulent financial reporting
d. Misappropriation of assets

C 14. The auditor is concern with fraud that causes a material misstatement in the financial
statements. There are two types of intentional misstatements that are relevant to the auditor:
misstatements resulting from fraudulent financial reporting and misstatements resulting from: a.
Management fraud
b. Employee fraud
c. Misappropriation of assets
d. Collusion within the entity or with third parties

D 15. Fraudulent financial reporting involves intentional misstatements including omissions

of amounts or disclosures in financial statements to deceive financial statement users. It may be
accomplished in a number of ways, including:
a. Embezzling receipts
b. Stealing physical assets or intellectual property
c. Using an entity’s assets for personal use
d. Manipulation, falsification or alteration of accounting records or supporting
documentation from which the financial statements are prepared.

C 16. The primary responsibility for the prevention and detection of fraud rests with:
a. Those charge with governance
b. Management of the entity
c. Both those charge with governance and management of the entity.
d. The auditor.
 OUR LADY OF THE PILLAR COLLEGE
CAUAYAN COLLEGE OF ACCOUNTANCY
OPERATIONS AUDITING

B 17. When obtaining an understanding of the entity and its environment, including its
internal control, the auditor may identify events or conditions that indicate an incentive or
pressure to commit fraud or provide an opportunity to commit fraud. Such events or conditions
are referred to as: a. Fraud conditions
b. Fraud risk factors
c. Fraudulent activities
d. Fraud environment

A 18. Which of the following statements best describes an auditor’s responsibility regarding
misstatements?
a. An auditor should obtain reasonable assurance that the financial statements taken as a
whole are free from material misstatement, whether caused by fraud or error.
b. An auditor should obtain absolute assurance that material misstatements in the financial
misstatements will be detected.
c. An auditor is responsible to detect a material errors but has no responsibility to detect material
fraud that is concealed through employee collusion or management override of internal control.
d. An auditor’s failure to detect a material misstatement resulting from fraud is an indication of
noncompliance with the requirements of the PSA.

D 19. Because of the risk of material misstatement, an audit of financial misstatements in

accordance with PSAs should be planned and performed with an attitude of:
a. Impartial conservatism
b. Objective judgement
c. Independent integrity
d. Professional skepticism

B 20. The responsibility for the prevention and detection of noncompliance rests with:
a. The auditor
b. Management
c. The auditor’s lawyer
d. The client’s lawyer