Republic of the Philippines

Province of Davao Del Norte

Municipality of Santo Tomas

SANTO TOMAS COLLEGE OF AGRICULTURE, SCIENCES AND TECHNOLOGY (STCAST)

Bachelor of Public Administration (BPA)

Government Auditing (Elective 106)

Midterm Examination, SY 2021-2022

I. MULTIPLE CHOICE.
Instruction: Encircle the letter of the best answer.

1) An audit approach that emphasized the review of controls which operated within each
transaction cycle provided for limited testing of items in the statement of financial position.
a) System Approach c) Transaction Cycle Approach
b) Verification or Substantive Approach d) Risk Based Audit Approach

2) A type of audit that examines evidence regarding an assertion to determine its

correspondence to established criteria carried out in a manner suitable to the court.
a) Environmental Audit c) Operational Audit
b) Forensic Audit d) Comprehensive Audit

3) In this approach, the audit work is concentrated in areas where there is a higher risk of
misstatement.
a) Strategic Business Risk Approach c) Continuous Audit Approach
b) Financial Risk Analysis Approach d) Risk Based Audit Approach

4) Delivery receipts of items purchased and obtained from the compiled records of auditee is an
example of what type of audit evidence?
a) Direct evidence
b) Evidence created and received directly from external sources
c) Evidence created by external sources but received directly from the auditee
d) Evidence created and received directly from the auditee

5) The risk that an auditor’s procedures will not detect a misstatement that exists in an account
balance or class of transactions that could be material.
a) Audit Risk b) Inherent Risk
 c) Control Risk d) Detection Risk

6) The risk that a material misstatement could not be prevented or detected on a timely basis by
the accounting and internal control system.
a) Audit Risk c) Control Risk
b) Inherent Risk d) Detection Risk

7) Full time employees of the government tasked to determine compliance with laws, statutes,
policies and procedures.
a) Government Auditors c) Forensic Auditors
b) Independent Auditor d) Internal Auditors

8) Testing of assertions and criteria are accomplished by the auditor to _________________.

a) prepare financial statements for interested users.
b) install relevant internal controls.
c) issue audit report.
d) ensure that financial statements are free from material misstatements.

9) Which of the following is not a characteristic of auditing?

a) Auditing is governed by Philippine Financial Reporting Standards (PFRS)
b) Financial reports and other relevant evidences are essential in completing audit report.
c) Audit procedures are performed by auditors.
d) Auditing is concerned with verification of financial statement information.

10) Which of the following statement is true regarding auditing?

a) The output of auditing is the fair presentation of financial statement.
b) Auditing is focused on the assessment of financial statements and its fairness.
c) Auditing is concerned with financial data from accountable transactions as inputs to
auditor’s report.
d) Auditing deals with collecting, summarizing and reporting financial measurements.

11) This audit approach starts with the identification of strategic issues affecting the audit, uses
them to determine and overall audit strategy for the audit and arrives at the detailed work on
the basis of the audit strategy.
a) Top-Down Approach c) Transaction Cycle Approach
b) Balance Sheet Approach d) System Approach

12) Which of the following is an example of evidence created by external sources but received
from the auditee?
a) Official receipts from sales made to customers
b) Bank statements received from banks
 c) Charge invoices from vendors received from client
d) Physical inspection of inventory on hand

13) Which of the following statement is true about the types of audit evidence?
a) The most reliable type of evidence is the evidence directly obtained by the auditor.
b) Evidence created by the auditee is more reliable than evidence from external sources.
c) Evidence received from external sources is less likely reliable compare to evidence
received from auditee.
d) Evidence received from external sources is the most reliable type of evidence.

14) Which of the following does not describe audit risk?

a) Audit Risk = RMM x [1-Pr(DA)]
b) Audit Risk = RMMi x [1-Pr(De) x [1-Pr(Da)]
c) Audit Risk = Inherent Risk + Control Risk + Detection Risk
d) Audit risk components are controllable by the auditor.

15) It is a risk assessment procedure that helps the auditor identify the existence of unsual
transactions or events, and amounts, ratios and trends that might indicate matters that have
audit implications.
a) Observation c) Inquiry
b) Analytical Procedure d) Inspection

16) Which of the following is response to inquiry corroborating information contained in the
accounting records?
a) Footing the list of inventory items
b) Witnessing the auditee’s actual inventory taking
c) Asking the production head about the production process
d) Confirming balances of receivables by customers

17) This audit evidence obtaining procedure is concerned with evaluation of financial information
to extract the relations between financial and nonfinancial data.
a) Computation c) Analytical procedure
b) Confirmation d) Observation

18) Which of the following is not part of the permanent files of auditor’s working paper?
a) Organizational structure of the auditee
b) Results of analytical procedures from previous years’ audits
c) Audit program that describes the implementation of audit approach
d) Communications with other auditors, experts and other third parties

19) These are the working papers that are relevant to more than one audit engagement.
 a) Permanent working papers
b) Current working papers
c) Audit programs
d) Audit documentation

20) Which of the following is included in current working paper of the auditor?
a) Organizational structure of the auditee
b) Working trial balance presenting the list of ending balances
c) Flowcharts of the auditee
d) Questionnaires and other internal control information

21) Which of the following is an example of observation as risk assessment procedure?

a) Actual checking of auditee’s facilities and equipment
b) Inquiring the head of collection department about the collection process
c) Taking into account the sudden purchase of large amounts of supplies from a new
supplier.
d) Asking the accountant series of questions about the recording process of accountable
transactions.

22) Which of the following statement is true regarding sufficiency of audit evidence?
a) Accumulation of evidence should be convincing rather than persuasive.
b) Auditor is free to collect unlimited amounts of evidence.
c) Relates to the quantity of evidence gathered by the auditor.
d) Considering cost as the sole basis in determining the amounts of evidence that will be
gathered by the auditor.

23) What is the function of the auditor in conducting financial statement audit?
a) Gather relevant evidences to add credibility to management’s assertions reflected in the
financial statements.
b) Implementing internal controls to ensure the reliability of financial records.
c) Recording accountable transactions and events.
d) Expressing absolute assurance to the interested users of the auditor’s report.

24) What is the primary objective of financial statement audit?

a) Ensure the fairness of financial statement and communicating the financial result to the
interested users.
b) Enable the auditor to express his opinion as to the fair presentation of financial
statements.
c) Ensure that internal controls will detect fraud or error that might infect the financial
records.
d) Ensure that financial statements are free from any material misstatements.
25) Which of the following statement is true about auditing and accounting?
a) Auditing is primarily concerned with sorting, recording, summarizing and communicating
financial transactions and events while accounting is verifying the recorded financial
transactions.
b) Inputs of accounting are financial data from accountable transactions while inputs of
auditing are financial reports and other relevant evidences.
c) Outputs of accounting and auditing are financial statements.
d) Standard that governed accounting is Philippine Auditing Standards while auditing is
governed by Philippine Financial Reporting Standards.

26) Which of the following statement is not true about the appropriateness of audit evidence?
a) Appropriate audit evidence measures the quality of the evidence.
b) Appropriateness of audit evidence is independent from audit objectives.
c) Evidence is appropriate when it is relevant to a particular assertion.
d) Relevance of an audit evidence depends whether evidence provides auditor with
information sought by him.

27) Which of the following statement is false regarding procedure for obtaining audit evidence?
a) Weak internal controls of the auditee will not affect the gathering of audit evidence by the
auditor.
b) The timing of audit evidence gathering procedure will be dependent upon the period of
time during which the audit evidence sought is available.
c) Inspection consists of examining records, documents or tangible assets.
d) An auditor recalculating the depreciation expense is audit evidence gathering procedure
with the objective of verifying the arithmetical accuracy for the computation of depreciation
expense.

28) Which of the following statement is true regarding auditing?

a) Auditor is required to conduct his audit in accordance with the Philippine Financial
Reporting Standards (PFRS).
b) Auditing requires the financial data from accountable events for the auditor to furnish his
audit report.
c) Auditing outputs are financial statements
d) Auditing is performed by auditors.

29) Which of the following statement is true about risk assessment procedure?
a) Significant changes in accounting policies and account balances maintained by the
auditee will be considered by auditor in assessing the level of risk.
b) Risk assessment procedures are performed by the auditor to obtain an understanding
about the entity and its environment without including its internal controls.
 c) Past misstatements should be ignored.
d) Risk assessment procedure are procedures used to assess detection risk.

II. ESSAY

30-31) What is the main objective of the auditor in conducting financial statement audit?
32-33) What is the meaning of auditor’s signature in the audit report?
34-35) How can inherent limitations of audit affect the auditor’s ability in detecting material
misstatement?
36-37) How will auditor satisfy the audit objectives developed for management assertions?
38) Who is the primary responsible in ensuring that financial statements are free from any
material misstatement? Why?
39-40) What are the responsibilities of the auditor in audit documentation?