SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

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AUDITING THEORY
FIRST SEMESTER SY 2020-2021
AT01 - Fundamentals of Auditing and Assurance Services

1. Which of the following best describes assurance services?

a. Independent professional services that are intended to enhance the credibility of information
to meet the needs of an intended user
b. Services designed to express an opinion on the fairness of historical financial statements based on
the results of an audit
c. The preparation of financial statements or the collection, classification, and summarization of other
financial information
d. Services designed for the improvement of operations, resulting in better outcomes
2. Which of the following engagements is covered by the Framework for Assurance Engagements?
a. Consulting engagements
b. Agreed upon procedures
c. Preparation of tax returns
d. Independent financial statements audit
3. Assurance services differ from consulting services in that they (I) focus on providing advice (II) involve
monitoring of one party by another
a. I only
b. II only
c. Both I and II
d. Neither I nor II
4. How many separate parties are involved in an assurance engagement?
a. 2
b. 3
c. 4
d. 5
5. An assurance engagement should have which of the following elements
a. Subject matter – yes; criteria – no
b. Subject matter – no; criteria – yes
c. Subject matter – yes; criteria – yes
d. Subject matter –no; criteria – no
6. The subject matter of an assurance engagement may include
a. Financial information (yes); internal controls (yes); compliance with regulation (yes)
b. Financial information (no); internal controls (no); compliance with regulation (no)
c. Financial information (yes); internal controls (no); compliance with regulation (yes)
d. Financial information (no); internal controls (yes); compliance with regulation (no)
7. Suitable criteria are required for reasonably consistent evaluation or measurement of the subject matter of
an assurance engagement. Which of the following statements concerning the characteristics of suitable
criteria is correct?
a. Reliable criteria contribute to conclusions that are clear, comprehensive, and not subject to
significantly different interpretations
b. Relevant criteria allow reasonably consistent evaluation or measurement of the subject matter
including, where relevant, presentation and disclosure, when used in similar circumstances by
similarly qualified practitioners
c. Neutral criteria contribute to conclusions that are free from bias
d. Criteria are sufficiently complete when they contribute to conclusions that are clear,
comprehensive, and not subject to different interpretations
8. Criteria that are embodied in laws or regulations, or issued by authorized or recognized bodies of experts
that follow a transparent due process are called
a. Suitable criteria
b. Established criteria
c. Specifically-developed criteria
d. General criteria

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 9. In an assurance engagement, the outcome of the evaluation or measurement of a subject matter against
criteria is called
a. Subject matter information
b. Subject matter
c. Assurance
d. Conclusion
10. In some assurance engagements, the evaluation or measurement of the subject matter is performed by
the responsible party, and the subject matter information is in the form of an assertion by the
responsible party that is made available to intended users. These engagements are called
a. Direct reporting engagements
b. Assertion-based engagement
c. Non- assurance engagements
d. Recurring engagements
11. is the risk that the practitioner expresses an inappropriate conclusion when the
subject matter information is materially misstated
a. Assurance engagement risk
b. Business risk
c. Client risk
d. Information risk
12. Which of the following is the objective of a reasonable assurance engagement?
a. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the
engagement as a basis for a negative form of expression of the practitioner’s conclusion
b. A reduction in assurance engagement risk to a very low level in the circumstances of the
engagement as a basis for disclaimer of the practitioner’s conclusion
c. A reduction in assurance engagement risk to a level that is acceptable in the circumstances of the
engagement as a basis for a qualified form of expression of the practitioner’s conclusion
d. A reduction in assurance engagement risk to an acceptably low level in the circumstances of the
engagement as a basis for a positive form of expression of the practitioner’s conclusion
13. Which of the following statements is true concerning evidence in an assurance engagement?
a. Sufficiency is the measure of the quantity of evidence
b. Appropriateness is the measure of the quality of evidence, that is, its reliability and persuasiveness
c. The reliability of evidence is influenced not by its nature but by its source
d. Obtaining more evidence may compensate for its poor quality
14. Reducing assurance engagement risk to zero is very rarely attainable or cost beneficial because 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
15. The Philippine Framework for Assurance Engagements
a. Contains basic principles, essential procedures, and related guidance for the performance of
assurance engagements
b. Defines and describes the elements and objectives of an assurance engagement, and identifies
engagements to which PSAs, PSREs, and PSAEs apply
c. Provides a frame of reference for CPAs in public practice when performing audits, reviews, and
compilations of historical financial information
d. Establishes standards and provides procedural requirements for the performance of assurance
engagements
16. After accepting an assurance engagement, a practitioner is not allowed to change the engagement to a
non-assurance engagement, or from a reasonable assurance engagement to a limited assurance
engagement, except when there is reasonable justification for the change. Which of the following
ordinarily will justify a request for a change in the engagement?

(I) a change in circumstances that affects the intended users’ requirements

(II) a misunderstanding concerning the nature of the engagement
a. I only
b. II only
c. Both I and II
d. Neither I nor II
17. Which of the following standards are to be applied, as appropriate, in the audit of historical financial
information?
a. PSREs
 b. PSAEs
c. PSRSs
d. PSAs
18. PSRE 2400 (Engagements to Review Financial Statements), as amended by the AASC in February 2008,
applies to
a. Reviews of any historical financial information of an audit client
b. Reviews of any historical financial information by a practitioner other than the entity’s auditor
c. Reviews of historical financial or other information by a practitioner other than the entity’s auditor
d. Reviews of historical financial or other information of an audit client
19. The Philippine Standards on Assurance Engagements (PSAEs) are to be applied in
a. Assurance engagements dealing with subject matters other than historical financial information
b. Compilation engagements and agreements to apply agreed upon procedures to information
c. The audit or review of historical financial information
d. Assurance engagements dealing with historical financial information
20. The Philippine Standards on Quality Control are to be applied to
a. Assurance engagements only
b. Review engagements only
c. Compilation and review engagements only
d. All services that fall under the AASC’s engagement standards
21. These statements are issued by the AASC to provide interpretive guidance and practical assistance to
auditors in the implementation of PSAs and to promote good practice
a. PREPSs
b. PAPSs
c. PAEPs
d. PRSPSs
22. What level of assurance is provided by the auditor in an audit engagement?
a. Absolute
b. High, but not absolute
c. Moderate
d. No assurance
23. What level of assurance is provided by the practitioner in a review engagement?
a. No assurance
b. High, but not absolute
c. Reasonable
d. Moderate
24. When performing a compilation engagement, the accountant is required to?
a. Assess internal controls
b. Make inquiries of management to assess the reliability and completeness of the information
provided
c. Verify matters and explanations
d. Obtain general knowledge of the business and operations of the entity
25. What assurance is provided by the auditor in an agreed upon procedures engagement?
a. Reasonable
b. Absolute
c. Moderate
d. No assurance
26. The review of a company’s financial statements by a CPA firm
a. Is substantially less in scope of procedures than an audit
b. Requires detailed analysis of the major accounts
c. Is of similar scope as an audit and adds similar credibility to the statements
d. Culminates in issuance of a report expressing the CPA’s opinion as to the fairness of the statements
27. An engagement to perform agreed upon procedures may involve the auditor in performing certain
procedures concerning
(I) individual items of financial data
(II) a single financial statement
(III) a complete set of financial statements
a. I and II only
b. II and III only
c. I and III only
d. I, II, and III
28. A summary of findings rather than assurance is most likely to be included in a/an
a. Agreed upon procedures report
b. Compilation report
c. Examination report
d. Review report
 29. Inquiries and analytical procedures ordinarily form the basis for which type of engagement
a. Agreed upon procedures
b. Audit
c. Examination
d. Review
30. Independence is not a requirement for which of the following engagements?
Compilation; Review; Agreed-upon procedures
a. No; Yes; No
b. No; No; No
c. Yes; No; Yes
d. Yes; Yes; Yes
31. A practitioner should accept an assurance engagement only if
a. The subject matter is in the form of financial information
b. The criteria to be used are not available to the intended users
c. The practitioner’s conclusion is to be contained in a written report
d. The subject matter is the responsibility of either the intended users or the practitioner
32. A practitioner is associated with financial information when
(I) the practitioner attaches a report to that financial information
(II) the practitioner consents to the use of his/her name in a professional connection
a. I only
b. II only
c. Either I or II
d. Neither I nor II
33. 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
b. II only
c. Either I or II
d. Both I and II
34. The overall objectives of the auditor in conducting an audit of financial statements are
(I) to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether caused by fraud or error
(II) to report on the financial statements
(III) to obtain conclusive rather than persuasive evidence
(IV) to detect all misstatements, whether due to fraud or error
a. I and II only
b. II and IV only
c. I, II, and II only
d. I, II, III, and IV
35. The auditor is required to maintain 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 results thereof
c. Professional skepticism is necessary to the critical assessment of audit evidence
d. Professional skepticism is an attitude that includes questioning contradictory audit evidence
obtained
36. Which of the following best describes the reason why independent auditors report on financial statements?
a. A management fraud may exist and it 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 be in existence
37. Which of the following professionals has primary responsibility for the performance of an audit?
a. The managing partner of the firm
b. The senior assigned to the engagement
c. The manager assigned to the engagement
d. The partner in charge of the engagement
38. What is the proper organizational role of internal auditing?
 a. To serve as an independent objective assurance and consulting activity that adds value to
operations
b. To assist 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 investigative arm of the audit committee of the board of directors
39. Operational audits generally have been conducted by internal and COA auditors, but may be performed
by certified public accountants. A primary purpose of an operational audit is to provide
a. A measure of management performance in meeting organizational goals
b. The results of internal examinations of financial and accounting matters to a company’s top-level
management
c. Aid to the independent auditor, who is conducting the examination of the financial statements
d. A means of assurance that internal accounting controls are functioning as planned
40. Governmental auditing often extends beyond examinations leading to the expression of opinion on the
fairness of financial presentation and includes audit of efficiency, economy, effectiveness, and
a. Accuracy
b. Evaluated
c. Compliance
d. Internal control
41. Which of the following terms best describes the audit of a taxpayer’s return by a BIR auditor?
a. Operational audit
b. Internal audit
c. Compliance audit
d. Government audit
42. Which of the following statements concerning consulting services is false?
a. The performance of consulting services for audit clients does not, in and of itself, impair the
auditor’s independence
b. Consulting services differ fundamentally from the CPA’s function of attesting to the assertions of
other parties
c. Consulting services ordinarily involve external reporting
d. Most CPAs, including those who provide audit and tax services, also provide consulting services to
their clients
43. Operational auditing is primarily oriented toward
a. Future improvements to accomplish the goals of management
b. The accuracy of data reflected in management’s financial records
c. The verification that a company’s financial statements are fairly presented
d. Past protection provided by existing internal control
44. An audit to determine whether an entity is following specific procedures or rules set down by some higher
authority is classified as a/an
a. Audit of financial statements
b. Compliance audit
c. Operational audit
d. Production audit
45. Which of the following is the most appropriate action to be taken by a CPA who has been asked to
perform consulting services engagement concerning the analysis of a potential merger if he/she has little
experience with the industry involved?
a. Accept the engagement but he/she should conduct research or consult with others to
obtain sufficient competence
b. Decline the engagement because he/she lacks sufficient knowledge
c. Accept the engagement and issue a report that contains his/her opinion on the achievability
of the results of the merger
d. Accept the engagement and perform it in accordance with Philippine Standards on
Auditing (PSAs)
46. An objective of a performance audit is to determine whether an entity’s
a. Operational information 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 operating as designed
47. Internal auditors should review the means of physically safeguarding assets from losses arising from
a. Exposure to the elements
b. Under-usage of physical facilities
c. Misapplication of accounting principles
d. Procedures that are not cost justified
48. 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. Exercise operating authority over fraud prevention activities
49. Internal auditors review the adequacy of the company’s internal control system primarily to
a. Help determine the nature, timing and extent of tests necessary to achieve audit objectives
b. Determine whether the internal control system provides reasonable assurance that the company’s
objectives and goals are met efficiently and economically
c. Ensure that material weaknesses in the system of internal control are corrected
d. Determine whether the internal control system ensures that financial statements are
fairly presented
50. Which of the following services, if any, may a practitioner who is not independent provide?
a. Compilations but not reviews
b. Reviews but not compilations
c. Reviews but not financial statement audits
d. Agreed upon procedures but not compilations
51. The primary responsibility for the prevention and detection of fraud and error rests with
a. The external auditor, the company’s management, and those charged with governance
b. The company’s management
c. Those charged with governance
d. The company’s management, and those charged with governance
52. Which of the following types of audits are most similar?
a. Operational audits and compliance audits
b. Independent financial statement audits and operational audits
c. Compliance audits and independent financial statement audits
d. Internal audits and independent financial statement audits
53. This comprises officers and others who also perform senior managerial functions, and includes directors
and the audit committee only in those instances when they perform audit functions
a. Top rank personnel
b. Those charged with governance
c. Board of directors
d. Management
54. An operating committee of a company’s board of directors that is in charge of overseeing financial
reporting and disclosure
a. Governance
b. Audit committee
c. Control environment
d. Management
55. The general principles for conducting financial statement audits include which of the following
a. Compliance with the Code of Ethics for CPAs
b. Compliance with Philippine Standards on Auditing
c. Planning and performing the audit with professional skepticism
d. All the choices apply
56. This means the gathering of the audit evidence necessary for the auditor to conclude that there are no
material misstatements in the financial statements, taken as a whole
a. Professional judgment
b. Conservatism
c. Audit risk
d. Reasonable assurance
57. This term refers to the application of relevant training, knowledge and experience, within the context
provided by auditing, accounting, and ethical standards, in making informed decisions about the courses
of action that are appropriate in the circumstances of the audit engagement
a. Professionalism
b. Conservatism
c. Professional judgment
d. Materiality
58. According to the IAASB Glossary of Terms, this refers to a professional accountant in public practice
a. Auditor
b. Practitioner
c. Public accountant
d. Professional
59. The person or persons who in a direct reporting engagement, is responsible for the subject matter; or in an
assertion-based engagement, is responsible for the subject matter information (the assertion), and may be
responsible for the subject matter
a. Public
b. Responsible party
c. Audit committee
 d. Intended users
60. Which of the following statements exemplifies positive assurance?
a. “In our opinion, internal control is effective, in all material respects, based on XYZ criteria”
b. “Based on our work described in this report, nothing has come to our attention that causes us to
believe that internal control is not effective, in all material respects, based on XYZ criteria”
c. Both A and B
d. Neither A nor B
61. Which of the following is an objective of a review engagement?
a. Expressing a positive opinion that the financial information is presented in conformity with
generally accepted accounting principles
b. Expressing a limited assurance to users who have agreed as to procedures that will be performed
by the CPA
c. Reporting whether material modifications should be made to such financial statements to make
them conform with generally accepted accounting principles
d. Reporting that the financial statements, in all material respects, fairly present the financial position
and operating results of the client
62. Procedures in a review engagement consist primarily of inquiry and analytical procedures.
Regarding review procedures, which of the following is incorrect?
a. The auditor should apply the same materiality considerations as would be applied if an audit
opinion on the financial statements were given
b. The judgment as to what is material is made by reference to the information on which the auditor is
reporting and the needs of those relying on that information, not to the level of assurance provided
c. There is a greater risk that misstatements will not be detected in an audit than in a review
d. The auditor should apply judgment in determining the specific nature, timing and extent of review
procedures
63. Which of the following best describes risk assessment services?
a. An engagement which provides assurance about whether financial or non-financial information
being reported from the entity’s performance measurement system is reliable
b. An engagement which involves the evaluation of the quality of health care, medical services and
looks into the health care delivery system
c. An engagement which identifies a set of risks that affect the client organization. It involves the
study of the link between risks and the organization’s vision, mission, objectives and strategies and
the development of new and relevant measures
d. None of the answers
64. Krungy, CPA is performing a compilation service for MKC Corporation. In the course of performing
compilation procedures, Krungy became aware that some of the information provided by MKC’s
management are incomplete. Client management refuses to comply with Krungy’s requests for additional
information. In this case, Krungy should
a. Issue a qualified opinion on the financial statements compiled
b. Issue an adverse opinion on the financial statements compiled
c. Issue a disclaimer of opinion on the financial statements compiled
d. Withdraw from the engagement
65. On each page of the financial information or on the front of the complete set of financial statements, the
financial information compiled by the accountant should contain a reference such as
a. “Compiled without audit or review”
b. “Unaudited”
c. “Refer to the compilation report”
d. Any of these
66. These are independent professional services that improve the quality of information or its context, for
decision makers
a. Assurance services
b. Non-assurance services
c. Related services
d. All of the above
67. Which of the following is true about assurance services?
a. Assurance services help information users make decisions based on more credible information
b. Assurance services improve on the quality of information
c. Assurance services can enhance the usefulness of information
d. All of the above
68. Which of the following are the professional standards applicable to non-assurance services?
a. Philippine Standards on Auditing
b. Philippine Standards on Review Engagements
c. Philippines Standards on Related Services
d. Philippine Standards on Assurance Engagements
69. An engagement in which a practitioner expresses a conclusion designed to enhance the degree of
confidence of the intended users other than the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria
a. Assurance engagement
b. Attestation engagement
c. Audit engagement
d. Management consulting engagement
70. Which of the following is not an element of an assurance engagement?
a. Sufficient appropriate evidence
b. Appropriate professional fees
c. A subject matter
d. A written assurance report
71. The person, persons or class of persons for whom the practitioner prepares the assurance report
a. General public
b. Responsible party
c. Audit committee
d. Intended users
72. Which of the following forms may the subject matter of an assurance engagement take?
I. Financial Performance or conditions
II. Non-financial performance or conditions
III. Physical characteristics
IV. Systems and processes
V. Behavior
a. I and II
b. I, II and III
c. I, III and IV
d. I, II, III, IV, and V
73. These are the benchmarks used to evaluate or measure the subject matter including, where relevant,
benchmarks for presentation and disclosure.
a. Assertions
b. Engagement process
c. Criteria
d. GAAP
74. In an assurance engagement, this refers to the information obtained by the practitioner in arriving at the
conclusions on which the conclusion is based.
a. Criteria
b. Evidence
c. Assertions
d. PSAs
75. Generally, the conclusion expresses in an assurance engagement may provide the following levels of
assurance:
a. Reasonable, limited and absolute levels of assurance
b. Reasonable or limited level of assurance
c. Reasonable and limited levels of assurance
d. Absolute and reasonable levels of assurance
76. This assurance engagement provides a limited level of assurance about the client’s historical financial
statements:
a. Financial statements audit
b. Review of historical financial statements
c. Forecasts and projections
d. Agreed-upon procedures
77. Which of the following procedures ordinarily performed during an audit are also performed in a review
engagement?
a. Assessment of accounting and internal control systems
b. Tests of controls
c. Tests of records and responses to inquiries
d. Inquiry and analytical procedures
78. Which statement relates more to auditing than to accounting?
a. Recording of financial transactions
b. Preparation of financial information
c. Analysis of evidence supporting an assertion
d. All of the above relates more to auditing than accounting
79. Which of the following is a correct phrase regarding audit?
a. Auditing is a systematic process
 b. Auditing objectively obtains and evaluates evidence
c. Auditing ascertains the degree of correspondence between assertions and established criteria
d. All of the above phrases are correct
80. Representations made by management explicit or otherwise, that are embodied in the financial
statements, as used by the auditor to consider the different types of potential misstatements that may
occur.
a. Financial statement assertions
b. Audit evidence
c. Notes to the financial statements
d. Disclosure requirements
81. This type of audit is performed to determine whether an entity’s financial statements are fairly presented in
accordance with an identified financial reporting framework.
a. Financial statement audit
b. Operational audit
c. Compliance audit
d. Internal audit
82. The purpose of an audit of financial statement is to:
a. Enhance understanding of stakeholders of the company
b. Provide government agencies, such as BIR with basis of assessments
c. Enhance the degree of confidence of intended users of the financial statements
d. Enhance the knowledge and skills of external auditors
83. The overall objectives of independent auditor in conducting financial statement audits is:
a. To prove accuracy and reliability of financial statements
b. To prepare and present financial statements in accordance with PFRS
c. To obtain reasonable assurance about whether the financial statements are free from material
misstatements, due to fraud or error
d. To report on the financial statements and communicate as required by PAS
84. Financial statements need to be prepared in accordance with one, or a combination of
a. PFRS
b. IFRS
c. Other authoritative basis
d. All of the answers
85. This type of audit involves a review of an organization’s procedures and methods for the purpose of
evaluating efficiency and effectiveness of operations, identifying areas for improvement, and making
recommendations to improve performance
a. Financial statement audit
b. Operational audit
c. Compliance audit
d. Internal audit
86. This type of audit involves a review of organization’s procedures to determine whether the organization has
adhered to specific procedures, rules of regulations set down by some higher authority
a. Financial statement audit
b. Operational audit
c. Compliance audit
d. Internal audit
87. This is an independent appraisal activity established within an entity as a service to the entity:
a. External or independent auditing
b. Internal audit function
c. Government auditing
d. Compliance auditing
88. In government auditing, the three elements of expanded scope of auditing are:
a. Goal analysis, audit of operations, audit of systems
b. Financial and compliance, economy and efficiency, program results
c. Pre-audit, post-audit, internal audit
d. National government audit, local government audit, corporations audit
89. An intentional act by one or more individuals among management, those charged with governance,
employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage
a. Non-compliance
b. Fraud
c. Misstatement
d. Error
90. A difference between the amount, classification, presentation, or disclosure of a reported financial
statement item and the amount, classification, presentation, or disclosure that is required for the item
in accordance with the applicable financial reporting framework.
a. Non-compliance
 b. Fraud
c. Misstatement
d. Error
91. An unintentional misstatement in financial statements, including the omission of an amount or disclosure
a. Non-compliance
b. Fraud
c. Misstatement
d. Error
92. Information expressed in financial terms in relation to a particular entity, derived primarily from that entity’s
accounting system
a. Historical financial information
b. Prospective financial information
c. Statement of cash flows
d. Statement of compliance with regulators
93. A structured representation of historical financial information, including related notes, intended to
communicate an entity’s economic resources or obligations at a point in time or the changes therein for a
period of time in accordance with a financial reporting framework
a. Annual report
b. Engagement documentation
c. Accounting records
d. Financial statements
94. This term describes the role of person(s) or organization(s) with responsibility for overseeing the strategic
direction of the entity and obligations related to the accountability of the entity
a. Governance
b. Audit committee
c. Control environment
d. Management
95. According to IAASB’s glossary of terms, this term refers to persons with executive responsibilities for the
conduct of entity’s operations
a. Top rank personnel
b. Those charged with governance
c. Board of directors
d. Management
96. This term refers to the risk that a client’s financial statements may be materially false and/or misleading
a. Business risk
b. Information risk
c. Client risk
d. Risk assessment
97. Which of the following methods is most commonly used to reduce information risk?
a. Allow users to verify information
b. Users share information risk with management
c. Have the financial statements audited
d. Allow all users to prepare the statements
98. The following are conditions that create a demand from users for assurance on reliability of financial
information:
a. Transactions that are numerous and complex
b. Users separated accounting records by distance and time
c. Financial decisions that are important to investors and users
d. All of the choices are examples of the said conditions
99. Which of the following best describes the reason why independent auditors report on financial statements?
a. A management fraud may exist and it is more likely to be detected by independent auditors
b. A poorly designed internal control structure may be in existence
c. A misstatement of account balances may exist and is generally corrected as the result of the
independent auditor’s work
d. Different interests may exist between the company preparing the statements and the persons using
the statements
100. The best statement of the responsibility of the auditor with respect to the audited financial statements is
a. The auditor’s responsibility on fair presentation of financial statements is limited only up to the date
of the audit report
b. The auditor’s responsibility is confined to hos expression of opinion about the audited financial
statements
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
101. The general principles of conducting financial statement audits include which of the following:
a. Compliance with the Code of Ethics for CPAs
b. Compliance with Philippine Standards on Auditing
c. Planning and performing the audit with professional skepticism
d. All of the choices apply
102. Philippine Standards on Auditing (PSAs) should be looked upon by practitioners as:
a. Ideals to strive form which are not achievable
b. Maximum standards which denote excellent wok
c. Benchmark to be used on all audits, reviews and compilations
d. Minimum standards of performance which must be achieved on each audit engagement
103. The phrase used to express the auditor’s opinion is:
a. “absence of material and pervasive misstatements in the financial statements”
b. “present fairly, in all material respects”
c. “provide reasonable, but not absolute”
d. All of these choices are acceptable phrases to express the auditor’s opinion
104.An audit has inherent limitations that affect the auditor’s ability to detect material misstatements. Which of
the following is among the factors that result to these inherent limitations?
a. Use of testing
b. Inherent limitations of accounting and internal control
c. Evidence that is basically persuasive rather than conclusive
d. All of the choices properly describe factors that result to inherent limitations of audits
105.According to IAASB’s Glossary of Terms, this refers to a high, but not absolute level of assurance
a. Professional judgment
b. Conservatism
c. Audit risk
d. Reasonable assurance
106.An attitude that includes a questioning mind, being alert to conditions which may indicate possible
misstatement due to error or fraud, and a critical assessment of evidence
a. Professional skepticism
b. Materiality
c. Conservative advocacy
d. Reasonable assurance
107.This term refers to the possibility of harm or loss or danger. It can also refer to a factor, thing, or element or
course involving uncertain danger; or a hazard
a. Materiality
b. Jeopardy
c. Contingency
d. Risk
108. Which of the following best describes audit risk?
a. The susceptibility of an account balance or class of transactions to misstatement that could be
material individually or when aggregate with misstatements in other balances of classes, before
consideration of any related controls
b. The risk that a misstatement that could occur in an account balance or class of transactions
and that could be material individually or in the aggregate, will not be prevented or detected
and corrected on a timely basis by the company’s internal control
c. The risk that an auditor’s substantive procedures will not detect a misstatement exists in an account
balance or class of transactions that could be material, individually or when aggregated with
misstatements in other balances or classes
d. The risk that the auditor gives an inappropriate audit opinion when the financial statements are
materially misstated
109. Inherent risk and control risk collectively are known as:
a. The dual risk team
b. The risk of information dissemination
c. The risk of material misstatement
d. The dependent variables of risks