ACT163

QUIZ #1 – 40 POINTS

Multiple Choice. (2 points each)

1. Which of the following is not an objective of an auditor in conducting an audit

of financial statements?
a. To obtain reasonable assurance about whether the FS as a whole are free
from material misstatement, whether due to fraud or error
b. To report on the financial statements, and communicate as required by
the PFRS, in accordance with the auditor’s findings
c. To express an opinion on whether the FS are prepared, in all material
respects, in accordance with an applicable financial reporting framework
d. All are included in the overall objectives of the auditor.

2. Which of the following statements is correct?

a. The purpose of an audit is to enhance the degree of confidence of auditors
in the financial statements.
b. An audit of financial statements is a non-assurance engagement, as
defined by the Philippine Framework for Assurance Engagements.
c. The term “scope of an audit” refers to the audit procedures deemed
necessary in the circumstances to achieve the objective of the audit.
d. The PSA serves as an interpretative guidance and practical assistance to
auditors.

3. I. Professional skepticism means the auditor makes a critical assessment,

with a questioning mind, of the validity of audit evidence obtained.
II. Reasonable assurance is a concept relating to the accumulation of the
audit evidence necessary for the auditor to conclude that there are no
misstatements in the financial statements taken as a whole.
III. An audit is a guarantee that the financial statements are free from
material misstatements.
IV. The first phase in risk-based audit is risk response.

a. Statement I and II are correct

b. Only statement IV is incorrect
c. Only Statement II is correct
d. Only Statement I is correct

4. This is a risk that deals with whether the auditor wants to be associated with
a particular client.
a. Audit risk
b. Engagement risk
c. Business risk
d. Financial reporting risk
 5. Which of the following is not a limitation of the audit risk model?
a. Control risk is difficult to formally assess.
b. The audit risk model treats each risk component as separate and
independent.
c. Audit risk is judgmentally determined.
d. Audit technology is not so fully developed that each component can be
accurately assessed.

Modified True or False. (2 points each)

6. The agreed terms of the audit engagement shall be recorded in a

management representation letter.
7. Audit strategy involves the determination of the expected nature, timing and
extent of the audit.
8. If the auditor is unable to agree to a change of terms of the audit
engagement, and is not permitted by management to continue the original
audit engagement, the auditor shall withdraw from the engagement and
determine whether there is any obligation.
9. The audit strategy is more detailed than the audit plan.
10. The overall audit strategy and audit plan should be updated and
changed as necessary during the course of the audit.
11. Planning an audit is a continual and iterative process throughout the
audit engagement.
12. As the assessed risk of material misstatement increases, the auditor
normally decreases the extent and timeliness of direction and supervision of
engagement team members and performs a more detailed review of their
work.
13. Analytical procedures are required to be performed in planning,
substantive testing and review stage of the audit.
14. The audit team is usually composed of two partners, a manager, at
least one senior and one or more staff.
15. The auditor should not present compliance with PFRS unless the
auditor has complied fully with all the PFRS relevant to the audit.

Enumeration.

1. Three phases in a risk-based audit (in chronological order). (3 points)

2. Contents of an audit engagement letter. (5 points)
3. Formula for detection risk. (2 points)