SAN PEDRO COLLEGE OF BUSINESS ADMINISTRATION

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Name COMBIS, John Patrick B. Auditing Theory
Section BSA502 Preliminary Lecture
Date/Time SEPT. 18, 2020/ 1:00 – 2:00PM Mr. Randolf B. de Guzman, CPA

Instruction: Write the letter of your answer on the side of the number.

1 When performing an assurance service, professional accountants use standards or benchmarks to evaluate or measure the
subject matter of an assurance engagement. These are referred to in the framework as
a Criteria c Conditions
b Norms d Gauges
2 The auditor is required to mainatain professional skepticism throughout the audit. Which of the following
statements concerning professional skepticism is false?
a A belief that management and those charged with governance are honest and have integrity relieves
the auditor of the need to maintain professional skepticism.
b Maintaining professional skepticism throughout the audit reduces the risk of using inappropriate
assumptions in determining the nature, timing, and extent of the audit procedures and evaluating the
result therof.
c Professional skepticism is necessary to the critical assessment of audit evidence.
d Professional skepticism is an attitude that includes questioning contradictory audit evience obtained.
3 A financial statement audit aids in communication of economic data because the audit
a Assures the readers of financial statenets that any fradulent activity has been corrected.
b Guarantees that financial ata are fairly presented.
c Lends credibility to the financial statements
d Confirms the accuracy of management's financial representations.
4 What is the proper organizational role of intenal auditing?
a To serve as an independent, objective assurance and consulting activity that adds value to operations.
b To assists the external auditor in order to reduce external audit fees.
c To perform studies to assist in the attainment of more efficient operations.
d To serve as the investigatve arm of the audit committee of the board of directors.
5 The purpose of an audit of financial statements is to
a Relieve management or those charged with governance of the responsibility for the preparation and
presentation of the financial statements.
b Obtain an absolute level of assurance that the financial statements as a whole are free from material
mistatement.
c Enhance the degree of confidence of intended users in the financial statements.
d Assure the future viability of the entity by expressing an opinion on the entity's financial statements.
6 The auditor is required to comply with all PSAs relevant to the audit of an entity's financial statements. A PSA is relevant
to the audit when
I The PSA is in effect
II The circumstances addressed by the PSA exist.
a I only c Either I and II
b II only d Both I and II
7 Upon completion of a financial statement audit, the auditor has
a No assurance that the financial statements are fairly presented
b Absolute assurance that the financial statements are fairly presented
c Reasonable assurance that all material errors and irregularities have been detected
d A low level of assurance that all material errors and irregularities have been found
8 Which one of the following is an example of management expectations from the independent auditors?
a An active participant in management decision making.
b An internal source of expertise of financial and other matters.
c An expert providing a written communication as the product of the engagement.
d Individuals who perform day-to-day accounting functions on behalf of the company.
9 An audit of financial statements is conducted to determine if the
a Organization is operatng effectively and efficiently.
b Auditee is following specific procedures or rules set own by some hogher authority.
c Overall financial statements are stated in accordance with an identified financial reporting framework.
d Client's internal control is functioning as intended.
10 An audit in accordance with PSAs is performed on the premise that management and, where appropriate, those charged
with governance have responsibilities that are fundamental to the conduct of the audit.
Which of the following is not one of those responsibilities?
a To comply with all relevant PSAs in the preparation and presentation of the entity's financial statements.
b To provide the auditor with all information, such as records and documentation, and other matters
that are relevant to the preparation and presentation of the financial statements.
c To provide unrestricted access to those within the entity from whom the auditor determines it
necessary to obtain audit evidence.
d To design, implement, and maintain internal control relevant to the preparation and presentation of
financial statements that are free from material misstatement, whether caused by fraud or error.
11 Professional judgment
a Should be exercised in planning and performing an audit of financial statements but need not be
documented.
b Can be used as the justification for the decisions made by the auditor that are not supported by facts
and circumstances of the engagement.
c Is necessary in the evaluation of management's judgments in applying the entity's applicable financial
reporting framework.
d Is not used in making decisions about materiality and audit risk.
12 The primary responsbility for the adequacy of disclosure in the financial statements rest with the
a Partner assigned to the audit engagement
b Management of the company
c Securities and Exchange Commission
d Auditor in charge of the field work
13 Which of the following statements is not true in respect of the internal auditor?
a The scope of audits performed by the internal auditor is primarily in respect of financial report audits. Page 2 of 3
b An internal auditor does not require license to practice.
c Internal auditors are usually employed by companies and government units.
d Primary responsibility of the internal auditor is to the board of directors.
14 Which of the following groups could be involved in an operational audit?
CPA Firms Internal Government
Auditors Auditors
a YES YES YES
b YES NO NO
c NO NO YES
d YES YES NO
15 The term efficiency in performing auditing refers to
a Using resources to maximize output for a given input, ir to minimize input for any given quantity and
quality of output
b The achievement of intended results of operations, programs or activities.
c The achievement of objectives within a specified time frame.
d The acquisition of resources at appropriate times and within a specified time frame.
16 Which of the following activities would generally account for a significant proportion of an internal auditor's time?
a Checking if the company is complying with all of its rules and regulations of operation
b Verifying all invoices before payment is made
c Ensuring the company is operating within budget
d Evaluating the effectiveness and efficiency of all phases of an entity's operations.
17 Which of the following is considered a primary reason for creating an internal audit department?
a To evaluate and improve the effectiveness of control processes.
b To ensure the accuracy, reliability, and timeliness of financial and operating data used in management's
decision making.
c To relieve management of the responsibility for establishing effective controls.
d To safeguard resources entrusted to the organization
18 The internal auditing department's responsibility for deterring fraud is to
a Establish an effective internal control system.
b Maintain internal control
c Examine and evaluate the system of internal control
d Exericise operating authority over fraud prevention activities.
19 Internal auditors should review the means of physically safeguarding assets from losses arising from
a Exposure to the elements
b Underusage of physical facilities
c Misapplication of accounting principles.
d Procedures that are not cost justified
20 The objective of performance audit is to determine whether an entity's
a Operational informantion is in accordance with government auditing standards
b Specific operating units are functioning economically and efficiently
c Financial statements present fairly the results of operations
d Internal control is adequately operatng as designed
21 What is the responsibility of an auditor who is engaged to audit the financial statements of a government entity?
a Assess control risk with respect to each component of internal control
b Assume responsibility for assuring that the entiry complies with applicable laws and regulations
c Obtain an understanding of the possible financial statement effects or laws and regulations having
direct
and material effects on amounts reported.
d Design the audit to provide reasonable assurance that the statements are free of material
misstatements
resulting from illegal acts having direct or indirect effects.
22 The objective of governmental effectiveness or program auditing is to determine if the desired results of a program
are
being achieved. What is the first step in conducting such an audit?
a Identify the legislative intent of the program being audited.
b Collect quantifiable data on the program's success or failure
c Determine the time frame to be audited
d Evaluate the system used to measure results
23 What is the typical objective of an operational
audit?
a To determine whether an entity's internal control system is adequately operating as designed.
b To determine whether an entity's operational information is in accordance with PFRS
c To determine whether an entity's financial statements present fairly the results of operations
d To determine whether an entity;s specific operating units are functioning efficiently and effectively.
24 Before an effectiveness audit can be performed, there must be
a Specific criteria developed to define effectiveness.
b A compliance audit performed by a government auditor.
c A review performed by either an independent or internal auditor.
d A financial statement audit by an independent auditor.
25 Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial as a result of the
following factors, except
a The use of selective testing
b The fact that much of the evidence available to the practitioner is persuasive rather than
conclusive.
c The practitioner may not have the required assurance knowledge and skills to gather and evaluate
evidence.
d The use of judgment in gathering and evaluating evidence and forming conclusions based on that
evidence.
26 Which of the following has the primary responsibility for the fairness of the representations made in the financial
statements?
a. Client's management c. Independent auditor
b. Audit committee d. Board of Accountancy
27 An audit of the financial statements of KIA Corporation is being conducted by an external auditor. The external
auditor is expected to Page 3 of 3
a. Express an opinion as to the fairness of KIA's financial statements.
b. Express an opinion as to the attractiveness of KIA for investment purposes.
c. Certify the correctness of KIA's financial statements.
d. Examine all evidence supporting KIA's financial statements.
28 The reason an independent auditor gathers evidence is to
a. form an opinion on the financial statem c. evaluate management
b. detect fraud d. evaluate internal controls
29 The level of assurance provided by a professional accountant on an audit report is:
a. low b. reasonable c. moderate d. none
30 Which of the following is one of the limitations of an audit?
a The possibility that management may prevent the auditor from performing the
necessary audit procedures.
b The likelihood that the auditor may not be able to detect material misstatements in the
financial statements because the auditor is engaged only after the client's year end.
c The fact that most audit evidence is persuasive rather than conclusive in nature.
d The risk that the auditor may not possess the training and proficiency required by the
engagement.
31 Which of the following statements about independent financial statement audit is correct?
a. The audit of financial statements relieves management of its responsibilities for the
financial statements.
b. An audit is designed to provide limited assurance that the financial statements taken as a
whole are free from material misstatement.
c. The procedures required to conduct an audit in accordance with PSAs should be determined
by the client who engaged the services of the auditor.
d. The auditor's opinion is not an assurance as to the future viability of the entity as well
as the effectiveness and efficiency with which management has conducted the affairs
of the entity.
32 Financial statements need to be prepared in accordance with one, or combination of:
Other authoritative
Philippines Philippine
International or omprehensive Financial
Standard Auditing financial reporting Reporting
of Auditing Standard framework Standard
a. Yes yes yes yes
b. No yes yes yes
c. No yes no yes
d. Yes no no no
33 Which of the following is not one of the general principles governing the audit of financial statements?
a. The auditor should plan and perform the audit with an attitude of professional skepticism.
b. The auditor should obtain sufficient appropriate evidence primarily through inquiry and
analytical procedures to be able to draw reasonable conclusions.
c. The auditor should conduct the audit in accordance with PSA.
d. The auditor should comply with the Philippine Code of Professional Ethics.
34 Which one of the following is not among the conditions that give rise to a demand by external users for independent
audits of financial statements?
a. remoteness of users
b. complexity of making economic decisions
c. potential conflict of interest between users and preparers of the statements
d. consequence for making decisions
35 Which of the following is incorrect about responsibility for financial statements?
a. Management is responsible for fair presentation of the financial statements.
b. Auditor is responsible for expressing an opinion on the financial statements
c. Audit of financial statements does not reduce management's responsibility
d. Fair presentation of financial statements is an implicit part of the auditor's responsibility.
36 Which of the following statements does not properly describe an element of theoretical framework of auditing?
a. The data to be audited can be verified
b. Short-term conflicts may exist between managers who prepare the data and auditors who
examine the data.
c. Auditors act on behalf of the management
d. An audit benefits the public
37 The need for independent audits of financial statements can be attributed to all of the following conditions except:
a. remoteness c. complexity of subject matter
b. consequence d. validity
38 The best statement of the responsibility of the auditor with respect to audited financial statement is:
a. The auditor's responsibility on fair presentation of financial statements is limited only up to
the date of audit report.
b. The auditor's responsibility is confined to the expression of opinion on the financial
statements audited.
c. The responsibility over the financial statements rests with the management and the auditor
assumes responsibility with respect to the notes of financial statements.
d. The auditor is responsible only to his qualified opinion but not for any other type of opinion.
39 Internal auditing is an independent appraisal function established within an organization to examine and
evaluate its activities. To that end, internal auditing provides assistance to
a. External auditors c. Management and the board of directors
b. Stockholders d. Government
40 Which of the following types of auditing is performed most commonly by CPA's on a contractual basis?
a. Internal auditing c. Government auditing
b. Income tax auditing d. External auditing