ASUPRIN

ACTIVITY WORKSHEET

No. 001
__________________________________________________________________________________________

Name: _________________________________________________________ Time & Schedule: __________

I. SHORT ANSWER QUESTIONS: Answer each question in a clear and organized paragraph. One or two sentences
that directly answer the short-answer question. Each question is worth 2 points.

1. What additional expertise must an auditor possess beyond that of an accountant?

There are instances that the auditor and accountant is both CPA, the additional expertise that
the must possess is the professional skepticism. An auditor must have questioning mind, where he
will not immediately accept the Financial statement that being presented, they need to verified it
needing critical evidences.

2. Explain what is meant by information risk, and give at least two (2) causes of this risk.
Information risk is the possibility that the information that is being circulated in the
company might be false or misleading. Example of information is that, the risk that internal
controls will fail to prevent or identify a financial statement misrepresentation. Another is that
there's a risk that the auditor followed proper auditing procedures and provided an unqualified
opinion, yet the financial statements include a major misstatement.

3. Many people confuse the responsibilities of the independent auditors and the client's management with
respect to audited financial statements. Describe management's responsibility and auditors’ responsibility
regarding audited financial statements.

The management’s responsibility is to present and prepare the financial statement in

accordance with financial reporting framework. While the auditors’ responsibility is to form
and express an opinion to the given financial statement.

4. Explain the concept of “Reasonable Assurance” in the context of financial statement audit.

The concept of “Reasonable Assurance” in the context of financial statement audit is it

help to determine the high level of assurance that the financial statement that being presented
is not misstated. To be able to achieve it, the auditor must gather sufficient effective audit
evidence this implies that the use of sampling involves some risk, as it is likely that a material
misrepresentation will be overlooked.

5. What is the major difference between auditing services and assurance services?
The major difference between auditing services and assurance services is that assurance services is broad
concept where auditing services is only part of it. Also, in audit service all the transaction of the company’s is
financial statement being evaluated carefully. While the assurance service will help you to improve the quality
information the financial statement and to make decision making.

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II. TRUE OR FALSE: Write the word TRUE for each correct statement; otherwise, write FALSE.

1. FALSE Objectivity is not required when performing audit engagements.

2. FALSE Accounting begins where auditing ends.
3. FALSE An independent audit aids in the communication of economic data because the audit guarantees that
financial data are fairly presented
4. FALSE Compliance audits are used to determine the adherence to rules and regulations set by the auditor.
5. TRUE The essence of an independent audit is to determine whether client’s financial statements complied
with generally accepted auditing standards.
6. FALSE The term practitioner is narrower in scope compared to the term auditor.
7. TRUE The responsible party may also be one of the intended users.
8. FALSE Evidence obtained directly by the practitioner is less reliable than evidence obtained indirectly or by
inference.
9. FALSE Compared to the auditor of the past, the auditor of today focuses on the detection of fraud and error.
10. FALSE Independent audit provides absolute assurance.

III. MULTIPLE CHOICE QUESTIONS: Read each item carefully. Select the correct/best answer for each of the following
questions and write the letter of your choice before the number.

_____C_____ 1. The American Accounting Association has formulated a general definition of auditing. What is
not a characteristic of this general definition?
A. Auditing is a systematic process.
B. Auditors are responsible for objectively obtaining and evaluating evidence regarding
assertions about economic actions and events.
C. Auditors are responsible for financial management and the investment of corporate assets.
D. Auditors are responsible for communicating the results of audits to interested users.

_____D_____ 2. The primary purpose of an independent audit of financial statements is to:

A. Provide a basis for assessing management’s performance.

B. Comply with laws and regulations.
C. Assure management that the financial statements are unbiased and free from material
misstatements.
D. Provide users with an unbiased opinion about the fairness of information presented in the
financial statements.

_____A_____ 3. Which of the following is responsible for an entity’s financial statements?

A. Entity’s management C. Entity’s internal auditors
B. Entity’s audit committee D. Entity’s board of directors

_____B____ 4. The auditor communicates the results of his or her work through the medium of the
A. Engagement Letter C. Management Letter
B. Independent Auditor’s Report D. Financial Statements

_____C_____ 5. Professional skepticism requires that an auditor assume that management is

A. Honest, in the absence of fraud risk factors.
B. Dishonest until completion of audit tests.
C. Neither honest nor dishonest.
D. Offering reasonable assurance of honesty.

_____D_____
6. Absolute assurance is generally not attainable as a result of such factors as:
A. The use of selective testing C. The use of judgment
B. The inherent limitations of controls systems D. All of these.

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 _____B_____ 7. Which of the following would not represent one of the primary problems that create the
demand for independent audits of a company’s financial statements?
A. Management’s bias in preparing financial statements.
B. The downsizing of business and financial markets.
C. The complexity of transactions affecting financial statements.
D. The remoteness of the user from the organization and thus the inability of the user to
directly obtain financial information from the company.

_____B_____ 8. Which of the following services provide the lowest level of assurance on a financial statement?
A. An audit.
B. A review.
C. Neither service provides assurance on financial statements.
D. Each service provides the same level of assurance on financial statements.

_____B_____ 9. Which of the following types of auditing uses laws and regulations as its criteria?
A. Operational audit C. Financial statement audit
B. Compliance audit D. Independent audit

_____B_____ 10. Which of the following is the broadest concept?

A. Audits of financial statements C. Internal control audit
B. Assurance services D. Attestation services

IV. SITUATIONAL PROBLEM (10 points)

You recently attended your five-year college reunion. At the main reception, you encountered an old friend,
Pedro Quarantina, who recently graduated from law school and is now practicing with a large law firm in town.
When you told him that you were an independent auditor and employed by a regional audit firm, he made the
following statement and snickered. “You know, if a statutory audit requirement did not exist, no one would be
interested in having an audit performed. You auditors are just creatures of regulation.” Since you did not wish to
cause a scene at the reunion, you let his comment pass. You and Pedro agreed to have lunch the following week to
talk over old times. However, you were still unhappy with Pedro’s comment.

Required:
In preparation for your luncheon with Pedro Quarantina, create a concept map or a graphic organizer that
highlights your thoughts about why auditors are not “creatures of regulation”. Cite any relevant evidence of a
demand for audit services outside of legal and regulatory requirements. Focus on the value that auditing provides.
Be sure to consider the concept of information risk.

Auditors are not “creators of

regulation”

Conforms to the
contracts
provision

Information Risk

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Subject to Audit Not Subject to Audit
 Auditor gathers evidence Not reliable to make an
to evaluate fairness of important decision
agent’s financial reports

Auditor issue audit opinion

to accompany agent’s
financial reports.

Adding credibility to the

report and reducing
principal’s information risk

Reliable to make an
important decision

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