Auditing and Assurance
Concepts and Application
Prelim Quiz 1
Name: ________________________
Course/yr./blk.: _____________
I. MULTIPLE CHOICE: Write the letter of your choice in capital letters before the
corresponding number. Each choice has an equal chance of being right but you must go
for what is best for you. Choose wisely. 😊
1. Evaluate the following statements:
I. To ensure appropriate attention is
devoted to different areas of the audit.
II. To ensure the audit is completed
within budget and time restraints.
Which is/are the main purpose of audit
planning?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
2. Which of the following statements
is/are correct with regard to the
relationship between the audit plan and
the audit strategy for an external audit
engagement?
I. The overall audit strategy should be
more detailed than the audit plan.
II. The audit strategy should be
established before the detailed audit plan
is developed
A. I only
B. II only
C. Both I and II
D. Neither I nor II
3. Evaluate the following statements:
I. Substantive tests prior to the balance
sheet date will be minimized.
II. The audit procedures selected will
achieve specific audit objectives.
Which is/are the main purpose of audit
planning?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
4. Evaluate the following statements:
I. The auditor shall design and perform
risk assessment procedures in a manner
that is not biased towards
obtaining audit evidence that may be
corroborative or towards excluding audit
evidence that may be
contradictory.
II. When the auditor intends to use
information obtained from the auditor’s
previous experience with the
entity and from audit procedures performed
in previous audits, the auditor shall
evaluate whether such
information remains relevant and reliable
as audit evidence for the current audit.
Score:______________
Date:_______________
Which of the following statements is/are
true in relation to risk assessment
procedures?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
5. Evaluate the following statements:
I. Inquiries of management and of other
appropriate individuals within the entity,
including individuals
within the internal audit function (if the
function exists).
II. Observation and inspection.
Which pertains to the risk assessment
procedures?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
6. Which of the following procedures would
an Auditor least likely perform during the
planning stage of the audit?
A. Determine the timing of testing
B. Take a tour of the client’s facilities
C. Perform inquiries of outside legal
counsel regarding pending litigation
D. Determine the effect of information
technology on the audit
7. Which of the following is required
documentation in an audit in accordance
with PSA?
A. A flowchart or narrative of the
information system relevant to financial
reporting describing the recording
and classification of transaction for
financial reporting
B. An audit plan setting forth in detail
the procedures necessary to accomplish the
engagement’s objectives
C. A planning memorandum establishing the
timing of the audit procedures and
coordinating the assistance
of entity personnel
D. An internal control questionnaire
identifying controls that assure specific
objectives will be achieved
8. Which is a requirement of PSA 315:
I. Obtaining an understanding of the
entity and its environment, and the
Applicable Financial Reporting
Framework.
II. Understanding the Components of the
Entity’s System of Internal Control
III. Identifying and assessing the risks
of material misstatement
A. I only
B. II only
C. Both I and II only
D. I, II, and III
9. Which aspects should the auditor’s
understanding of the entity and its
environment cover?
I. The entity’s organizational structure,
ownership and governance, and its business
model, including the
extent to which the business model
integrates the use of IT.
II. Industry, regulatory and other
external factors.
III. The measures used, internally and
externally, to assess the entity’s
financial performance.
A. I only
B. II only
C. Both I and II only
D. I, II, and III
10. Evaluate the following statements:
I. Assist the auditor with understanding
the entity’s ability to provide
appropriate oversight of its system
of internal control.
II. Provide evidence of deficiencies,
which may indicate an increase in the
susceptibility of the entity’s
financial statements to risks of material
misstatement.
Which pertains to the reason why auditors
understand their client’s governance?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
11. Evaluate the following statements:
I. Understanding the entity’s objectives,
strategy and business model helps the
auditor to understand the
entity at a strategic level, and to
understand the business risks the entity
takes and faces.
II. Assists the auditor in identifying
risks of material misstatement, since most
business risks will eventually
have financial consequences and,
therefore, an effect on the financial
statements.
Which pertains to the reason why auditor
obtains understanding of the client’s
business model?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
12. A person or firm possessing special
skill, knowledge and experience in a
particular field excluding accounting and
auditing.
A. Expert. C.
Multiskilled personnel
B. Quality control reviewer D.
Taxation specialist
13. Evaluate the following statements:
I. Valuations of certain types of assets
like land and buildings.
II. Determination of fair values using
specialized statistical techniques.
Which task would most likely necessitate
for an expert?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
14. In considering materiality for
planning purposes, an auditor believes
that misstatements aggregating P10,000
would have a material effect on an
entity’s profit and loss, but that
misstatements would have to aggregate
P20,000 to materially affect the statement
of financial position. Which is/are true:
I. More procedures are to be performed by
the auditor should materiality be set at
P20,000
II. Less procedures are to be performed by
the auditor should materiality be set at
P10,000
A. I only
B. II only
C. Both I and II
D. Neither I nor II
15. Which of the following statements
regarding materiality is/are correct?
I. Materiality is always based on
turnover.
II. Materiality should only be calculated
at the planning stage of the audit.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
16. The relationship between materiality
and audit risk is:
A. Direct. B. Inverse. C.
Indeterminable. D. None of these.
17. Which of the following statements
regarding materiality is/are correct?
I. More evidence is required for a low
peso amount than for a high peso amount.
II. The same amount of evidence is
required for either low or high peso
amounts.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
18. Which of the following is correct
concerning requirements about auditor
communications about fraud?
I. Fraud that involves senior management
should be reported directly to the audit
committee regardless
of the amount involved.
II. The auditor has no responsibility to
disclose fraud outside the entity under
any circumstances.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
19. Which of the following is correct
concerning requirements about auditor
communications about fraud?
I. Company management changes inventory
count tags and overstates ending
inventory, while
understating cost of goods sold.
II. The treasurer diverts customer
payments to his personal due, concealing
his actions by debiting an
expense account, thus overstating
expenses.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
20. With respect to errors and
irregularities, the auditor should plan to
A. Search for errors that would have a
material effect and for irregularities
that would have either
material or immaterial effect on the
financial statements.
B. Search for irregularities that would
have a material effect and for errors that
would have either
material or immaterial effect on the
financial statements.
C. Search for errors or irregularities
that would have a material effect on the
financial statements.
D. Discover errors or irregularities that
have either material or immaterial effect
on the financial
statements.
21. Analytical procedures used in planning
an audit should help the auditor in:
A. Reducing the scope of tests of controls
and substantive tests
B. Providing assurance that potential
material misstatements will be identified
C. Identifying inconsistencies, unusual
transactions or events, and amounts,
ratios, and trends that indicate matters
that may have audit implications.
D. Assessing the adequacy of the available
audit evidence
22. When are analytical procedures are
required to be performed?
I. As a risk assessment procedure
performed during planning
II. As a substantive test procedure during
evidence-gathering
III. As an overall review at audit
completion.
A. I and II only
B. I and III only
C. II only
D. I, II, and III.
23. The element of the audit planning
process most likely to be agreed upon with
the client before implementation
of the audit strategy is the determination
of the
A. Evidence to be gathered to provide a
sufficient basis for the auditor’s
opinion.
B. Procedures to be undertaken to discover
litigation, claims, and assessments.
C. Pending legal matters to be included in
the inquiry of the client’s attorney.
D. Timing of inventory observation
procedures to be performed.
24. Which of the following is not
typically included in initial audit
planning?
A. Client acceptance/continuation
decisions.
B. Determination of the purpose of the
audit.
C. Obtain an understanding with the
client.
D. Perform analytical procedures as
substantive tests.
25. Which of the following is least likely
considered by the auditor in establishing
the overall audit strategy and
developing the audit plan?
A. Understanding of the accounting and
internal control systems.
B. Risk and materiality.
C. The involvement of other auditors in
the audit of major subsidiaries.
D. The terms of payment pertaining to
other auditors and their respective
clients.
26. Which of the following is not
considered by the CPA when he makes an
overall audit plan?
A. Identification of complex accounting
areas including those involving accounting
estimates.
B. The effect of information technology on
the audit.
C. The content of the representation
letters.
D. The nature and timing of reports and
other communication with the entity that
are expected under
the engagement.
27. This is a listing of all the things
which the auditor will use to gather
sufficient appropriate audit evidence:
A. Audit procedures. C. Audit
program.
B. Audit plan. D. Audit
risk model.
28. In designing audit programs, an
auditor should establish specific audit
objectives that related primarily to the
A. Timing of audit procedures C.
Selected audit techniques.
B. Cost-benefit of gathering evidence
D. Financial statement assertions.
29. The audit program should set out the:
A. Nature of planned procedures C.
Extent of planned procedures
B. Timing of planned procedures D. All
of the answers.
30. Cost-benefit considerations are part
of audit planning. In relation to this,
which of the following audit
procedures is usually the least costly to
perform?
A. Tests of balances. C.
Analytical procedures.
B. Substantive tests of transactions.
D. Tests of controls.
31. The audit program usually cannot be
finalized until the
A. Consideration of the entity’s internal
control has been completed.
B. Engagement letter has been signed by
the auditor and the client.
C. Reportable conditions have been
communicated to the audit committee.
D. Search for unrecorded liabilities has
been performed and documented.
32. The senior auditor responsible for
coordinating the field work usually
schedules a pre-audit conference with the
audit team primarily to
A. Give guidance to the staff regarding
both technical and personnel aspects of
the audit.
B. Discuss staff suggestions concerning
the establishment and maintenance of time
budgets.
C. Establish the need for using the work
of specialists and internal auditors.
D. Provide an opportunity to document
staff disagreements regarding technical
issues.
33. The audit plan generally is modified
when
A. Results of tests of control differ from
expectations.
B. An engagement letter has been signed by
the auditor and the client.
C. A significant deficiency has been
communicated to the audit committee of the
board of directors.
D. The search for unrecorded liabilities
has been expected during the planning of
the audit.
34. Which one of the following is a true
statement about the required risk
assessment discussion?
A. The discussion about the susceptibility
of the entity’s financial statements to
material misstatement must
be held separately from the discussion
about the susceptibility of the entity’s
financial statements to fraud.
B. The discussion should involve all
members who participate on the audit team,
including the engagement
partner
C. The discussion should include
consideration of the risk of management
override of controls
D. The risk assessment discussion should
occur during the overall review stage of
the audit
35. Which of the following documentation
is not required for an audit in accordance
with PSA?
A. A written audit plan setting forth the
procedures necessary to accomplish the
audit objectives
B. The basis for the auditor’s decision to
perform tests of controls concurrently
with obtaining an
understanding of internal control
C. The auditor’s understanding of the
entity’s control activities that help
ensure achievement of management
objectives
D. The assessment of the risks of material
misstatement at both the financial
statements and relevant
assertion levels
36. Evaluate the following statements:
I. Audit planning precedes conclusion and
reporting.
II. Audit planning precedes substantive
testing.
Which is/are true?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
37. Which of the following information may
assist the engagement partner in
determining whether conclusions
reached regarding acceptance and
continuance of client relationships and
audit engagements are appropriate?
I. The integrity and ethical values of the
principal owners, key management and those
charged with
governance of the entity.
II. Whether the engagement team has the
competence and capabilities, including
sufficient time, to perform
the engagement.
A. Both I and II
B. I only
C. II only
D. Neither I nor II
38. Which of the following is/are should
be included in the engagement letter?
I. Objective of the audit of the financial
statements
II. Identification of the applicable
financial reporting framework for the
preparation of the financial statements
III. Reference to the expected form and
content of any report
A. I only
B. II only clients.
C. Both I and II A. I only C. Both I and II
D. I, II, and III B. II only D. Neither I nor II

39. Which of the following statements
is/are correct?
I. A Company shall neither allow or
require its independent auditor to prepare
its financial statements and/or
any of its supporting documents
II. The engagement letter shall contain a
provision that the disclosure of certain
information to the SEC shall not
constitute a breach of confidentiality nor
shall it be a ground for civil, criminal
or disciplinary proceedings against
the independent auditor
III. A Company may request its independent
auditor to conduct reconciliation of
certain account balances as
long as it is included in the engagement
letter
A. I only
B. II only
C. Both I and II
D. I, II, and III
40. Which of the following statements
is/are correct?
I. A successor auditor should make
specific inquiries of the predecessor
auditor regarding disagreements
which the predecessor had with the client
concerning auditing procedures and
accounting principles
II. If a client refuses to permit the
predecessor to respond to the successor’s
inquiry, then the successor
auditor should inquire as to the reasons
for such refusal and consider the
implications of this in deciding
whether to accept the engagement or not.
A. I only C. Both I and II
B. II only D. Neither I nor II
41. Where the client is changing auditors,
PSA requires communication between the
predecessor and successor auditors. The
burden of initiating the communication
rests with:
I. The client
II. The predecessor auditor
A. I only C. Both I and II
B. II only D. Neither I nor II
42. Which of the following statements
is/are correct?
I. Independence must be considered in
deciding whether to accept a company as an
audit client.
II. Only partners and managers are
required by the Code of Ethics to be
independent from their assurance
43. Evaluate the following statements
regarding enhancing auditor’s
independence.
I. Appointing a partner of the CPA firm
conducting the audit to the corporation’s
audit committee.
II. Having the independent auditor report
to an audit committee of outside members
of the board of
directors
Which is/are appropriate?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
44. Evaluate the following statements
regarding the engagement letter.
I. State whether the CPA will perform
audit, review or compilation services.
II. State any restriction to be imposed on
the CPA’s work.
Which is/are included in the engagement
letter?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
45. Evaluate the following statements
regarding the engagement letter.
I. Remind management that the primary
responsibility for the FS rests with
management.
II. Provide a written record of the
agreement with the client as to the
services to be provided.
Which is/are the primary purpose(s) of the
document?
A. I only
B. II only
C. Both I and II
D. Neither I nor II
46. Which of the following is least likely
to be included in an audit engagement
letter?
I. Identification of specific audit
procedures that the auditor needs to
undertake.
II. A reference to the inherent
limitations of an audit that there is an
unavoidable risk that some material
misstatements may remain undiscovered.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

47. Which of the following is least likely II. Recent change of middle management and
to result into the auditor sending a new rank and file organizational structure
audit engagement letter? A. I only
I. Revisions or special terms of the B. II only
engagement. C. Both I and II
D. Neither I nor II
48. If a change in the type of engagement
from higher to lower level of assurance is
reasonably justified, the report based on
the revised engagement:
I. Should qualify the opinion due to a
scope limitation.
II. Omits reference to the original
engagement.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
49. If a change in the type of engagement
from higher to lower level of assurance is
not justified, the auditor should:
I. Qualify the report on the original
engagement.
II. Refuse to agree to management’s
request on the change of engagement and
continue with the original engagement.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
50. Which of the following statement(s)
is/are correct concerning the auditors’
objective with respect to opening balances
in conducting an initial audit engagement
I. To obtain sufficient appropriate
evidence about whether the opening
balances contains misstatements
that materially affect the current
period’s financial statements.
II. To obtain sufficient appropriate
evidence about whether appropriate
accounting policies reflected in
the opening balances have been
consistently applied in the current
period’s financial statements, or
changes thereto are appropriately
accounted for and adequately presented and
disclosed in accordance
with the applicable financial reporting
framework
A. I only
B. II only
C. Both I and II
D. Neither I nor II

-end-

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