AUDITING THEORY

OCTOBER 1990
1.

The Auditing Standards and Practices Council (ASPC)

shall:
a. Define the nature and extent of the auditors
responsibilities.
b. Both A and C.
c. Provide guidance to the auditor in carrying out his
duties.
d. None of these.

2.

Piecemeal opinions may tend to contradict a (an):

Disclaimer of opinion
Adverse opinion

A
Yes
No

B
No
Yes

C
Yes
Yes

D
No
No

3.

An auditor's engagement letter documents and

confirms his acceptance of the appointment and also
the / or:
a. Objectives and scope of the audit.
b. Extent of his responsibilities to his client.
c. Form of the reports.
d. All of the above.

4.

The auditor's report is the medium through which he

expresses his:
A
B
C
D
Opinion
Yes
Yes
No
No
Disclaims an opinion
Yes
No
Yes
No

5.

In the preparation of an audit report the following

type(s) of paragraphs may be used:
a. All of the following.
b. Opinion paragraph.
c. Middle paragraph.
d. Scope paragraph.

6.

The user of financial statement can safely ensure that

the auditor's opinion about the entity is an assurance
as to its:
A
Future viability
No
Efficiency of management

B
Yes
No

C
Yes
Yes

D
No
No

Yes

7.

In the audit of inventories, one of the following

situations make inclusion in the report even a
disclaimer necessary:
a. Alternative procedures applied.
b. No reference to the omission of procedures.
c. Significant limitation in the scope of work.
d. All of these.

8.

Auditing Standards as distinct from auditing procedures

deals with:
A
B
C
D
Measures of the quality performance No
Yes
No
Yes
Objectives of procedures
No
No
Yes
Yes

9.

The internal control environment may be affected by:

a. Organizational structure.
b. Management supervision.
c. Personnel.
d. All of these.

10.

In an audit, the elements of "materiality" and "relative

risk" underlie the application of standards, in particular:
General standards
Standards of filed work
Standards of reporting

A
Yes
Yes

B
No
Yes
Yes

C
Yes
No
Yes

D
No
Yes
No

No

11.

Guidelines in the review of audit reports must consider

evidence to show that:
a. Working papers support the report.
b. The report conforms to professional standards and
firm policy.
c. The review was conducted by a qualified individual.
d. All of these.

12.

The specific written representations obtained by the

auditor will depend on the :
A
B
C
D
Circumstances of the engagement
Yes
Yes
No
No
Nature and basis of
presentation of the
financial statement
No
Yes
Yes
Yes
Audit fees
Yes
No
Yes
No

13.

Which one is not a specialist upon whose work an

auditor may rely?
a. Actuary.
b. Appraiser.
c. Internal auditor.

d. Engineer.
14.

The audit report is ordinarily used when reporting the

following basic financial statements:
A
B
C
D
Balance sheet
Yes
Yes
No
Yes
Income and retained earnings
Yes
Yes
Yes
No
Changes in financial positions
Yes
No
Yes
Yes

15.

In auditing the Loan Dept. of a bank, the internal

auditor should not:
a. Verify loan collaterals by physical inspection.
b. Confirm loan balances with customer/clients.
c. Prepare an aging of loan balances.
d. Direct the loan officer to obtain updated credit
reports.

16.

Materiality does not depend entirely on relative size, as

the concept involves judgments that are:
A
B
C
D
Qualitative
Yes
Yes
No
No
Quantitative
Yes
No
Yes
No

17.

In conducting a fraud investigation the auditor should

first:
a. Identify the perpetrators.
b. Obtain the facts.
c. Obtain a confession.
d. Notify a enforcement agency.
For evidential matter to become component in audit
work, the evidence must be:
A
B
C
D
Valid
Yes
No
Yes
No
Relevant
No
Yes
Yes
No

18.

19.

If the auditor concludes that there is only a minimal

likelihood that resolution of the uncertainty will have a
material effect in the financial statements, he may give
an:

a.
b.
c.
d.
20.

Unqualified opinion.
Opinion qualified by reason of uncertainty.
Above with modification stating departure.
None of these.

In the process of obtaining sufficient and competent

evidence, as a guiding rule, there should be a rational
relationship regarding:
A
No
No

Costs
Usefulness

B
Yes
No

C
No
Yes

D
Yes
Yes

21.

A computer audit program was used to process all

financial transactions for the accounting period to
construct the general ledger. This audit procedure
would be an alternative to :
a. Evaluating controls over the master file.
b. Examining sample of source documents.
c. Manually tracing posting to and footing accounts.
d. All of the above.

22.

A governmental
examinations for:

audit

Program results
Compliance
Economy and efficiency
23.

24.

must
A
Yes
Yes
No

include
B
Yes
Yes
Yes

objective
C
No
Yes
Yes

D
Yes
No
Yes

Operational auditing is mainly concerned about:

a. Future improvements for management goals.
b. Past protection provided by current internal control.
c. Verification of fair presentation of financial data.
d. Accuracy of data of financial records.
Financial statements that are not in conformity with
generally accepted accounting principles may require
an auditor to issue a (an):
A
B
C
D
"Except for" opinion
Yes
No
Yes
No

Disclaimer for opinion

No

Yes

Yes

No

25.

For internal control, the same employee should not be

permitted to:
a. Sign checks and cancel supporting documents.
b. Receive merchandise and prepare a receiving
report.
c. Prepare disbursement vouchers and sign checks.
d. Initiate request to order merchandise and approve
merchandise received.

26.

In the case of unincorporated bodies, the audit

engagement letter will normally be addressed to the :
A
B
C
D
Owners
Yes
No
Yes
No
Chief executives
No
Yes
Yes
No

27.

As a monitor of the control system, the internal auditor

should:
a. Get to the bottom of any suspected fraud by
interrogating suspects.
b. Identify all reasonably foreseeable risk areas and
schedule reviews.
c. Be responsible for the prevention and detection of
fraud.
d. Be responsible for extraordinary care rather than
ordinary care.

28.

Where computer processing is used in significant

accounting applications, internal accounting control
procedures are sometimes defined by classifying
control procedures into:
A
B
C
D
General controls
Yes
No
Yes
No
Application controls
No
Yes
Yes
No

29.

Which of the following is the best criterion for

evaluating a staff auditor's work performance?
a. Quantity of deficiency findings.

b. Ability to get along with clients.

c. Working papers appearance.
d. Fulfillment of requirements set forth in the audit
programs.
30.

The evaluation of audit field work of an operating unit

should answer the following questions?
#1.
#2.
#3.

Why are the results what they are?

How could performance be improved?
What results are being achieved?

What is the chronological order

questions should be answered?
a. #s 3 - 1 - 2
b. #s 1 - 3 - 2
c. #s 3 - 2 - 1
d. #s 1 - 2 - 3

in

which

these