Auditing Theory MCQs by

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AUDITING THEORY MCQ BY SALOSAGCOL
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CHAPTER 1

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Broadly defned, the subject matter o7 any audit consist o7
a. Financial statements
b. Economic data
c. Assertions
d. Operating data

2. An audit o7 fnancial statements is conducted to determine i7 the

a. Organi@ation is operating e!ciency and e"ecti#ely
b. Auditee is 7ollo$ing specifc procedures or rules set do$n by some higher
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c. O#erall fnancial statement statements are stated in accordance $ith the
applicable fnancial reporting 7rame$or%
d. &lient's internal control is 7unctioning as intended

(. )ost o7 the independent auditor's $or% in 7ormulating an opinion on fnancial

statement consist o7
a. *tudying and e#aluating internal control
b. Obtaining and e+amining e#idential matter
c. E+amining cash transaction
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d. &omparing recorded accountability $ith assets

L. -n fnancial statement audits, the audit process should be conducted in

accordance $ith
a. Nhe audit program
b. /hilippine standard on auditing
c. /hilippine accounting standards
d. /hilippine Financial 0eporting *tandards

Q. Rhich o7 the 7ollo$ing best describe the operational audit3

a. -t re4uires the constant re#ie$ by internal auditors o7 the administrati#e
controls as they relate to operations o7 the company.
b. -t concentrates on implementing fnancial and accounting control in a
ne$ly organi@ed company.
c. -n attempts and is designed to #eri7y the 7air presentation o7 a company's
results o7 operations.
d. -t concentrates on see%ing out aspects o7 operations in $hich $aste $ould
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be reduced by the introduction o7 controls.

5. Nhe auditor communicates the results o7 his or her $or% through the medium i7
the
a. Engagement letter
b. Audit report
c. )anagement letter
d. Financial statement

6. Rhich o7 the 7ollo$ing types o7 auditing is per7ormed most commonly by &/A's

on a contractual basis3
a. -nternal Auditing

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AUDITING THEORY MCQ BY SALOSAGCOL

b. -ncome ta+ auditing

c. 7o#ernment auditing
d. E+ternal auditing

8. -ndependent auditing can best be describe as a

a. /ro7essional acti#ity that measures and communicates fnancial
accounting data
b. subset accounting
c. /ro7essional acti#ity that attest to the 7air presentation o7 fnancial
statement
d. 0egulatory acti#ity that pre#ents the issuance o7 improper fnancial
in7ormation

9. Rhich o7 the 7ollo$ing statements is not a distinction bet$een independent

auditors and internal auditors3
a. -ndependent auditors represent third party users e+ternal to the auditee
entity, $hereas internal auditors report directly to management.
b. Although independent auditors stri#e 7or both #alidity and rele#ance o7
e#idence, internal auditors are concerned almost e+clusi#ely $ith #alidity.
c. -nternal auditors are employees o7 the auditee, $hereas independent
auditors are independent contractors.
d. Nhe internal auditor's span o7 co#erage goes beyond fnancial auditing to
encompass operational and per7ormance auditing.

1:.Rhich o7 the 7ollo$ing has the primary responsibility 7or the 7airness o7 the
representations made in the fnancial statements3
a. &lient's management
b. Audit &ommittee
c. -ndependent auditor
d. Board o7 Accountancy

11.An audit o7 the fnancial statements o7 ;-A &orporation is being conducted by an

e+ternal auditor. Nhe e+ternal auditor is e+pected to
a. e+press an opinion as to the 7airness o7 ;-A's fnancial statements.
b. e+press an opinion as to the attracti#eness o7 ;-A 7or in#estment
purposes.
c. certi7y the correctness o7 ;-A's Financial *tatements.
d. e+amine all e#idence supporting ;-A's fnancial statements.

12.Rhich o7 the 7ollo$ing statements about independent fnancial statements audit

is correct3
a. Nhe audit o7 fnancial statements relie#es management o7 its
responsibilities 7or the fnancial statement
b. An audit is designed to pro#ide limited assurance that the fnancial
statements ta%en as a $hole are 7ree 7rom material misstatement
c. Nhe procedures re4uired to conduct an audit in accordance $ith /*As
should be determined by the client $ho engaged the ser#ices o7 the
auditor.

AUDITING THEORY MCQ BY SALOSAGCOL

d. Nhe auditor's opinion is not an assurance as to the 7uture #iability o7 the

entity as $ell as the e"ecti#eness and e!ciency $ith $hich management
has conducted the a"airs o7 the entity.

1(.Nhe reason an independent auditor gathers e#idence is to

a. Form an opinion on the fnancial statements
b. <etect 7raud
c. E#aluate management
d. E#aluate internal controls

1L.An attitude that includes a 4uestioning mind and critical assessment o7 audit
e#idence is re7erred to as
a. <ue pro7essional care
b. /ro7essional s%epticism
c. 0easonable assurance
d. *uper#ision

1Q.=ac% has been retained as auditor o7 E>& &ompany. Nhe 7unction o7 =ac%'s opinion
on fnancial statements o7 E>& &ompany is to
a. -mpro#e fnancial decisions o7 company management
b. ?end &redibility to management's representation
c. <etect 7raud and abuse in management operations
d. *er#e re4uirements o7 B-0, *E&, or &entral Ban%

15.Rhich o7 the 7ollo$ing is not one o7 the limitations o7 an audit3

a. Nhe use o7 testing
b. ?imitations imposed by client
c. @uman error
d. aature o7 e#idence that the auditor obtains

16.Rhich o7 the 7ollo$ing statements does not properly describe a limitation o7 an

audit3
a. )any audit conclusions are made on the basis o7 e+amining a sample o7
e#idence.
b. *ome e#idence supporting peso representation in the fnancial statement
must be obtained by oral or $ritten representation o7 management.
c. Fatigue can cause auditors to o#erloo% pertinent e#idence.
d. )any fnancial statement assertions cannot be audited.

18.Rhich o7 the 7ollo$ing is not one o7 the general principles go#erning the audit o7
fnancial statements3
a. Nhe auditor should plan and per7orm the audit $ith an attitude o7
pro7essional s%epticism.
b. Nhe auditor should obtain su!cient appropriate e#idence primarily
through in4uiry and analytical procedure to be able to dra$ reasonable
conclusions.
c. Nhe auditor should conduct the audit in accordance $ith /*A.
d. Nhe auditor should comply $ith the /hilippine &ode o7 /ro7essional Ethics.

AUDITING THEORY MCQ BY SALOSAGCOL

19.Rhich o7 the 7ollo$ing statements does not describe a condition that creates a
demand 7or auditing3
a. &onbict bet$een an in7ormation preparer and a user can result in biased
in7ormation.
b. -n7ormation can ha#e substantial economic conse4uence 7or a decisionC
ma%er.
c. E+pertise is o7ten re4uired 7or in7ormation preparation and #erifcation.
d. Dsers can directly assess the 4uality o7 in7ormation.

2:.Rhich o7 the 7ollo$ing statements does not properly describe an element o7

theoretical 7rame$or% o7 auditing3
a. Nhe data to be audited can be #erifed.
b. *hortCterm conbicts may e+ist bet$een mangers $ho prepare the data
and auditors $ho e+amine the data.
c. Auditors act on behal7 o7 the management.
d. An audit benefts the public

CHAPTER 2

AUDITING THEORY MCQ BY SALOSAGCOL

1. An intentional act by one more indi#iduals among management, employees, or

third parties $hich results in misrepresentation o7 fnancial statement re7ers to
a. Error
b. aoncompliance
c. Fraud
d. -llegal acts

2. Nhe responsibility 7or the detection and pre#ention o7 errors, 7raud and
noncompliance $ith la$s and regulations rests $ith
a. Auditor
b. &lient's legal counsel
c. Fraud
d. -llegal acts

(. Nhe auditor's best de7ense $hen material misstatements in the fnancial

statements are not unco#ered in the audit is that
a. Nhe audit $as conducted in accordance $ith generally accepted
accounting principles
b. &lient is guilty o7 contributory negligence
c. Nhe audit $as conducted in accordance $ith /*As
d. -ssuing a representation letter to the auditor

L. Nhe 7ollo$ing statements relate to the auditor's responsibility 7or the detection o7
errors and 7raud. -denti7y the correct statements.
-. <ue to the inherent limitation o7 the audit, there is a possibility
that material misstatements in the fnancial statements may
not be detected.
--. Nhe subse4uent disco#ery o7 material misstatement o7 the
fnancial in7ormation resulting 7rom 7raud or error does not, in
itsel7, indicate that the auditor 7ailed to 7ollo$ the basic
principles and essential procedures o7 an audit.
a. - only
b. Both *tatements are true
c. -- only
d. Both statements are 7alse

Q. Rhat primarily di"erentiates 7raud 7rom an error

a. )ateriality
b. E"ect on misstatements
c. -ntent
d. Fre4uency o7 occurrence

5. Nhe term eerrorf re7ers to unintentional misrepresentation o7 fnancial

in7ormation. E+amples o7 errors are $hen
-. Assets ha#e been misappropriated
--. Nransactions $ithout substance ha#e been recorded
---. 0ecords and documents ha#e been manipulated and 7alsifed
->. Nhe e"ects o7 the transaction ha#e been omitted 7rom the
records

AUDITING THEORY MCQ BY SALOSAGCOL

a. all o7 the abo#e statements are true

b. only statements - and --- are true
c. all o7 the abo#e statements are 7alse
d. only statement -- and -> are true

6. Rhich o7 the 7ollo$ing best identifes the t$o types o7 7raud3

a. Nhe7t o7 assets and employee 7raud.

b. )isappropriation o7 asset and de7alcation.
c. )anagement 7raud and employee 7raud.
d. Fraudulent fnancial reporting and management 7raud.

8. Rhich o7 the 7ollo$ing statements best describe an auditor's responsibility

to detect errors and 7raud3
a. An auditor should assess the ris% that errors and 7raud may cause
the fnancial statements to contain material misstatements and
should design the audit to pro#ide reasonable assurance o7
detecting errors and 7raud that are material to the fnancial
statements.
b. An auditor is responsible to detect material errors, but has no
responsibility to detect material 7raud that are concealed through
employee collusion or management o#erride o7 the internal control
structure.
c. An auditor has no responsibility to detect errors and 7raud unless
analytical procedures or tests o7 transactions identi7y conditions
causing a reasonably prudent auditor to suspect that the fnancial
statements $ere materially misstated.
d. An auditor has no responsibility to detect errors and 7raud because
an auditor is not an insurer and an audit does not constitute a
guarantee.

9. eNhe auditor $ould ordinarily e+pect to fnd e#idence to support

management representations and not assume that they necessarily correctf.
Nhis is an e+ample o7

a. Dnpro7essional beha#ior
b. An attitude o7 pro7essional s%epticism
c. <ue diligence
d. A rule in code o7 pro7essional conduct.

1:. Rhich o7 the 7ollo$ing statement is true3

a. -t is usually easier 7or the auditor to unco#er 7raud than errors.

b. -t is usually easier 7or the auditor to unco#er errors than 7raud.
c. -t is usually e4ually di!cult 7or the auditor to unco#er errors or 7raud.
d. Dsually, the auditor does not design procedures to unco#er 7raud or
errors.

11. Nhe most di!cult type o7 misstatement to detect is 7raud based on

a. Nhe o#er recording o7 transaction

AUDITING THEORY MCQ BY SALOSAGCOL

b. Nhe nonCrecording o7 transactions

c. 0ecorded transactions in subsidiaries
d. 0elated party recei#able

12. -7 an auditor $as engaged to disco#er errors or 7raud and the auditor
per7ormed e+tensi#e detail $or%, $hich o7 the 7ollo$ing could the auditor be
e+pected to detect3

a. )isposting i7 recorded transactions

b. Dnrecorded transaction
c. &ounter7eit signatures on paid chec%s
d. &ollusi#e 7raud

1(. Rhich o7 the 7ollo$ing statements is incorrect3

a. Nhe responsibility 7or the pre#ention and detection o7 7raud and

error rests $ith management.
b. Nhe auditor is not and cannot be held responsible 7or the detection
o7 7raud or error.
c. -n planning an audit, the auditor should assess the ris% that 7raud or
error may cause the fnancial statements to contain material
misstatement.
d. Nhe ris% o7 not detecting material 7raud is higher than the ris% o7 not
detecting a material misstatement arising 7rom error.

1L. Rhich o7 the 7ollo$ing statement about 7raud or error is incorrect3

a. Nhe auditor is not and cannot be held responsible 7or the pre#ention
o7 7raud and error.
b. Nhe responsibility 7or the pre#ention and detection o7 7raud and
error rests $ith management.
c. Nhe auditor should plan and per7orm the audit $ith an attitude o7
pro7essional s%epticism, recogni@ing that conditions or e#ents may
be 7ound that 7raud or error may e+ist.
d. Nhe li%elihood o7 detecting 7raud is ordinarily higher than that o7
detecting error.

1Q. Rhich o7 the 7ollo$ing is not an assurance that the auditors gi#e to the
parties $ho rely on the fnancial statements3

a. Auditors %no$ ho$ the amounts and disclosures in the fnancial

statements $ere produced.
b. Auditor's gi#e assurance that the fnancial statements are accurate.
c. Auditors gathered enough e#idence to pro#ide a reasonable basis
7or 7orming an opinion.
d. -7 the e#idence allo$s the auditors to do so, auditors gi#e assurance
in the 7orm o7 opinion, as to $hether the fnancial statements as a
$hole are 7airly presented in con7ormity $ith 7AA/.

15. Rhich o7 the 7ollo$ing is most li%ely to be presumed to represent 7raud

ris% on an audit3

AUDITING THEORY MCQ BY SALOSAGCOL

a. &apitali@ation o7 repairs and maintenance into the property, plant

and e4uipment asset account.
b. -mproper re#enue recognition
c. -mproper interest e+pense accrual
d. -ntroduction o7 signifcant ne$ products

16. Rhich o7 the 7ollo$ing conditions or e#ents $ould least li%ely increase ris%
o7 7raud or error3

a. Guestions $ith respect to competence or integrity o7 management

b. Dnusual pressures $ithin the entity
c. Dnusual transactions
d. ?ac% o7 transaction trail

18. Rhich o7 the 7ollo$ing $ould be least li%ely to suggest to an auditor that
the client's fnancial statement are materially misstated3

a. Nhere are numerous delays in preparing timely internal fnancial

reports.
b. )anagement does not correct internal control structure $ea%nesses
that it %no$s about.
c. <i"erences are rebected in the customer's confrmation replies.
d. Nhere ha#e nee t$o ne$ controllers this year.

19. Rhich o7 the 7ollo$ing circumstances $ould least li%ely cause auditor to
consider $hether a material misstatement e+ists3

a. Nhe turno#er o7 senior accounting personnel e+ceptionally lo$.

b. )anagement places substantial emphasis on meeting, earning
projections.
c. Nhere are signifcant unusual transactions near yearCend.
d. Operating and fnancing decisions are dominated by one person.

2:. Rhich o7 the 7ollo$ing conditions $ould not normally cause the auditor to
4uestion $hether material errors or possible 7raud e+ists3

a. Nhe accounting department is o#ersta"ed.

b. <i"erences e+ist bet$een control accounts and supporting
subsidiary records.
c. Nransactions are not supported by proper documentation.
d. Nhere are 7re4uent changes o7 auditors la$yers.

AUDITING THEORY MCQ BY SALOSAGCOL

CHAPTER 3:

1. Nhe primary responsibility 7or establishing and maintaining an internal control

rests $ith
a. Nhe e+ternal auditors
b. Nhe internal auditors
c. )anagement and those charged $ith go#ernance
d. Nhe controller or the treasurer

2. Nhe 7undamental purpose o7 an internal control is to

a. *a7eguard the resources o7 the organi@ation
b. /ro#ide reasonable assurance that the objecti#es o7 the organi@ation are
achie#ed
c. Encourage compliance $ith organi@ation objecti#es
d. Ensure the accuracy, reliability and timeliness o7 in7ormation

(. Rhich o7 the 7ollo$ing is not one o7 the three primary objecti#es o7 e"ecti#e
internal control3
a. 0eliability o7 fnancial reporting
b. E!ciency and e"ecti#eness o7 operations
c. &ompliance $ith la$s and regulations
d. Assurance o7 elimination o7 business ris%.

L. Rhich o7 the 7ollo$ing internal control objecti#es $ould be most rele#ant to the
audit3
a. Operational objecti#e
b. &ompliance objecti#e
c. Financial reporting objecti#e
d. Administrati#e control objecti#e

Q. An act o7 t$o or more employee to steal assets and co#er their the7t by
misstating the accounting records $ould be re7erred to asH
a. &ollusion
b. A material $ea%ness
c. A control defciency
d. A signifcant defciency

5. Rhich o7 the 7ollo$ing is not one o7 the components o7 an entity's internal

control3
a. &ontrol ris%
b. &ontrol acti#ities
c. -n7ormation and communication
d. Nhe control en#ironment

6. Nhe o#erall attitude and a$areness o7 an entity's board o7 director concerning

the importance o7 the internal control usually is rebected in its
a. &omputerCbased controls
b. *ystem o7 segregation o7 duties
c. &ontrol en#ironment
d. *a7eguard o#er access o7 assets

AUDITING THEORY MCQ BY SALOSAGCOL

8. -n e#aluating the design o7 the entity's internal control en#ironment, the auditor
considers the certain subcomponents o7 control en#ironment and ho$ they ha#e
been incorporated into the entity's processes. *ubcomponents o7 control
en#ironment $ould include
a. -ntegrity and ethical #alues
b. &ommitment to competence
c. Organi@ational structure
d. -n7ormation and communications systems

9. Rhich o7 the 7ollo$ing components o7 an entity's internal control structure

includes the de#elopment o7 employee promotion and training policies3
a. &ontrol acti#ities
b. &ontrol en#ironment
c. -n7ormation and communication
d. Guality control system

1:.Rhich o7 the 7ollo$ing subcomponents o7 the control en#ironment defne the

e+isting lines o7 responsibility and authority3
a. Organi@ational structure
b. )anagement philosophy and operating style
c. @uman resource policies and practices
d. )anagement integrity and ethical #alues

11.Rhich o7 the 7ollo$ing is not one o7 the subcomponents o7 the control

en#ironment3
a. )anagement philosophy and operating style
b. Organi@ational structure
c. Ade4uate separation o7 duties
d. &ommitment to competence

12.Rhich o7 the 7ollo$ing deal $ith ongoing or periodic assessment o7 4uality o7

internal control by management3
a. Guality control acti#ities
b. )onitoring acti#ities
c. O#ersight acti#ities
d. )anagement acti#ities

1(.Nhe policies and procedures that help ensure that management directi#es are
carried out are re7erred to as theH
a. &ontrol en#ironment
b. &ontrol acti#ities
c. )onitoring o7 controls
d. -n7ormation systems

1L.Rhich o7 the 7ollo$ing is not one o7 the specifc control acti#ities that are
rele#ant to fnancial statement audit3
a. /er7ormance re#ie$s
b. /hysical controls

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AUDITING THEORY MCQ BY SALOSAGCOL

c. *egregation o7 duties
d. )onitoring

1Q./roper segregation o7 7unctional responsibilities in an e"ecti#e structure o7

internal control calls 7or separation o7 7unctions o7
a. Authori@ation, e+ecution, and payment
b. Authori@ation, recording, and custody
c. &ustody, e+ecution, and reporting
d. Authori@ation, payment, and recording

15.Rhich o7 the 7ollo$ing best describes the purpose o7 the control acti#ities3
a. Nhe actions, policies and procedures that rebect the o#erall attitudes o7
the management
b. Nhe identifcation and analysis o7 ris%s and rele#ant to the preparation o7
the fnancial statements
c. Nhe policies and procedures that help ensure that necessary actions are
ta%en in order to achie#e the entity's objecti#es
d. Acti#ities that deal $ith the ongoing assessment o7 the 4uality o7 internal
control by management

16.Rhen the auditor attempts to understand the operation o7 the accounting

system by tracing a 7e$ transactions through the accounting system, the auditor
is said to beH
a. Nracing
b. >ouching
c. /er7orming a $al% through
d. Nesting controls

18.Rhich o7 the 7ollo$ing is not a medium that can normally be used by an auditor
to record in7ormation concerning a client's internal control policies and
procedures3
a. aarrati#e memorandum
b. Flo$chart
c. /rocedures manual
d. Guestionnaire

19.An auditor uses the %no$ledge pro#ided by the understanding o7 internal control
and the fnal assessed le#el o7 control ris% primarily to determine the nature,
timing and e+tent o7 the
a. Attribute tests
b. Nests o7 controls
c. &ompliance tests
d. *ubstanti#e tests
2:.Based on the re4uirement o7 /*A (((:, ho$ 7re4uently must an auditor test
operating e"ecti#eness o7 controls that appear to 7unctions as they ha#e in past
years and on $hich the auditor $ishes to rely in the current year3
a. )onthly
b. Each audit

AUDITING THEORY MCQ BY SALOSAGCOL

c. At least e#ery second audit

d. At least e#ery third audit

CHAPTER 4:

1. Nhese are acts o7 omission or commission by the entity being audited, either
intentional or unintentional, $hich are contrary to the pre#ailing la$s and
regulations.
a. Fraud
b. )isappropriation
c. aoncompliance
d. <e7alcation

AUDITING THEORY MCQ BY SALOSAGCOL

2. -n order to achie#e the objecti#es o7 the accountancy pro7ession, pro7essional

accountants ha#e to obser#e a number o7 prere4uisites or 7undamental
principles. Nhe 7undamental principles include the 7ollo$ing e+cept
a. Objecti#ity
b. /ro7essional competence and due care
c. Nechnical standards
d. &onfdence

(. Nhe principle o7 pro7essional competence and due care imposes certain

obligations on pro7essional accountants. Rhich o7 the 7ollo$ing is not one o7
those obligations re4uired by this principle3
a. No act diligently in accordance $ith applicable technical and pro7essional
standards
b. No be 7air, intellectually honest and 7ree o7 conbict o7 interest
c. No become a$are and understand rele#ant technical, pro7essional and
business de#elopments
d. No obtain pro7essional %no$ledge and e+perience to enable them to 7ulfl
their responsibilities

L. Nhe phase o7 pro7essional competence that re4uires a pro7essional accountant to

adopt a program designed to ensure 4uality control in the per7ormance o7
pro7essional ser#ices consistent $ith technical and pro7essional standards isH
a. Attainment o7 pro7essional competence
b. )aintenance o7 pro7essional competence
c. Application o7 pro7essional competence
d. 0e#ie$ o7 pro7essional competence

Q. Nhe essence o7 the due care principle is that the auditor should not be guilty o7H
a. Bias
b. Errors in judgement
c. Fraud
d. aegligence

5. Nhe principle o7 confdentiality applies toH

a. /ro7essional accountants in public practice
b. /ro7essional accountants in commerce and industry
c. /ro7essional accountants in go#ernment
d. All pro7essional accountants

6. Nhe principle o7 confdentiality imposes an obligation on pro7essional

accountants to re7rain 7romH
a. <isclosing confdential in7ormation to another party e#en i7 client
authori@es the disclosure
b. Dsing confdential in7ormation ac4uired as a result o7 pro7essional and
business relationships to their personal ad#antage or the ad#antage o7 the
third parties
c. <isclosing in7ormation to de7end themsel#es in case o7 litigation
d. 0esponding to an in4uiry or in#estigation conducted by the /ro7essional
0egulatory Board o7 Accountancy

AUDITING THEORY MCQ BY SALOSAGCOL

8. A &/A should not disclose confdential in7ormation obtained during an audit

engagement in $hich one o7 the 7ollo$ing situations3
a. Rhen the security o7 the state re4uires
b. Rith the consent o7 the client
c. -n de7ense o7 himsel7 $hen sued by his client
d. No a successor auditor $ithout the client's permission

9. Rhich o7 the 7ollo$ing is considered a #iolation o7 rules on confdentiality3

a. Nhe &/A discloses in7ormation to protect his o$n interest in the course o7
legal proceedings
b. Nhe &/A discloses in7ormation to a successor auditor a7ter obtaining the
client's permission
c. Nhe &/A discloses in7ormation to another &/A in compliance $ith a 4uality
control re#ie$ conducted by the BOA
d. Nhe &/A di#ulges in7ormation disclosed to him by a prospecti#e client.

1:.-n $hich o7 the 7ollo$ing circumstances $ould a &/A be bound by the ethics to
re7rain 7rom disclosing any confdential in7ormation obtained during course o7 a
pro7essional engagement3
a. Nhe &/A is issued summon en7orceable by the court order $hich orders
the &/A to present confdential in7ormation
b. A major stoc%holder o7 a client company see%s accounting in7ormation
7rom &/A a7ter the management declined to disclose the re4uested
in7ormation
c. &onfdential client in7ormation is made a#ailable $ith the client's
permission
d. An in4uiry by the /0& and the &/A needs the disclosure to de7end himsel7

11.Nhe principle o7 pro7essional beha#iour re4uires a pro7essional accountant to

a. Be straight7or$ard and honest in per7orming pro7essional ser#ices
b. Be 7air and should not allo$ prejudice or bias, conbict o7 interest or
inbuence o7 others to o#erride objecti#ity
c. /er7orm pro7essional ser#ices $ith due care, competence and diligence
d. Act in a manner consistent $ith the good reputation o7 the pro7ession and
re7rain 7rom any conduct $hich might bring discredit to pro7ession

12.Rhich o7 the 7ollo$ing most accurately states ho$ objecti#ity has been defned
by the &ode o7 Ethics3
a. Being honest and straight 7or$ard in all pro7essional and business
relationships.
b. A state o7 mind that permits the pro#ision o7 an opinion $ithout being
a"ected by inbuences that compromise pro7essional judgement
c. A combination o7 impartiality, intellectual honesty and a 7reedom 7rom
conbict o7 interest
d. A#oiding 7acts and circumstances that could reduce the public confdence
in the pro7essional accountant's report

1(.Rhich 7undamental principle is seriously threatened by an engagement that is

compensated based on the net proceeds on loans recei#ed by the client 7rom a
commercials ban%3

AUDITING THEORY MCQ BY SALOSAGCOL

a. -ntegrity
b. Objecti#ity
c. &onfdentiality
d. /ro7essional beha#iour

1L.-ndependence is re4uired $hene#er a pro7essional accountant per7ormsH

a. /ro7essional ser#ices
b. Assurance ser#ices
c. aonCassurance ser#ices
d. Na+ consultancy ser#ices

1Q.-t re7ers to the a#oidance o7 7acts and circumstances that are so signifcant that
a reasonable and in7ormed third party, ha#ing %no$ledge o7 all rele#ant
in7ormation, including sa7eguards applied, $ould reasonably conclude a frm's or
a member o7 the assurance team's integrity, objecti#ity or pro7essional
scepticism had been compromised.
a. -ndependence in 7act
b. -ndependence in appearance
c. -ndependence in mind
d. -nherent independence

15.Nhis occurs as a result o7 the fnancial or other interests o7 a pro7essional

accountant or o7 an immediate or close 7amily member.
a. *el7Cinterest threat
b. *el7Cre#ie$ threat
c. Ad#ocacy threat
d. Familiarity threat

16.Acting 7or an audit client in the resolution o7 a dispute or litigation $ould most
li%ely create
a. *el7Cinterest threat
b. -ntimidation threat
c. Ad#ocacy threat
d. Familiarity threat

18.Nhe preparation o7 accounting records o7 fnancial statements 7or an audit client

$ill most li%ely create
a. *el7Cinterest threat
b. *el7Cre#ie$ threat
c. -ntimidation threat
d. Familiarity threat

19.Accepting gi7t or undue hospitality 7rom an assurance client $ould create most
li%ely create
a. Familiarity threat
b. *el7Cre#ie$ threat
c. Ad#ocacy threat
d. -ntimidation threat

AUDITING THEORY MCQ BY SALOSAGCOL

2:.Dsing the same senior personnel on an assurance engagement o#er a long

period o7 time $ould most li%ely create
a. -ntimidation threat
b. Ad#ocacy threat
c. Familiarity threat
d. *el7Cinterest threat

AUDITING THEORY MCQ BY SALOSAGCOL

CHAPTER 5

1. Nhis consists o7 chec%ing the mathematical accuracy o7 documents o7 records.

a. 0eper7ormance
b. &onfrmation
c. 0ecalculation
d. -nspection

2. Rhich o7 the 7ollo$ing assertions does not relate to balances at period end3
a. E+istence
b. Occurrence
c. >aluation or allocation
d. 0ights and obligations

(. Rhich o7 the 7ollo$ing assertions does not relate to classes o7 transactions and
e#ents 7or the period3
a. &ompleteness
b. >aluation
c. &utCo"
d. Accuracy

L. An assertion that transactions are recorded in the proper accounting period isH
a. &lassifcation
b. Occurrence
c. Accuracy
d. &utCo"

Q. Rhich o7 the 7ollo$ing is not normally per7ormed in the preplanning or preC

engagement phase3
a. <eciding $hether to accept or reject an audit engagement
b. -n4uiring 7rom predecessor auditor
c. /reparing an engagement letter
d. )a%ing a preliminary estimate o7 materiality

5. Be7ore accepting an engagement to audit a ne$ client, a &/A is re4uired to

obtain
a. A preliminary understanding o7 the prospecti#e client's industry and
business
b. Nhe prospecti#e client's signature to the engagement letter
c. An understanding o7 the prospecti#e client's control en#ironment
d. A representation letter 7rom the prospecti#e client

6. /reliminary %no$ledge about the client's business and industry must be obtained
prior to the acceptance o7 the engagement primarily to
a. <etermine the degree o7 %no$ledge and e+pertise re4uired by the
engagement
b. <etermine the integrity o7 management
c. <etermine $hether the frm is independent $ith the client

AUDITING THEORY MCQ BY SALOSAGCOL

d. 7ather e#idence about the 7airness o7 the fnancial statements

8. -n an audit, communication bet$een the predecessor and incoming auditor

should be
a. Authori@ed in an engagement letter
b. Ac%no$ledged in a representation letter
c. Either $ritten or oral
d. Rritten and included in the $or%ing papers

9. Arnel, &/A, is succeeding >on, &/A, on the audit engagement o7 Almar

&orporation. Arnel plans to consult >on and to re#ie$ >on's prior year $or%ing
papers. Arnel may do so i7
a. >on and Almar consent
b. Almar consents
c. >on consents
d. >on and Arnel consent

1:.An incoming auditor should re4uest the ne$ client to authori@e the predecessor
auditor to allo$ a re#ie$ o7 the predecessor's
Engagement letter Working Paper
a. Ies Ies
b. Ies ao
c. ao Ies
d. ao ao

11.Engagement letter that documents and confrms the auditor's acceptance o7 the
engagement $ould normally be sent to the client
a. Be7ore the audit report is issued
b. A7ter the audit report is issued
c. At the end o7 feld$or%
d. Be7ore the commencement o7 the engagement

12.Rhich o7 the 7ollo$ing is not one o7 the principal contents o7 an engagement

letter3
a. Objecti#e o7 the fnancial statements
b. Dnrestricted access to records and documents
c. ?imitations o7 the engagement
d. )anagement's responsibility 7or the fnancial statements

1(.Arrangements concerning $hich o7 the 7ollo$ing are least li%ely to be included in

engagement letter3
a. Auditor's responsibilities
b. Fees and billing
c. &/A in#estment in client securities
d. Other 7orms o7 reports to be issued in addition to the audit report

1L.Nhe audit engagement letter should generally include a re7erence to each o7 the
7ollo$ing e+cept
a. Nhe e+pectation o7 recei#ing a $ritten management representation letter

AUDITING THEORY MCQ BY SALOSAGCOL

b. A re4uest 7or the client to confrm the terms o7 engagement

c. A description o7 the auditor's method o7 sample selection
d. Nhe ris% that material misstatements may remain undisco#ered

1Q.Rhich o7 the 7ollo$ing $ould be least li%ely to be included in the auditor's

engagement letter
a. Forms o7 the report
b. E+tent o7 his responsibilities
c. Objecti#es and scope o7 the audit
d. Nype o7 opinion to be issued

15.According to /*A 21:, the auditor and the client should agree on the terms o7
engagement. Nhe agreed terms $ould need to be recorded in aJnK
a. )emorandum to be placed in the permanent section o7 the auditing
$or%ing papers
b. Engagement letter
c. &lient representation letter
d. &om7ort letter

16.Rhich o7 the 7ollo$ing 7actors most li%ely $ould inbuence an auditor's

determination o7 the auditability o7 the entity's fnancial statements
a. Nhe comple+ity o7 the accounting systems
b. Nhe e+istence o7 related party transactions
c. Nhe ade4uacy o7 the accounting records
d. Nhe operating e"ecti#eness o7 control procedures

18.Rhich o7 the 7ollo$ing 7actors most li%ely $ould cause an auditor not to accept a
ne$ audit engagement3
a. An inade4uate understanding o7 the entity's inter#al control structure
b. Nhe close pro+imity to the end o7 the entity's fscal year
c. &oncluding that the entity's management probably lac%s integrity
d. An inability to per7orm preliminary analytical procedures be7ore assessing
control ris%

19.Rhich o7 the 7ollo$ing should an auditor obtain 7rom the predecessor auditor
prior to accepting an audit engagement
a. Analysis o7 balance short accounts
b. Analysis o7 income statements accounts
c. All matters o7 continuing accounting signifcance
d. Facts that might bear on the integrity o7 management

2:.An incoming auditor most li%ely $ould ma%e specifc in4uiries o7 the predecessor
auditor regarding
a. *peciali@ed accounting principles o7 the client's industry
b. Nhe competency o7 the client's internal audit sta"
c. Nhe uncertainty inherent in applying sampling procedures
d. <isagreements $ith management as to auditing procedures

AUDITING THEORY MCQ BY SALOSAGCOL

CHAPTER 6:

1. Rhich o7 the 7ollo$ing statements is most correct regarding the primary purpose
o7 audit procedures3
a. No detect all errors or 7raudulent acti#ities as $ell as illegal acti#ities
b. No comply $ith the *E&
c. No gather corroborati#e audit e#idence about management's assertions
regarding the client's fnancial statements
d. No determine the amount o7 errors in the balance sheet accounts in order
to adjust the accounts to actual

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AUDITING THEORY MCQ BY SALOSAGCOL

2. A procedure designed to test 7or monetary misstatements directly a"ecting the

#alidity o7 the fnancial statement balances is aH
a. Nest o7 controls
b. *ubstanti#e test
c. Nest o7 attributes
d. )onetaryCunit sampling test

(. Iou are auditing the company's purchasing process 7or goods and ser#ices. Iou
are primarily concerned $ith the company not recording all purchase
transactions. Rhich audit procedure belo$ $ould be the most e"ecti#e audit
procedure in this case3
a. >ouching 7rom the accounts payable account to the #endor in#oices.
b. Nracing #endor in#oices to recorded amounts in the accounts payable
account.
c. &onfrmation o7 accounts payable recorded amounts.
d. 0econciling the accounts payable subsidiary ledger to the accounts
payable account.

L. Nhe in7ormation obtained by the auditor in arri#ing at the conclusions on $hich

the audit opinion is based is calledH
a. Audit $or%ing papers
b. Audit assertions
c. Audit e#idence
d. Audit standards

Q. Nhe major reason an independent auditor gathers e#idence is to

a. 7orm an opinion on the fnancial statements.
b. detect 7raud.
c. e#aluate management.
d. e#aluate internal control.

5. Rhich o7 the 7ollo$ing is the best e+ample o7 a corroborating e#idence3

a. 7eneral journal
b. Ror%sheet cost allocation
c. >endor's in#oice
d. &ash receipts journal

6. Rhich o7 the 7ollo$ing statements about audit e#idence is correct3

a. Appropriateness is the measure o7 the 4uantity o7 audit e#idence.
b. *u!ciency is the measure o7 the 4uality o7 audit e#idence and its
rele#ance to a particular assertion and its reliability.
c. Audit e#idence is more persuasi#e $hen items o7 e#idence 7rom di"erent
sources or o7 di"erent nature are consistent.
d. Nhere should be a oneCtoCone relationship bet$een audit objecti#e and
audit procedure.

8. E#idence is generally considered appropriate $henH

a. it has been obtained by random selection.

AUDITING THEORY MCQ BY SALOSAGCOL

b. there is enough o7 it to a"ord a reasonable basis 7or an opinion on

fnancial statements.
c. it has the 4ualities o7 being rele#ant, objecti#e, and 7ree 7rom %no$n bias.
d. it consists o7 $ritten statements made by managers o7 the enterprise
under audit.

9. E#idence are generally considered su!cient $henH

a. it is appropriate.
b. there is enough o7 it to a"ord a reasonable basis 7or an opinion on
fnancial statements.
c. it has the 4ualities o7 being rele#ant, objecti#e and 7ree 7rom un%no$n
bias.
d. it has been obtained by random selection.

1:.Appropriateness o7 e#idence is a measure o7 theH

a. 4uantity o7 e#idence.
b. 4uality o7 e#idence.
c. su!ciency o7 e#idence.
d. meaning o7 e#idence.

11.Nhe su!ciency and appropriateness o7 e#idential matter ultimately is based on

the
a. a#ailability o7 corroborating data.
b. /hilippine *tandard on Auditing.
c. pertinence o7 the e#idence.
d. judgment o7 the auditor.

12.An e+ample o7 an e+ternal document that pro#ides reliable in7ormation 7or the
auditor isH
a. employees time reports.
b. ban% statements.
c. purchase order 7or company purchases.
d. carbon copies o7 chec%s.

1(.An e+ample o7 a document that the auditor recei#es 7rom the client, but $hich
$as prepared by someone outside the client's organi@ation, is aH
a. confrmation.
b. sales in#oice.
c. #endor in#oice.
d. ban% reconciliation.
1L.No be considered reliable e#idence, confrmations must be controlled byH
a. a client employee responsible 7or accounts recei#able.
b. a fnancial statement auditor.
c. a client's internal audit department.
d. a client's controller or &FO.

1Q.7i#en the economic and time constraints in $hich auditors can collect e#idence
about management assertions about the fnancial statements, the auditor
normally gathers e#idence that isH

AUDITING THEORY MCQ BY SALOSAGCOL

a. irre7utable.
b. conclusi#e.
c. persuasi#e.
d. completely con#incing.

15.-t re7ers to the material J$or%ing papersK prepared by and 7or, or obtained and
retained by the auditor in connection $ith the per7ormance o7 the audit.
a. <ocumentation
b. Audit report
c. Accounting data
d. &orroborati#e e#idence

16.Rhich o7 the 7ollo$ing best describes one o7 the primary objecti#es o7 audit
documentation3
a. <e7end against claims o7 a defcient audit.
b. /ro#ide a principal support 7or the income ta+ation return.
c. /ro#ide documentation that the audit $as conducted in accordance $ith
auditing standards.
d. /ro#ide additional support or recorded amounts to the client.

18.Rhich o7 the 7ollo$ing is not an e+pert upon $hose $or% an auditor may relay3
a. Actuary
b. -nternal auditor
c. Appraiser
d. Engineer

19.An e+pert $hose e+pertise is used by the entity in preparing fnancial statements
is called aJnKH
a. Financial e+pert
b. )anagement e+pert
c. Auditor's e+pert
d. *pecialist

2:.E+ternal auditors must obtain e#idence regarding $hat attributes o7 an internal

audit department i7 the e+ternal auditors intend to rely on internal auditor's
$or%3
a. -ntegrity
b. Objecti#ity
c. &ompetence
d. All o7 the abo#e

AUDITING THEORY MCQ BY SALOSAGCOL

CHAPTER 7

1. Nhis in#ol#es de#eloping an o#erall strategy 7or the e+pected conduct and scope
o7 the e+aminationL the nature, e+tent, and timing o7 $hich #ary $ith the si@e
and comple+ity, and e+perience $ith and %no$ledge o7 the entity.
a. Audit planning
b. Audit procedure
c. Audit program
d. Audit $or%ing papers

2. -nitial planning in#ol#es 7our matters. Rhich o7 the 7ollo$ing is not one o7 these3
a. <e#elop an o#erall audit strategy
b. 0e4uest that ban% balances be confrmed

AUDITING THEORY MCQ BY SALOSAGCOL

c. *chedule engagement sta" and audit specialists

d. -denti7y the client's reason 7or the audit

(. A &/A is conducting the frst e+amination o7 a client's fnancial statements. Nhe

&/A hopes to reduce the audit $or% by consulting $ith the predecessor auditor
and re#ie$ing the predecessor's $or%ing papers. Nhis procedure is
a. Acceptable i7 the client and the predecessor auditor agree to it.
b. Acceptable i7 the &/A re7ers in the audit report to reliance upon the
predecessor auditor's $or%.
c. 0e4uired i7 the &/A is to render an unmodifed opinion.
d. Dnacceptable because the &/A should bring an independent #ie$point
to a ne$ engagement.

L. Nhe preliminary judgment about materiality and the amount o7 audit e#idence
accumulated are related.
a. directly
b. indirectly
c. not
d. in#ersely

Q. According to /*A (2:, materiality should be considered by the auditor $henH

Determining the nature, timing Evaluating the efects
and extent o; audit procedures. o; misstatements
a. IE* IE*
b. IE* aO
c. aO aO
d. aO IE*

5. Rhich o7 the 7ollo$ing statements is not correct about materiality3

a. Nhe concept o7 materiality recogni@es that some matters are important
7or 7air presentation o7 fnancial statements in con7ormity $ith the
applicable fnancial reporting 7rame$or%, $hile other matters are not
important.
b. An auditor considers materiality 7or planning purposes in terms o7 the
largest aggregate le#el o7 misstatements that could be material to any
one o7 the fnancial statements.
c. )ateriality judgments are made in light o7 surrounding circumstances
and necessarily in#ol#e both 4uantitati#e and 4ualitati#e judgments
d. An auditor's consideration o7 materiality is inbuenced by the auditor's
perception o7 the needs o7 a reasonable person $ho $ill rely on the
fnancial statements.

6. e/er7ormance materialityf is the term used to indicate materiality at theH

a. balance sheet le#el
b. account balance le#el
c. income statement le#el
d. companyC$ide le#el

AUDITING THEORY MCQ BY SALOSAGCOL

8. Rhen comparing le#el o7 materiality used 7or planning purposes and the le#el o7
materiality used 7or e#aluating e#idence, one $ould most li%ely e+pect
a. Nhe le#el o7 materiality to be al$ays similar.
b. Nhe le#el o7 materiality 7or planning purposes to be similar.
c. Nhe le#el o7 materiality 7or planning purposes to be higher.
d. Nhe le#el o7 materiality 7or planning purposes to be based on total
assets $hile the le#el o7 materiality 7or e#aluating purposes to be
based on net income.

9. Gualitati#e 7actors can a"ect an auditor's assessment o7 materiality. Rhich o7

the 7ollo$ing 4ualitati#e 7actors could inbuence the assessment o7 materiality3
-. )isstatements that are other$ise immaterial may be material i7 a"ect
earnings trends.
--. )inor misstatements resulting 7rom the conse4uences o7 contractual
obligations.
a. - only
b. -- only
c. - and --
d. neither - or --

1:. Auditors 7re4uently re7er to the terms audit assurance, o#erall assurance, ad
le#el o7 assurance to re7er to .
a. detection ris%
b. audit report ris%
c. acceptable audit ris%
d. inherent ris%

11.Nhe ris% that fnancial statements are li%ely to be misstated materially $ithout
regard to the e"ecti#eness o7 internal control is theL
a. -nherent ris%
b. Audit ris%
c. &lient ris%
d. &ontrol ris%

12.Rhen planning a fnancial statement audit, the auditor should assess inherent
ris% at the
Financial statement level Account balance or transaction class level
a. IE* IE*
b. IE* aO
c. aO aO
d. aO IE*

1(.Rhich o7 the 7ollo$ing is an incorrect statement3

a. <etection ris% cannot be changed at the auditor's discretion.
b. -7 indi#idual audit ris% remains the same, detection ris% bears an
in#erse relationship to inherent and control ris%.

AUDITING THEORY MCQ BY SALOSAGCOL

c. Nhe greater the inherent and control ris% the auditor belie#es e+ist, the
less detection ris% that can be accepted.
d. Nhe auditor might ma%e separate or combines assessments o7 inherent
ris% and control ris%.

1L.0elationship bet$een control ris% and detection ris% is ordinarily

a. /arallel
b. <irect
c. -n#erse
d. E4ual

1Q.Rhich o7 the 7ollo$ing is not correct regarding an auditor's decision that a lo$er
acceptable audit ris% is appropriate3
a. )ore e#idence is accumulated
b. ?ess e#idence is accumulated
c. *pecial care is re4uired in assigning e+perienced sta"