MULTIPLE CHOICES

1. The primary objective of compliance auditing is to

A. Give an opinion on financial statements
B. Develop a basis for a report on internal control
C. Perform a study on effective and efficient use of resources
D. Determine whether auditee personnel are following laws, rules, regulations, and policies.
Answer: D
2. It is always a good idea for auditors to begin an audit with the professional skepticism characterized by
the assumption that
A. A potential conflict of interest always exists between the auditor and the management of the
enterprise under audit
B. In audits of financial statements, the auditor acts exclusively in the capacity of an auditor
C. The professional status of the independent auditor imposes commensurate professional
obligations
D. Financial statements and financial data are verifiable
Answer: A
3. According to the AICPA, the purpose of an audit of financial statements is to
A. Enhance the degree of confidence that intended users can place in the financial statements
B. Express an opinion on the fairness with which they present financial position, results of
operations, and cash flows in conformity with accounting standards promulgated by the FASB
C. Express an opinion on the fairness with which they present financial position, result of
operations, and cash flows in conformity with accounting standards promulgated by the US SEC
D. Obtain systematic and objective evidence about financial assertions and report of the results to
intended users
Answer: A
4. Independent auditors of financial statements perform audits that reduce
A. Business risk faced by investors
B. Information risk faced by investors
C. Complexity of financial statements
D. Timeliness of financial statements
Answer: B
5. The need for assurance services arises because:
A. There is a consonance of interests of the preparer and the user of the financial statements.
B. There is a potential bias in providing information.

C. Economic transactions are less complex than they were a decade ago. Most users today have
access to the system that generates the financial statements they use.
E. None of the above.
Answer: B
6. This exists when other information contradicts information contained in the financial statements.
A .Material inconsistency.
B. Material difference.
C. Material deviation.
D. Material error.
E. None of the choices
Answer: A
7. Broadly defined, the subject matter of any audit consists of
A. Financial statements
B. Economic data
C. Assertions
D. Operating data
Answer: C
8. What is the meaning of the generally accepted auditing standard which requires that the auditor be
independent?
A. The auditor must be without bias with respect to the client under audit.
B. The auditor must adopt a critical attitude during the audit.
C. The auditor's sole obligation is to third parties.
D. The auditor may have a direct ownership interest in his client's business if it is not material.
Answer: A

9. To exercise due professional care, an auditor should

A. Attain the proper balance of professional experience and formal education.
B. Design the audit to detect all instances of illegal acts. This is the correct answer.
C. Critically review the judgment exercised by those assisting in the audit.
D. Examine all available corroborating evidence supporting management's assertions.
Answer: C
10. Which of the following statements best describes an auditor's responsibility to detect errors, fraud,
and illegal acts?
A. The auditor should study and evaluate the client's internal control system and design the audit
to provide reasonable assurance of detecting all errors and fraud.
B. The auditor should consider the types of errors and fraud that could occur and determine
whether the necessary internal controls are prescribed and are being followed.
C) The auditor should assess the risk that errors and fraud may cause the financial statements to
contain material misstatements and design the audit to provide reasonable assurance of detecting material
errors and fraud.

D) The auditor should assess the risk that errors and fraud may cause the financial statements to
contain material misstatements and determine whether the necessary internal controls are prescribed and
are being followed satisfactorily
Answer: A
11. Assurance engagement
a

Is an engagement in which a 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.

Is 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.
Is an engagement in which the auditor provides a moderate level of assurance that the

information subject to the engagement is free from material misstatement.

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 the suitable
criteria, thereby improving the likehood that the information will meet the needs of an
intended user.

Answer: D
12. The single feature that most clearly distinguishes auditing, attestation, and assurance is
a. Type of service.
b. Training required to perform service.
c. Scope of services.
d. CPAs approach to the service.
Answer: C
13. Any services in which the CPA firm issues a written communication that express a conclusion with
respect to the reliability of a written assertion that the responsibility of another party is a (n)
a. Accounting and bookkeeping service
b. Management advisory service
c. Attestation service
d. Tax service
Answer: C
14. For the firm, the advantages of auditing are as follows except one:
a. The auditors have the ability to provide expert professional advice
b. Third party users are assured that the firms financial statements are in accordance to the
standards of the Generally Accepted Accounting Principles
c. The auditors are compensated with audit fees

d. The firm is assured that the statutory responsibilities have been carried out
Answer: C
15. Which are the duties of an auditor?
a. Carrying out statutory responsibilities of the firm
b. Evaluating the financial reports to certain compliance
c. Making a report containing a clear financial opinion\
d. All of the above
Answer: D

16. In testing the existence assertion for an asset, an auditor ordinarily works from the
a. Financial statements to the potentially unrecorded items.
b. Potentially unrecorded items to the financial statements.
c. Accounting records to the supporting evidence.
d. Supporting evidence to the accounting records.
Answer: C
17. Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items
provide assurance about management's assertion of
a. Completeness.
b. Existence.
c. Presentation.
d. Valuation.
Answer: D
18. An independent audit aids in the communication of economic data because the audit
a. Assures the reader of financial statements that any fraudulent activity has been corrected.
b. Confirms the accuracy of management's financial representations.
c. Lends credibility to the financial statements.
d. Guarantees that financial data are fairly presented.
Answer: C

19. The primary responsibility for the adequacy of disclosure in the financial statements of a publicly
held company rests with the
a. Partner assigned to the engagement.
b. Auditor in charge of field work.
c. Management of the company.
d. Securities & Exchange Commission.
Answer: C

20. Which of the following best describes the reason why an independent auditor reports on financial
statements?
a. A management fraud may exist and is more likely to be detected by independent auditors.
b. Different interests may exist between the company preparing the statements and the persons
using the statements.
c. A misstatement of account balances may exist and is generally corrected as the result of the
independent auditor's work.
d. Poorly designed internal control may exist.
Answer: B.
21. The auditor should conduct an audit in accordance with
a. PHILIPPINE STANDARDS ON AUDITING
b. Philippine Financial Reporting Standards
c. Board of Accountancy
d. Philippine Accounting Standards
Answer: A
22. An audit that involves a review of an organizations procedures to determine whether the
organization has adhered to specific procedures, rules or regulations.
a. Financial statement audit
b. COMPLIACE AUDIT
c. Operational audit
d. Performance audit
Answer: B.
23. Refers to unintentional misstatements in the financial statements
a. Fraud
b. ERROR
c. Misappropriation

d.

Illegal acts
Answer: B

24. The auditor communicates the results of his or her work through the medium of the
a. Engagement letter
b. AUDIT REPORT
c. Management letter
d. Financial Statements
Answer: B
25. It requires that an auditor assume that management is neither honest nor dishonest.
a. Doubtfulness
b. Assurance
c. Due professional care
d. PROFESSIONAL SKEPTICISM
Answer: D
26. Which of the following is not a limitation if an audit?
a. Human weakness
b. Reliance on managements representation
c. LIMITATIONS IMPOSED BY CLIENTS
d. Sampling risk
Answer: C
27. The primary function of an independent audit is
a. Report financial statements
b. LEND CREDIBILITY TO THE FINANCIAL STATEMENTS OF AN ENTITY
c. Advice managers for easier decision- making
d. Manage the financial affair of client
Answer: B
28. Independent CPAs who offer professional services on a contractual basis.
a. EXTERNAL AUDIT
b. Internal audit
c. Government auditors
d. Financial analyst
Answer: A
29. Amounts and other data relating to recorded transactions and events have been recorded in the
proper accounts
a. Cutoff
b. Completeness
c. ACCURACY
d. Classification
Answer: C
30. The level of assurance provided when an auditor issues and audit report is:
a. High
b. Low
c. REASONABLE
d. Moderate
Answer: C

31. The elements of the broad definition of assurance services are the following apart from:
a. For decision makers

b. Dependence
c. Professional services
d. Improving the quality of information or its context
Answer: B
32. The objective is to establish with evidence that all transactions of the period are in the
financial statements and all transactions that properly belong in the preceding or following
accounting periods are excluded.
a. Classification assertion
b. Completeness and cutoff assertion
c. Rights and obligations assertion
d. Accuracy assertion
Answer: B
33. All audit engagements are assurance engagements but not all assurance engagements are
audit engagements. The following criteria are assurance engagement However, for an
assurance engagement to be an audit engagement one additional requirement is
a. existence of three party relationship
b. appropriate subject matter
c. gathering of sufficient appropriate evidence
d. reasonable assurance level
Answer: D
34. Which of the following is not a part of Three party relationship on Assurance
Engagements?
a. Practitioner
b. A responsible party
c. Intended users
d. Board of Directors
Answer: D
35. The objective of this type of assurance engagement is a reduction in assurance
engagement risk to an acceptably low level in the circumstances of the engagement.
a. reasonable assurance engagement
b. assertion-based engagements
c. direct reporting engagements
d. limited- assurance engagements
Answer: A

36. The following are fundamental ethical principles that all professional accountants are
required to observe except for;
a. integrity
b. neutrality
c. neutrality
d. confidentiality
Answer: C
37. It is described as a risk that the practitioner will not detect a material misstatement that
exists.
a. Inherent risk
b. Control risk
c. Detection risk
d. Assurance-Engagements risk
Answer: C

38. Firm includes the following, except:

a. A sole practitioner professional accountant
b. An entity that controls a partnership professional accountants
c. A sole practitioner, partnership or corporation of professional accountants
d. An entity controlled by a partnership of professional accountants
Answer: C
39. A combination of impartiality, intellectual, honesty, and a freedom from conflicts of
interests.
a. independence
b. professional skepticism
c. independence of mind
d. objectivity
Answer: D
40. This provides an understanding of the individual roles and responsibilities pertaining to
internal control over financial reporting
a. control activities
b. communication
c. information system
d. internal control system

Answer: B
41. It is described as a risk that the practitioner will not detect a material misstatement that
exists.
a. Inherent risk
b. Control risk
c. Detection risk
d. Assurance-Engagements risk
Answer: C
42. 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.
Answer: C
43. These are representations made by the auditee regarding economic actions and events.
a. assertions
b. GAAP
c. recommendations
d. PSA
Answer: A
44. All of the following are major types of audit, except:
a. financial statement audit
b. process audit
c. operational audit
d. compliance audit
Answer: B